Fintech Finance presents: The Paytech Magazine Issue 05

MAGAZINE THE PAYMENTS WORLD VIEW

What’s new from Nigeria, Mexico, the Nordics & Lithuania

ISSUE #5

THE

PAYTECH AN OPEN RELATIONSHIP

If your banking’s gone stale, introduce a third party!

REG-ULAR GUYS

Helping you comply in 2020

EMERGENCY RESPONSE

JOINED-UP THINKING

COVID-19: assessing the impact

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Guillaume Pousaz

Anne Boden

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Starling Bank

CEO & Founder

CEO & Founder

Rob Cameron

Ulrich Bindseil

Barclaycard

European Central Bank

CEO Barclays Payments

Director General for Market Infrastructure & Payments

Konstantin Surkov Head of Payments CEE & MEA

Netflix

Caroline Louveaux

Chief Privacy Officer

Mastercard

PLUS HUNDREDS MORE INDUSTRY SUPERSTAR SPEAKERS europe.money2020.com

CONTENTS

COVID-19 7 ANALYSIS A pivotal point in payments

10 Cash after Covid Is it a spent force?

13 A question of choice Ron Delnevo and Santosh Tripathy share their prognosis for payments

CROSSBORDER 16 Solving a crossborder puzzle How Apply Financial slotted into Accuity’s payment plans

21 Payments without frontiers Banking Circle is taking a lead in promoting and defending paytech

TRANSACTIONS 24 Adapting to thrive ACI Worldwide’s evolutionary advice.

KYC & REGTECH 26 On the frontline of fraud Demand for ID verification from non-regulated industries is being met by regtech platform Trulioo

THEPAYTECHVIEW

2020

ISSUE #5

Many of the interviews for this issue were conducted when the world was in a very different place: before masks were a thing, parents weren’t fighting over who used the bathroom for Zoom meetings, and we all got excited about going for a car ride.

But as our spine tingler says: ‘Life is 10 per cent what happens to us and 90 per cent how we react to it'. And, while most were hunkering down, trying to make sense of things, the payments industry has, by and large, reacted with imagination and fortitude under some extraordinary pressures.

There’s been a lot of talk about the pandemic being the challengers’ ‘moment’. More likely, it’s proved just how much legacy institutions, paytechs and fintechs need each other to deliver

joined-up solutions – and not just in a time of crisis. That will require some major technology and cultural shifts in approach – accelerating what’s been on the minds of many for years. So, let’s make it happen. Stay safe.

Editor-in-Chief, Ali Paterson Our last spine tingler, Turn right to go left was by Doc Hudson (also known as The Fabulous Hudson Hornet), a retired race car in the 2006 Pixar film Cars.

28 Eastern promise The Financial Services Regulatory Authority of Abu Dhabi has significant paytech charms

30 Getting the right ideas Operational resilience is more important now than ever, says fscom

COMMENTARY

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32 Changing the game 11:FS looks at the likely impact of Visa’s acquisition of Plaid

INCLUSION

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34 Showing the love Nigeria’s mobile-only Kuda Bank has a generous heart

37 Making good Monese is proof positive that good motives make good business sense

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40 Staying ahead of the Curve Curve defends its first-mover status with new products and markets

42 Pay-taco!

Galileo joins Mexico’s payments feast

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CONTENTS

72 64

60 44 Rewriting the loan book Challenger Klar is using alternative data to help people access credit

67 Keeping an open mind The Nordics’ financial services see open banking as a ‘flatpack moment’ for their industry – and Nets Payments helps them put digital pegs into the right holes

50 An invisible force

53 A card, captain, but not as we know it!

The impact of COVID-19 on our lives – including our financial ones – has been profound. Could banks reflect on this moment to crystalise Cloud strategies? asks Ciaran Chu, of ACI Worldwide

Sparebanken Vest describes its journey from legacy institution to mobile trailblazer and BAAS provider

SME SERVICES Banking Circle, the ‘silent infrastructure behind the curtain’, supporting banks’ SME clients

76 A silver lining?

64 How to build a bank, Norwegian style

47 Meet the enabler Belvo helps to enact an ambitious piece of transformation in Mexico

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70 Do you want a receipt?

Zeipt was founded to make paper receipts a relic of the past. Their digital equivalents save time, money and the planet

G+D’s thoughts on matching the imagination of consumers

81 The value exchange Wells Fargo’s Head of Innovation believes one of the most compelling use cases for AI depends on customers making a judgement call

LOCATIONS: LITHUANIA 84 Going fintech fishing in the Baltics How Invest Lithuania goes about attracting foreign capital and raw talent to its fintech hub

INNOVATION

56 Retail’s in the detail Suburbia is bucking the personal data trend to focus on the product

72 Going to X-tremes Natixis Payments’ startup Xpollens is the latest addition to a family of service providers that share the same impatient fintech DNA

OPEN BANKING 58 Dutch courage Established in an agricultural revolution, now Rabobank is leading anotherl one

74 It’s a fair swap!

60 Staying one step ahead ING’s strategy to keep it – and its customers – out in front

To fully embrace open banking means to share both customers and data. For Jamie Broadbent at RBS International, that’s no bad thing

88 Holding a balance The man known as ‘the godfather of fintech’ in Lithuania explains how the regulator manages the trade-off between innovation and risk

LAST WORDS 90 The Endgame? No, it’s just the beginning…

62 Ratchet it up The open banking toolbox is being left on the shelf, says Sensedia

When the payments industry assembled for the launch of The Paytech Book, Ali Paterson was there to witness it

THEPAYTECHMAGAZINE2020 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 Hannah Duncan ● David Firth Tracy Fletcher ● Andrew Gaudion Rachael Harrison ● Martin Heminway Alex King ● Doug Mackenzie Natalie Marchant ● Sean Martin Sue Scott ● James Tall Swati Sanyal Tarafdar

ISSUE #5

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Issue 5 | ThePaytechMagazine

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COVID-19 REPORT

No one was prepared for the health crisis that swept the world – nor the financial crisis that followed. But paytechs are proving part of the solution

Heavy lifting and pirouetting: The response to C19 We often talk in this magazine about agility – the new tech companies’ native instinct to sense change on the wind, adapt fast and implement quickly. Well, now they’ve been well and truly tested.

How they, and the wider financial services industry, have met the challenges of the pandemic will no doubt be picked over in the great reckoning that follows every crisis. And how will history judge them? Hopefully, it will be impressed.

We’ve seen some amazing examples of relatively young companies (which don’t have the cultural and systemic memories of past global meltdowns to draw on) finding ingenious and generous ways to respond to urgent need; even of completely new fintech services going from concept to implementation-ready within a matter of days, as was the case with COVID Credit’s financial support calculator for the newly self-employed; and others, such as OakNorth, which ran reverse stress tests on every business on its loan book to

The UK mobile and desktop-based challenger bank is preparing to make government-backed loans and overdrafts available under the Coronavirus Business Interruption Loan Scheme. But it has also responded by introducing Connected cards for personal accounts. Designed to help

www.fintech.finance

identify which could withstand the shock, emerge as powerful industry voices (in its case, lobbying on behalf of small and medium-sized enterprises (SMEs)).

That is not to say that legacy institutions have not stepped up to the plate – they have. But it’s thrown into painful relief weaknesses to do with resilience, capacity and speed that have needed addressing for some time and, in the view of ACI Worldwide, will compel companies to stop hesitating and encourage technology and compliance teams to adopt mutually acceptable solutions at a much faster pace – specifically, moving critical functions to the Cloud.

When, as happened with RBS, enquiries to your helpline rocket from 3,000 to more than 25,000 calls a day in the matter of a week, criticism of unresponsive customer service and slow processing times is perhaps harsh. The UK government’s Covid Business Interruption Loan Scheme (CBILS) is a case in point. It self-isolating customers who are relying on others to get their shopping for them, Starling used its existing spending ‘spaces’ tool to create the new service. The contactless Connected card has its own PIN and is linked to a dedicated Space that can hold a maximum of £200 at any one time. A new, in-app cheque deposit service, to save customers having to visit a Post Office to pay into a Starling account during lockdown, has also been added.

A non-profit service, built by volunteers from the fintech community to help small businesses through the lockdown, version one of this platform went live in just three days. It gives small businesses that have ground to a halt free tools to set up an online page selling vouchers and gift cards that can be cashed in when they’re back up and running. The idea quickly garnered interest from all over the world and offers from other platforms to process payments for free. was built on an existing, governmentbacked lending programme, the Enterprise Finance Guarantee scheme, administered by the British Business Bank and disseminated for the past 11 years through various lenders, including all the high street banks. Institutions, like human beings, rely on a kind of muscle memory to perform everyday tasks effectively; when the C19 crisis kicked in and the government invited every UK SME to apply to CBILS, it was like asking a ballet dancer to take up WWF wrestling. It took a while to train the enterprise muscles to adopt different weight-bearing positions. Despite a painful start that left many businesses on the precipice of despair, the scheme went from dispensing just £145million out of a potential £330billion in the first 10 days (a response described by one commentator as an ‘epic fail’ on the part of the industry) to £2.8billion two weeks later.

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COVID-19 REPORT During that time, the scheme criteria had also been revised multiple times. UK Finance said banks had by then approved 46 per cent of 36,000 applications with the average value of a loan being £170,000.

While a welcome, massive improvement in capacity, it nevertheless left a huge question mark over exactly how many small firms looking for much lower advances had been able to access the CBILS or make it through the application process (or simply run out of patience and/or survival time) and how many had been declined. The Federation of Small Businesses is still calling for those statistics.

Such transparency is a good way to build trust – something not lost on the new generation of providers that need to work hard to earn it. While challengers might not have the muscle to lift and shift large amounts of cash – although a small number have now been approved to operate the CBILS, including Starling and OakNorth – they well and truly get what it means to be both open and proactive.

Immune reponse: The virus has exposed financial services’ strengths and weaknesses

This UK startup has fast-tracked plans for its subscription-based service, designed to give freelancers, gig workers and those on zero-hour contracts income stability. Its first product – the Income Promise – now scheduled for release in May, helps a worker calculate his/her average monthly income and automatically advances a top up when monthly earnings fall below the threshold.

The advance is paid back, without interest, during the months when they earn more.

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Paytechs on the edge of the C19 vortex have picked up speed to provide practical solutions to individual problems by being sensitive to what’s happening and doing what they do best: disaggregating data and plugging in – many via application programming interfaces (APIs) – to the wider ecosystem. They’ve used their native artificial intelligence and connectivity to identify those that need help most and then deliver it, seamlessly, without being asked – startups like Wagestream. It’s a tech-for-good that leverages open banking to counter what it calls ‘the negative effects of a monthly pay cycle’. While those effects might not have been so widely apparent pre-crisis, any household now on 80 per cent of income or those that have lost one paycheque altogether, are only too aware of cashflow. When job retention programmes kicked in across Europe, Wagestream released several updates for employers, allowing staff to immediately access 50 per cent of their furloughed

Curve, the ‘multiple cards in one card’ and app, has come forward with a simple, short-term payment solution to ease distress. It has re-engineered its ‘go back-in-time’ feature to extend the time users can move a past payment onto a different card from up to two weeks after a payment is made, to 90 days, for the duration of pandemic. It’s designed to help people who made purchases pre-crisis and are now short of cash.

Given the problems thousands of people encountered getting through to their financial provider over the past few weeks, and the pressure on call centres to meet the demand with fewer staff and social distancing, Tully was a no-brainer.

It uses open banking to help users work out their financial situation in the light of reduced income or loss of work and will then apply to their provider for payment relief on their behalf, be it payment holidays, reduced payment amounts or a pause on interest and fees. It’s calling on banks, building societies, lenders, energy suppliers, telco, mobile and broadband providers to join its COVID-19 Financial Well-Being Network to help the 17 million earners in the UK.

COVID Credit The fintech community came together over the course of one weekend to create this app, using open banking technology to allow UK freelancers and sole traders to self-certify lost income due to C19. The government subsequently announced an income support scheme through the tax system for self-employed people, but COVID Credit could still, in theory, help more than a million newly self-employed who have been excluded because they lack sufficient tax records. income through their work’s portal, as well as facilitating immediate overtime payments for healthcare workers.

Wagestream’s premise highlights another relic of legacy systems – batch payments processing, which, in the US, is now massively adding to the distress of the most financially vulnerable people, according to the Financial Health Network. In a recent report, it said: “Providing assistance to those in need will require the collective action of the entire financial health ecosystem and

a relentless focus on solutions designed to offer relief to those who need it most.”

It called on financial services providers, employers and policymakers to work collectively, calling COVID-19 ‘a cross-industry opportunity to bolster and protect the financial health of millions’.

And that, surely, is the point. The pandemic has highlighted the fragility of systems, yes, but also startups’, scaleups’ and incumbents’ particular strengths.

In the post-COVID world, those muscles need to flex together to help everyone. www.fintech.finance

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COVID-19: CASH

2021 VISION? INNOVATING TO GUARANTEE A FUTURE FOR CASH

Unprecedented restrictions on where and when people can shop has caused a dramatic fall in cash use in the UK.But that does not mean that cash is a spent force, says Ron Delnevo, Chairman of Cash and Card Consultants On 2 March 2020, the Daily Telegraph guaranteed a very bad year for cash in the UK with its headline ‘Dirty banknotes may be spreading the coronavirus, WHO suggests’.

In case you have been on another planet and only just managed to get a flight back

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to our troubled Earth, WHO is the acronym for the World Health Organisation.

Founded in 1948, the World Health Organisation has massive credibility on health matters. So, when a warning is attributed to them, generally no one questions it – especially since recipients are usually numb with fear after hearing bad news from the Geneva-based oracle.

Within a few days, the WHO had issued a statement clarifying that it was NOT warning people against using paper money due to coronavirus. However, by that stage very few people were listening. The seeds of fear, once planted, grow quickly and spread strongly.

The apparent bombshell from Switzerland added impetus to what speedily became a perfect storm for cash, creating a headwind like no other

mainstream payment method has faced in living memory. This is certainly the case in the UK. Here, with virtually everyone being told to stay at home, internet shopping, with the accompaniment of home delivery, has increased by a zillion per cent. OK, probably a slight exaggeration – but there is no doubting that Amazon is in its Prime.

In any event, since no internet shopping in the UK is carried out using cash, this shift in the nation’s shopping habits seems bound to have a negative impact on cash usage for payments during the whole of 2020.

Now, it is true that even during the current coronavirus pandemic, we Brits are not yet entirely reliant on the internet for our retail access. As I write, we are allowed to escape our homes once a day www.fintech.finance

for ‘essential’ food shopping. However, this is a sector dominated by a few very large retailers, which also happen to operate just about the only shops allowed to open in these virus-ridden days.

Without exception, these retailers are actively encouraging their customers not to pay using cash, naturally citing coronavirus concerns. As a result, with the UK public being on the whole a nation of compliant shoppers, hardly anyone is paying by cash at the moment.

It doesn’t help, of course, that there has also been some negative publicity about using ATMs. This has focussed on the potential for ATMs to be ideal homes for the virus and also the fact that people standing in ATM queues are apparently rarely the minimum two metres apart recommended for social separation. Both of these stories had limited connection with reality, but nevertheless stoked up fears enough to further undermine demand for cash.

Where does all this leave cash in 2020?

Mostly, it seems, still in ATMs, with some experts predicting that cash withdrawals from the machines will fall by up to 80 per cent during the next few months.

It goes without saying that no industry can endure an 80 per cent fall in demand without significant repercussions. The UK’s ATM network is no exception to this rule. Since ATMs are currently the conduit for almost all of the banknotes used in the UK, this is a very serious issue for those who care about guaranteeing the future of the public’s access to cash.

Even before coronavirus first alighted on our small island, the distribution system for cash was already under severe strain. For example, some major card issuers had for several years been putting significant pressure on LINK, the UK’s largest cash machine network, to reduce payments to ATM operators.

Payment reductions are credited by a number of commentators as having had a substantial role in LINK being left with around 45,000 free-to-use ATMs by the end of 2019, down around 17 per cent from when the network was at its peak.

Given the expected dramatic fall in cash withdrawals in 2020, there is already speculation in some quarters as to how many free-to-use ATMs will be needed to service the likely demand for cash in 2021. Figures as low as 20,000 machines have been mentioned, a potential decline www.fintech.finance

of more than 50 per cent from the already reduced 2019 levels.

One thing is certain. If the number of freeto-use ATMs does need to drop to around 20,000, a fundamental restructuring of the industry will be required. The remaining ATMs cannot be allowed to become victims of competitive pressures between the various bank and non-bank operators.

Amidst all this gloom, the very good news for the public is that the UK government has recently pledged to maintain convenient free-to-use access to cash for those who want or need to use it. Should they be required, legislative measures have been promised to guarantee this access.

Notwithstanding the government’s avowed commitment to cash access, it remains vital to implement any changes needed to improve the efficiency of cash distribution. No one should ever be satisfied with the status quo in any industry.

There is currently a review underway of the wholesale distribution of cash. Major changes to rationalise and streamline the national network of cash centres, along with the movement of cash between them, can be anticipated. In my view,

such problems. However, ATMs can be expensive to install and operate, so they can no longer be relied upon to deliver 80 per cent-plus of the cash services that businesses and the public require.

The remaining bank branches and the still relatively widespread network of Post Offices will also be part of the ongoing provision of cash access. However, Post Offices are going to require an increased element of automation of cash dispensing and deposit/recycling to take the pressure off overstretched counter services.

As far as bank branches are concerned, while it seems inevitable that bricks-and-mortar estates will continue to decline, there may be innovations to come in relation to community financial services hubs. Newcastle Building Society is already trialling such a concept on a shop-within-a-shop basis. There are likely to be more such trials of local branch provision, potentially from new market entrants. Access to cash could certainly be one facet of their service offering.

While on the subject of shops, there are interesting innovations already well under way in other markets to allow the public access to cash through retail

Even before coronavirus arrived, the distribution of cash was already under severe strain changes in the wholesale environment need to be accompanied by innovation in how cash is delivered to the public at the community level.

I believe innovation will include an increased emphasis on ‘localisation’.

Central to this will be measures aimed at significantly reducing the need for cash to return to cash centres for recirculation.

Importantly, such measures will also tend to reduce the carbon footprint of cash distribution. This in itself is a crucial issue and one that my consultancy is currently researching for the LINK ATM Network.

From 2021 onwards, cost-effective recirculation of cash in communities is likely to include several diverse elements.

ATMs will continue to have a role to play, with deposit/recycling machines surely made more extensively available.

Depositing cash is becoming a major issue, especially for businesses. ATMs with appropriate functionality can help solve

outlets. For example, Sonect, a Swissbased cash fintech, enables the public to use an app on their smartphones to get cash from around 2,500 shops. This highly innovative virtual ATM service has made Sonect the biggest ATM network in Switzerland. Future innovations from this solution provider may well include the deposit of cash, with obvious benefits in terms of the increased localisation of cash circulation, bringing improved cost-effectiveness for all stakeholders.

The increasing number of payment options available to the public is almost certain to lead to the day-to-day use of cash being significantly lower five years from now. However, continuous innovation has ensured that, for 2,500 years, cash has enjoyed a place on the payment choice menu. The further innovations already in the pipeline should mean 2021 and the years that follow are no different in this respect.

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COVID-19: DEBATE

A question of choice As the pandemic sends normality into freefall, many question the ability of cash to withstand such an epic shock. Ron Delnevo, Chairman of Cash and Card Consultants, and Santosh Tripathy, Practice Lead for Digital Payments with SmartStream, share their prognosis for payments

There are many things we don’t know about the long-term effects of COVID-19. The strain it will put on our 2,600 year-old relationship with cash is one of them.

Logic dictates that, with a third of the world’s population in lockdown, mixed messaging about cash carrying the virus and an unprecedented, sustained increase in online shopping, lucre – filthy www.fintech.finance

or not – has had its day. So, how does one explain a 9.1 per cent year-on-year spike in the amount of physical dollars in circulation in the States in April, and the biggest jump in cash in circulation across the Eurozone since the end of the financial crisis? Oh, wait. That’s it. A crisis.

Notwithstanding the zillion downloads of Grand Theft Auto, the online scramble for yoga mats, beard trimmers and designer loungewear – all top of the list of quarantine essentials – when the world’s back is against the wall, the instinct is to reach for cash as a comfort blanket. No digital payment token in the world can give quite the same feeling of security as a box of banknotes under the bed.

That comes as no surprise to Ron Delnevo, who was there at the installation of the UK’s first ATM and has spent the last 22 years campaigning to protect the financial freedom it represented.

“I’m an advocate of payment choice,” he told the Fintech Finance Virtual Arena debate on payments in a time of pandemic. “I don’t want people to have to use cash; I want people to have the choice

to use cash, and many people on this planet still want that choice.”

Famously, four years ago, the government of the world’s second most populous country took steps to deny it.

India was a Petri dish for demonetisation on a grand scale.

Overnight, 86 per cent of the nation’s cash was declared void as the government, with single-minded determination and jaw-dropping speed, recalled every 500 and 1,000 rupee note in circulation.

My horror is that we’ll be forced down one particular avenue. And that doesn’t work in the public interest; it works in the interest of the people who own the avenue – Ron Delnevo Issue 5 | ThePaytechMagazine

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COVID-19: DEBATE US and 24.6 per cent in the UK. In October The impact was swift and severe, last year, transactions over India’s domestic with a recent Harvard University study of Unified Payments Interface or UPI, the the first few months after implementation central bank-backed payments platform, confirming the economy took a two per hit one billion, with 100 million users. cent hit to growth as a direct consequence.

Whereas, before 2016, adoption of digital Researchers at Azim Premji University put financial services had been slow, India is the number of jobs lost to demonetisation now seen as an e-payment sweetspot. at five million over the following two years.

Demonetisation helped make a unicorn of But the long-term effects are less clear. the country’s most popular wallet, Paytm, Introduced to fight corruption and which has chalked up 150 million users, terrorism by removing the perpetrators’ and a DataLabs report in November cloak of anonymity provided by identified at least 18 more e-commerce a untraceable cash, a quarter of people in nd fintech platforms as ‘soonicorns’. And a recent survey of 30,000 across India did yet, notes and coins are still the payment not believe demonetisation brought any of choice for millions – they may have benefits, while 28 per cent said they were not feeling any negative impacts, either.

But maybe that’s because 36 per cent of them are still paying for groceries with cash, 31 per cent pay domestic staff that way and 57 per cent have used cash to help buy property.

Nevertheless, Santosh Tripathy, practice lead for digital payments with financial technology company SmartStream, who had personal experience of demonetisation in his family’s home city of Mumbai, told the Virtual Arena that it would be wrong to think it hadn’t fundamentally affected the way people transact.

“We are moving in the right direction,” he said – demonstrated by the way India responded to the extraordinary embraced (often circumstances of reward-incentivised) a lockdown. digital wallets, but “Now no one can get many bank accounts money from an ATM lie dormant. After the but we are all able to initial demonetisation use our digital wallets, shock, circulating cash Apple Pay, Samsung rose by 19.14 per cent Pay, even Google Pay, to up to March 2019.

Santosh Tripathy make purchases online.

In Africa, Demonetisation acted as a catalyst. So, digitisation and cash use have similarly I would advocate that we use this time [of gone hand in hand. The country’s most coronavirus] to promote digital payment successful peer-to-peer payments platform methods more and more to people for M-Pesa, which uses mobile numbers as multiple reasons. It’s not just digital accounts and smartphones as digital vaults, payments; it’s about a digital society, a is a case in point. As Delnevo, points out: “It’s digital ecosystem… if people do not have not that M-Pesa is removing cash: it’s access to cash that does not mean they enabling it to be used more efficiently. don’t have access to their physical needs.”

More than half the payments on M-Pesa are Research by GlobalData in 2019 showed converted into cash immediately. And that 83.6 per cent of survey respondents in that’s great. The marriage of old India had a mobile wallet and regularly technology, if you like, and new used it – compared to 31.5 per cent in the technology. That works for everybody.”

It’s not just digital payment; it’s about a digital society... if people do not have access to cash that does not mean they don’t have access to their physical needs –

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For Tripathy, the pandemic should be a starting point for addressing infrastructure inequalities and increasing inclusion, be that in health or payment services.

“I see potential for governments to start investing in new payment methods and promoting digital channels. All of this will be up for discussion once the impact of COVID-19 is clear. We just have to think slightly out of the box, challenge the status quo. Can we increase the footprint of a digital payment transaction, take it the last mile, bring the bank to the consumer, for example, where villagers can take advantage of the service. We don’t even need a point of sale (POS) machine. Our phones can act as a POS.

Protecting cash: Is it essential to our financial wellbeing?

The apps are already available. These are some of the options that allow us to reduce charges and still increase the footprint.”

Delnevo agrees that the pandemic has exposed the fragility of our systems, but cash, he argues, can help strengthen them.

“We need cash to maintain competition in the payments sector. So, let’s take that 2,600-year-old product and modernise it by making it easier to use and access. Bring in innovations and present them together on a level playing field, so that, wherever they are, people get a decent payment choice.

“My horror is that we’ll be forced down one particular avenue, and that doesn’t work in the interest of the public, it works in the interest of the people who own the avenue. This isn’t just about payments, it’s about every aspect of life. We need to work on that fragility, on localisation, on choice.

The virus may create an impetus to work together for the benefit of everyone.”

