Fintech Finance presents: The Paytech Magazine Issue 07 by Fintech Finance

ISSUE 7

THE NEOBANKS v2.0 Ziglu’s crypto account is challenging the challengers

IF YOU'RE API AND YOU KNOW IT

HOWDY, PARTNER

How one little acronym is transforming the payments value chain

Post-Wirecard, the essential value of buddying up

To catch a thief...

SECURITY THREAT LEVEL: CRITICAL

Bottomline and The Ethical Hacker on tackling post-pandemic cybercrime

Nettitude’s Rowland Johnson assesses the monitoring challenge

INSIGHTS FROM Monese ● SumUp ● Railsbank ● BNY Mellon ● DBS ● ING ● Smartstream

ACI

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Nettitude

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Intix

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Currensea

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Curve Credit

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RBR

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Lloyds Bank

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Papara

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PPS

2021 NEW NORMAL NEW FORMAT A full year of hybrid events

parisfintechforum.com

CONTENTS

COMMENTARY 24 The plastic billionaire and Old Master cash Ron Delnevo, Chairman of Cash and Card Consultants, ponders whether his fortunes would have been better served investing in a priceless work of cards, not art!

27 The dawn of ‘fintech 3.0’? David Brear of 11:FS and Tribe Payments’ Alex Marsh debate a future where ‘fintech’ no longer exists

37 The moment that matters How open finance has offered sinking SMEs much-needed ballast over the last few, rocky months

53 Challenging the challengers Challenger or incumbent, how do you keep the flywheel of continuous innovation turning? We asked three experts with different banking and technology backgrounds

84 With this fintech, I thee wed Partnerships have come to define neobanks. But how do you ensure it’s a happy marriage? We asked Monese’s Norris Koppel and Ray Brash from its supplier PPS

CROSSBORDER 9

On a mission

THEPAYTECHVIEW

2020

ISSUE #7

Well, what a year that was! As we all draw breath, our final magazine of 2020 sums up just how transformational the past 12 months have been – not least in payment services. The collapse of Wirecard (unrelated to the pandemic, but nonetheless significant); citizens abandoning cash at an unprecedented rate; digital adoption graphs off the scale; online shopping demographics that no one ever expected to see. While we might not miss the check-out queues, the inevitable corresponding spike in cybercrime is an unwelcome consequence of this crisis-induced acceleration – and it’s a problem that needs radical solutions, fast. This was also the year in which the neos grew up, standing shoulder to shoulder with their elders to deliver

consumers and SMEs from peril. Their strategic importance to the world’s fiscal flows now at last recognised, what now? We’ll be back to explore that thought in the New Year! Editor-in-Chief, Ali Paterson Our last spine tingler, 'Great things never came from comfort zones'. OK, so it’s anonymous, but it is claimed by a LOT of people. Ben Francia's blog delves deep into this thought process.

‘You can’t wait for the end of the day to take control of transactions that don’t compute’, says Smartstream’s Santosh Tripathy

12 Seize the day BNY Mellon’s Michael Bellacosa believes it’s up to industry to set the pace on crossborder payments, through greater collaboration

14 Tracking and tracing Intix helps to automatically trace transactions as they progress through a bank, and track and store every item of data relating to them. It’s not just an internal hygiene factor, but a powerful tool to aid business decision-making

17 A winning combination Apply Financial’s acquisition by Accuity, in early 2020, has paved the way for a new generation of payments data services to achieve straight-through processing www.fintechf.com

Issue 7 | ThePaytechMagazine

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CONTENTS

59 41 64 23 Going the extra miles Banco Santander’s investment in Ebury – the award-winning provider of financial services to internationally-focussed SMEs – will allow it to continue its quest for ‘borderless’ transactions

SECURITY 31 A moving target Nettitude was one of the earliest cybersecurity specialists to take a forward-looking, threat-based approach to penetration testing. Banks’ experience during the pandemic has only gone to show how right it was

34 To catch a thief Cybercriminals were quick to spot vulnerabilities as millions more transactions were conducted online during the pandemic. So, how should the industry respond?

www.fintechf.com

31 NEOBANKS OF THE WORLD 41 2020: Entering a new dimension How new Curve Credit is expanding its time-warping financial management universe

45 Citizens of fintech With its internationalist outlook, in-app crypto tools and array of financial life hacks, Turkish challenger Papara is connecting users to a big wide world

49 For FX sake! Frustration at having to pay dearly for using their bank accounts abroad led Currensea’s founders to launch their own ‘decoupled’ debit card

INFRASTRUCTURE 56 The year of the Cloud Cloud hosting’s advantages became obvious in 2020, as transaction volumes surged and banks had to rethink operating models. ACI’s Ciaran Chu and Kuda’s Babs Ogundeyi explore what the technology means for legacy banks and neos

59 Opening up the future of payments As SWIFT launches ambitious new plans, we caught up with ING’s Mark Buitenhek, also a SWIFT board member, to find out more about the cooperative’s thinking, the role open banking will play in reshaping the industry, and how the West can keep up with the fast-moving Asian payments landscape

62 Winds of change Lloyds Bank is developing its own platform ready for a major overhaul of UK payments architecture while keeping a weather eye on innovations yet to be unleashed