And that they can both agree on. www.fintech.finance

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Solving the crossborder payments puzzle As the payments industry learned of financial data giant Accuity’s acquisition of payment validation specialist Apply Financial, we sat down with the architects of the deal – fellow entrepreneurs David White and Mark Bradbury – to explore how it came about and the benefits that will follow for their combined global customer base In March 2020, it was announced that financial data giant Accuity had acquired Apply Financial, a specialist provider of automated payment validation solutions and one of the UK’s leading fintechs.

While the amount paid and other terms of the deal have not been shared publicly, Accuity’s management team has said that the strategic purchase is part of the company’s goal to develop its own account validation software for traditional financial institutions and fintech firms.

The big news was the latest in of a wave of bullish acquisitions sweeping across the worldwide financial technology sector, despite – or perhaps because of – a global

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shut down. Companies certainly haven’t been put off by the volatile business climate, which was dominated by Brexit until its eclipse by the COVID-19 outbreak.

2019 had already been a record year for fintech deals and mergers and acquisitions (M&A), with companies in the sector raising more than $44billion in funding and a record $234billion in M&A volume, according to recently released research

by Financial Technology Partners.

This year, the momentum has continued to build with a spike of interesting deals, including Visa’s acquisition of Plaid for $5.3billion. In April, it was also announced that US consumer financial services platform

SoFi is acquiring payments and bank account infrastructure company Galileo for $1.2billion in total cash and stock.

Building further on an impressive legacy Accuity, which offers a suite of innovative solutions for financial institutions, is well known and well respected across the industry. The company says that its mission is to ‘protect the reputations of payments and compliance professionals with a portfolio of regtech products – from data and software that control risk and compliance, to accurate and flexible tools that optimise payment processes’.

Now part of the international RELX Group, Accuity’s history dates back to the 1800s. Established in 1845, Accuity has grown massively, both organically and through careful acquisition. The current payments revolution is not the first it’s experienced, but it is different in its scale, scope and speed.

“In the last five or so years, we’ve seen the start of a generational transformation,” says David White, Accuity’s EVP of global www.fintech.finance

The missing piece: The Accuity/Apply Financial tie-up plugs the data gaps

payments & KYC and one of the architects of the Apply Financial deal. “All the basics of what we know about crossborder payments and the SWIFT network are changing, questioned by the likes of Ripple and SWIFT’s own global payment initiative (SWIFT gpi) response. We are seeing a proliferation of faster payment providers emerge to meet raised customer expectations. The industry is edging towards global faster payments, with crossborder likely to soon be measured in hours rather than days.”

The Apply Financial acquisition supports Accuity’s strategy of providing banks, corporates, non-banking financial institutions (NBFIs) and fintechs with global and domestic payment and account validation solutions that reduce payment processing costs while

increasing the speed of transactions.

David was discussing the deal exclusively with The Paytech Magazine in The Fintech Finance Virtual Arena – a new, live online forum.

He was joined by Apply Financial’s founder and CEO Mark Bradbury, who knows David well as a fellow serial entrepreneur. Bradbury says the two companies’ products have always been complementary rather than competitive and the ‘good marriage’ negotiated between them matches the deep knowledge that Accuity has on the payment data side with Apply Financial’s ability to reduce errors earlier in the validation process.

“Accuity has always been known for its excellent, world-class data and it operates in a different area of an institution to us,” says Bradbury. “This deal will provide our clients with access to a more comprehensive set of data at the front end that helps people entering a payment detail get it right first time and maintain beneficiary details throughout the life of the relationship in real time.”

Accuity has traditionally dealt with payments after they have entered the system, providing a file of data to be plugged into a bank’s master data record. The tie-up will ensure that

more payments make it through to that stage, error free.

“In the near-term, Apply Financial’s advanced technology will enable us to offer clients a Cloud-based, real-time payments and account validation solution to dramatically increase customer straight-through-processing (STP) rates and provide payments certainty,” adds White. “In the longer-term, the technology will fuel our innovation and enable us to deliver the next generation of payments intelligence solutions to meet our customers’ evolving requirements.”

A good cultural fit By joining forces, Accuity and Apply Financial can share their considerable industry expertise, deploy their innovative technology to a much broader audience and collaborate on forward-looking solutions that will support the payments industry as it navigates unprecedented times.

Of course, all of this only holds true if the cultural fit is right. Organisations of all sizes must be mindful of the leading role company culture plays in merger and acquisition activity; any acquisition’s success is ultimately rooted in how the two get along.

In the last five or so years, we’ve seen the start of a generational transformation. All the basics of what we know about crossborder payments and the SWIFT network are changing – David White, Accuity www.fintech.finance

Issue 5 | ThePaytechMagazine

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CROSSBORDER “We looked at what was going on in the marketplace and how we wanted to evolve our own proposition,” explains White. “The number one question for us in terms of a potential partner is whether they see the market in the same way we do, so that we can work together to better service customer demand. My excitement about bringing Mark and the Apply Financial team into the Accuity family is that we knew early on it was going to work from a cultural view.

The acquisition is going to significantly strengthen both of our propositions.

“Accuity’s existing customer base will fundamentally benefit from us bringing Apply’s technology in, and making it available with our wider set of insights.

Not allowing bad data to enter the system in the first place is a huge win.”

with fellow fintechs Currencycloud and Checkout.com, thus meeting the needs of foreign currency exchanges and combining Cloud-based payment solutions to improve the efficiency of international payments.

Bradbury and his team have developed a range of new tools and services, including a ‘build-it-yourself’ facility that allows companies to construct their own payment information capture form; and a way to automatically present clients with the most suitable correspondent bank to handle a crossborder transfer, based on that client’s priorities for the transaction – be it speed, cost or another factor.

“Based on extensive feedback from our clients, we’ve launched a new part to our API that allows our customers to build, in the browser, a complete set of fields for their

rails,” he says. “On the other side of the coin, we still work very closely with the SWIFT gpi initiative, supporting correspondent banking and helping to facilitate the cheapest and best routes.”

Operating in an open market The rise of open banking is firmly on the radar for Accuity and Apply Financial.

Recent Experian research in the UK has highlighted a marked increase in people using open banking services in the last 12 months. In January 2020, there were 321 million data sharing requests, over 10 times more than the 23.1 million by January 2019. Given the nature of open banking and open data, Bradbury views it as another good reason to become FCA-regulated.

The Accuity deal provides our clients with access to a more comprehensive set of data that helps people entering a payment detail to get it right first time – Mark Bradbury, Appy Financial Applying world-class payment validation solutions Apply Financial is perhaps the only platform in the world that offers such a comprehensive set of validations through a single application programming interface (API), enabling its 700-or-so clients – including banks such as HSBC and Barclays and corporates including Ineos and Eversheds – to dramatically lower the cost of payment processing by improving STP straight-through processing rates. Its flagship solution, Validate, uses proven Cloud and API technology to help firms submit the correct bank account and payment details when processing a payment, increasing efficiency and reducing the risk of a transaction failing.

With the proliferation of faster payment schemes around the world and escalating consumer and business expectations, STP is no longer just an efficiency issue but rather a crucial competitive differentiator for firms.

Apply Financial has helped to process a trillion dollars of payments in the 10 years of its existence, and now Accuity’s diverse client base will also feel these benefits.

Ahead of the Accuity deal, Apply Financial signed partnership agreements

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beneficiaries without doing any coding at all,” Bradbury explains. “It’s fully compliant and has the right amount of fields by country. We also now encompass holiday data. Many countries have lots of national, religious and bank holidays, of course, which we’ve got in the database. If you’re sending a payment to a country and you want it to get there on time, for example, you might have to do a quicker international payment to make sure you bypass the disruptive effect of these holidays.”

Apply Financial is currently working with the UK’s Financial Conduct Authority (FCA) to become a fully regulated entity, which will give partners and customers further confidence in the company’s proposition.

“We’re just finalising our FCA regulation so that, when we’re in sandboxes in different countries, everybody feels comfortable with us,” says Bradbury. “I don’t believe we have to be regulated, but we’re because we’re very belt and braces.”

Under Bradbury, the company has increasingly been working with alternative payment rails.

“We have clients now in blockchain and also e-commerce providers because people are starting to move away from the card

As many commentators have been quick to point out, fraud around open banking is still a big issue and one that’s on the rise.

A particularly concerning statistic from UK Finance’s annual fraud report, Fraud: The Facts 2019, is that fraud associated with authorised push payments (whereby third parties are authorised by customers to access their accounts and initiate credit transfers) was up by 44 per cent last year.

The good news is that Bank of Scotland customers have recently become the first in the UK to benefit from a new namechecking service designed to prevent the spread of unauthorised push payment scams. The Confirmation of Payee service, which will imminently be adopted across the entire industry, adds an additional layer of validation to sort code and account number by ensuring that the name on the account being paid is the same as the name that has been provided. If it isn’t, customers will be sent an alert. It’s an indication of how ‘frictionless, straight-through processing’ is likely to be met by challenges that Apply Financial and Accuity are ideally placed to help organisations meet.

The world will look forward to watching it play out in real time. www.fintech.finance

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CROSSBORDER Together though apart: Providers like Banking Circle are studying the meaning of Brexit post-2020

PAYMENTS WITHOU T With feet firmly on both sides of the English Channel, payments infrastructure provider Banking Circle is taking a leading role in promoting and defending the interests of the payments industry across the EU. Its UK Head of Compliance and Money Laundering Reporting Officer, Mitch Trehan, explores the regulatory options With Brexit negotiations rocked off course in 2020 and the option still on the table to extend the transition period for up to two years – locking the UK and EU into the single market until 2022 – financial services seem doomed to perpetual uncertainty. But one thing is for sure: whatever the time scale, leave the United Kingdom will.

And so, the question remains: what will happen to passporting, the process that allows financial services firms authorised in an European Economic Area (EEA) state to conduct business within other EEA states based on their ‘home’ member

www.fintech.finance

state authorisation? What will happen to the free trade agreement? What will the terms be between the UK and other trading partners across the globe, notably the US? All players are agreed that Brexit is a game-changer but it is also a game in which the rules are yet to be agreed.

Complicated? You bet. Financial services chiefs on both sides of the Channel, like the captains of all other industries impacted by the divorce, know the stakes have seldom been higher.

Among the fintechs on the front line of this changing world is Banking Circle, a financial services

utility for banks and the payments industry, which was formed in 2015.

The group is itself in a period of transition after receiving its banking licence from the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg (where it is now headquartered) at the end of 2019. Enjoying an increasingly influential position in the world’s financial markets, it processes about €130billion in payments per year for credit institutions, card companies and payment gateways and its newly-acquired banking licence will enable it to offer global accounts.

Issue 5 | ThePaytechMagazine

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CROSSBORDER That enables its mission to transform the payments infrastructure, with a particular focus on providing loans and payment solutions to SMEs, of which there are 24 million in the EU. They make up 99 per cent of all privately-owned businesses, collectively employing 60 per cent of the entire workforce and contributing to more than half of all business turnover.

Banking Circle’s co-founder and chief executive Anders la Cour was also recently appointed chairman of the Emerging Payments Association EU, the new-born sibling to the UK-based Emerging Payments Association (EPA), already representing 150 organisations in the payments industry.

EPA EU, which is also based in Luxembourg, has been created to ‘promote and defend’ the interests of the payments industry across the European Union.

Banking Circle was a founding member and it has attracted industry heavyweights Visa and Mastercard to its ranks. La Cour is under no illusions about the impact of Brexit, and the fact that a collaborative approach is needed across the industry.

At the launch of the EPA EU early in March, he said: “Businesses across the EU are in the midst of big market changes, with many challenges and opportunities to come.

“The EPA EU will play a vital role in supporting payments businesses as they negotiate the changing landscape and we all work together to find the best way to support industry and consumers across the region and the rest of the world.”

But in an important move, Banking Circle has affirmed its recognition of London’s continuing status as a global financial centre post-Brexit, by keeping its City business there, now as a bank. And it has called in the help of specialist consultancy FSCom to negotiate the dual minefields of not only the changing regulations post-Brexit but also the extra scrutiny of fintechs by UK regulators.

The Prudential Regulation Authority (PRA) sent a letter to chief executives of challenger banks last summer which outlined the regulator’s concerns about risk management.

Subsequently, fintech firms were ordered by the Bank of England to tighten up compliance and ensure ‘overly optimistic’ risk projections were accurate. Both the PRA and FCA currently have consultations out on UK financial services’ operational resilience.

Treading a fine line Mitch Trehan, Banking Circle’s UK head

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of compliance and money laundering reporting officer, says the group is working closely with FSCom to enhance its own compliance with the raft of expected regulatory changes.

“In the UK we are a UK branch of a Luxembourg entity so [as far as regulation goes] the biggest thing for us is going to be Brexit,” says Trehan. “The UK entity is becoming a third-country branch, because of the changes to passporting. So FSCom helps us because we were a UK branch of a Danish entity, under an authorised payment institution, and now we are a UK bank branch of a Luxembourg entity, but, with Brexit, it’s a third-country branch, requiring so much more locally in the UK. “Under passporting, there’s a certain extent to which the local ‘host’ regulators can rely on your parent within the EEA. After Brexit that reliance changes. The regulators expect there to be much more local activity, and local people, and local risk management, and it’s that risk

The UK can go down one of two roads… stick with what the EEA and EU is doing and have that equivalency, or tear up some of the old regulatory pieces and design it in another way management piece, the regulatory compliance piece, and the new UK laws that will come out of it, where FSCom has been working with us.”

One significant UK law change from 2021, relates to where banks and payment service providers (PSPs) have hitherto not needed to provide the payer name and address when making intra-EEA payments.

As things stand, this will be required for payments between the UK and the EEA after the transition period. The Financial Conduct Authority is already warning banks and payment service providers to take steps to ensure they are ready to provide the relevant customer information from 2021. But that is only one of an

expected myriad of financial legislation changes, hence the need for groups like Banking Circle to call in expert help.

FSCom has established a reputation as being among the leaders in the field of compliance experts and counts former regulators and bankers among its ranks.

Trehan praises the working relationship that has been forged between them, highlighting FSCom’s approachability and expertise.

“Looking at what they’ve done across the fintech space, they know payments inside and out, they know the regulations inside and out, both on the regulatory compliance side and on the financial crime compliance side,” he says.

“It’s then the practical application of that knowledge, having been there, having done that – and that’s something we see every time we work with them. They are telling us not just what the law says and their interpretation of it, but they also draw on live experience in that scenario with other clients. Of course, they don’t tell us who those clients are, but we know they’ve learned through those experiences. If we had done it before, we wouldn’t need them, but they have, so they help us.”

Trehan sums up the post-Brexit dilemma within the financial services industry as: look to the future or keep to the past.

“The UK can go down one of two roads,” he says. “We can either stick with what the EU is doing and have that equivalency, or take this as an opportunity to look at what worked, what didn’t work, what we are shackled to, what we can redesign to be a lot more effective and efficient, maybe tear up some of the old regulatory pieces and design them in another way – to be future-looking rather than potentially reacting to what has happened in the past.

The future-proofing part could be really interesting, to try to increase business while still maintaining a governance and compliant culture.

“But then the other part of this is that our closest trading partners are, of course, the EU, and how do we ensure that we keep that relationship alive, keep that equivalence, keep everything comfortable?

That’s all going to come out of the trade talks that happen.”

Notwithstanding recent world-changing events, the British government has confirmed the UK’s transition period still ends on 31 December 2020: “This is enshrined in UK law.”

The clock is still ticking... www.fintech.finance

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TRANSACTIONS: DIGITAL

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With cashless and contactless becoming more important in the context of COVID-19, ACI Worldwide’s Lu Zurawski examines the evolving future of payments When something of the magnitude of the COVID-19 outbreak sweeps the world, systems are forced to change, to adapt. Global crises, whether economic, military or biological, serve to expose society’s structural weak spots, which experts swiftly rally around to engineer future-proof solutions.

It’s through this process of evolution that systems develop immunity to future challenges. Yet, with much crisis reporting focussed on the threat of system collapse, there’s glaringly little analysis of its flipside: system fortitude. How many, for instance, could have worked from home two decades ago, or shopped for groceries online, or used a digital NHS portal to arrange treatments? Or when, in March, the World Health Organisation (WHO) advised extra caution around handling cash, been able to pay by contactless card or phone? Of course, digital payments were developed without consultation with epidemiologists – but that’s what future-proofing looks like: devising solutions to unforeseen problems.

It’s what ACI Worldwide, with its vision of enabling ‘any payment, every possibility’, was built to do. Founded in 1975, the world-leading payments solutions provider can confidently claim to have all bases covered when it comes to facilitating global transactions.

Indeed, with a client base of more than 6,000 organisations worldwide, including 18 of the 20 biggest banks, ACI Worldwide has done more than most to design, support and implement many of the payment options we take for granted in 2020. Its offerings support more than USD $200billion in consumer transactions per

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year, in well over 100 countries.

And, just as the collation of global data concerning COVID-19 will provide experts with a better sense of what they’re dealing with, ACI Worldwide benefits enormously from its involvement in so many high-volume facets of payments – insights its customers need to adapt to fast-changing patterns of behaviour. The company’s solution practice lead for retail banking products, Lu Zurawski, explains ACI’s positioning.

“We set ourselves apart with the number of endpoints, or connections, we have,” he says. “That’s in terms of the traditional endpoints, card schemes, new real-time payment networks, and even local schemes around the world.

“We’re also well connected and stocked with the services and functions – the individual component services – that can be assembled to create appropriate payments products with easy access to those connections. So, we’re quite privileged, in the sense that we see the pain of merchants, we see the problems faced by issuers, and we see the opportunities. When combined, we probably have the most extensive combination of endpoints and services of any other software provider in the payments world.”

With that knowledge comes a certain amount of power – and corresponding responsibility to prepare smaller merchants and consumers for emerging modes of payment. You only need to scroll through your average millennial’s smartphone wallet to appreciate how demanding that side of ACI’s work has become over the past decade.

Observing the changes and problems in

an evolving payments ecosystem, and getting new payments implementations right, has been part of Zurawski’s remit since he assumed his role at ACI. “In the short term,” he says, “some new payments initiatives can mean some confusion and pain, particularly if they have not been planned events. For many merchants, a new payments instrument or a government-suggested scheme like open banking may just mean yet another set of things they need to deal with.

Longer term, though, new payment methods create savings, particularly if a new alternative allows money to come more effectively from a bank account and be credited to a merchant’s account without incurring fees associated with international card schemes.”

Understandably, merchants need customers who are able to pay, so adopting payment methods that drive conversion and loyalty, and those with the highest acceptance, is key. But few merchants survive without seeking out cost savings, including reductions in payment fees. So, retailers will nudge consumers towards lower-fee options, and financial institutions and processors with the right, agile mindset can support them with the systems needed to facilitate novel payment methods.

The height of fashion?

Convenience, the buzzword of the digital age, is an important factor in the choice of payments. It’s why it took less than a decade to transition from chip-and-pin, via contactless cards, to phone-tap transactions. Consumers have institutions like ACI to thank for the seamlessness of these changes. www.fintech.finance

But a third factor is also influencing modern day payments; certain methods have achieved ‘fashionable’ status.

Even though Zurawski quotes the adage that ‘nobody wakes up excited to make a payment’, he has perceived a decisive shift in how consumers s ee the moments in which they formalise a purchase.

“Payments have been perceived as boring,” he says, “but in the past 10 years, people have become genuinely interested in the process of paying, particularly if it comes from some whizzy new app.

They will show off how they can pay e ach other or split bills. The idea that payments are dull is a bit of a myth now.

That said, people don’t want to pay for them. So, there is a challenge to find added-value services that customers and merchants want, that merchants see as helping them to give a better customer experience and are therefore willing to pay a premium for. It’s the industry’s job to make them aware of the opportunities. In fact, it’s almost a policy issue. Governments are pushing electronic payments, moving towards cashlessness – or, more accurately, ‘less cash’ – and must educate people about how to use digital, including payments.”

When new payment methods catch on, they can go viral very quickly. Zurawski admits he didn’t see the popularity of QR (quick response) codes coming.

“I remember, embarrassingly, four or five years ago, saying at conferences how awful they were – obviously, I’ve been proven slightly wrong by the advent of more than a billion active users of WeChat Pay, Alipay and other forms of QR code payments!” he laughs. But, in fact, ACI accommodated the QR contagion for its customers.

“QR code use is expanding, particularly for smaller retailers and previously underbanked parts of society and geographies, where cards and card infrastructure don’t exist,” says Zurawski.

“They are becoming an acceptable way of handling payments for those who use tap-and-go, which is also impacting on card-based retail banking businesses.”

Alongside China, where QR payments really took off, India’s uptake is spiking, thanks to helpful nudges from Indian www.fintech.finance

policymakers pushing for greater financial inclusion as well as the lower commission on QR code payments over credit cards. When the two most populous countries adopt a payments technology, merchants in the West need to keep an eye on how this may impact business – particularly if vast numbers of foreign buyers expect to pay with their preferred QR code instrument. So, ACI is busy preparing the technology to facilitate such payments in Europe, the UK and the US. “As a company, we support acceptance of mechanisms like QR codes for retailers and the payment service providers servicing them,” Zurawski confirms.

Governments need to do a better job of educating people about how to behave, how to use their digital existence, including their digital payments

Long term, he sees the convergence of payments and data accelerating to eventually allow individuals to curate their own payments experience. “Those sorts of personalisation systems are already out there and there’ll be more,” he says. “As citizens become more aware of the value of personal data, there’ll be a shift, not just to do with value-added services around payments, but around preferences, data and how it is shared.”

An evolving response In a prescient move, given the surge in COVID-19-related phishing attacks, ACI announced the launch of a novel anti-fraud technology in March.

The Incremental Learning tool promises to be an industry-changing upgrade to ACI’s current anti-fraud protocols. Instead of ‘retraining’ anti-fraud systems each time a new strain of fraud is detected, it adapts, learning in real time how to flag, protect and counter emerging fraud.

It’s the algorithmic equivalent of an antibiotic for viral mutation.

The economic repercussions of the COVID-19 pandemic are, as yet, not fully understood. But, between hand washes and anti-bac gel squeezes, we can at least appreciate payments technology advances have allowed us to shop safely and seamlessly during this crisis – and prepare for the next, inevitable evolution.

Issue 5 | ThePaytechMagazine

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KYC & REGTECH

Trulioo’s new Director of Growth, Rutherford Wilson, on how the global regtech platform is supporting the identity verification process for regulated and non-regulated industries alike

Everyone should care about know your customer (KYC). Banks and other financial institutions have been wrestling with the problems of truly ‘knowing your customer’ for years – but what about the plethora of non-financial institutions and marketplaces that now receive payments from often unverified third parties?

As money laundering and terrorist financing techniques become more sophisticated and widespread, these

new entrants are also finding themselves targets, making them vulnerable to reputational damage and expensive investigations. It’s worth noting that these companies are not explicitly required by law to carry out KYC due diligence. However, they need help and global identity verification platform Trulioo, whose core business has traditionally been in regulated industries where verified identity is required for both KYC and anti-money laundering (AML) purposes, is ready to give it.

Fighting on the frontline of fraud

Ease of use, less risk: As more non-regulated businesses seek identity solutions, Trulioo is stepping up with simple integrations

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www.fintech.finance

Founded in 2011, Trulioo provides secure access through GlobalGateway, which acts as a single portal to more than five billion identities worldwide, and the team is now seeing scope to provide additional services.

Suiting up for the tech war “There are two things that are keeping people up at night”, says Trulioo’s director of growth, Rutherford Wilson. “First is the changing compliance requirements.

Companies are still adjusting to the likes of the General Data Protection Regulation (GDPR) and the new revised Payment Services Directive (PSD2) in Europe.

The second thing, that’s not just keeping them up but giving them nightmares, is the emergence of successful, sophisticated fraudsters.

“The number of bad actors has escalated and so many different organisations are looking for solutions now. Where they previously may have done identity verification in a very lightweight way, they now have to up their game significantly because fraudsters are using some of the same technologies that we use, such as machine learning and identifying people dynamically using digital identities. It’s a tech war.”

As Wilson’s job title suggests, growth is where Trulioo is swiftly headed. Last year saw a flurry of announcements as the company expanded its digital ID services into countries where securely verifying a person or business’ identity is often a significant challenge.

In January 2019, Trulioo extended its GlobalGateway services to cover the Czech Republic and Slovakia, helping to mitigate money laundering and fraud in two of the world’s fastest-growing markets, which are also home to a number of Central Europe’s rapidly-scaling tech companies. Later in the year, GlobalGateway’s coverage was further extended to Nigeria and Ghana – two highly-populated African countries in which Trulioo will now help to bring many underbanked residents into the digital economy and enable financial institutions to safely and accurately know who they’re doing business with.

An expanding footprint In September 2019, Trulioo raised $52.8million to support its geographic expansion and added 70 people to www.fintech.finance

its workforce in Vancouver, San Francisco and Dublin. It has also been busy refining new products that further enhance the company’s proposition and broaden its sector footprint.

EmbedID was launched in beta mode last year, aimed particularly at online businesses for which identification services are critical but not part of their core competencies.

The tag line for the new product, ‘a snippet of code to verify the globe’, refers to a low-code-inspired integration with Trulioo’s back-end system, which will identify where the customer is and automatically customise the client’s user interface (UI).

The format for entering key information required in the end user’s own country thus immediately makes sense to them.

EmbedID is being hailed as a game changer, particularly for developers building fintech solutions, who need to create a separate customer onboarding process for each country they operate in as regulatory requirements differ. This product allows

So many different vendors are looking for solutions.

Where they previously may have done identity verification in a very lightweight way, they now have to up their game significantly customers, whether large or small, to access the GlobalGateway and verify customers in real time across multiple markets, while supporting country-specific AML and KYC requirements.

“We have a massive set of resources in our GlobalGateway product that offer functionality to verify consumers around the world, but with EmbedID we now make it so much easier to integrate into existing fintech applications for a number of different use cases,” explains Wilson.

“We’re developing a piece of functionality where you have a visual user interface that you can customise very quickly. Once you hit the execute button,

you get five or six lines of code that you can integrate into your website. You can then still go back to the form that allows you to do identity verification and make changes. That is wired to our GlobalGateway back end automatically.

“So, if you have a customer that is in the United States, you’ll get a form and back-end functionality that has been specifically trained to verify a US citizen.

“By the same token, if you have somebody from Bulgaria – a market with a thin data set – our systems automatically customise the information that we need in order to do a proper verification. It’s about very small pieces of integration, but they give businesses full access to the power of Trulioo’s GlobalGateway.”

The Trulioo team is already seeing huge demand for this service, and not just at the initial onboarding stage.

“The use cases for this product are broader than onboarding,” continues Wilson. “We have some clients who want to use it throughout the life cycle of a customer’s journey because the EmbedID snippet of code can be placed anywhere in that journey. When a company has a signal that there may be a suspicious login, for example, they can use it to reverify that customer’s identity.”

Continuous improvement By the very nature of the environment it operates in, Trulioo’s service is constantly updating and improving. That led to February’s launch of a new image capture software development kit (SDK) with desktop-to-mobile workflows, offering a more flexible, holistic approach to identity verification.

It allows a company to capture, analyse and authenticate more than 4,200 types of identity documents from nearly every country in the world. And it’s another lifesaver for smaller online businesses.

“Customers don’t like friction and neither do businesses,” says Wilson.

“So, technology solutions that reduce risk during the onboarding of new customers or managing customers throughout the business life cycle while introducing the least amount of friction – in other words, those that give us the maximum amount of risk mitigation along with the maximum ease of use for end customers – will win the day.”

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KYC & REGTECH

EASTERNPROMISE TransferWise is the latest paytech big hitter to be lured by Abu Dhabi’s significant charms. Chris Kiew-Smith, Head of Technology for the city region’s Financial Services Regulatory Authority, explains what’s attracting them

Low-cost global payments unicorn TransferWise is one of a number of fintech success stories to exploit the exciting opportunities emanating from the United Arab Emirates (UAE), which has set its sights on becoming the next financial services supercentre.

The British-made paytech opened a new office in UAE capital city Abu Dhabi last October, attracted by the territory’s exceptional global payments demand, fuelled by a populace made up of 90 per cent ex-pats.

Its flexible, legacy-free regulation, a cutting-edge sandbox environment and significant funding opportunities, bankrolled largely by Saudi’s super-rich, including its royal family, were no doubt also a draw.

Chris Kiew-Smith is head of technology for the Financial Services Regulatory Authority of Abu Dhabi, and there’s a clue to the state’s direction of travel in his job title: a tangible demonstration of the

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standalone regulator’s commitment to finding high-tech, new solutions for fast-tracking regulation to achieve Abu Dhabi’s ambitious economic goals.

Like many of those driving the UAE’s promising new financial ecosystem, Kiew-Smith brings expertise from elsewhere in the world, having cut his teeth with UK regulator the Financial Conduct Authority (FCA).

He explains that the attraction of companies like TransferWise is all part of the grand plan to seduce the best and brightest in the world with a greenfield fintech hub being built by the recently formed fintech growth catalyst Abu Dhabi Global Market (ADGM).

To grow its reputation as a leading global financial services centre, Abu Dhabi is balancing state-of-the-art development labs with eyewatering funding opportunities and its own, responsive, internationally

recognised regulatory and legal framework, which is inspired by and compatible with other leading systems around the world.

“We are our own geographical jurisdiction, but we are also our own legal jurisdiction and the law of the ADGM financial centre is English common law,” says Kiew-Smith.

“So, whenever a case gets passed in England and Wales, it has automatic application here. The reason why this is very important is that many financial services are transacting in English law, as a longstanding and reliable legal basis on which to conduct financial services.

“From a big bank’s perspective, like Citibank, one of the Tier 1 banks offering full financial services here, one of the attractions is that there’s a lot of business to be had in the Middle East. Our legal basis – the judges we have are ex-UK Supreme Court judges – then makes things like counterparty risk, managing potential insolvency and making sure commercial contracts behave predictably, easier to manage.”

ADGM is billing itself as a gateway to emerging Middle East and North

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Africa (MENA) regional markets, which are characterised by young, digital-native populations with massive smartphone penetration and advanced telecommunications networks. And to attract fintechs from the West keen to access them, it’s dangling a $1.5billion funding ecosystem as bait.

Its website states that as ‘a centre of connectivity located halfway between the European and Asian markets’, Abu Dhabi is a ‘crossroads of the world where ADGM's strategic partnerships with other regulators and the private sector underpin a vibrant fintech ecosystem’.

And the region has already notched up notable firsts, including the first fintech-focussed regulatory regime and a fintech RegLab which is the world’s second most active fintech sandbox after London.

ADGM offers established fintech entities an enabling ecosystem with access to some of the world’s most underserved markets, while startups can apply to be part of the RegLab, a controlled environment in which to develop innovative solutions.

Other homegrown and foreign fintechs that have benefitted from this fertile economic ground so far span segments from payments to digital banking. Among them are Ant Financial’s global payments pioneer WorldFirst and Malaysia’s digital Maybank Islamic. The most recent RegLab cohort included payments-initiating application programming interface (API) platform DAPI and dedicated loyalty and reward point online payment provider PointCheckout, both from the UAE. There’s also stablecoin provider Jibrel Network from Switzerland and Luxembourg’s eco-investment provider Ekofolio, testing market-ready sustainable finance and API economy solutions.

Meanwhile, two previous participants, UAE-founded startups, NOW Money, which provides mobile-based account and payments services for the unbanked, and blockchain-based payment technology company Pyypl, successfully graduated from the RegLab programme to launch new marketplace solutions.

Switched-on regulation The desert state has flourished with fintechs, particularly over the last two years. The Dubai International Financial Centre (DIFC) is now home to 737 active financial firms, an 18 per cent increase since 2018, and 64 per www.fintech.finance

cent since it was established five years ago.

Its current market worth is estimated to be around $700billion.

As the newest world financial centre, ADGM’s self-contained offering is serving the needs of some of the globe’s wealthiest individuals outside of London and Switzerland. In addition to having its own regulator and courts system, it also boasts a registration bureau and will soon have its own exchange, facilitated by Singapore.

Kiew-Smith explains that the regulatory framework is supporting growth by offering the polar benefits of being new and unfettered by legacy, while led by individuals like him who have already done much of the hard work in older financial centres and can bring that knowledge and experience to MENA-specific opportunities.

Its compatibility with other worldwide approaches makes it familiar for incoming companies, enabling them to hit the ground running while benefitting from its ability to move much more quickly and tackle new regulatory challenges early.

Richard Teng, CEO of the ADGM Financial Regulatory Authority, has said the RegLab is helping to find a crucial sweet spot between innovation and risk-managing regulation.

“It has been an instrumental platform for fintech startups to innovate, and for us as regulators to adapt, re-invent and update our requirements. Insights from the RegLab have enabled us to launch new regulatory frameworks for digital assets, digital banking and robo-advisory.,” he said. “As a smart digital international financial centre, ADGM will continue to support innovative business models that meet the need of a fast-evolving digital landscape and tap opportunities offered by the future economy.”

At the same time, ADGM is partner in and home to the recently launched global tech ecosystem, Hub 71, in which it has invested Dh100billion to enable it to drive tech transformation with input from capital providers, business enablers and strategic partners. The regional Mubadala Investment Company is leading this

initiative, with influential partners like Microsoft and SoftBank Vision Fund.

ADGM’s website slogan is ‘Think Fintech.

Think ADGM’. Not exactly catchy, but it seems to be doing the trick, with the ranks of challenger bank startups in the UAE now including Gulf International Bank’s standalone digital banking offering Meem; CBD, the Bank of Abu Dhabi’s digital-only banking proposition; the Clearly digital banking service; and digital banking offerings Halalah and E20.

Among this cohort of disruptors, TransferWise should feel right at home.

Backed by investors including Peter Thiel and Richard Branson and now worth an estimated $3.4billion, TransferWise clearly recognised the opportunity represented by the UAE. After receiving its money services provider licence, its chief financial officer Matt Briers said: “The Middle East was always on our map because of the significant volumes that flow here, but also the costs of sending money.”

A total of Dh169.2billion was sent from the UAE last year, according to the Central Bank’s 2018 annual report, and global remittances totalled $689billion in 2018, according to World Bank figures. The global average cost for sending money in the second quarter of this year was 6.84 per cent, against a MENA average of 6.91 per cent, according to a June World Bank report.

The United Nations Sustainable Development Goal target is to reduce that to three per cent by 2030. TransferWise’s platform will allow UAE users to transfer funds in dirham currency to accounts worldwide.

Kiew-Smith quantifies the scale of the opportunity. “Because Abu Dhabi is such a centre of wealth, rather than corporates, wealthy family offices and the royal family having to avail themselves of financial services abroad via Swiss private banks, the London Stock Exchange, asset managers across Europe, or investments in Asia. We wanted to offer it from Abu Dhabi.

“This is by far the wealthiest Emirate in the entire UAE, and that was the drive behind establishing ADGM.” A fine opportunity indeed!

We are our own geographical jurisdiction, but we are also our own legal jurisdiction, and the law of the financial centre is English common law

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KYC & REGTECH

GETTING THE RIGHT IDEAS Operational resilience has never been more important, and regulators are keen to prevent past mistakes being repeated. fscom’s Jamie Cooke, Alison Donnelly, Tony Brown and Simon Whittaker offer timely advice COVID-19 is wreaking havoc on the world’s financial services, but they are also beset by another pandemic of problems for which there is also no panacea.

As with the desperate search for a coronavirus vaccine, huge global efforts are being made to find solutions to the issues thrown up by ever-advancing information and communication technology (ITC) which, ironically, was once regarded as a cure for the industry’s ills.

Industrial-scale financial malpractice, data breaches and identity fraud are among the ‘diseases’ that have taken hold and they now lie firmly in the sights of regulators, including the Financial Action Task Force (FATF), which brings together the governments of 39 countries to defend the world’s financial services from criminality.

In a move to counteract cyber fraud, the FATF is currently drawing up a new framework to provide a mutual starting point for countries as they develop their own upgraded digital identity regulations.

Meanwhile, in the European Union (EU), the Fifth Anti-Money Laundering Directive (5AMLD), transposed into UK law and enacted in January 2020 as the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, has, for the first time, brought crypto businesses into a comprehensive regulatory regime requiring them to perform customer due diligence (CDD) and submit

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suspicious activity reports (SARs). In addition, the EU is developing new ways to strengthen digital operational resilience for the financial sector, including crypto assets, as it works towards a new harmonised and convergent Digital Finance Strategy amid major concerns about security risks. It has also adopted an upgraded prudential regime – the Investment Firm Directive (IFD) – that will apply to all investment firms authorised in the EU. Member states must impose the associated Investment Firm Regulation (IFR) by June 2021, which includes new rules for fixed and variable remuneration, disclosure and reporting obligations, and a requirement for some firms to establish a remuneration committee.

The UK’s Financial Conduct Authority (FCA) has also firmly signalled its intent to scrutinise operational resilience more thoroughly, along with the controls and testing methodology used for new technology, citing its

concerns about businesses wanting to innovate faster than their infrastructures allow, often using third-party providers to do so. Against this backdrop, experts at regulatory compliance consultants fscom are in no doubt what, once the current crisis passes, the biggest challenges will be.

“Regulation, regulation and regulation,” says Tony Brown, fscom’s senior financial crime manager. “The biggest theme out of 5MLD, for example, is bringing crypto firms, crypto exchanges and crypto custodian wallet providers under supervision. These are traditionally technology companies, that are suddenly now going to be held to financial services standards. Companies need to have an appropriate roadmap in mind, knowing where the risks are, having time dedicated to get policies and procedures up to speed.”

A year of concerns It’s not surprising regulators are nervous, given the scale of some of the governance issues seen over the past 12 months.

Danske Bank became embroiled in possibly the

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biggest money laundering scandal in financial history after its woeful oversight allowed an estimated €200billion of suspicious transactions to flow through its branch in Estonia. And in March 2020, Swedbank was hit with a record fine of the equivalent of €386million by Sweden’s financial watchdog after serious deficiencies were exposed in the bank’s anti-money laundering safeguards, and for withholding information from authorities.

Worldwide, data breaches also reached record levels in 2019. In total, more than 60 per cent of all leaked records were exposed by financial services organisations, which was partially related to Capital One’s 100 million customers’ details. Hacking and malware were the cause of 75 per cent of the industry’s events.

Brown insists the industry needs to learn from the past to prepare for the future.

“A key takeaway from 2019, if we use Danske Bank as a case study, is gaps and discrepancies in governance, specifically among the C-suite executives,” he explains.

“It’s about having appropriate governance, having the right people with the right expertise, the right independence, in executive roles to challenge the norm and, ultimately, breed a good culture.

“For 2020, I’m predicting increased scrutiny and focus on demonstrating effective governance. There’s a very fine but very specific difference between doing things right and doing the right thing.”

Technology itself is not the solution, says Brown; rather, it is a tool to help you achieve the latter of those.

“Financial services firms are spending more and more money on technology as a means of demonstrating compliance, and there’s been a lot of reliance placed on these technology solutions as

being a sort of silver bullet for identification and verification. But, unfortunately, there’s no such thing as a silver bullet, and my challenge to firms is this: show me what you do, on an ongoing basis, to make sure that the systems you’re using are effective and appropriate, and that they’re free from the ability to be abused with fraud.”

In the UK, FCA statistics show that firms reported 459 technology and cyber incidents in the sector in 2019, with the most common root causes being change management issues, third party failures, and failures in hardware or software.

Simon Whittaker, fscom’s cybersecurity consultant, believes that the rising trend of third-party failures that lead to data breaches will mean financial institutions have to start auditing the performance of their suppliers and the levels of security that are applied to them. But that alone will not satisfy regulators, he says.

“The European Commission has put out a consultation about operational resilience where they are trying to understand what we, as organisations, think should happen next. Legislation is expected to be put forward later this year that I think will contain items including supplier relations, supplier policies, training of staff internally, and making sure that risk is not something that is outsourced in any way.”

Whittaker also forecasts a regulatory cybersecurity clampdown, with the onus of responsibility shifting to data processors.

“I think we’re going to start seeing the UK’s FCA asking for and receiving much more technical information, and they’re going to start asking questions. It’s going to change from ‘tell me about this thing that

A key takeaway from 2019 is the gaps and discrepancies in governance – specifically among the C-suite

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you’ve done’ to ‘show me the evidence’.

“I also think that they’re going to be enacting things in a similar way to the Information Commissioner’s Office, with the introduction of the Data Protection Act 2018, which requires your data processors to be held liable for issues, as opposed to just lying with the primary target.”

Spotlight on e-payments Another area of concern for the FCA is the number of complaints around electronic money issues received by the Financial Ombudsman Service.

Alison Donnelly, a fscom director who previously worked as an e-money specialist at the FCA, says that concern can be

broken down into three specific areas: safeguarding, capital adequacy and business principles. And she warns that payment and e-money institutions can expect more supervisory attention as the FCA ramps up.

“Firms need to be aware that the FCA’s power and capacity to do that is significantly enhanced; its supervision department has been beefed up,” she says.

As to the impact of Brexit on the UK’s fintechs, Jamie Cooke, fscom’s co-founder and managing director, is not optimistic if no trade deal can be struck with the EU. “I’m a proponent of change bringing positive impacts, but unfortunately, I think many of the impacts of Brexit for fintechs could be negative,” he warns. “If we don’t get a trade deal negotiated, we will leave on World Trade Organisation rules, there will be no single market access for UK financial institutions and that leaves them in the situation where they have a revenue or cost choice: to give up any revenue they make from European consumers, or get authorised in another European jurisdiction to provide services to those consumers and that would clearly have a cost implication.”

These interviews were conducted before the full impact of the COVID-19 pandemic became clear.

In response to the crisis, fscom has opened its portal to all clients for the remainder of 2020 and offered its Regbite training sessions as a series of free webinars. Topics include operational resilience, customer due diligence, and managing compliance programmes. For more information, visit fscom.co.uk.

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COMMENTARY

Changing thegame 11:FS Head of Research, Sarah Kocianski, looks at the likely impact of Visa’s acquisition of Plaid on the fintech itself, the payments network, and the wider industry The middle of January saw a huge announcement that took many by surprise – Visa revealed it was acquiring Plaid, the San Francisco-based application programming interface (API) developer, for $5.3billion.

At least, on one level, it was a surprise: it came with no warning and little advance speculation. But the move does make sense.

Visa participated in Plaid’s Series C funding round and maintains a minority stake in its (much smaller) competitor, TrueLayer.

The payments giant has been looking into API companies, with a broader goal: Visa intends to be the key infrastructure provider for the entire fintech ecosystem.

What the acquisition means for Visa The payments industry has traditionally been Visa’s home turf but, lately, it has tried to move into fintech infrastructure through efforts like its Fast Track programme, which helps fintech firms start issuing cards within six weeks.

In this regard, it’s trailing the competition. Mastercard was the scheme

of choice for early fintech firms, and already has its own API provision and aggregation platforms. So, Visa has some catching up to do. Luckily, Plaid can help.

The deal offers plenty of enticements for Visa. It brings new talent to the company and should enable it to create products and services that benefit end users. In turn, that helps Visa’s overall growth strategy and creates new revenue streams. And it creates a pipeline to 11,000 banks and financial services companies – that’s a lot of customers and datasets that Visa can now access, along with information from Coinbase, Robinhood, Venmo and more.

It would seem Visa’s goal is to come up with new ways to make money in a newly emerging ecosystem while keeping pace with Mastercard. The Plaid acquisition should help it do both.

What this means for Plaid Plaid is in a good place. It has attracted significant interest, developers love it, and the acquisition price was double the company’s last valuation in 2018. So, where does it go from here?

Acquisitions of this size have the

potential to get messy; Plaid does very well on its own, but Visa will need to bring its learnings, people and technology into the fold to get the most out of this deal.

That’s a hard task for a company as big as Visa, and the fact that Plaid is itself pretty large will compound the difficulty. How can Visa and Plaid become strong together without the former squashing the latter?

That’s the big question going forward.

What this means for fintech Plenty of digital ink has been spilled about the amount of money involved here, but compared to something like FIS’s $43billion WorldPay acquisition, this isn’t that big. The Visa-Plaid deal is exciting because it signals a priority shift in finance more broadly.

So far, most of the innovation in the industry has involved putting new interfaces on existing technology. With this acquisition, Visa understands that the industry’s underlying infrastructure needs to change and it’s using new technology to do it.

The end result will be better products for consumers and businesses. And that has the potential to benefit not just Visa and Plaid, but the industry as a whole.

With this acquisition, Visa understands that the industry’s underlying infrastructure needs to change, and it’s using new technology to do it 32

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www.fintech.finance

Creating a world of financial confidence

Aptitude Software led the market with one of the first IFRS 17 solution sales - now we have clients entering UAT under the new standard.

Visit the Aptitude Software IFRS 17 resources page for a selection of content and practical advice based on IFRS 17 projects in over 46 countries including: • • • •

Why a subledger is becoming an essential part of an IFRS 17 project 7 reasons an IFRS 17 project may fail The hidden complexities of the PAA approach Finding the handover point between actuarial and accounting systems

Learn more www.aptitudesoftware.com info@aptitudesoftware.com

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INCLUSION: NIGERIA

Showing the l ve Nigeria’s first mobile-only bank has seen rapid growth as it embraces the unbanked and underbanked in a country where nothing usually comes for free. Kuda Bank's Head of Client Relations Norah Ikoh reveals the beating heart of the nation’s generous fintech The best things in life are free… or so the song goes. And tens of thousands of Nigerian account holders with Kuda Bank would tend to agree.

With ambitions to be ‘the Monzo of Africa’, it launched late last year as Nigeria’s first full-stack, licensed, mobile-only bank on the back of pre-seed angel investment of $1.6million, and was immediately hailed by the Nigerian Interbank Settlement Scheme as ‘revolutionising’ the country’s financial services.

Its first challenge was the biggest: how to persuade the four in 10 Nigerians who hold an account of any kind to switch – and the other six in 10 of their unbanked fellow countrymen to break with the habits of several generations and enter the system for the first time. The answer, it decided, was ‘awoof’.

“In the Nigeria language, everybody loves ‘awoof’. Everybody loves ‘free stuff’,” says Kuda Bank’s head of client relations, Norah Ikoh.

No account maintenance fees, free Verve (the pan-African chip + PIN) payment card, ATM fees waived and, crucially, the only bank to offer 25 free transfers a month, recently with the cap raised to $2,500 in a single transaction, were the carrots. To build traction quickly, the bank has used a tireless social media campaign and offered a 200 Nigerian naira referral fee. That will buy you about four Gala – Nigerians’ favourite

Sign up in a heartbeat: Kuda Bank’s fun, tech vibe and mobile tools have huge approval ratings

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sausage roll snacks – but, hey, if it works... and, according to CEO and co-founder Babs Ogundeyi, it does. For each of the last couple of months, the bank has seen accounts opening at the rate of ‘tens of thousands’, propelling it towards the founders’ aspiration to build a ‘pan-African digital bank’.

“We’re growing fast,” confirms Ikoh.

“We’re targeting customers between the ages of 18 and 35, the underbanked and those we can get to switch to Kuda. The reception we’re getting has been great.

We’re keeping an eye on customer demand for our products. But if it necessitates more capital, then we’ll raise more money.”

Styled as the #BankoftheFree, Kuda’s ethos is to be transparent, responsive and fun with no financial barriers to entry for the millions of Nigerians who are a long, long way down the world’s median per capita income rankings.

But what they do have in common with the rest of the world is access

to smartphones. According to Statistica, the number of smartphone users in Nigeria, Africa's biggest economy and most populous country, is forecast to grow to more than 140 million by 2025, in a nation of about 60 million working adults.

“Most customers shop online, they want to be able to transact internationally,” says Ikoh. “We have partnerships with the Inter-Bank Settlement Scheme and other money routing agencies in Nigeria.

It’s a process – we’re learning each day, discovering new ideas, new innovations to make transactions more seamless for customers, responding to their questions, understanding their needs and using their feedback to improve existing products and create new ones.”

A homegrown bank Among the app’s newest upgrades is Payment Link, a faster way to send money, mobile-to-mobile, between Kuda Bank accounts, a card tracker to check the progress of a debit card request, the ability to change the account name through the app, and the introduction of transfer categories to its personal financial management tools. As it moves out of Beta this summer, Kuda plans to open up more payment channels and tools, including the introduction of virtual cards.

The COVID-19 crisis hasn’t knocked the young bank off course. If anything, being able to offer paperless, five-minute onboarding and a suite of digital money transfer and payment choices has stood it in good stead as the country’s government urges people to adopt cashless alternatives.

The opening of an online Lagos Food Bank donation fund and regular updates during the lockdown has kept customers connected, informed and entertained over the last few weeks. It has even posted suggested lists of essential items to get in – yams and sardines are right up there – and distracted customers with polls about US rappers. It’s all helping to drive new users to the app, with many adopting Kuda Bank as their primary account provider.

A crucial next step is to offer a loan facility, one of the most requested features from customers, and, given the bank’s

free-to-use proposition, an important element of its revenue generation model.

“Our revenue stream right now is from collected deposits, backed by investment from government, interest from loans and merchant fees from card transactions,” says Ikoh. “We’re looking to scale that hugely by the end of the year.”

The bank, which is a graduate of the Microsoft4Africa BizSpark programme, has been built from the ground up on home soil, using homegrown engineers.

“We built Kuda in house, using the best Nigerian tech talent,” says Ikoh. “We wanted to be able to control our processes because if you depend on third parties, it’s always one hiccup after another. If we have our own core banking process and something goes wrong, we can manage it from our end – we’re not relying on a third party that relies on another third party to solve the problem.”

The same continuity of service and reliability concerns have driven challengers on the other side of the world to adopt the same approach – notably Starling in the UK. But the one Ikoh admires the most is Monzo. It has a similarly ‘casual, fun and techy’ vibe and Kuda aspires to match founder Tom Blomfield’s growth aspirations, too.

Although still some way off Monzo’s three million users, Ikoh is fairly confident that, at the current exponential onboarding rates, it could hit 500,000 if not one million users by the end of this year.

Kuda (a Shona word, deliberately chosen for being just a vowel sound away from kudi, the Nigerian for money) means love and everyone is feeling it for the bank right now, says Ikoh.

“The kind of content we put on social media and in our newsletters attracts the best talent. They want to help Kuda grow and they have what it takes to do it. We position ourselves in a way that people say ‘what am I doing here? I can do better at Kuda’. We have people sending us messages every day who want to do that.

Once here, we help them learn and grow.

“Kuda is the best thing in Nigeria right now. Everybody wants to be a part of this brand, everybody wants to be a part of the culture. We don’t have to go out and look for them. They look for us.”

Kuda is the best thing in Nigeria right now.

Everybody wants to be a part of this brand

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meniga

INCLUSION: EUROPE

Monese’s fintech-for-good business model embraces customers that other banks consider ‘high risk’... and it’s thriving. Founder Norris Koppel – himself once one of the ‘excluded’ – explains how it works Where millions of would-be customers faced rejection when trying to open basic bank accounts or securing credit in the UK, Norris Koppel, CEO and founder of Monese, saw potential.

The self-styled ‘Uber of banking’, mobile-only Monese first emerged in 2013.

Since then, the challenger, originally built for people who had newly arrived in the UK, has seen around 3,000 customers signing up to its service daily. It currently operates two million accounts and aims to more than double that to five million across Europe by the end of the year.

Driven by the indisputable right of people from every walk of life to have financial freedom anywhere, Monese caters for a broad swathe of the ‘excluded’ – expats living, working, studying and retiring in countries across Europe, refugees claiming residency in the UK, as well as the homeless and marginalised.

For around half of them, Monese’s is their

primary account, a statistic not many of its fellow challengers can match.

Last June, Monese took the definitive step of giving out its Premium plan for free, for life, to refugees granted UK asylum who had received their Biometric Residence Permit (BRP). It was in response to issues many were experiencing with high street account opening procedures.

It followed an earlier trial with the UK Post Office, allowing refugees and others with no registered address, to use their local Post Office as a proxy address so they could open a bank account and pick up their debit card. The problem was particularly acute for refugees granted asylum in the UK, who are given 28 days to secure a job, come off benefits, find a house and open a bank account. According to a survey by the Refugee Council, around half live in temporary accommodation or become homeless in that period.

“We want to help conquer white and blue-collar exclusion, which is still very

much a reality,” says Koppel. “This service will support many people, including those travelling [across borders] for work as well as under-served customers without permanent addresses, such as refugees or people living in major cities who don’t have a home. These are examples of how we’re trying to make a positive impact.”

And it’s paying off – on both sides.

Currently in a fundraising round that many believe will propel it towards unicorn status, Monese expects to turn a profit in 2021 – perhaps the best illustration yet that a tech-for-good business model can be made to work. But just as Monese isn’t all about jet-setting Gen Z-ers (although they form a big part of its customer base), it isn’t just about digital, either – as demonstrated by another service tie-up with the Post Office and Paypoint, a similar version of which it plans to roll out with different partners across Europe during 2020.

We want to help conquer white and blue-collar exclusion, which is still very much a reality... people travelling [across borders] for work as well as under-served customers without permanent addresses, such as refugees or people living in major cities who don’t have a home www.fintech.finance

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INCLUSION: EUROPE “Everything is going online and banks are closing branches. But we can’t ignore the fact that there is a large part of the population that still requires cash,” says Koppel.

“As a mostly digital challenger, we have formed partnerships in the UK with a wide network of companies, such as the Post Office and PayPoint. This enables us to provide customers with cash deposit capabilities in 40,000 locations across the UK. Even in rural areas where mainstream banks have closed branches, there is always a Post Office or a little corner shop that supports PayPoint. So, we are able to give customers convenient access to deposit and withdraw all across the UK, and we are now focussing on doing exactly the same across Europe.”

Technically an electronic money institution, any mainstream banking services that Monese cannot offer, it teams

The immediate focus will be on using alternative ways to analyse data to extend lending to underserved consumers – those who perhaps don’t meet the required identity and credit referencing requirements of mainstream providers.

“I strongly believe that, in future, we’ll be very much focussing on making credit more available and accessible to those who are good customers and good re-payers,” says Koppel. “At the moment, they are excluded from mainstream services just because their data and credit history have not travelled with them.

“All financial services companies and banking providers must be able to identify their customers. They need to make sure that no bad money enters the system, that money is not being laundered and criminal money doesn’t move around. And, of course, Connected world: Crossing borders should not exclude people from FS

up with third parties to provide via the app. Its newest partnership was formed in September last year with Raisin, through which customers can access a range of savings products.

Partner for life?

It’s part of the next stage in Koppel’s quest, as he told the Paris Fintech Forum earlier this year: “We started on a mission to help new arrivals in a country access financial services. How can we be with them in the long run for other big life moments, and help them solve and overcome their most significant issues and challenges? It’s these solutions that’ll fundamentally change a consumer’s life.

They aren’t cosmetic or temporary but, rather, long term. This will determine the future of businesses like ours.”

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bill or a bank statement from the same country, in the same language. They can’t handle the utility bill coming from another country or in another language. This is where the system fails. But there are ways around it. Thanks to modern technology and information that lives in the Cloud these days, which surrounds every one of us, it’s actually possible to avoid asking people for these pieces of paper. This is how paytech security can be not only more convenient, but much more logical, too.

“When I moved from Estonia, many years ago, to the UK, I was unable to open a very simple bank account. To me, that was completely bewildering, I just didn’t understand why this was happening. I had a good job, I had a flat, and everything else was going wonderfully in my life, but not being able to open an account left me completely astonished. I actually felt quite humiliated. At the same time, I realised that this problem was deeply affecting hundreds of millions of people who wanted to move to another part of the world because of work, studies or perhaps marriage. So many people were going through the same exact process and obstacles.

“Monese was really built to figure that out, and to eliminate that problem, which I think doesn’t fit in the modern age.”

What’s missing is a global approach.

A global company that is able to pull credit information about people – from all sorts of Cloud, regional and international databases – and make sense of it all the laws are there to protect those who are inside the system. The regulations are actually pretty clear – you are obliged to know about your customers so that you, as a business, are confident that when this person enters the system, they are not going to harm it. So, the way we see it, the system, and the regulations, give companies quite a broad choice. A financial services provider, or a bank, can actually make up its own mind on how exactly to assess the risks.

“But the way banks, historically, have made identity and anti-money laundering checks, is significantly outdated, for example, with address checks. So, when you walk into a typical European or British bank, the first thing they ask you for, apart from your passport, is some sort of utility

So, how does Monese intend to tackle inclusion when it comes to lending?

“I know that, right now, many companies in the world are really working on this problem, but no one has quite figured it out yet,” says Koppel. “’What’s missing is a global approach. A global company that is able to pull credit information about people – from all sorts of Cloud, regional and international databases – and make sense of it all. This could support banks with the decision-making process as they consider credit cards and loans.

“We intend to be one of the innovators in this space. We are aiming to make credit available to those who are new to the country in 2020. This is one of our core focusses over the next couple of years.” www.fintech.finance

INCLUSION: DIGITAL

Staying ahead of the Curve

UK fintech Curve is defending its first-mover status by adding products and entering new markets as the ‘personal chief financial officer’ for millions of customers.

Founder and CEO Shachar Bialick explains how the platform is transitioning It was the three years he served in the Israeli special forces that gave serial entrepreneur Shachar Bialick the determination needed to succeed in the business world. It’s been quite a career trajectory but Bialick today stands at the peak of fintech.

He is the founder and CEO of Curve, a platform that gives users a card that’s not a card (as we’ve come to understand the term anyway) and an app that consolidates their banking plastic in just one place.

The Curve card’s key property – as the name implies – is flexibility: the potential to bend the transaction paradigm. As the marketing puts it, it’s a ‘bad-ass 100 cards in one’, a ‘gateway to money for nothing’ as well as being a personal firewall, kick-ass travel companion, and a time machine by virtue of the fact that you can retrospectively alter the account from which you’ve taken a payment.

Instead of a bulging wallet, customers just need to carry their single Curve card, iterations of which include the free Blue Curve, the premium Black or Metal and, most recently, the limited edition Curve Investor card, currently exclusive to the company’s legion of crowdfunders. As paid-up devotees, they get to use the most advanced card – among the first in Europe to be provisioned without a primary account or any other number embossed on it. Instead, the details are secured behind a PIN or biometric access on the Curve app.

The lucky recipients of the Curve Investor card contributed to a record fundraise of £6million on Crowdcube in September 2019. A primary account

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number (PAN)-less card, described by Curve as ‘the next generation of payment cards’, seems a fitting reward.

To date, the company claims to have more than a million users.

That’s almost certain to be increased by having finally onboarded with Apple Pay at the start of 2020, while a £55million fundraise last summer, putting the London-based startup’s valuation at around $250million, will allow it to expand both its products and geography.

When we look at the US market problems, we believe that the Curve proposition of ‘multiple cards in one’ is a great fit, because an average customer in the US has seven to eight of them “Curve is here to solve a huge problem, which is that our finances are very fragmented across multiple products and services, and this shows no signs of slowing down,” says Bialick.

By way of a snapshot of the UK, according to 2019 research by Zopa, one in three Brits convolutes their life by operating two or more current accounts – a trend that’s up 36 per cent year-on-year.

“Our view is that the market will eventually rebundle itself and move

banking to the Cloud,” says Bialick. “Curve intends to become that rebundler, that ‘over-the-top’ banking platform, as we define our category, by creating a product that does not request you to change your behaviours, or the products and services that you love and trust. It instead connects everything to one platform, one card, and allows you to do a lot of magical stuff, from saving money on hidden fees to moving transactions back in time, to getting better deals on credit, and to connecting your cards to the likes of Apple Pay and Google Pay.”

Moving into lending Historically, over-the-top terminology has been used to describe the way video streaming services such as Netflix run on top of existing broadband infrastructure.

In the same way, Curve isn’t seeking to replace your existing bank accounts but is instead a Cloud-based platform that makes the banking and payments infrastructure more user-friendly.

The Apple Pay news revealed at this year’s Paris Fintech Forum in January is particularly important for the platform’s US expansion plans, given that Apple Pay became the most popular app among the country’s mobile payment users last year.

The tie-up means that even if a customer’s bank cards aren’t individually available through Apple Pay, they will be by virtue of Curve acting as the intermediary.

“Apple Pay was the number one most-wanted feature, and it’s understandable why,” explains Bialick.

“Apple is a remarkable company. When it www.fintech.finance

Blazing a trail: Curve has opened in the US and will move into lending

comes to building great user experiences, it has a very strong product and people are looking for more convenience and more minimalism. When you leave home, ideally, you want to leave home with empty pockets – maybe your phone and your keys, nothing more – and Apple Pay allows them to do that. Curve helps our customers get towards that goal.”

In February, Curve became the first UK fintech to open an office in the Brooklyn area of New York in preparation for its full roll out across the US. The company believes that Brooklyn ‘embodies its brand’ and reminds it of its East London roots: a disruptive district for a disruptive platform.

That activity will continue as Curve moves decisively into the lending space over the next year. It’s already liaising with the Financial Conduct Authority (FCA) and working towards the launch of a credit card product. The platform has appointed former Google advisor Paul Harrald to head up Curve Credit, which will allow customers to pay off their credit card debt and split transactions into instalments within the Curve app. Another appetising prospect for the US market.

“They love cards in the US,” says Bialick.

“An average customer there has seven to eight of them. They love credit, as well. In fact, the biggest problem in the States, in our view, is consumer credit debt, and the fact that regulation allows for it to persist for a long time, which in the UK was solved last year with new regulations. I don’t just mean credit card debt; I mean student loan debt and car loan debt, www.fintech.finance

which, aggregated, is more than $5trillion. So, when we look at the US, we believe that the Curve proposition of ‘multiple cards in one’ is a great fit.”

At the end of last year, Curve also introduced a new cross-currency person-to-person (P2P) service, Curve Send, to transfer money in more than 25 currencies to friends and contacts.

Operating from within the app, users simply choose a contact and amount before selecting any of their bank cards from which to send the money. Once the funds are sent, the recipient, if they are a Curve customer, selects the bank card

on which they would like to receive the funds.

If they’re not, they enter their bank card details or take a photo of their card via a link shared by the sender, and, once complete, Curve sends the money, fee free.

Having created Curve, Bialick and his team are clearly keen to stay ahead of it.

“We see money as a means to an end,” he says. “It gives you more opportunities to experience new things and spend time with the people you care about. Our job is to become the personal chief financial officer for our customers, so that they can focus more on what matters. To use my family motto – which my wife has in neon letters in our living room – to celebrate life.”

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Pay-taco!

Mexico’s paytech feast Galileo’s Tory Jackson explains why Mexico, where cash remains king, is becoming fertile territory for homegrown fintech innovators When the localised lockdown ends, the streets of downtown Mexico City will erupt once more into a riot of Mariachi music, spice-laden aromas and boisterous bartering. On a normal day in a normal time, locals weave between Sombrero-sized pans overflowing with Mexico’s world-famous cuisine, sizzling and spitting from street-side stalls, while traders shout over a cacophony of car horns, waving fists clutching crumpled pesos.

The first to the banquet: Mexico’s market size and cash-based economy creates a huge opportunity

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This is Mexico: gateway to Latin America (LATAM) and the secondlargest economy in the region, after booming Brazil. Bustling with trade between its 130 million consumers, Mexico’s colourful street commerce is no tourist façade; it represents a society in which cash is a way of life; or, as a PYMNTS report recently concluded ‘isn’t an option, but a necessity for survival’.

On Mexicans’ propensity to use cash over cards and digital payment methods, the data couldn’t be starker. The PYMNTS report found that for every dollar spent on cards in Mexico, $3.68 is spent in cash, compared to only $1.25 in Brazil, or $0.41 in the United States. That makes Mexico’s use of cash, per capita, an astounding 793 per cent higher than in the US. The reasons behind this gaping payments anomaly are multiple, and self-reinforcing. In 2016, the National Statistics Institute found that 58 per cent of Mexico’s workforce is employed informally – characterised by cash-in-hand, uncontracted labour.

Only 14 per cent of Mexicans receive their income through a direct deposit into their bank account.

Meanwhile, payments infrastructure in Mexico is poor, lagging conspicuously behind that of regional rival Brazil.

Despite their cash habit, Mexicans have access to only 38 ATMs per 100,000 people, while in Brazil it‘s 85 – more than twice the amount. More telling, Brazil has four times more point of sale (POS) terminals, per capita, than Mexico, and significantly more commercial bank branches, too.

What this data reveals is a significant lack of financial inclusion in Mexico: a population both unbanked and underbanked, with little option but to pay in cash and be paid in cash. No wonder Mexico is regarded as a cactus thorn in the side of e-commerce companies and digital service providers eager to trade with consumers in the world’s eleventh-largest market.

And yet, for ambitious fintech firms, Mexico’s dearth of digital or plastic payments represents not an empty plate, but a blank slate: a mouth-watering opportunity to build new domestic technologies to support a new generation of consumer exchange.

One such company, Utah-based Galileo Financial Technologies (formerly Galileo Processing), announced the opening of new offices in Mexico City in February, and will be one of the first US fintech firms to attempt to develop a financially inclusive fintech ecosystem in the country. With 20 years’ experience in payments solutions, Galileo is well-placed to do so.

The firm’s open application www.fintech.finance

INCLUSION: MEXICO programming interfaces (APIs) facilitate the simple development of third-party products and services, empowering innovation in financial functionalities that range from account setup and deposits to real-time payments, card-to-card transfers and superior fraud detection tools. In developing new fintech products, Galileo provides the ingredients and the recipes, and their clients – which include UK-based Monzo, TransferWise, Revolut and Paysafe doing business in the US – improvise on top, adding a sprinkle of their brands’ flavours to finish.

The big news for Galileo, of course, was its planned $1.2billion acquisition by San Francisco-based SoFi in April this year.

SoFi, valued at $4.8billion as of May 2019, specialises in refinancing, although it runs an impressive suite of loan and trading functions for clients, as well as a checking and debit card through SoFi Money, already powered by Galileo.

There’s no doubt that Galileo appeared a wise acquisition to SoFi CEO Anthony Noto. According to Crunchbase News, Galileo’s annual recurring revenues doubled in March 2020 to $100million, driven by a comparable doubling in the firm’s annualised payments volume, from $26billion in September 2019 to $53billion in March 2020. Joined with SoFi, Galileo’s ongoing expansion into Latin America is likely to receive a boost, beginning with its establishment in Mexico City.

The man leading Galileo’s charge in the region is Tory Jackson, its country manager in Mexico and Galileo’s business development lead for the LATAM region.

He’s certainly ready to take his seat at the table, just as the starters are served in Mexico’s multi-course financial banquet.

“Mexico’s very famous for street food: the tacos, and the tlacoyos, the quesadillas – everything that we all know and love,” he says. “But oftentimes, you can only buy those with cash. So, I think there are so many different solutions that need to be developed in Mexico, and needs to be fulfilled. That’s what makes it so exciting: there’s a lot of room and opportunity for companies to grow, which is unique.”

The timing of Galileo’s move into this new and exciting territory – just as COVID-19 was beginning to reach pandemic scale – may appear unfortunate, but, in a long-term sense, it’s likely the lockdown will peak interest in alternatives to cash with a www.fintech.finance

speed that fintech firms and government incentives could never have achieved alone.

Nevertheless, the Mexican government has proactively brought through legislation to enable a fintech boom in the country, busily laying the table for the main course to come. In 2018, the country’s landmark Fintech Law was instituted, providing the legal framework and regulatory certainty for firms like Galileo and its partners to flourish.

The ongoing legislation isn’t just region-leading; a recent Deloitte report placed Mexico City alongside the likes of London, Singapore and Luxembourg as a global leader in fintech regulation.

As a result, Mexico leads the LATAM region by number of fintech startups, with 394 new companies as of May 2019.

“It’s been great to see how fast Mexico has really adapted, from a regulatory perspective, to be able to accommodate new products and solutions,” Jackson says. “They’ve taken different learnings from abroad in more mature markets as a pathway for new players, such as Galileo, to come in and offer a platform like ours to help domestic players.”

There are so many different solutions that need to be developed in Mexico, needs to be fulfilled, and a lot of opportunity for companies to grow As Mexico City’s fledgling fintech scene develops, with Galileo’s platform as a valuable resource for creativity, it’s worth giving a taste of Latin America’s ‘hybrid’ payment systems. After launching in Mexico in 2015, Amazon adapted to local market conditions by selling gift cards, purchased for cash, at Oxxo – one of Mexico’s largest retailers. Other e-commerce providers, like Linio, followed suit, while Walmart began allowing payments for items bought online in its stores, too. Mexico’s online shoppers are likely now to see a ‘pay at Oxxo’ checkout option after filling their baskets.

There remain, of course, obstacles to the work Galileo aims to do in creating a

hub of collaborative fintech innovation.

One of those is the attitude of incumbent banks in the region, who dismiss or distrust fintechs.

“Here in Mexico, there are fewer banks than in the US; there are 50-odd, and all of them essentially operate under the same guidelines and offer the same products and services to their clients,” he says.

“The banks aren’t used to companies like Galileo, that can come in and provide some of those back-end services – so that’s the first challenge. We need to facilitate that shift in mindset, in some of the legacy providers, to become that central hub for collaboration.”

This is where Galileo’s experience comes into play, having been through that same cycle of scepticism, followed by collaboration, in North America. Jackson expects Galileo’s existing relationships, and the lessons from them, to contribute to a speedy growth of financially inclusive innovation emanating from Mexico City.

A case in point, Galileo’s partnership with fintech-friendly Mastercard, has proven a valuable asset for ease of penetration into the LATAM market.

Mastercard is one of three dominant local providers to settle transactions there.

“Utilising our longstanding partnership to easily plug into this market was important,” Jackson confirms. And Galileo has wasted no time. One of its first domestic partners, Mexico City startup Klar, has been dubbed ‘the Chime of Mexico’ and, despite being founded only 10 months ago, has huge ambitions to democratise banking services in the country. In September 2019, it raised an astonishing $57.5million in debt and equity seed funding – one of the largest seed rounds inside Mexico.

“If you look at the landscape of fintechs here in Mexico and those that are seeking to be the neobank for the unbanked or underbanked, Klar is extremely promising,” says Jackson. “They’ll be our first live use case in Mexico. We’re viewing Mexico as the first domino in a broader approach to Latin America,” he continues.

“That’s because of the market size, the opportunity and proximity to the US.” There are appetising opportunities in Brazil, Chile and Argentina. For now, though, it’s time to watch a country famished by cash domination indulge in an unlimited buffet of fintech services.

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INCLUSION: MEXICO In the right direction: Mexico’s changing regulatory environment works in Klar’s favour

REWRITING THE LOAN BOOK

Challenger Klar is using alternative data to help people access affordable credit in a country where most are forced to rely on non-licensed lenders. Co-founder and CEO Stefan Moller says it – and other fintechs like it – are changing behaviours and lives Mexico is famously reliant on its cash – more than 80 per cent of transactions are settled that way.

And the majority of loans similarly leave no trace in a society where only a privileged minority have access to mainstream financial services.

The upshot is that most people don’t have a credit file against which lenders can assess risk. Which is why Mexican challenger bank Klar offers its customers a rolling micro-credit facility, based on an alternative type of data analysis: spending through their accounts.

It’s a model that is predicated on and also encourages what its chief executive and co-founder believes will be a tipping

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point for the country – when millions of unbanked workers finally open a current account and switch to electronic payments via their smartphones.

Out of beta mode for only a matter of months, Klar has already opened 100,000 accounts and placed around 10,000 credit lines that have been repaid already, according to Stefan Moller.

Facilitated by a modern framework created by the country’s central bank, he sees huge opportunity in promoting financial inclusion and profiting from well-targeted micro-lending.

“Mexico still has a cash-driven economy but consumer behaviours are changing,” says Moller. “Companies such as Uber

have migrated the transportation experience from physical cash to digital.

Then there are companies doing the same in the entertainment space, like Netflix or Spotify – it’s all digital and people need a payment method.”

Moller helped found Klar in late 2018 with chief finance officer Daniel Autrique, and chief technology officer Gianluigi Davassi who previously worked on the development of German digital bank N26.

In September, Klar announced the raising of $57.5million in seed and debt funding to roll out its mobile app-based banking services, which offer a modern alternative to the incumbent banks’ current accounts and credit cards. www.fintech.finance

Its key offers are fee-free banking, cashback on purchases, money management tools and lower interest rates on credit compared to traditional providers. Having crystal clear visibility of a customer’s financial behaviour is key to that and means lending can be offered to people ignored by mainstream services, who may have turned to unlicensed money lenders.

Klar has offices in Mexico City, backed by a technology team in Berlin and it has partnered with application programming interface (API) and payment platform Galileo Financial Technologies as well as financial services giant Mastercard.

Moller says it sees itself as a technology company first.

“Very few banks put the technology first, but those that do here in Mexico are orders of magnitude better than the rest. Incumbent banks are held back by extremely old technology, but we had a green field, and building a financial institution from scratch is a huge advantage.

We’re a young company, we’ve been around for about a year, but we can already show numbers that validate our thesis that we can drive this change forward.”

Creating a customer culture Fewer than 40 per cent of adults in Mexico have a bank account of any kind, equating to around 200 million people, and, according to Moller, 85 per cent don't have access to a credit card.

He blames the country’s banking system for much of Mexico’s poor financial inclusion. The incumbents, he believes, have been too comfortable earning profits servicing professional and wealthier clients.

But, if that is the case, such conservatism is now a dead weight. Factors like high costs, old technology and a culture that fails to put customer needs first, present a golden opportunity to disruptors like Klar.

Moller says: “The incumbents have niches from which they can derive a lot of profit and that has made them complacent.

There are also inefficiencies, mainly on the credit side, where underwriting becomes expensive, and there’s not enough data to serve the markets that are underserved.

“Look at their costs – a typical major Mexican bank has about 1,500 branches, 30,000 to 40,000 employees to serve the retail segment, and very big, expensive buildings. They’ve outdated technology and then there’s the lack of importance www.fintech.finance

placed on the end user. Nobody talks about customer centricity, nobody is truly close to the user or tries to understand what type of services could be of value. There are decent products out there, offered by the incumbents, but they’re all targeting a very select group of individuals; this happens both on the debit and credit side.

“Because we use alternative data to underwrite our credit lines, we don’t depend on the same sources of information as other banks, so can expand the number of people who can access decent credit.

“By lowering our cost base and using more sophisticated technology, we can bring those products to the bulk of Mexicans.”

Klar is not reliant on credit agencies, which Moller claims cover only half of the adult population ‘at best’ due to the huge number of unbanked people. Klar instead examines 70 to 80 data variables.

Those cover security and fraud issues, and spending data which helps to reveal how much a customer would be able and willing to repay, and when they typically face financial pressure each month.

We think about credit differently. A lot of our product thinking goes into understanding how much the user truly needs, and when they need it “The incumbent banks have left us with a binary approach, where you either get a credit card or you get nothing,” Moller says. “We would rather ask the question ‘is a credit card truly the instrument that solves the user’s needs?’.”

He thinks credit cards are an outdated concept anyway – invented in the middle of the last century, beyond becoming contactless, not much has changed.

“We think about credit differently, and a lot of our product thinking goes into understanding how much the user truly needs, and when they need it. Most of our credit lines take into account the user behaviour we already know from their debit relationship,” explains Moller.

“We need to offer them things that the

banks don’t, in order to make it compelling enough for them to come over to Klar. So, we can offer a free account that can be opened online in five minutes, their debit card arrives in 24 to 72 hours and we provide a cashback reward from one to four per cent.”

A changing landscape Moller is supportive of the regulatory environment created by Mexico’s central bank, which he says has been instrumental in allowing the entry of fintech players such as his own.

In 2018, the country’s Fintech Law mapped out rules around electronic payments, crowdfunding and cryptocurrencies, and work is ongoing to regulate an open banking system and the use of application programming interfaces.

Creating an environment whereby fintechs such as Klar can develop compelling products for the digital age is one way to wean consumers off cash, and last year’s introduction of instant payments system CoDi, based on QR codes and mobile wallets, is another.

Moller says: “The regulatory environment is very favourable and the new Fintech Law changed things drastically, allowing us to grow, particularly on the debit side.

“The regulator, in our opinion, has been very rational in its approach. It has opened the market up to new competition, but the rules under which financial institutions are governed are also strict enough. Regulation brings complexity and technological requirements, it comes with associated costs – of advisors, a regtech team – but that’s what you want.

“I think you want to tighten the screws just enough so that the serious players remain within the market, and the players with a viable business model continue investing into their compliance.”

Moller also applauds the regulator’s drive to move away from what he calls a binary system where the only option was to be a bank with hundreds of staff tied up in a compliance department.

“The regulator has set up a rational framework in which companies, or fintechs, can start scaling their operations, offering value to the user, getting more users onboard, while climbing that ladder of regulation,” he says.

“We’ve put a lot of work into meeting these regulations, but it is work that will certainly repay us.”

Issue 5 | ThePaytechMagazine

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INCLUSION: MEXICO

Meet the Enabler

Belvo is one of a new and essential breed of tech player helping to enact an ambitious piece of payment transformation as Mexico transitions from a cash-based economy. Head of Business Development, Jorge Madrigal, talks us through it

At well under 40 per cent, Mexico’s dismal financial inclusion rate is a massive hurdle for the growth, digitisation and democratisation of its financial industry.

Add to that its largely cash-based systems and the blocks on pulling it into the modern payments age seem enormous.

The 2018 National Survey of Financial Inclusion, conducted by The National Banking and Securities Commission (CNBV) and the National Institute of Statistics and Geography (INEGI), says that 87 per cent of adults still use cash for purchases above 500 pesos, while 95 per cent use them to pay for smaller transactions. Which explains why newly emerging fintechs struggle to acquire the data needed to sharpen their products and offerings. While the established banking sector tries to evolve and innovate, it has its own set of obstacles to overcome.

But there is some good news: the high level of smartphone penetration that allows for a potential market for mobile money and digital wallets. To make use of the presence of the young and smartly connected, www.fintech.finance

economically active population, the country has adopted an enabling regulatory framework along the lines of the UK’s open banking model, to encourage innovation and promote financial inclusion. Alongside it, the government introduced a QR-based electronic payments platform called CoDi in 2019 to select Mexican cities, in the hope that it can help generate enough data to drive the native digital companies.

And a set of new entities is emerging – the enablers – offering open banking application programming interface (API) platforms to connect the large financial organisations with the newer fintechs.

Belvo is the latest among them.

About to celebrate its first anniversary, it was launched by Pablo Viguera and Uri Tintore in May 2019. It delivered its pilot for testing in October, collated feedback, implemented changes and then released the first official version of the platform in January 2020. By then, scores of software developers had already signed up for its API solution.

The popularity and attention that Belvo

attracted came from its ability to enable developers and software engineers to create fintech apps that can access and interpret relevant data from end users. The platform hosts a range of useful tools – a free sandbox, software development kits (SDKs), plug-and-play modules and free API requests in its production environment, all of which are targeted at helping developers to build useful, relevant and engaging products for the best end-user experiences.

Jorge Madrigal, head of business development for Belvo, explains how he sees the new ecosystem transforming Mexico’s financial services.

THE PAYTECH MAGAZINE: How would you describe the state of financial inclusion in Mexico and how are new financial services and technology going to address that?

JORGE MADRIGAL: The Mexican financial setup has primarily been dominated by the large players, the large banks. Then there’s a second tier, with smaller, traditional lenders, such as Sofipos and Sofomes.

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INCLUSION: MEXICO The fintech companies are not necessarily competing with players already in the ecosystem, but enabling them to develop new products and services.

Most payments in Mexico today are made in cash. You might tend to think that, with nearly 60 per cent of the economically active population in Mexico being unbanked, they might not have access to financial services. The reality is that they do, but those financial services are usually expensive compared to what they could get from a bank or a fintech. And they don’t have any technology component, so the data and operations they’re generating live in someone’s mind or in an Excel spreadsheet. And that’s bad for the consumer because they can’t carry that information with them to another institution to get better terms, for example.

So that’s pretty much where things are for the majority of the economically active population today in Mexico.

We’re in the midst of significant growth in ‘bankerisation’ of the Mexican population. We have financial institutions doing their job, changing their strategies to increase the number of customers they’re serving, and, on the other side, a lot of fintechs are coming in to the market whose main focus is the consumer, and providing the consumer with tailored financial products and services.

TPM: With its very low rate of financial inclusion, is Mexico better placed than more mature markets, like the United States or Europe, to take advantage of a new fintech ecosystem?

JM: From our perspective, the answer is yes. There’s actually a target out there, to go from 40 per cent financial inclusion to 60 per cent in the next 10 years, and a big part of that is the technology, and how people use technology. Mexico is one of the countries in Latin America that has a larger penetration of mobile phones.

The other aspect is the make-up of the population. We have a very young population coming into their economically active years. That’s also very important, when you compare it to Europe especially.

And the other factor is the rise of people working remotely. An increasing number of people are in the gig economy, not only in delivery and driving, but also in design and finance work, and that’s growing. They too

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need to be financially included to get paid and to able to pay others.

TPM: How do the new digital technologies propel financial inclusion and new financial services for customers in Mexcio?

JM: The established players in the ecosystem are trying to improve their offering to the market, to bring in more people. On the other side, the companies that are fintech by design have very targeted offerings for customers. For example, there are neobanks targeting young people and fintechs targeting Transitioning: Access to proper financialservices is needed by cash-based Mexicans

people in the informal economy and trying to bring them into the formal economy through improved offerings and by making them feel safe in the way that their money is secured, stored and moved easily.

the ecosystem to innovate faster. So, enablers will play a critical role in the years that financial institutions will take to build a new financial infrastructure, compared to the amount of resources that fintechs would have to put in to develop it. This time and resource is better used in developing the core businesses of the institutions or fintechs, whether it is lending, debit card, credit card, or whatever they’re doing. That’s where I see the enablers coming in.

TPM: What can fintechs and financial institutions gain from all the new data that is being obtained through digitisation?

JM: More data in the ecosystem is better for the consumer because, at the end of the day, the most important thing should be the consumer. If you have all the information, you can develop better products that are more targeted to your consumers’ needs.

For financial institutions, the data can help to improve all their risk modelling with more precise information than what they have today, and that should enable better services and products for the consumer.

TPM: How can Belvo contribute in the journey towards open banking and interconnecting fintechs and large financial institutions?

JM: At this point, I think a lot of ‘open banking’ is in conversations.

At Belvo, we see ourselves as enablers of that connection between large banks and new fintechs, helping both sides to collaborate and making the ecosystem friendlier for consumers. We see ourselves as a bridge between financial institutions and fintechs.

We believe that we are building the infrastructure that’s needed for fintechs to be able to access their customers’, or prospective customers’, financial data.

At the same time, we are allowing for banks to share information and access information in a way that’s going to be more useful and make it cheaper and faster for them to develop better services and improve their risk models.

At this point, I think a lot of ‘open banking’ is in conversations.

At Belvo, we see ourselves as enablers of that connection between large banks and new fintechs

TPM: As more financial institutions plug in and play with the fintechs that typically don’t have the customer base or the regulatory insight, how critical will the role of enablers be?

JM: Large banks want to work with fintechs, especially when they find that they can do something really fast which would otherwise take them a lot of time. Now, the size of banks and the projects they’re doing don’t always allow them to open up to all the fintechs that want to work with them.

That’s where enablers can play a big role – in helping banks to open up and helping

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SME SERVICES

An invisible force Banking Circle Co-Founder and CEO Anders la Cour explains how the ‘silent infrastructure behind the curtain’ enables banks to offer global, streamlined and faster services to their SME clients

In September 2019, PayExpo recognised the individuals who had made the most significant contributions to the payments industry over the preceding 12 months. For the second year running, Banking Circle’s Anders la Cour took his place on the shortlist.

As head of the expanding financial infrastructure provider – or ‘super correspondent’ as la Cour describes it since it gained its full banking licence at the end of last year – his influence is likely to be felt even more keenly over the next few months and far beyond Banking Circle’s western European base.

Banking Circle is a new type of bank, exclusively for banks and other financial services companies, which allows them to make the most of the opportunities available in a global digital economy for their customers.

“We started the preparations to become a bank a couple of years ago.

We could see the trajectory of our growth, and the pace we anticipated meant that we had to convert into a bank at some point,” says la Cour of its recent transition.

“We are now a fully-fledged bank in Luxembourg, and we’ll embark on a journey to broaden the services we can provide. Up until now, we have mainly focussed on Europe, because that’s where we had our payment institution licence.

But we’ll be exploring global growth in the next couple of years.”

Offering a full spectrum of services – from accounts and lending, to international payments and foreign exchange (FX) – users can gain the geographic reach and access to markets in which their customers want to trade through Banking Circle. The financial utility enables worldwide payments and settlements through a global account

infrastructure, a global FX capability and a secure and compliant banking platform.

“Everything you need to do as a financial institution, outside of your domestic core, is cumbersome and can be really quite expensive,” says la Cour. “We had the vision to create a super correspondent, where you can plug into one infrastructure that can then give you access to a range of countries and processing methods.

“We have positioned ourselves as a financial infrastructure platform, meaning that we enable financial institutions – be they banks, payments businesses or fintechs – to do what they’re best at; engaging and dealing with their end clients. They can then use us to deal with payments, FX and other core banking services outside of their domestic area.

So no one really sees us, but we are there – the silent infrastructure behind the curtain. We act as a neutral layer between the central banks and the banks that are dealing with the end clients.”

Supporting the world’s economic backbone In just four years, annual transactions going across the Banking Circle platform have risen to nearly $150billion.

It stepped into a void left by the global retrenchment in correspondent banking

Helping hands: Super correspondent Banking Circle will facilitate trade

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www.fintech.finance

services, offering banks white label accounts that bring down the cost and complexity of operating internationally.

The Bank of International Settlements (BIS) claims that correspondent banks have been paring back their crossborder banking relationships for the past decade; they’ve been reduced by as much as one fifth. This retreat affects some countries more than others – jurisdictions with weaker governance and deficient controls to prevent illicit financing have suffered the most – but, certainly in western Europe, it’s often small and medium-sized enterprises (SMEs) that take the biggest hit as a consequence.

That comes on top of an often already strained relationship with account providers. A 2019 research paper by Banking Circle highlighted that limited access to banking services, late payments and restricted credit are growing problems for small business owners.

When you consider that there are 24 million SMEs in Europe alone, constituting 99 per cent of private businesses, that’s not just an issue for individual business owners, but for entire economies.

Banking Circle concluded that ‘for small companies, access to flexible and fairly priced banking services still means the difference between increased sales and selling up. At Banking Circle we’re committed to making sure that access to essential financial services – from lending to bank accounts, crossborder payments and transactions – is not a barrier’.

www.fintech.finance

La Cour believes the solution lies not just in advanced technology, but in cooperation between providers in the chain of financial services moving money from A to B. The bank is now one such critical link underpinning global trade, with plans to make supporting and facilitating flows between East and West a priority over the next couple of years.

La Cour has been consistently clear that Banking Circle would never be a competitor to other banks, even when the company gained its banking licence.

Rather, it greases the rails for clients of firms like Alibaba, whose financial arm is now one of the world’s top 10 banks, to move products and services around the world more smoothly.

We enable financial institutions – be they banks or fintechs – to do what they’re best at; engaging and dealing with their end clients. No one really sees us, but we are there

“We are still in the early stages of working with the Asian markets but we have already worked with some of the very large marketplaces there to help us get the product completely right from a cultural perspective,” says la Cour. “Alibaba is one of our big clients, with a vast amount of bank accounts on our setup. Over the next couple of years, Asia will have a strong focus in our strategy, given the growth opportunities we have seen there.”

He believes that growing up in the European regulatory environment from which many other countries have taken the lead, puts Banking Circle in particularly good stead as it sets an ambitious global agenda.

“In the last few years, the revised Payment Services Directive (PSD2) did a lot for wider transparency in the market. I think you will see the same trends in North America and Asia over the next couple of years. Obviously, all geographies and regions have to apply those trends in their own cultural context but I think some of the same pushes for a more open banking infrastructure will materialise,” he says.

La Cour thinks the open banking movement has had an encouraging if unspectacular start, with more to come.

“If you look at it from a data perspective, I think we can see the realisation of some of the hopes that the regulators and governments had when they imposed open banking legislation.

If you look at the transactional side of things, it hasn’t succeeded yet. But I think it’s just about phases – the first phase nailed the data and a second phase will be more around the liquidity.”

Banking Circle plans to play a significant role in facilitating phase two.

Issue 5 | ThePaytechMagazine

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SME SERVICES

A card, captain, but not as we know it...

G+D’s Andy Ramsden explains how the veteran security solutions provider strives to match the imagination of today’s financial services consumer Challenger bank Monzo took 11 months to gain its first one million customers. Eight months later it had acquired its second million, and just four months after that – in September last year – its third.

How? Well, lots of things go into the mix, but a trendy hot coral pink card that made users feel part of a club has been a big part of it.

“It captured people’s attention. It became a conversation point,” says Andy Ramsden, London-based global solutions lead for G+D (Giesecke+Devrient), a company that knows a lot about payments plastic. And he’s speaking from personal experience. “I was in a pub in Cornwall on New Year’s Eve and got my Monzo card out. The guy next to me took his Monzo card out and we started chatting.

It was like ‘hey, we’re Monzo buddies’!

“But the question is, how does Monzo go from three million to six million customers?

They need to do more than just offer a hot coral card and a cool app,” says Ramsden.

“They’ll do it by joining the dots to offer much more than a core banking service.”

A massive part of any banks’ growth plans, he suggests – be they established www.fintech.finance

institutions or challengers like Monzo – will be to leverage the latest payments technologies to give customers the greatest range of choice. And that’s where G+D comes in.

“G+D are experts in personalising physical bank cards, but once you can do that securely, you can also personalise a phone, a watch, or a fitness tracker,” says Ramsden. Clearly a man of many cards, he continues: “For example, my Lloyds card, which, when it was a physical piece of plastic, existed in one place, can now also exist in my phone, in Apple Pay, in my watch, in SwatchPAY!, a service we’ve rolled out with Swatch. You can have Fitbit Pay on a fitness tracker, it can be a ring, it can be a necklace. This is where G+D offers a rich

At G+D, we see the card as much more than just a payment instrument – it’s also a possession factor you can use for authentication

suite of services, partnering banks, right from the beginning, by creating a good onboarding experience, then a good authentication experience that’s simple but secure with a FIDO-compliant, biometric-based solution using the Europay Mastercard and Visa (EMV) card as an authentication factor, which is proprietary to G+D.” It’s authentication that’s driving much of G+D’s innovation.

“It’s what enables me to use my mobile banking services, day to day: checking my balance, paying a bill, receiving money, sending money, applying for a new loan or a new mortgage,” says Ramsden.

“I’ll want to do this through my mobile when I’m on the train, at an airport or waiting for the kettle to brew. This is really important to us. We want to help banks make the customer journey more compelling and connected.”

G+D is one of the longest-established players in the payments industry, offering physical and digital security technologies that touch millions of people every day, as they pay by cash, card or smartphone, interact with their cars or use their identity documents when travelling.

Issue 5 | ThePaytechMagazine

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SME SERVICES The company that began life printing bank notes is now instrumental in championing invisible forms of payment, and has built its reputation on the ability to adapt, to see what consumer and business requirements are coming over the horizon.

Right now, according to its latest white paper, that’s eSIM-driven technology. eSIM, which stands for embedded subscriber identity module, will drive the acceleration of the Internet of Things and development of devices linked to it, says G+D. That’s because, in addition to secure connectivity, it has a role in ‘protecting user identities, device attestation, application and data integrity and data encryption in the Cloud as well as data privacy at the edge’.

“One of the biggest areas, at the moment, is automotive payment functionality embedded within the

We’ve seen Revolut rolling out metal cards, and a lot of the established banks are looking to offer this as a premium service.

Then there are environmentally conscious, recycled plastic, ocean-friendly cards, and we’re very much involved in wooden cards, so with sustainable solutions, as well.

“Cards are becoming ever more valuable personal statements. They no longer just have the corporate logo of your bank on them; they’re your colour, your material and, moving even further, they will evolve to have richer functionality.”

Intrinsic to this will be frictionless security, he says.

“We’ve moved from chip and PIN to contactless, but we’re also looking at biometrics where you could, in theory, forget needing to remember the PIN and tap for high as well as low-value payments The card of tomorrow: A dynamic CVV code is a powerful anti-fraud tool

car dashboard so that when you pull up at a toll, or a gas station, your payment credentials are stored in it,” says Ramsden.

“All these touchpoints are opportunities for banks, and we can work with a bank at each of them. G+D has a rich history of making bank notes, then bank cards, then SIM cards, but a lot of what we’re doing now is around the digital space, bringing technologies around identity and personalisation into the digital age.”

Cards still have a big role to play in that.

“We grew up in a world where cards were this static utility you kept in your wallet, and only ever came out when you wanted to make a payment. Now, with the rise of the fintechs and neobanks, they’ve become a fashion statement,” says Ramsden.

“The card itself is undergoing not just colour changes, but also material changes.

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but you can also use your contactless card.

Everyone, these days, tends to have a near-field communication (NFC) phone and a contactless card, so how about, when you land in a different country, your bank realises you’re in a different place and says ‘hey, Andy, just prove you’re really there – tap your debit or credit card on your phone through the app’. They can then be fairly sure, especially coupled with biometrics, that it’s me. It’s also a better customer experience because it gets away from the passwords, or one-time password generators, that frustrate us all.

“We’re marrying the physical and the digital. One use case we’re looking at now is to do with the issuing of physical cards.

They’re still delivered in the post and when you open them one of the first challenges is having to activate that card, quite often by calling a customer service centre. Why not just tap it through the bank app? Your biometrics have proved who you are, tapping the card has proved you’re in receipt of it. It gives the customer a really nice experience, and gives the bank a really secure solution. It’s also quite cool. It’s the kind of thing people talk about, you know, ‘hey, I got the card, just tapped it through the app, and I was ready to go’.”

The card has proved to be a great marketing tool – witness Monzo – but Ramsden admits that with the revised payment services directive (PSD2), open banking and application programming

Cards are becoming ever more valuable personal statements... and they will evolve to have even richer functionality – even things like having a dynamic CVV (card verification value) code for card-not-present transactions. Currently, once that’s stolen, it’s a real problem because it’s static, but a dynamic CVV takes away that lost card fraud problem that’s a huge problem for banks today."

A dynamic CVV is one that is generated several times a day and displayed via an electronic ink display screen on the back of the card.

“At G+D, we see the card as much more than just a payment instrument – it’s also a possession factor you can use for authentication. We offer a mobile authentication solution, based around biometrics, through the smartphone,

interfaces (APIs), there is an irresistible trend towards more non-card payments.

“If I want to give you some money for lunch, I can push it from my current account to your current account, no card layer is needed in between. But that doesn’t mean the card is going to go away,” he says.

“When NFC phones came along we all thought that would be the death of cards.”

Rather, he says, the card is evolving alongside other payment methods.

“It’s a matter of providing options for people, who want three, four, five, six ways of paying – with card, digitally or bank account to bank account. When you get to that stage, it becomes more a challenge of identity, rather than around the payment tool.” www.fintech.finance

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SME SERVICES

Retail’s in the detail Suburbia is bucking the personal data trend and focussing on the product. Founder and CEO Hamza Khan explains the ‘alternative’ approach that’s driving retail revenue If you try to avoid data analysts at a party, next time make an effort to seek them out. You might be surprised by what you learn – you might just meet Hamza Khan.

Khan is the founder and chief executive of Dutch startup Suburbia, which is not a ‘data company that has technology’, but rather considers itself to be ‘a tech company that does data’. It works with firms in the payments ecosystem, gathering point of sale (POS) transaction data and sharing it with institutional investors and the companies contributing to its data pools.

For retailers, it promises that it can create revenue from business data within 60 days.

Quite a boast.

‘Don’t ever think data is boring’ could be its brand logo. Using proprietary artificial intelligence (AI) and machine learning, it turns digits into real-life, meaningful insights that could help merchants, banks and even individuals, while crucially protecting

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personal and commercial privacy. Most recently, it’s yielded insights into consumer buying patterns due to the coronavirus pandemic, which proved to be similar across the world – i.e. panic buying of key products.

Suburbia’s stock-in-trade is alternative data. Whereas, before, investors and analysts would be restricted to traditional sources, such as official economic data, company results and consumer surveys, to assess market trends, the mining of alternative information brings huge opportunity, says Khan.

“This could be point of sale transactions, it could be satellite tracking data or data from smartphones – alternative data is an attempt to capture and use all of the data that’s being generated. Why look at high-level data when you can look more deeply, in more detail?,” he says.

“That’s really the difference between traditional and alternative data. Alternative data is faster, it’s better, and one day

it will take over and just be called data.”

The use of alternative data has been made possible by Cloud data storage.

Information that a decade ago was siloed in black boxes, is now linked and accessible.

Suburbia works with its clients to identify and clean up their own data so that it is usable. That could be barcodes or internal product tracking. Data is then de-personalised so that the source is not identifiable, which allows rival companies to share information and benefit from the insights gained from larger data pools.

Clients may also need to be reminded that their own data is more insightful than the reams of chat in the social media universe.

For example, take perceived trends around environmentally unfriendly plastic straws.

Twitter may suggest a switch in attitudes, but has consumption actually changed?

“You can capture the number of tweets about plastic straws, but has that related to a real-world impact?” says Khan. “You are www.fintech.finance

able to see, not only what people intend to do, but what are they actually doing.

“We believe that retailers, which can struggle in the social media data environment, will assume a social media company has more interesting data than they do, because a retailer is old-fashioned.

We think the opposite is true – I personally don’t tweet about every purchase I make, and neither do I purchase everything I tweet about. So, the social media information is indicative but it isn’t actionable, whereas the retailer can tell you whether plastic straw sales are rising or falling.”

Of course, social media metrics can form part of Suburbia's alternative data pool but, in a nutshell, Khan believes ‘you shouldn’t act just based on what you know, you should act based on all the information that’s available out there’.

He says retailers were innovators in the past – brands such as Selfridges or WHSmith made more products accessible to people – therefore democratising commerce. Retailers are now challenged by e-commerce so they must innovate again. And he’s betting on the small guys – the independents who could move to the forefront of the digital revolution, given their ability to quickly implement a point-of-sale terminal that is more up to date than those used by a large incumbent player.

“We believe the key to them regaining their competitive edge is connecting their data and making it more accessible,” he says.

“A study by Forrester Research concluded that 70-plus per cent of the data that’s generated by organisations like retailers, is sitting in a black box and not being connected. We aim to help these retailers turn that data into value.

“More connected stores get us more data. When a retailer switches from its offline POS system that it’s had for 30 years to one of the new Cloud-linked suppliers, it generates data for us.”

The unexpected recent raising of contactless transaction limits (to £45 in the UK and the equivalent across Europe) was a bonus, says Khan, because it will yield data from higher value purchases that may have previously been made with cash.

“In Europe, there’s a tendency towards cash, which means if you’re tracking connected devices that take mobile payments you lose a large amount of transactions,” he says. “So, if people are switching from cash to contactless, that creates more data. Hopefully, it also creates opportunities for more interesting transactions. www.fintech.finance

“Contactless cards are like an entry-level drug – you start off with tapping your card and realise it’s OK, then you’ll feel confident to do it with your phone.”

Capturing aggregated data from the full value chain is one of Suburbia's tactics.

Khan uses the example of a beverage: in the past the only data available was the manufacturer’s half-year or quarterly earnings, assuming they were a publicly listed company, and maybe a research firm's survey about consumer preferences.

“Now, we can gain insight into the manufacturing of the beverage,” he says. “Is it being produced more? Where is it being shipped? Where is it wholesaled? Where is it being sold? If you’re able to track the sales of a product through a period of time, you gain a big insight. Now your marketing department is interested, your treasury and procurement departments are interested.”

Using alternative data also makes sense because previous measures of a product’s performance have lost relevance, Khan explains. Once, retailers depended on indicators such as footfall, or knowing where in a store a product was placed – top shelf or middle shelf? But with the increasingly digital and connected retail environment, the modern shopper may have seen the product on their phone, or found out it is in a retailer’s store, and will visit the shop and buy it, regardless of where it is displayed.

“Whatever metrics you could’ve used to find out information about this customer, you no longer have,” says Khan.

“Taking the example of a book sold at a railway station branch of WHSmith, data could tell you when it was sold, what the weather was like, if news broke which increased interest in a particular topic.

“By connecting to these data sources, retailers are able to target their products more efficiently, which leads to happier customers and more sales.

That’s a win-win.”

Suburbia stresses that its focus is not on individuals, but products. That means companies can confidently share data for the greater good, and privacy rules, such as the General Data Protection Regulation

(GDPR) are not at risk of being breached.

For Khan, a product is a product.

He says: “It doesn’t matter whether it’s being sold to one individual or millions, whether it’s being sold in America, Antarctica or Africa. If you link to a very small dataset and extract huge value, that’s a better approach than trying to figure out everything about an individual and unlocking a little bit of value from that.

“We don’t need to microtarget. Data should be used around the product, making sure it’s priced properly, stocked properly and so on. All of the data we use is aggregated, there’s zero personal information in there. The companies that share data with us never share personal data and that’s what makes us so secure.

“We explicitly state in our contracts that our suppliers should not send us any information about their users, or anything that could lead back to an individual.”

Khan says anonymity also applies to data partners in the value chain, which share a ‘subset of a subset’ and key performance indicators (KPIs) that are not personal to the provider itself.

“We’re interested in companies with information about companies,” he says. “This means you’re able to give indicators about market trends, about which products are in vogue or which sectors are selling, not how you as a retailer are performing.”

Returning to the coronavirus crisis, Khan says Suburbia’s data shows consumer buying trends being replicated across the world. And while his data flagged up the full scale of the retail panic, it could equally predict what happens next.

“When will the economy start to recover? You don’t need to know what individual consumers are doing, you need to know what the broader retail landscape is doing,” he says.

“We see regions where the virus broke out first, versus regions where it hadn’t really taken off, and we saw the same type of behaviour – people being proactive and careful.

It gives you hope that we will tackle it because everywhere people are acting smarter and safer.”

Retailers will assume a social media company has more interesting data than a retailer does. We think the opposite is true

Issue 5 | ThePaytechMagazine

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OPEN BANKING

Rabobank was established in response to an agricultural revolution in the Netherlands.

Now it’s focussed on meeting a financial one, says its Chief Digital Transformation Officer, Bart Leurs ‘Fortune favours the brave‘ must be a mantra close to the heart of Bart Leurs. The man responsible for digital transformation at Dutch banking giant Rabobank knows only too well that courageous calls have to be made to stay ahead of an ever-more competitive industry.

Because, while Rabobank is committed to its roots as an agricultural co-operative founded in the late 1890s – it remains a global leader in financing the food and agriculture sectors as well as sustainable development – it is also determined to bring continual technical innovation to its near 9.5 million customers across 40 countries.

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That means branching out beyond traditional banking operations and firmly grasping the nettle of opportunities offered by open banking. Only then, argues Leurs, will it be able to go toe-to-toe with challengers, including big tech.

In fact, rather than wilt under the pressure of technology companies now storming the market, he implores banks to hearten up. They have a distinct advantage, he says: the sheer scale of their incumbent customer base. Third-party services offered on their platforms have the immediate potential to be used by millions of people already accessing a bank‘s app for their transactional business. And the more tools a bank assimilates, the more traffic it drives over its app, making it ever-more attractive for further third-party providers to forge partnerships with the bank.

Rabobank has not only partnered with fintechs but has also created an omnibanking service for customers of other leading banks in the Netherlands, including ABN AMRO and ING. There is safety in those numbers.

“We have become an omnibank app in the Netherlands, but as Rabobank,” says Leurs. Neither is it just concerned with providing financial services over its app.

“There is a lot of interest from other players because we have around two million visitors per day. It is a great platform for others to use,” says Leurs. “For example, we are running the first test with Green Home, which is an organisation that helps you to make your home more sustainable, and we give it space in our app to help our customers do this.

“So, it doesn’t have anything to do with finance, it’s not banking, but it’s another service that is helping you as a customer.

We see huge potential interest in this area because the bank’s app is just so popular.”

The bank is not solely relying on third-party providers to widen the gamut of services available over its app, though.

Its in-house Moonshot accelerator development programme has a proven track record of successes, such as Tellow, an automated bookkeeping app for the self-employed, and account verification service SurePay. After 15,000 of its own customers in the Netherlands signed up to Tellow, Rabobank spun off the service in 2018 to make it available to other banks. Meanwhile, SurePay has proved so successful in the Netherlands that it has also been spun out and is now being made available in the UK and other parts of Europe.

Another recent innovation has seen Rabobank’s digital development team working with Google on Google Assist, which has allowed customers to carry out basic banking through voice command, such as balance requests and alerts for spending limits. And last year, Rabobank was among a consortium of shareholders to invest €20million in Luxembourgbased mobile payment platform Payconiq, which provides an app for instore and online payments as well as P2P (person-to-person)payments using QR codes – a payment system that’s seen widespread adoption in

www.fintech.finance

Asia but which has, hitherto, been far less popular in Europe. With the might of the big banks behind it, that might change.

With an increasing number of Rabobank customers opting to do their banking digitally, which, even pre-pandemic was in excess of 75 per cent of them, Leurs says there is a real need for better solutions and, vitally, more consumer choice for mobile payments. It’s agnostic about who it works with, so long as that objective is met.

Explaining Rabobank’s approach, he says: “We have launched Apple Pay and we have stepped into Payconiq, an initiative started

by ING to create P2P payments in the Dutch market as a competitor to Apple Pay and Google Pay, etc. That’s good, because it creates more opportunities for our clients.

“P2P is still a space that is not, I think, fleshed out. There are still many providers that want to play in this area and we, as banks, want to make sure clients are not only relying on the tech players for payments, P2P, online or in-app.”

As banks, we want to make sure clients are not only relying on the tech players for payments, P2P, online or in-app

www.fintech.finance

Being a first mover, also means being brave enough to call a halt on projects if the market isn’t yet ready for the innovation it promises. One such example was the bank’s shelving of its cryptocurrency service Rabobit, developed by its Moonshot team, amid concern about the lack of a unified global legislative approach to cryptocurrencies. The bank nevertheless says valuable lessons were learned about designing blockchain and crypto applications, and it is keeping a weather eye on any regulatory changes that indicate the time is now right for such a solution.

For its business customers, which number around 800,000, Rabobank is investing in specific services to complement its existing Rabo eBusiness platform, which was developed in partnership with Norwegian digital trust provider Signicat.

“Tellow, the solution for small and medium-sized enterprises (SMEs) in the Netherlands, that came out of our own Moonshot campaign, is currently still standalone. But I see that also, in the end, being integrated into the app, so that an SME/self-employed person can do their bookkeeping from the banking app very simply. That again creates new interaction between clients and the bank,” says

Leurs. “This is a major shift for our organisation. In the past, and it’s not so very long ago, most client interactions were in branches. Now, almost all the interaction is in the app, except for mortgages. We have two million visitors and about 100 million transactions per month, and we see an opportunity to build the app as a platform for different services for our clients, even if they’re not banking related.”

He is conscious that the world has changed dramatically in the past few months. “Our main priority now, during the COVID-19 crisis, is to support our customers in times of financial stress – technology and innovation prove to be very helpful in that respect. In a very short period of time, for instance, we transformed our digital SME lending platform Fundr to fully serve as a platform for bridging loans, enabling us to extend credit faster to businesses who needed it.”

Going forward, there are big questions for banks around open banking: about legacy banks’ business models and the consequences of brand sharing. Rabobank doesn’t pretend to have all the answers.

“But we do see it creates opportunities,” says Leurs. “We’ve really looked at the challenges for clients, what we have that could fix them, and shaped all the innovation projects around them, connecting all that we do to the mission of the company, which is ‘Growing a Better World Together’.”

Brave moves: Rabobank is taking a lead in remodelling legacy banking

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OPEN BANKING

Upwards and onwards: ING‘s policy is to develop, invest in and then either spin out fintechs or keep them within the company

Benoît Legrand, CIO of ING and CEO of ING Ventures, discusses the Dutch bank’s strategy to keep it – and its customers – out in front We’re used to the concept of a bank for millennials, but ING is the original millennial bank. Born during the internet boom of the 1990s it’s grown up during two decades of change and uncertainty, driven to stay one step ahead – too far ahead sometimes perhaps. Who remembers the payment wallet Yucom that it teamed up to create with British Telecom 20 years ago?

“Innovation in financial services can go very fast once it reaches a certain stage,” says Benoît Legrand, who combines the role of chief innovation officer at ING with that of chief executive of ING Ventures, the bank’s venture capital arm.

And the Youcom wallet may have been a little too prescient. “Often there is a disconnect between what the customer is able and willing to do, in terms of changing behaviour, and what the technology can offer.”

But that hasn’t deterred the bank from being visionary – and now that’s more important to its strategy than ever. With the financial services market crowded with challengers, it’s clearly focussed on keeping the advantage with its Think Forward enterprise-wide plan, which is about ‘creating best-in-class, omnichannel financial platforms that offer services beyond banking’ . That means embracing and shaping through selective investment, advances in big data, artificial intelligence (AI), machine learning (ML), deep learning and a host of other technologies that trip off the tongues of industry insiders and consumers who, five years ago, were asking ‘what’s fintech?’.

What characterises these new technologies, and makes them so compelling for banks, says Legrand, is that they can reduce risk.

“Digitisation tools make a lot of sense in an industry where there is a great deal of complexity and huge data volumes,”

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he says. “For one, it helps to identify money laundering and other fraudulent activities, and it helps with credit risk and risk management in general. The core of banking is really ‘just’ risk management, and risk is a function of knowledge, which in turn is a function of the data you have.”

Open and collaborative Being able to access more data, and draw insights from it, also leads to better customer-oriented applications and the personalisation of banking – something the ING Labs, which bring disruptive ideas to market by working on blockchain, AI, open banking and other technology initiatives, help to deliver. Among many fintechs to emerge from the Labs is Katana, an AI tool that helps bond investors to easily find and compare interesting trade ideas.

In this instance, traders are the customers who benefit after Katana became the latest idea to be spun out of the labs as an independent fintech, backed by ING Ventures, earlier this year.

Legrand says ING is happy to share ideas and see its work inspire others – the goal being to empower people and business. It’s manifested in ING’s open and collaborative culture and embodied in ING Labs. These creative centres, located in Amsterdam, Brussels, London and Singapore, bring disruptive ideas to market by combining ING’s knowledge and network with the knowledge and skills of other organisations.

ING is committed to collaborating on existing platforms and creating new ones, whether working with startups, scaleups, researchers, entrepreneurs, or other corporates.

The framework for all this – the Think Forward strategy, which has been running since 2014 – has seen ING partner with many organisations to bring disruptive ideas to market faster. Among those, it has worked with Deloitte, the Centre for Economic Policy Research (CEPR) and Amazon Web Services with the aim of gaining a deeper understanding of financial needs and behaviours and then using those insights to help people make better financial decisions.

In ING’s words, the Think Forward strategy ‘aims to create a differentiating customer experience by simplifying and streamlining our organisation... striving for operational excellence... enhancing the performance culture within our company, and... expanding our lending capabilities’. www.fintech.finance

Transparency is another defining characteristic of the strategy.

“We have three different platform plays,” says Legrand. “The first is to transform ING, itself, into a platform bank, and build all the different services that a customer might need, which includes connecting to other banks and service providers when they can strengthen our proposition. The second, in parallel, is we’re building our own, independent platforms such as Yolt and Cobase, which we think will generate plenty of business in the coming years. And third, we’re using platforms outside ING.” Legrand recognises that customer needs are evolving fast, and that ING must keep on accelerating its own transformation to stay in front. This was spelled out by ING in 2016, when it defined key actions to support its foundations, businesses, and future vision. The foundations would be improved by simplifying and streamlining global support functions to help ING collaborate better across borders and innovate faster. Complementary businesses would benefit by being united and therefore able to offer those ‘services beyond banking’. And finally, the future vision would be served by creating a ‘united ING’ offering a single experience to people and businesses worldwide.

The changes signalled by the revised Payment Services Directive (PSD2) in Europe, and other open banking initiatives, have created the right environment for innovation and collaboration, and ING has been quick to respond.

“We saw PSD2 as an opportunity, not a challenge,” says Legrand, “and we were ready to seize the initiative because innovation and thinking ahead are part of our DNA. Yolt is a good example of this.”

Backed by ING, Yolt is a money management app that helps people keep track of their finances and make better decisions by offering them a smart and aggregated view on their accounts. Launched in the UK in 2016, it was the first example of a third-party provider connecting with all of the UK’s largest banks. Yolt’s single dashboard integrates users’ bank accounts (including savings and credit cards), and can be accessed by customers in the UK, Italy and

France. It enables, for instance, users to see how many days are left till pay day, predicts balances according to direct debits, and highlights changes in spending patterns.

Yolt now has more than 1.3 million registered users, says Legrand, and at one time it had more than 70 per cent of all open banking volumes in the UK. Since November, it has aggregated accounts for digital bank Revolut, allowing customers to analyse transactions, set budgets, monitor spending and manage investments in one place. Yolt is also partnering with Raisin, the pan-European savings marketplace.

“Retail might be more visible, but we are also quite active in the wholesale banking market,” says Legrand, referring to the multibank platform Cobase, which he describes as another ‘concrete application of open banking’. Cobase provides treasurers of corporates a single access point to their bank accounts from various financial service providers as well as other financial products and services.

“Companies that hold accounts with different banks face many inefficiencies,” says Legrand. “They have to use different portals to interact with their banks and other financial service providers, and often multiple enterprise resource planning connections have to be maintained. The more different banks and accounts a company has, the more complex it gets.

Cobase unravels this.”

ING’s commitment to joint ventures and fintech investment is evidenced in many other projects. In addition to Katana, ING Ventures currently holds about 30 investments, including in FinCompare and Eigen Technologies. FinCompare is a German financing platform for SMEs, and uses automation to create financing solutions for customers’ specific needs or creditworthiness. Eigen is a London and New York-based provider of natural language processing (NLP) technology, and will help to develop use cases for retail and wholesale banking.

Across all its projects, ING is making the most of opportunities presented by open banking and fintech progress.

“Our mission is clear,” says Legrand.

“We must always stay ahead to empower people to stay ahead in their lives.”

Risk is a function of knowledge, which in turn is a function of the data you have

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OPEN BANKING

Leveraging APIs: Using the right tools reaps benefits

RATCHET IT UP! The open banking toolbox is being left on the shelf, says Stephen Walsh, Sensedia's Director of Sales for EMEA. Beyond compliance, many banks still haven’t grasped its full potential By failing to plan, you're planning to fail – so said American founding father Benjamin Franklin.

And, surely, when a bank commits to a new IT development there must be a good strategy behind it? Well, apparently not always when it comes to the adoption of application programming interfaces (APIs), a key element of open banking.

Brazilian software firm Sensedia still encounters bankers who invest in them

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purely to meet regulatory demands or, worse, just to tick a box.

“We’ll be told ‘yeah, we’ve done open banking, we’ve got it, we’re there’,” says Stephen Walsh, Sensedia’s director of sales for Europe, the Middle East and Africa.

“If I hear this, my next question is how much money are they making out of it?

APIs are supposed to be a technology initiative that allows firms to reach new customers with new products, but some banks are doing none of this.”

Sensedia is a developer of tailor-made APIs for clients in the retail/e-commerce, insurance and banking sectors. In its home market of Brazil, interest in them is growing fast, given the country’s aim to finalise open banking legislation later this year, after two years of work overseen by the country’s central bank. Open banking partnerships between fintechs and banks already exist there, but industry

participants have been asked to help mould how the system should formally operate going forward. The course being taken is similar in nature to the UK’s Open Banking legislation and the revised Payment Services Directive (PSD2) for the European Union. But Brazil will also employ a phased launch approach, as adopted in Hong Kong.

Sensedia already has banking clients in Brazil – such as Banco Topázio which sells forex services via 80 fintech third parties, and Portocred, which offers white-label credit services via retail partners.

Walsh was hired last year under the company’s international growth plans to steer sales in EMEA – and he says nailing down a bank’s strategy is vital before an API plan can be formed.

“It’s about us really understanding the customer’s business,” he says. “It’s easy to say ‘the customer’s business is banking’. www.fintech.finance

Yes, we get that, but we must drill down.

What are they trying to achieve? What is the five or 10-year plan? Then, and only then, can we move forward with a technology strategy.

“We need to know the business drive, because without that no one will pay for the investment needed, plus the chances of success are far lower. Having open banking APIs for regulatory compliance is fine, but what happens when you stretch the boundaries a bit?

What if you embrace more change?

“The key is to get business more involved in open banking. Talk to the product owners in the banks – whether that be insurance or wealth management, we want those people to say ‘I want my products and services to be more accessible to my bank’s customers, or to my third-party partners’ customers‘.”

Access all areas So that a customer can develop its strategy, Sensedia employs what it calls an open banking playbook to guide and suggest use cases. Security is clearly an important component of that when considering how data can be shared, subject to legislation such as the General Data Protection Regulation (GDPR) covering customers in the EU, and understanding permissions. Sensedia has templates to help explain and implement security through the API lifecycle.

Walsh says: “Because banks are indeed opening up their systems, security’s got to be paramount. Banks must consider who can access what data, where and when, and also make sure that the data owner – and, under GDPR, the data owner is key – has the ability to accept or decline data sharing.

“So, we’re trying to help banks not only embrace a whole API strategy, but also merge that into their security offering as well.”

But improved sales should be a motivating reason for adopting the open banking model – sales of your own products or the ability to sell a third party’s – says Walsh. And there can also be value for a bank in opening up its customer base to others.

Walsh says: “Any time you do something new there is a risk; whether that’s putting in a new IT infrastructure, or moving from a traditional core banking platform to an open banking environment. You need to www.fintech.finance

understand those risks and manage them.

But banks must consider, if they don’t move forward, where they will be in five years and who will have leapfrogged them.”

Good for business Walsh acknowledges that open banking demands a mind shift.

“Sometimes, it’s difficult for banks to understand that it’s a two-way thing. It’s not just the bank selling its products to new people; it’s a bank selling someone else’s products to new people, or indeed to their own customer base.

“For example, a bank may need a quick and easy credit application. How does it do that? Does it build it itself? Or does it partner with someone else? If taking the second option, APIs and an open banking infrastructure will reap rewards.

“To grow as a bank, you either acquire new customers or sell your existing customers new products – or maximise your return from either or both of those things. And APIs help banks to do this in a much more agile fashion than in the past. If we’re looking at people banking via an app, banks can say ‘here are some

APIs are supposed to be a technology initiative that allows firms to reach new customers with new products, but some banks are doing none of this new products. Let’s test them out on a small subsection that we think, demographically, might be the early adopters for this. Let’s understand whether they are willing to be part of this experiment’.

“Banks don’t want churn of customers, and if they have the ability to offer new services to those existing customers it clearly reduces the risk of churn. But it also increases the potential benefits of selling those customers new products, new services, and making their experience more delightful.”

Walsh points out that those two clients

in Brazil – Portocred and Banco Topázio – ‘really started from nothing’ but grew fast due to their clear strategy of selling white-label banking products via third parties.

“By sharing its data, Portocred white-labels loans to other customers and so reaches parts of the market they couldn’t reach themselves, but it doesn’t take away from their own customer base,” he says. “And Banco Topázio makes its data available to 80 fintechs, which are effectively reselling their forex services.

So, the fintech doesn’t have to build a forex service, it’s already there from Banco Topázio, and Banco Topázio doesn’t have to find 80 retail partners.

It’s a real win-win situation.”

Data is another motivator for API adoption, says Walsh, with banks getting more from their artificial intelligence if it can trawl through a bigger pool of information on customers. Although an established bank’s data will be rich, given that customers often remain with a bank for a lifetime, it will have little or no insight into the financial products a customer buys from other providers.

And the in-house data held by rival banks may be very similar.

He says: “If banks partner with other organisations, that just enriches the data pool. If I’ve banked with HSBC for 30 years, then HSBC knows my salary, etc. But it doesn’t know about the insurance purchases I make, about any third-party loans I take out, or financial instruments I’ve bought elsewhere. Imagine now, in an open banking world, this data can be shared among different vendors, if the customer allows it. Then the richness of that data allows a bank to make a far more targeted approach to a type of customer.

“Using this new technology, it’s much quicker for banks to make that offer.

Before open banking, marketing was largely done by mailshot. I don’t think the new generation of bank customers are interested in something coming through the post. But this new targeted approach is better for the customer, and banks can quickly test what works and what doesn’t.

“Returning to my original point about strategy, I said banks needed to ask ‘what is open banking doing for me?’. If they can harness data in this way, open banking can help them make huge progress.”

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OPEN BANKING: NORDICS

Norway’s third largest savings bank has moved out of its comfort zone – and its geography – in the last couple of years.

Launching first Buffer, an invoice financing solution for small businesses in 2018, and then mobile-only Bulder Bank for retail customers last year, Sparebanken Vest stepped boldly into the open banking arena, pulling all the levers put at its disposal by the revised Payment Services Directive (PSD2).

Until that point, its operations had mainly been confined to the west of the country, but its app for existing account holders had already been rated the best out of all the main banks’ in Norway, according to iTunes and Google android reviewers.

The challenge then was to export the idea to the whole of Norway as a standalone, mobile-only bank.

“We immediately saw we couldn’t offer the same kind of product in other parts of the country,” says Kjetil Sørtun, the company’s head of banking services. “So, we looked at what kinds of customers we would like to have there and found there was a group of people who have another view of what a bank is.”

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Kjetil Sørtun, Head of Banking Services at Sparebanken Vest, describes its journey from legacy institution to mobile trailblazer and banking as a service provider These new mobile customers don’t look to a bank simply to move money around.

“They need something different, they are trying to understand the world in a different way,” says Sørtun.

Bulder Bank was therefore conceived not as a new bank, but a ‘new experience’, for which Sparebanken Vest took its cue from Big Tech companies that have constructed their phenomenal customer bases by looking, as Sørtun puts it, ‘from the outside in’. In other words, seeing what the customer sees and listening to what the customer is saying. And what they wanted was a real-time, cross-channel experience, available 24/7, one that was customer-centric, rather than accepting the product-based approach that traditional banks had offered in the past. The conservative aim is to have 20,000 customers for Bulder Bank by the end of 2021.

“Every bank looks the same from the outside. They market themselves in the same way,” says Sørtun. “We looked at what Netflix and Google do and tried to make it just as easy to be a customer of ours. You shouldn’t have to talk to the bank to get something done. We should talk to you.”

Looking at what is useful for consumers and prioritising it over the usual bank offerings, required effort on Sparebanken Vest’s part. But it was also hugely helped by a national

infrastructure that favours open and digital transactions across many areas of Norwegian life.

“For a lot of the data, we don’t have to ask the customers” says Sørtun, “it’s available from the government. We use that in the onboarding process, when we look at who the customers are and what they are doing. We also use it to try to understand what kind of product we should be building for them. We enrich our current bank data with government data, and data from open sources, then apply machine learning to understand the products customers want – not just bank products.”

Bulder Bank, which operates under the Sparebanken Vest licence, but operationally stands alone from the bank, also benefited from the regulatory oversight and infrastructure put in place by its parent.

“We have everything: risk management, compliance, back office, onboarding. So, when we started building the new bank, we could just concentrate on the kinds of products we wanted to offer and the kinds of customers we wanted” says Sørtun.

“A challenger bank has to think about all these things. It made it possible for us to move faster.”

Sparebanken Vest's experience of building Bulder Bank is a case study in diversification, which has been helped by the Norwegian banking industry’s approach to doing business. It didn’t need an EU directive to understand the term ‘open’. While it has become a buzzword in the financial services industry, used as shorthand for how companies connected through application programming interfaces (APIs) can offer best-in-breed customer experience by combining the digital services of multiple firms, there were already well-established co-operative relationship between banks in Norway.

DNB, the country’s largest financial services group, for instance, was the driving

www.fintech.finance

force behind Vipps, the omnipresent Norwegian mobile payment application launched five years ago and now used by 3.2 million of Sørtun’s countrymen.

Sparebanken Vest has a stake in Vipps.

“We are using the platform to try to build a new infrastructure based on mobile numbers, not account numbers, for payment transactions,” says Sørtun.“This is a new way for banks to come together to try to build better solutions. It’s learning by doing; trying to understand the customers’ needs and not necessarily having the best solutions individually, but being a part of it and building it with other banks.”

Another example of how embedded such co-opetition is in the Norwegian banking system, is DNB’s early aggregator tool, which gathers information on customer accounts held with other providers. Recently, it went a step further by allowing its customers to make transactions from those accounts within the DNB app. Bulder Bank has plans to introduce a similar aggregator tool.

Strength in numbers Much of Sparebanken Vest’s digital programme is collaborative by nature.

“We actually use a lot of Nordic vendors,” says Sørtun. Among them is Nets’ Access to Account Services (NAAS) platform, which allows payment initiation and access to account information through a single API, giving banks the freedom to build customer-facing services on top.

“We have an IT department of 150 people, which is small compared to the big banks and the techno vendors,” says Sørtun.

“So, we use the best of our partners to build out offerings for the customer.”

Sparebanken Vest is also the banking-as-a-service partner (and investor) to Nordic startup Folio, the standalone invoice financing tool offered by the bank to any customer, regardless of where their account resides. The app connects to an SME’s accounting system and analyses accounts receivable. The liquidity ‘buffer’ is triggered as soon as an invoice is issued.

There are no onboarding fees and users pay one per cent interest only on the money they spend from the buffer facility.

Folio itself was launched as ‘the bank that does the accounting for you’. With a linked business payments card and app, it plans a phased release of features during 2020, including the ability to send invoices, run payroll, calculate tax deductions, employer tax and holiday allowance, automatically post expenses charged to the Folio card, generate emails or push notifications when money goes in and out of the account, as

We’re not trying to offer a new bank; we’re trying to offer a new experience, and we are trying to make it easy to be a customer of ours

well offering day-to-day management assistance and advice.

Another example of Sparebanken Vest making good use of third-party tools is subscription management provided within the Bulder Bank app by Danish white label partner Subaio.

Subaio gives users an overview of their various subscriptions and recurring payments, allowing them to cancel a subscription with a single click. Sparebanken Vest was its first banking customer in Norway.

While other countries might not necessarily view subscription management as a ‘must-have’, in the Nordics, which leads the subscription economy with two to three times as many subscriptions per capita as the rest of Europe, such a tool makes absolute sense.

It’s a real demonstration of how the bank has looked at what is useful for consumers and prioritised it over the ‘usual bank offerings’.

The rapid adoption of open banking is being driven by multiple evolutions in the industry – new technologies, fintech competition and regulators, especially in Europe. But the latter are now lagging behind the industry, says Sørtun.

“Banks are seeing benefits, on the cost side, on the customer side, on the tech side, of being more open in mindset.

I think there will be a PSD3, but I think it will be a different kind of regulator approach.

There will be less banking and more customer-centric services.”

An ‘open’ landscape: But Norway’s financial ecosystem is crowded with partners

www.fintech.finance

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To change banking and lending, you need to be able to change yourself.

mambu.com

Compose the bank you want to be .

OPEN BANKING: NORDICS

Keeping an open mind In the same way that Ikea revolutionised interiors, the Nordics’ financial services see open banking as a ‘flatpack moment’ for their industry.

Georg Olav Ramstad, Nets’ Head of Sales and Business Development for Open Banking, and Paul Walvik-Joynt, Senior Vice President of Payments International, discuss what it is about the Nordics that makes them so good at knocking digital pegs into the right holes It’s been with us for more than two years and we’d talked about it for a decade before that, but when it comes to describing the progress of open banking, Georg Olav Ramstad reaches for a wartime simile: “To paraphrase Churchill, I’d say we are just at the beginning of the beginning of the journey.”

While open banking remains a live topic that is regularly touched upon at conferences, he says its potential is still not being fully exploited by most banks in Europe. www.fintech.finance

Instead, as head of sales and business development for open banking at the Nordics’ leading payment solutions provider, Nets, Ramstad observes that they are primarily focussed on complying with the revised Payment Services Directive (PSD2). While an important step on the journey towards open banking, it isn’t the destination, he says. And, even then, there’s no sense of urgency. PSD2 required regulated institutions to have application programming interfaces (APIs) ready to connect with third parties

by September 2019. “But when we arrived at September, very few banks had them – and by February of this year a lot of banks still weren’t ready. It demonstrates we are only at the start.”

Open banking is about creating an ecosystem that connects all the dots – be they in the retail, travel, health, public or any other sector – to where they intersect with our financial lives. In doing so, it readdresses the relationship individuals have with their money. And, compared to most in Europe, Ramstad believes the Nordics are a long way down that open road. There is a particular hunger to innovate here – for very good reason. (And, yes, flatpack furniture is one manifestation of it).

“Some of the most efficient companies in the world come from the Nordics, like Ikea. What I think drives these forces is that we have a society in which inclusion

is important. If you look at the sprawling geographies of some Nordic countries, if you can do something more efficiently with technology, it’s adopted very fast,” says Paul Walvik-Joynt, senior VP of payments international at Nets.

Mobile banking and digital payments are both examples of the Nordic lust for simplicity and inclusion. Homegrown instant payment platforms, including Vipps, Swish, iZettle and MobilePay, are all ubiquitous. Mobile wallets, contactless cards and real-time clearing have gained remarkable traction, so that today, the share of cash used for payments in the Nordics is down to 27 per cent, and the share among consumers aged 30-39 is just 15 per cent. Card payments are two-and-a-half to four times higher than the European average. Local person-to-person (P2P) mobile payment apps top the app download charts.

Maybe one of the reasons cash use is nose-diving is that here digital has proved just as good.

“Instant payments allow you to transact just as fast as you could by taking a note from your pocket and giving it to someone. We’ve removed all the friction and, if you put open banking and PSD2 on top of that, the world is your oyster,” says Walvik-Joynt.

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OPEN BANKING: NORDICS Norwegian regional bank Sparebanken Vest is one example of a legacy bank hoping to prize that pearl free by contextualising a customer’s journey through their data.

“Sparebanken Vest are now launching the first fully mobile nationwide bank in Norway – Bulder Bank – by taking the opportunities presented by PSD2 and open banking,” says Ramstad. “So, for example, in addition to having account aggregation, they will also adjust your interest rate according to how your financial situation develops over time.”

The Nordic infrastructure deliberately ties the financial services community together,

Key to the journey: Banks should position themselves as the customer’s lodestar

enabling Nets to develop initiatives that are geared toward contextualisation of data, says Walvik-Joynt.

“We like to participate in the ecosystem, but we also like to be a catalyst for great ideas. So, we see a lot of different elements, since we work on different parts of the infrastructure: services and applications that I think are going to be able to both provide services, and have a good dialogue with larger, smaller, incumbent banks and fintechs, to understand how they can create the services that are going to be relevant, not only today, but three, four or five years from now.”

A case in point is digital receipts.

“We’ve built one application programming interface (API) that connects to all the digital receipt providers in

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Norway, such as Zeipt, and banks, like Sparebanken Vest. It is the first bank we have partnered with in this area, to get access to receipts through that API, so they don’t have to connect to all the providers by themselves,” says Ramstad.

Zeipt, a young company that struggled to get its concept of a world without paper receipts taken seriously, credits Nets with having the foresight and market influence to jumpstart its business.

Banks at the centre Digitised receipts are just one example of the kinds of innovations that have begun when it comes to streamlining a customer’s

not just financial, are created around them.

Payments are just the start.

“These days, you have two to three bank relationships, four to six credit cards, loans in different places, assets in different places.

So, all in all, it’s almost impossible for anybody to have full control,” says Ramstad.

But banks are missing a trick if they don’t position themselves as the key touch point that unifies and simplifies all these separate financial activities and more. Walvik-Joynt believes banks should be actively building themselves a place from which to dominate a landscape where more and more people are dependent on applications on their phones and other devices.

“All of us spend a large amount of time on our mobile phones, but, in general, we use only 10 to 15 apps per day. And how many of those are banking or financial apps? Not that many,” he says.

For a bank app to become the lodestar for consumers, dependably guiding them through a confusing galaxy of choices, innovation in connectivity is key. And when you put instant payments alongside instant messaging and mobile banking, you raise the bar of what is possible, he adds.

“You’re not only removing friction from a customer journey, but you are enabling businesses to act, and react, just in time. You

All of us spend a large amount of time on our mobile phones, but, in general, we use only 10 to 15 apps per day. And how many of those are banking or financial apps? Not that many

journey with their financial data.

Walvik-Joynt expands on the idea: “There are a lot of technologies that help us in doing that. We have authentication methods that are becoming biometric, we have artificial intelligence that will help us in terms of contextualising where you are, what you’re currently doing, and how you fit the payments technology into that, so that it becomes completely seamless for you. That’s going to be the most exciting thing that happens in the next couple of years.”

Ramstad and Walvik-Joynt both see a future that moves beyond open banking to a world of open data, where control rests with individuals but all kinds of services,

can create processes that are more seamless, and the customers will enjoy that much more because there will be a journey in which the steps that might have previously taken time are now done instantly, and you are able to move on to the next task.”

Nets is inviting more people to contribute, innovate and create processes that continue to energise innovation, as it enables the payments ecosystem in the Nordics.

“The force of the wind that will blow us into the future is so strong that you’d better be there, because it’s going to be really exciting how this pans out,” says WalvikJoynt. As the man said, the journey’s only just beginning. www.fintech.finance

9

6 35 %

%

of bank payments fail because the beneficiary data is invalid or out of date

of payment data goes out of date each year

%

of bank payments fail due to human errors when inputting bank payment Account number and/or bank code

Since 2010, we have validated over £1Tr in payments and saved over £1Bn operational costs for our clients.

Want to find out how Apply Financial can solve you payment validation problems?

Email : sales@applyfinancial.co.uk Tel: +44 333 012 4618 Follow us on @applyfinancial.co.uk Some of Our Customers

OPEN BANKING: NORDICS

Do you want a receipt?

Pockets stuffed with receipts, but you can never find the one you want? Young entrepreneur David Alexandre Salvail co-founded Zeipt to offer businesses and consumers a tool that could make physical paper receipts a relic of the past. The good news is that their digital equivalents save time, money and the planet When David Alexandre Salvail’s young fintech team went out to ask shoppers what they thought about paper receipts, the overwhelming majority (79 per cent) described them as a waste of time and resources. In fact, they routinely binned nearly three quarters of them. Which probably explains why, when it came to finding the one they really needed, they couldn’t

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– or, if they did, it was too faded and crumpled to be of any use.

‘We are confused as to why we are still printing paper receipts’, concluded Zeipt, the startup Salvail co-founded.

Aren’t we all?

It takes more than 53 million trees to make the thermal paper receipts churned out by point of sale machines each year.

What’s more, recycling rates are pitiful, according to The State of the Global Paper

Industry Report, at just eight per cent of all the thermal paper produced. You could have filled up the Empire State Building 213 times with the amount of water required for its manufacture in 2018, and its production contributes the same level of carbon emissions as 3,808,000 cars.

The environmental damage caused by paper printouts, combined with their inherently poor functionality was the inspiration for Zeipt, which not only www.fintech.finance

Really worth it?: The economic and environmental cost of paper receipts is off the scale

but rather provide a set of application programming interfaces (APIs) and tools for physical retail to be able to seamlessly send receipts and for digital financial services to be able to automatically receive them. From there, they can offer additional services to their consumers as they see fit.

“Open banking is able to integrate services in a retail environment that makes the purchase flow and consumption more seamless. Through closer collaboration between retail and digital financial services, you can start creating experiences for consumers that are quite unthinkable today, that merge finance and consumption in a seamless way. And we can talk for hours about all the other cool stuff that you can do. Our goal is to make a receipt not a manual object that’s sent in a pdf, but a dynamic object, a channel for communication.”

It's all part of the transformation of payments. To quote KPMG: “In a new world of open banking and APIs, the greatest value exchange taking place on payment systems will be found in transactional data rather than the transactions themselves… data has the potential to transform the payments industry value chain.”

So much more potential Zeipt’s ambition is that, for every digital payment, there will be a digital receipt transmitted to a customer’s personal financial management (PFM) app with their bank. But it’s the level of detail that attaches to it that’s important.

“Let’s say the retailer wants to add information about the blue suit you bought today, such as where it was produced and the environmental footprint of its production. When details of the purchase, including brand and store, reach your PFM tool, it might say ‘I think maybe you should start buying your suits at such and such a store, because an equivalent blue suit there could save you £20’.”

Zeipt could also help retailers target the missing millions who are not part of their loyalty schemes.

“Loyalty schemes cover around 15 to 20 per cent of a given customer base,” says Salvail. “The other 80 to 85 per cent are just

In Norway alone, there are almost two billion transactions that demand a receipt

seeks to make them redundant, but to redefine the very concept of a ‘receipt’; to turn them into digital ‘channels for communication’ that provide so much more than proof of purchase. Having successfully partnered with Nordic payment giant Nets, Zeipt is just beginning to demonstrate the potential of its concept. Open banking is key to its development.

“Without open banking, I don’t believe you could digitise receipts to the scale that we aim to digitise them,” says Salvail. “We want to be an enabler. We don’t want to create another app, we don’t want to be in the face of the consumer or the retailer, www.fintech.finance

customers. So, even if I went to the same shop three times, they don’t know that. Our goal is for retailers to connect spending to a customer, so that they can say ‘oh, David was back here. He buys milk and hot dogs on Wednesdays. We’ll knock 10 per cent off milk and hot dogs on Thursdays for him.”

Salvail sees other obvious applications in the retail renting and upcycling economies, giving consumers huge detail about a product’s history through the receipt.

“It merges retail and finance in a way that gives you, as a consumer, oversight of your information. And I can do stuff with that information, as well,” say Salvail.

A problem for us all From making the sending of receipts for business expenses quick and easy, to creating a fuller overview of what a customer is spending on, and giving financial services the ability to offer advice on the products and services they are using, Zeipt gives consumers more purchase data in an actionable fashion. Banks, meanwhile, can reach the consumer through more relevant interfaces.

The Zeipt agenda is inspired by reducing waste – both in terms of financial cost in the retail value chain and in cost to the planet, the latter of which is communicated via the Zeipt Project.

“Our Zeipt.com website is for people interested in working with us; explaining how it works, how much it is going to cost, etc,” explains Salvail. “The Zeipt Project sheds light on the impact of receipts.

“If you break it down, each receipt costs a lot. In Norway alone, there are almost two billion transactions that demand a receipt.”

Zeipt has calculated that a typical hardware shop, printing 100 receipts a day, could save €500 a year in print, paper and handing costs. Scale that up to a chain printing thousands a day and the economic argument quickly stacks up alongside the environmental one. All those tiny little print-outs aggregated together could have a dramatic impact on a corporate’s ‘green bottom line’ and ethical investor sentiment.

“We’ve talked to consumers, we’ve talked to retailers, we’ve done in-depth research on the resource side, on the impact side, and also shed a positive light on the players that want to join us in solving this,” says Salvail. “They can be our competitors as well as our partners, because this problem is bigger than Zeipt.”

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INNOVATION

Going to tremes With a promise to deliver an ‘out of the box’ offer in 100 days, Natixis Payments’ startup Xpollens is the latest addition to a family of service providers that share the same impatient fintech DNA, says Fabrice Denèle, Senior VP of Strategy and Partnerships Open banking promised greater integration of services and providers are drawing closer by the day. So much so that, with all the spinouts, fusions, acquisitions and strategic partnerships, figuring out who’s working with whom is a bit like unpacking Russian dolls.

Take Xpollens, the barely one-year-old paytech child of Natixis Payments, which is itself part of France’s Groupe BPCE and financial services giant Visa. This new arrival uses its parents’ combined application programming interfaces (APIs) to offer a white-label, ‘out of a box’ payment solution to other fintechs, retailers and corporates.

With a full range of products, from cards to instant payments, Xpollens enables clients to focus on their core business and take full advantage of the benefits offered by open banking and the EU’s revised Payment Services Directive (PSD2).

Fintechs and neobanks can benefit from Xpollens’ handling of all account creation, know your customer (KYC) requirements and card issuance, while retailers can easily offer their own branded

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payment solutions and transaction services. Meanwhile, corporates can use Xpollens to create employee payments cards for day-to-day expenses and other business-related purposes.

It is anticipating increased demand for its payments solutions due to safety concerns around the COVID-19 pandemic.

The startup considers its structural diversity its strength. “Our goal is to serve fintechs, but a significant part of us is fintech,” says Fabrice Denèle, Xpollens’ senior vice president of strategy and partnerships and member of the management committee of Natixis Payments. “It’s in our DNA. It’s genuine.”

Behind Xpollens is another fintech created by Natixis Payments called S-Money, which it uses for, among other things, payments and account management. Incidentally, S-Money – whose mission is to make the payment process as simple, smooth and secure as possible – was itself founded by Groupe BPCE in 2011 and then spun out to become a subsidiary of Natixis Payments. It counts fellow French paytech companies E-Cotiz and Le Pot Commun as its own subsidiaries.

Natixis Payments has gone on to strengthen its service offering through more fintech acquisitions in the areas of issuing and acquiring. One of them is e-commerce plug-in provider PayPlug, the company behind successful payment widgets such as Shopify, Magento and PrestaShop, and a European challenger to US paytech market leader Stripe.

So, you believe Denèle when he says: “We feel we are in the very best position to understand the fintech need and to serve them straightaway.”

Unveiled at last year’s Money20/20, Xpollens initially piloted its offer with two

companies.

One was French financial assistance app Linxo, which enables customers to view and manage their money across multiple accounts for which XPollens ‘refined with them all the features and components of their solution’. The other was Spanish savings app Coinscrap, which rounds up card purchases and transfers the difference to a separate account.

The Xpollens solution was used to similar effect with that company, demonstrating its versatility across the payments spectrum.

Charting new territory The past year has been a learning curve for Natixis Payments.

“It was clearly a journey for us because we had to completely change our mindset,” Denèle says. “So we did.

What we have come to understand is that fintech business is about developing fast and making it simple. Time for these fintechs is money. They don’t want to deal with complexity.”

Working with Visa and through the Xpollens service, Natixis Payments aims to make the processes of onboarding and provisioning shorter and easier.

“The DNA of Xpollens is ‘you need an offer and we will elaborate it, working with the fintech to make it happen in 100 days,” says Denèle.

Next up for Xpollens is a collaboration with Oney Bank, which was launched by www.fintech.finance

Speed machine: Xpollens eliminates complexity for fintechs, fast

Fintech business is about developing fast and making it simple French retailer Auchan in the early 1980s and now counts Groupe BPCE as its major shareholder. Oney’s aim is to become the European leader in split, or instalment, payment solutions, much like Splitit in the US or Swedish startup Klarna, the latter of which Visa also has a stake in.

Oney is seeking to launch a digital bank at European level, using the technical expertise of Xpollens, and it recently announced an agreement with PayPlug, www.fintech.finance

meaning its split payments service is available for merchants using the Natixis Payments subsidiary’s service.

Challenging the boundaries In future, Natixis Payments plans to extend Xpollens’ solution to retailers and corporates that have struggled to offer branded payment services.

One way is through co-branded cards.

“This was not a target at the beginning,” says Denèle, “but the legacy way of doing it is a card issued by a bank. This can be disrupted under PSD2 with our white-label offer, because we can grant more visibility to the corporate brand.”

Xpollens is aiming for major European economies including France, Germany, Italy, Portugal and Spain. “Wherever we serve fintechs, we can take on the full package of complexity – regulatory or technical. I hope we will be at European scale within three years,” says Denèle, adding that COVID-19 is a new challenge for fintechs that it can help them meet. As far as the UK goes, he says it has ‘different options, depending on how Brexit unfolds.’

Politics or pandemic, it’s another layer of complexity to unpack.

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INNOVATION

It’s a fair swap!

To fully embrace open banking means to share both customers and data. For Jamie Broadbent, Head of Digital and Innovation at RBS International, that’s no bad thing

Jamie Broadbent has a vision to set the ‘prisoners’ of banking (aka bank customers) free.

Given that he is employed as head of digital and innovation at RBS International, part of UK high street giant RBS Group, that may seem odd. But he argues that RBS, like every other legacy institution, must look beyond its traditional business model to offer a suite of services to customers that will be nothing like how we perceive them today. And that, essentially, means letting go… becoming ‘open’.

“For the longest time, customers have felt almost prisoner to their banks because of this perceived difficulty of moving and being able to port financial data,” says Broadbent.

“So, open banking really is a game-changer for the financial services

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industry, in that it embraces the fact that we now have technology and application programming interfaces (APIs) that enable people to port data quite easily and regulation around that.

“The theory is that it’s going to drive greater consumer choice and, hopefully, more competition in the marketplace.”

While that hasn’t yet materialised in the UK – the first country to introduce open banking in 2018 – to quite the extent predicted, digital challengers such as Monzo, Starling and Revolut have quickly taken advantage of the footholds created by open banking and been followed by others, including RBS itself, which launched its mobile-only, standalone neobank Bó with a suite of personal financial management tools in November.

The increased innovation within the marketplace, driven by open banking, is something that everybody benefits from, says Broadbent.

“It gives us is an opportunity to deliver

new and exciting customer propositions. While, historically, the bank had a very siloed approach to its data, we saw we could use what we had access to, to deliver a service offering for those customers,” says Broadbent. “Open banking allows us now to port different aspects of data, from all angles of a customer’s life and, by overlaying different data, we can start to deliver really value-added, hyper-personalisation for our customers. That’s really exciting.”

One considerable but wholly understandable factor holding back the pace of change so far is banking customers themselves, Broadbent says.

“We’ve probably spent the last decade telling customers that they need to protect their data, to not share their data and keep it safe. And now we’re saying ‘actually, there is an opportunity for you to move your data more freely’, obviously within a secured and regulated environment, but customers are rightly www.fintech.finance

Brave new network: More joined-up banking is inevitable

apprehensive about who they share their data with, and what authorisations they allow.

“So, it will be kind of a gently, gently approach. But, over time, as customers start to gain faith and trust in the different market participants, that ability to move freely will ultimately deliver great value for all our customers.

“The hope is also that it will drive greater collaboration, because different market participants will realise the benefits others bring, and through partnerships we’ll see some really exciting propositions. I guess, ultimately, it will be the consumer who decides, and that’s where we really need customers to be more active.”

That greater industry collaboration has already seen RBS strike a partnership with Mastercard, Motive Partners and EFM Asset Management to form Pollinate, a global merchant services company. Using a platform called Tyl, jointly developed with NatWest, Pollinate will work with banks around the world to provide retailers with services including payments, business management and marketing connectivity, with the aim of becoming a major player in the international payments space.

RBS has partnered, too, with Gemalto to develop the UK’s first fingerprint biometric contactless payment card, which removes the need for a transaction limit by providing an extra layer of security.

But Broadbent believes that’s just the start. The convergence of artificial intelligence (AI), big data, distributed ledger technologies (DLT) and quantum computing will leverage much more. www.fintech.finance

“Historically, banks have sat on literally mountains of data, and not really had the means to unlock the value that existed there, just because there is so much. With the advent of AI, we’re now getting to the point where we can start to harness the value of that data and use it to interpret for our customer the next actions they should take, predict things that may happen and alert a customer to them before they arise.

“The great thing about AI is it never sleeps, gets tired or has an off day, and it doesn’t miss things.

So, in a 24/7 world, the ability to have AI constantly running, scanning and checking what the horizon looks like on behalf of that customer, is invaluable, and far superior to what a human would ever be able to do.”

Where does he see that AI driving us?

“Look at what’s happened over the last 10 years,” he says. “Effectively, we’ve gone from primarily physical banking, where people go into a branch for their banking, to predominantly digital banking.

But, ultimately, it’s still something that customers have to do; they have to take positive action and log in. The truth is, nobody wants to do that. We’ve all got busy lives, we all want to focus on the

things that really matter the most to us and moving money is not really one of those human-centric, value-added activities. So, I think, in the next 10 years, AI will give us the ability to move to invisible banking, where you say ‘look, you’re constantly checking the horizon for me. I trust you to go and make those decisions. Just go do it’.

“In the future banking will migrate to the background, enable people to live the lives they want to and not have to worry about money, because that’s all being taken care of.”

That paradigm shift in bank/customer relationships will be supported by advances in DLT and quantum computing, says Broadbent. Using unhackable DLT will allow individuals to have one transferable digital identity, removing the ‘constant pain’ of proving who they are to different organisations, while quantum computing ‘allows us to do an infinite amount of processing in a split second’.

“That brings great opportunities and incredible risks, because things like traditional encryption of PINs and passwords will almost become redundant when you’ve got a supercomputer that can hack them in a split second,” says Broadbent. “This will lead to greater reliance on other security measures, like biometrics including voice.

“This is still the earliest of stages for some of these technologies,” he adds.

“But you know, we really can’t wait to see where the future goes.”

For the longest time customers have felt almost prisoner to their banks because of this perceived difficulty of moving and being able to port financial data

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INNOVATION: CLOUD

A silver lining?

The COVID-19 pandemic has been grim and the impact on our lives – including our financial lives – profound. But when the storm has passed, banks could reflect on this moment to crystalise strategies that create more resilient systems, says Ciaran Chu, Head of Public Cloud for ACI Worldwide There’s no denying it, coronavirus has dramatically changed the way we shop – maybe forever. As entire populations isolate, people and businesses are relying on digital payments to keep things moving.

From supermarket deliveries to dog walking services, hard cash is no longer king.

According to electronic payment and banking solutions giant ACI Worldwide, the retail sector saw a dramatic, 74 per cent e-boost in March, compared to the same month last year. Online gaming, enjoyed a surreal surge of 97 per cent.

But not everyone is kicking back with FIFA 20 or parked on the sofa with Grand Theft Auto. There’s also been 97 per cent spending growth on home products and furnishings, and a 163 per cent rise in online purchases of garden essentials. It seems that, whether your self-isolation project is renovating your home or binge watching the whole of Netflix, digital payments are the way to go and that’s putting stress on digital infrastructure and frontline services.

It’s not all about consumer spending, of course. As supply chains become stretched, cashflow and processing business-to-business (B2B) payments – including crossborder – faster, is also of concern to many. Meanwhile, businesses are relying on banks to quickly scale up and disburse government-backed funds to keep them afloat. Figures from UK Finance show UK banks nearly doubled the number of business loans for those impacted by coronavirus in a week, but it’s not nearly enough. By mid April, a meagre 21 per cent of the 28,460 applications made since the government-backed loans were announced almost a month earlier had been approved. Nor were the 300,000- plus businesses that had made inquiries getting the information they

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needed in time. In April, Wells Fargo, one of America’s biggest banks, encouraged customers to look elsewhere for state-sponsored help – it simply couldn’t handle the weight of inquiries.

Such lumbering paces can trigger catastrophic results. In the UK, the number of firms going bust surged by 50 per cent over four weeks, according to the London Gazette.

The pressure to quickly process loans and transactions has never been fiercer, so what can cause a hold-up?

For the experts, two words spring to mind: controls and capacity. And ACI Worldwide’s Ciaran Chu says an effective way of addressing both lies in the public Cloud.

Control issues Many Tier 1 banks, caught up in legacy controls and processes, with often antiquated systems, have become overwhelmed in times of stress. In the aftermath of the 2008 Financial Crisis, there are also more rules to follow than ever before, with hefty fines for non-compliance.

Cloud-first fintechs, on the other hand, are liberated from legacy to focus on agility, navigating market trends and – fundamentally – focussing on their customers, according to 2017 Deloitte research. But they don’t (yet) service the majority of customers in either business or retail banking.

Like a bucket of ice-cold water in the face, the COVID-19 pandemic has thrown traditional banking systems into shock.

Lengthy approvals and long-winded checklists are not cutting it as they cling to established, internal systems. But could this be the opportunity of a lifetime for banks to loosen their bodices and adopt a more responsive, Cloud-based approach?

“The pandemic has been an eye-opener for banks. While all are at different stages

of their tech journey, this will accelerate it. Many are already feeling the need to do things differently, and not for the short term,” says Chu, head of public Cloud at ACI Worldwide, the provider to more than 1,000 financial institutions and intermediaries, as well as thousands of global merchants that execute (even in normal circumstances) $14trillion a day in payments and securities.

According to some analysts, in 2019 more than 30 per cent of banks worldwide were saying half of their expenditure over the next two years would be committed to new, Cloud-based applications. And ACI Worldwide is certainly seeing the pandemic urgently focus clients’ minds on business continuity, capacity and flexibility offered by the public Cloud.

Companies across the spectrum are accelerating or modifying plans to adopt remote-hosted systems to ensure future operational resilience (which, even pre-pandemic, was top of regulators’ concerns for 2020).

“Many companies will be asking whether their operational risk control process is up to scratch, and if it can be made more effective,” says Chu. Previous internal objections to Cloud adoption are likely to be removed, especially perceived concerns around compliance. In that conversation, some empty cans probably need to be kicked down the road; Cloud hosting can in many ways be seen as more secure than legacy on-premise systems, not less – although it’s true that more uniformity between regulators’ attitudes and approaches is needed.

There’s no denying, though, that the pandemic has highlighted the limitations of the status quo. For example, in the UK, rigid controls around communication and confidentiality mean most banks’ customer call centres cannot operate www.fintech.finance

Up and away: Getting Cloud-ready could be the silver lining for banks amid this crisis

from home; a major roadblock, amidst social distancing rules.

“A lot of processes and controls banks thought they might never have to use, they’re now having to,” says Chu. “For instance, anyone with an offshore team is now struggling with the fact they can’t access networks, because they haven’t got the proper VPNs and other measures in place. It makes them ask, ‘is our control process actually fit for purpose when we need to react in a truly urgent situation?’.”

So, what could current, on-the-hoof changes mean for customers long term?

Chu cites an example of how a more flexible, Cloud-based and digitally informed approach could have a massive impact at street level – literally.

“When I go for a run or walk, every Monday, I notice people queueing round the block for cash machines. The second or third time I saw them, I realised it must be a government credit payment coming into their accounts that brought them all there, at a specific time on a specific day. As a consequence of the pandemic, we’ll see banks improve their controls to disburse money more effectively, so that www.fintech.finance

people don’t have to queue up to check if it’s arrived,” he says.

“Think about the Revolut model, for example. There is no reason why, if a lot of people have smartphones, you can’t issue them with prepaid cards or prepaid accounts, digitally. It’s about saying ‘what problems do we really need to solve for our customers?’. This goes back to data, leveraging insight analytics, machine learning and artificial intelligence (AI) to segment data better and figure out ‘who’s in most need of X, Y, and Z? I can see this subset of customers are probably going to be worst affected. Therefore, we need to react like this’. It’s about going above and beyond what a bank would traditionally do.

“Cloud gives you, at its simplest, a clearer focus on your customers, so that you can be more scientific in how you target them and win business. Secondly, it ensures organisations give themselves time to think about customers, as opposed to all the other distractions they have in running their infrastructure.

For me, the biggest benefit of the Cloud is that it allows you to get closer to customers and focus on what matters.”

A lot of processes and controls banks thought they might never have to use, they’re now having to... It makes them ask ‘is our control process actually fit for purpose when we need to react in a truly urgent situation?’

Capacity concerns Linked to control is the battle for virtual space. For years, data storage and compliance headaches have gone hand-in-hand. Issues around confidentiality, security and confusing, abstract concepts about Cloud technology meant that, for many, the subject got sidelined. It’s easy to see why: you want your compliance department to be cautious; it’s also often overloaded with pressing frontline work and time-sensitive audits. So, while investing in virtual storage is a compelling time and money saver for financial institutions long term, it hasn’t been priority number one – until perhaps now.

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INNOVATION: CLOUD Managers – including those in organisations maintaining private Cloud infrastructure that might find they can’t build data centres fast enough – need to be looking skywards, says Chu. Because the likelihood is that demand for public Cloud access will ramp up when the world is out of crisis mode, especially if, as seems likely, recent digital transaction volumes continue to remain high.

“I can see there is going to be a really big issue, coming out of this, which is cashflow,” adds Chu. And not just cash flow, but data flow.

The Cloud has enabled challengers such as Nubank in Brazil to scale out and up at rocket speeds. Dwarfing Revolut’s 10 million customers, this mega-fintech boasts a colossal 20-plus million customers in Brazil alone, serviced by just 2,400

and more of them to look to ensure they have more effective backup solutions, because if they’re seeing more transactions, and they don’t have the capacity to monitor them, there’s more chance of the system failing to work or needing patching. The best way to avoid that is to have a Cloud solution ready to rock. It doesn’t burn effort and resource and they have what we call a ‘sleep-at-nightability’ if we’re handling it for them.”

Under its managed solution, ACI Worldwide invests on the client’s behalf in reserved instances, the data providers’ way of forward-selling capacity as insurance against the kinds of data volume spikes seen in recent months as everyone hits their phone or tablet.

“Reserved instance is so important because if there is a spike, all of a sudden, everyone is trying to push functions into

have all required colocation capabilities, so partnering with Equinix has been a massive help in addressing any questions clients may have about latency. Our new partnership with MYHSM is an interesting addition to our offer, which reduces the capex and management cost associated with a hardware security module (HSM). Being able to say we can give a client HSM on demand, as well as colocation services, and manage all of that for them, means ACI can better serve our customers in evolving their solutions and build trust.”

What does the future hold?

Banks, like the rest of us, are reaching for new ways of working in response to the biggest global health emergency for decades. And fewer security risks, faster software enhancements, increased agility,

Cloud gives you, at its simplest, a clearer focus on your customers, so you can be more scientific in how you target them and win business employees. It had the advantage of writing its core banking system to be Cloud-enabled from the get-go; the ongoing rollout of public Cloud for others who are not Cloud-natives has highlighted some valuable lessons for ACI around adoption, says Chu. “Banks and financial intermediaries are looking to improve their time to market, and leverage the Cloud to do that. But what they don’t want to do is take two steps forward by offloading some of the compliance and operational controls, and then find that they have to do a load more application monitoring and other technical pieces as a result of that.

“There is a market opportunity here for a full managed service. The advantage with that is that you, as a bank, can focus on your customer, your product setup and the operations that define your customer experience. Let somebody like ACI, which is an expert in technology, pick up the management of the technical infrastructure while you can get on with being the bank.

“A lot of, if not all, the banks, are in a kind of heightened change phase because of the pandemic,” says Chu. “We’re expecting more

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the Cloud and you’re all trying to grab the same computing at the same time, leading to a slow response. Our reserve instances ensure we can scale up solutions in the Cloud quickly,” explains Chu.

A partnership approach In December, ACI Worldwide announced its collaboration with Microsoft to use public Cloud infrastructure to store data from banks, fintechs and other financial companies. ACI will license its Universal Payments technology to customers for implementation using Microsoft’s Azure Cloud computing service. ACI’s on-premise customers will benefit from enhanced security and lower long-term capital expenditure, by adopting a scalable Cloud-based infrastructure.

“Clients want ACI to make the journey to the Cloud easy for them, and our partnership with Microsoft is key,” Chu said at the time.

In fact, partnerships of all kinds have helped ACI Worldwide respond to changing client needs.

“Our partners have been crucial to our Cloud-optimised journey,” says Chu. “The acquirers that we’ve put live, for instance,

better response times and improved speed to market are just some of the benefits of adopting a public Cloud approach, says Chu. He believes there is a light at the end of the tunnel for those that make that move.

“We support a number of systemically important institutions across the world, and many have put in change freezes,” says Chu. “So, right now we’re really focussed on supporting them during the pandemic, but we’re also taking the time to go through future roadmaps with clients, lean in to them to understand how we can help accelerate their plans when this is over.”

While coronavirus has created a bunch of new challenges, it has also highlighted problems that have long needed fixing. In supporting efforts to save businesses and individuals from financial ruin, banks have discovered their limitations. Perhaps there is a silver lining. Years from now, when the storm has passed, the system could look very different. We may even find that a massive migration to Cloud technology ensured the vitality and stability of our financial institutions, thus ensuring they could deal with crises not yet imagined. www.fintech.finance

Helping clients during the phases of the pandemic crisis Services and insights for responding to unprecedented challenges, rebounding effectively, and reinventing ways of working

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INNOVATION: DATA

The value exchange

Wells Fargo’s Head of Innovation, Lisa Frazier, believes one of the most compelling use cases for artificial intelligence will depend on customers making judgements that change the role of banking Digital technologies such as artificial intelligence (AI), data analytics and the Internet of Things are making banking increasingly intuitive, if not invisible. Even the most basic of accounts can help customers manage their money, avoid overspending and keep to their budget.

At the heart of this move from transactional banking to ‘behavioural banking’ is access to personalised data – and a customer’s willingness to share it comes down to whether they think the ‘value exchange’ being offered by banks is worth it, believes Lisa Frazier, head of innovation at Wells Fargo.

She’s long advocated the benefits of www.fintech.finance

using AI in banking and financial services, and for a wide range of applications, including security and compliance. But Frazier sees its real benefits lying in personalisation.

“We see the future in being a coach for financial health – doing very different things than we are used to, in real time to help the customer make their decision with the best information that they have.

That’s what AI is really about. It’s an exciting area, because you start to see the creativity of humans, coming together with machines, and doing things we never thought were possible before.”

That ambition is evidenced in Wells Fargo’s Control Tower solution, available across devices, that gives customers a streamlined view of their finances. Tools include card management, simple on and off permissioning of data sharing, and a recurring payments feature for customers to easily identify and cancel any subscriptions or memberships they may no longer be using, thereby saving them money. A logical next step, which others, including Yolt in the UK, have taken, would

be to beef up the latter into what is, in effect, a consumer advice service, curating specific markets, be they energy suppliers or car dealers, to find cheaper providers and help people to switch. This is where AI data analytics proves useful in providing ‘new experiences to help people achieve future financial health or achieve their financial goals’, says Frazier.

“Before, banking was very transactional but it will move into these behavioural experiences that allow customers to be better off in the future. It’s real-time reminders of things that will make their life better. But the customer remains in control, not the bank. The bank can’t judge, right? It’s up to the individual to make the decision and take action.”

It has to be said that we often aren’t up to doing that on our own. And, while there has been a lot of debate about ‘unconscious bias’ being programmed into AI, machines can, in fact, help to address the unconscious bias that humans are themselves victim to, believes Frazier.

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INNOVATION: DATA “One example is that everybody knows they should have a retirement or pension account, but 50 per cent of millennials don’t and the unconscious bias is to defer that long-term decision as long as possible, just because it’s too hard and it feels like homework,” she says.

The data trade-off Wells Fargo’s newest accounts – a cheque-less account for a monthly flat fee of $5 and another which includes cheques for $10 a month – both promise alerts to help customers stay on top of their finances, alongside access to a mobile banking app and the bank’s Control Tower solution. The accounts are scheduled to be available from early next year.

Further down the line, Wells Fargo looks set to increase such financial management functionalities, as highlighted by its recent tie-up with highly successful tech player Plaid. The San Francisco-based firm, which is being acquired by Visa for $5.3billion, will enable the bank’s customers to connect their account information, using a single, tokenised ‘handshake’, to third-party apps available through Plaid’s application programming interface (API). It will also allow customers to switch off such data sharing. The service is expected to be available to some customers within months.

Such partnerships are a necessary feature of the US market in the absence of federal data-sharing regulation governing financial services. There is, as yet, no equivalent to the EU’s revised Payment Services Directive (PSD2). But, despite there being no nationwide legislative framework to work by, innovation clearly isn’t being hindered, says Frazier. Neither does she believe that customer privacy is under threat.

“There have been a lot of changes around privacy in the United States, most recently in California state law, with other states following, that has consumers’ interests at heart.”

Frazier stresses that, at Wells Fargo, ‘the data is owned by the customer’. “Wells Fargo doesn’t have the rights to that data, to freely use it as it wishes, and nor does any other organisation – be it Google, Amazon or others,” she says.

But she has noticed a clear shift in public attitudes towards data sharing and the ‘value exchange’ – the trade-off between customers sharing their data and the financial and other services they receive in return from banks.

“What customers believe today about what’s fair exchange – what they would give their data for – may be different in the future,” says Frazier. “Just as generations before us saw things differently. Everything is an evolution, but the customer, and their preferences, and the exchange for the value they get, is what’s important.”

Further and faster Founded in 1852 at the peak of the Gold Rush, Wells Fargo claims that, for generations, it’s been helping people go further, faster – from exchanging gold coins for paper cheques, to enabling online transactions, ‘we’re continually innovating so our customers can get ahead’, its website declares.

Innovation is our responsibility if we want to do well by our customers and evolve banking services

“Innovation is our responsibility if we want to do well by our customers and evolve banking services,” says Frazier.

To that end, the Wells Fargo Startup Accelerator, now in its fifth year, makes up to $1million of funding available to develop emerging technologies in pursuit of those breakthroughs in financial services. The startups also receive guidance from Wells Fargo business and technology leaders to help refine and scale their companies.

This year’s virtual, six-month programme welcomed Argo and The Climate Service to the portfolio, taking the total number of startups to 25.

“Wells Fargo continues to invest in and work closely with fintech companies to help integrate their big ideas into the banking services of tomorrow,” says Frazier.

“Teaming up with Argo, The Climate Service, and other startups in the accelerator programme, helps us look past the current horizon to disrupt, innovate and deliver the experiences customers demand.”

Argo, based in Montpellier, France, develops augmented reality technologies to build new business models and experiences that bring to life print and digital mediums, providing just-in-time contextual information, anywhere and without a manual search.

The Climate Service , meanwhile, working out of Durham, North Carolina, enables corporations and financial services firms to measure, monitor and manage their financial risks and opportunities related to climate change.

“We’re always looking for bright new startups that have potential to solve some of our biggest problems as a bank,” says Frazier. “It’s also about creating a mindset and culture in the bank that fosters innovation at the closest level to business.”

Fintech investment: Frazier’s team scans the horizon for promising startups

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Hooked on tech: Lithuania is emerging as a leader in fintech ecosystems after huge effort

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LOCATIONS: LITHUANIA

Going

fintech fishing in the

Baltics

Doug Mackenzie travelled to Lithuania to see how the country has brought together public and private organisations to create a fintech hub. Here, he talks to Mantas Katinas, General Manager of Invest Lithuania, about attracting foreign capital and raw talent The USA, UK, Singapore… and Lithuania.

This is the fintech order of magnitude, according to the first annual Global Fintech Index, published in February this year.

That a country of just 2.8 million people, which hadn’t previously pulsed on anyone’s radar as a serious tech challenger – let alone one snapping at the heels of Europe’s leading financial services hub – stole into the spotlight, is perhaps an indication of how atomised financial services have become. Eight of the world’s 20 most important financial centres do not feature in the Index’s top 20 biggest fintech hubs.

On the other hand, it might reflect the Lithuanian government’s ruthless determination to create a greenfield site for fintechs and treat them like A-listers – which, indeed, many look certain to become.

Invest Lithuania’s recent analysis of the sector indicates that the number of fintechs operating in the country increased by 24 per cent to 210, and the jobs they generated rose more than 30 per cent www.fintech.finance

to 3,400 during the 12 months to February 2020.

Among the best known to have already taken up residence are trading platform Stockinvest.us, alternative currency payment gateway CoinGate and peer to peer investment platform NEO Finance. Shortly after the report was published, Israel-founded Clearshift announced it would be expanding its Vilnius office by hiring anti-money laundering and compliance specialists on the back of an electronic money institution (EMI) licence issued by the Bank of Lithuania. Revolut, the UK-based EMI, which also holds a banking licence, as of last year, in Lithuania, has beefed up its Vilnius base as it migrates Central Eastern European customers to Revolut Payments UAB, the Lithuanian entity set up as surety against a hard Brexit.

Regtech and identity services, along with digital banking and lending firms, have increasingly sought to join the Lithuanian fintech ecosystem, which has until now been dominated by payments and remittances.

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LOCATIONS: LITHUANIA Around a fifth of these fintechs and paytechs expect to raise at least €5million over the coming year, says Invest Lithuania, and 16 per cent are looking to raise between €1million and €3million. Companies in regtech, wealth management and digital currency anticipate the strongest growth, supported by government-backed development of the financial services infrastructure, which prioritises developing robust risk mitigation and cybersecurity, with a focus on anti-money laundering (AML) and combating the financing of terrorism (CFT).

Mantas Katinas, general manager of Invest Lithuania, is confident that the country will hang onto its newly recognised status and achieve the government ambition of becoming ‘one of the financial powerhouses of Northern Europe’, attracting global inward investment.

He explains Lithuania’s sticky inward investment strategy: “We select specific industries, worldwide, in which we believe Lithuania could create a better competitive advantage. We have about 15 of those and we try to develop the specific, unique selling points for every industry with an existing infrastructure, talent, scalability and regulatory environment. We are looking for companies which would consider investing in Lithuania, just through those USPs. “For fintechs there is a complex regulatory environment, because they need something that is not common in other industries: they need a licence and a central bank that is quite customer-oriented, and an infrastructure headed by a customer-focussed commercial bank. In some countries, it’s just hard to cooperate with commercial banks.

Companies need to have a supplier chain that is helping you collect the product, but you don’t need to build everything here in Lithuania.”

The government’s and regulator’s ‘can-do’ attitude is a distinct advantage, says Katinas.

“The mindset here in Lithuania is aligned with our goals. When fintech companies say ‘we need something’, our political leader says ‘we’re going to get that’.

For instance, we are focussing a lot on compliance and technology, on customer

onboarding procedures. We see that fintechs have specific demands in their KYC procedures; some compliance procedures for big banks or for medium companies might need to be adapted for specific business models. So we select the data, highlight the things that need to change and negotiate with central banks and some of the other authorities to implement them.

“It’s not easy to create such things in other countries, because you need to connect the different industries, associations and government to play into the same vision. And that’s happened here with fintech.”

Technology was our blue ocean to connect with the western world and compete as equal partners

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A signal of that buy-in going all the way to the top in Lithuania was the presence of the President giving a keynote speech at Fintech Inn, the international fintech conference held in the Baltics in November.

“The conference is the place to connect with the world, talent, companies and venture funds,” says Katinas. “In the last three to four years, our investor numbers have grown by 50 per cent year-on-year.

We had 170 fintech startups a year ago. In November there were 100 new e-money licences being considered by the central bank. I hope that Lithuania, in the near future, will have at least 500 fintech companies, including international ones, and companies from Asia and Israel, that

could foster some really important innovation in this region.

“Once a quarter, we invite our foreign investors into the Invest Lithuania office to meet with the central bank, and we have a two or three-hour debate about what’s happening around the sector, and what, if anything, needs to change.

We also survey our clients to ask ‘what do you think could be changed?’.”

His organisation is now looking to connect with fintech innovation centres and universities to test some of those suggestions. There is certainly no shortage of technical expertise to handle it.

Baltic speciality: Fintechs and paytechs are smoking hot in Lithuania

“I am 40-years-old and I remember, about 15 years ago, when the younger generation decided we needed to build a business that was export-oriented,” says Katinas.

“It was naturally easy for us to build this with technology. For the younger generation, technology was our blue ocean to connect with the western world and compete as equal partners. Twenty years on, we see that ecosystem is mature enough to compete, and even outcompete, western colleagues, with old-fashioned industries. So, yes, Germany is very good in the automotive industry, but we can build the software for autonomous driving, and it can be better than theirs.

“Young challenger countries don’t need to compete in old industries; we compete in the new ones, and here we are all equal.” www.fintech.finance

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LOCATIONS: LITHUANIA

Holding a balance Marius Jurgilas is known to many as ‘the godfather of fintech’ in Lithuania. A Board Member of the central Bank of Lithuania, he explains how the regulator is integral to digital transformation and how it manages the trade off between innovation and risk The banking system in Lithuania can be classified as highly concentrated, efficient and profitable. It’s concentrated due to there being very few players in the market, with most of those being foreign banks from Scandinavia. It’s efficient because Scandinavian banks utilise cutting-edge technology. And it’s profitable because the banks operating here think of it as a captive market; they don’t feel any pressure.

Consumers tell us that new fintech services are being provided but we don’t know what the right price for those services should be. As regulators, we believe that the market should set the price, but that the market should also be fair. Since I took office, we have been trying to increase both that fairness and the ability for fintechs to compete across multiple and different market segments.

All the changes that we have introduced as a central bank have been targeted on that. How do we create an environment that brings in more competition, that provides incentives for established market players as well as new market players to innovate and do that at a fair price?

Supervisors are designed to avert failure. But, if, all of a sudden, you realise that you are supervising a market with no activity, then what exactly are you doing?

You need to balance instilling innovation and the new risks that brings with

‘controlled failure’. If you create a system with no failure, then that provides the wrong incentives. If you do not care where you put your money, because the state, or the supervisor, or the system, protects you, there will be abuses. But, to believe that every single individual in the economy understands your financial system, and, if they mismanage their funds, it’s their problem, is also pushing to the limit the notion of market freedom.

We need to have a balance.

That balance is between consumer protection – how much should we protect an individual and how much should we ask him to make his own decisions on accepting or not accepting risks – and providing incentives for firms to innovate.

The incentive to innovate is an incentive to spend money. And no company in the world will spend money if it doesn’t have to. So, you have to create the possibility for consumers to switch, to ensure that there is no captivity of consumers formed by long-term and tie-in contracts – something that regulators all around the world right now are investigating. Why is it the case that people are changing their partner much more frequently than their bank? How do we make sure that they know they have a choice?

RISK

How do we make sure that society has been weaned from the things that we have been used to doing – things, like using cash, because it’s convenient?

Maybe we have been convinced it is convenient. But it costs society a lot of money, in the order of two per cent of GDP in fact. That’s how much we can save, if we move to much more efficient ways of facilitating economic transactions. Are there costs associated with that change?

Yes. Change is difficult, as always.

The Bank of Lithuania does not position itself as only a national regulator. We believe the companies operating in Lithuania can go global – and we are encouraging them. So, to remain relevant, the Bank of Lithuania is required to be part of global discussions, to be shaping the policies in the European Union, and to address the concerns of multiple stakeholders, be that consumers or small and medium enterprises. All their issues need to be understood by us.

So, what do we need to do? Invest in capacity, invest in understanding new business models and adjusting to the changing society.

RE WARD Why is it the case that people are changing their partner much more frequently than their bank?

A tough act: As regulator, the Bank of Lithuania must encourage innovation while protecting against failure

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LAST WORDS: BOOK REVIEW

The Endgame no. It’s just the beginning...

So, full disclosure: I am one of the co-authors of The Paytech Book.

I am also a massive fan of the Marvel Cinematic Universe, especially the scene in Avengers: Endgame (spoiler alert) where everyone, and I mean everyone, comes back through the portals – best three minutes in cinema!

What’s that got to do with paytech?

Well, I was lucky enough to attend the launch signing event for The Paytech Book (full title The Payment Technology Handbook For Investors, Entrepreneurs, And FinTech Visionaries) and be one of the first to arrive. Then everyone arrived.

And by everyone, I mean everyone.

Coming through the portal to that event was the entire payments industry – acquirers, payment schemes, processors, regulators, banks, POS providers, thought leaders, people from Australia, India, New York, Iceland, and even Manchester. It was what I refer to as a ‘record scratch… so I bet you’re wondering how I got here?’ moment.

Then I read the book (at least the other parts of it that I hadn’t written). There is so much in it to digest; payments cover

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every aspect of society. But one of the highlights for me was the section dedicated to ‘Payments in Practice’, especially Andrea Dunlop’s piece.

I read books for many reasons: to be entertained, to be inspired, for ‘how-to’ knowledge, and often what I look to take away are those golden nuggets of thinking. In her piece, Andrea considers what an omnichannel mindset truly should engage, using the likes of Nike and Apple as illustrations. Because payments aren’t just about doing digital payments well. It’s about doing all payments well.

You can’t have a payment book without looking at blockchain and cryptocurrencies. This one covers their use cases, both from an economic and technological level, touching on stable coins and regulation. One great piece

by Eversheds Sutherland and the Alan Turing Institute breaks down some of the models for payments on blockchain exceedingly well. I had only previously given stablecoins as a concept a brief look, but this highlights how they can be used to reduce volatility.

As well as (ahem!) a fantastic piece on the Fintech Finance Payments Race, in the section on ‘Payments Explained’, Israel

Payments aren’t just about doing digital payments well. It’s about doing all payments well

The Paytech Book: The Payment Technology Handbook For Investors, Entrepreneurs, And FinTech Visionaries is published by John Wiley & Sons and is available in Kindle and paperback.

Great for: Investors, entrepreneurs, fintech visionaries (including Tony Stark) Best read: In Jessica Jones’ shabby New York apartment… she might learn the best way to pay for a front door that works Good read rating: ★★★★★ Lazcano from the University of Edinburgh reconsiders that age-old question ‘what is money?’. I always find it fascinating to look back at the history of cash and tokens, but also slightly terrifying when you realise how much of today’s payments are based on the same systems and thought processes that have persisted for thousands of years. Israel does set us up for a new future, though, given that we are now in the Fourth Industrial Revolution and that ‘code is the new god’.

Editor Susanne Christi and the team have really cracked this formula for crowdsourced books, with, not unlike the Marvel Comic Universe, a selection of entertaining storylines and insights that work as standalone outings, but when they all assemble, create something kinda special. Roll on the AI and lawtech books! www.fintech.finance

Pic: www.pixel4k.com

When the payments industry assembled for the launch of the most recent instalment in a crowdsourced publishing series – The Paytech Book – Ali Paterson (right) was there to witness it

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