64 An island of innovation How AI is transforming DBS – Singapore’s biggest bank – with towering implications for the ASEAN nations it serves

67 Striking the right notes Online platform Kabbage was one of the first to use granular payments data to inform lending decisions. Now that data is more useful than ever

Issue 7 | ThePaytechMagazine

WHITE PAPER

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CONTENTS

73 70 89

APIs, RETAIL & ECOMMERCE

78 Scaling the payments stack Silicon Valley Bank both lends to and banks the companies that are building the payment tools and processes of tomorrow. David McHenry ponders the impact of regulation in Europe, the advent of contextual commerce and the disruptive potential of CBDCs

70 A world without borders for marketplace merchants Individual countries’ regulations and processes still present a challenge for marketplace merchants. But payments providers and fintechs can deliver a solution. Banking Circle’s Anders la Cour explains how

73 Keep calm and carry on trading SumUp, the payment solution for microbusinesses, pivoted in the pandemic to provide merchants that had been forced to shut up shop with a suite of online transaction services. For some, it’s proved transformational

81 The etrolly dash! Data from pandemic-fuelled online shopping gave Klarna an insight into our collective psyche. Can the payment solutions provider and its etailers now use it to ride a permanent digital wave?

CRYPTO 86 Building Ziglu Mark Hipperson of new neobank Ziglu, which treats crypto as any other currency, and Joanne Dewar from its payment service provider GPS, on financial services’ next wave

76 Has COVID pushed the button on APIs? Sensedia’s Lucas Tempestini on how the API economy is boosting retail – from payments to packaging – by banishing backlogs and bottlenecks

89 What’s driving IDV in crypto? Wirex and IDnow on how harmonised regulation and biometrics are crucial to crypto’s future

PARTNERSHIPS 92 What’s in a name? A lot! SurePay's David-Jan Janse worked with a Mobiquity design and technology team to match account names to IBANs so payments never go astray

95 Unlocking the power of partnerships Good partnerships underpin many successful fintech ventures. We asked Railsbank’s Louisa Murray and Kani’s Aaron Holmes about building a strong one and how open banking is shifting the dial

LAST WORDS 98 The post-COVID ATM Across the world, operators are moving to touch-free and biometric-enabled ATMs – and not just because of the pandemic. RBR, explores the trend

THEPAYTECHMAGAZINE2020 EXECUTIVE EDITOR Ali Paterson

US CORRESPONDENT Jacob Bouer

EDITOR Sue Scott

ONLINE EDITOR Eleanor Hazelton Lauren Towner

ART DIRECTOR Chris Swales

PHOTOGRAPHER Jordan “Dusty” Drew

SALES TEAM Chloe Butler Tom Dickinson Karen Estcourt Serena Khemaney Shaun Routledge

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

FEATURE WRITERS David Firth ● Tracy Fletcher Andy Gaudion ● Rachael Harrison Martin Heminway ● Alex King Rebekah Lancaster ● Megan Lily Large Natalie Marchant ● Sean Martin Martin Morris ● James Page John Reynolds ● Pravina Rudra James Tall ● Frank Tennyson

ISSUE #7 Fintech Finance is published by ADVERTAINMENT MEDIA LTD. Pantiles Chambers 85 High Street Tunbridge Wells, TN1 1XP

IMAGES BY www.istock.com PRINTED BY LA Printers Ltd "PROUDLY NOT ABC AUDITED"

All Rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying or otherwise, without prior permission of the publisher and copyright owner. While every effort has been made to ensure the accuracy of the information in this publication, the publisher accepts no responsibility for errors or omissions. The products and services advertised are those of individual authors and are not necessarily endorsed by or connected with the publisher. The opinions expressed in the articles within this publication are those of individual authors and not necessarily those of the publisher.

www.fintechf.com

Issue 7 | ThePaytechMagazine

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CROSSBORDER

ON A MISSION You can’t wait for the end of the day to take control of transactions that ‘don’t compute’, says Santosh Tripathy, Practice Lead for Digital Payments at SmartStream

This summer’s Wirecard AG scandal, shortly followed by the FinCEN files exposure – the disclosure of confidential suspicious activity reports (SARs) that banks send to the US Financial Crimes Enforcement Network – sent a shiver down the spines of data controllers the world over.

The German payments processor, before its ignominious collapse into insolvency, had championed and facilitated digital payments – but then €1.9billion ‘disappeared’ from the heart of the organisation. The FinCEN disclosure, meanwhile, revealed that banks could identify and flag discrepancies in transactions that pointed to potential money laundering and other activities, even if senior management chose not to act on it. The dotted line that connects both of these events is data integrity and the need for automated data analysis that’s up to the task. In payments, it all starts with a single transaction that could and should be spotted when it hits reconciliations. But, as the payments industry functions at an ever-accelerating rate, delivering transactions in real time and globally, such exceptions need to be detected fast: at super-human speed, in fact, in order to manage exposure to risk optimally.

Body

Super-powered AI: SmartStream is making heroic efforts to harness artificial intelligence

www.fintechf.com

SmartStream, one of the leaders in bringing real-time control and greater visibility into payment processing, has embraced artificial intelligence (AI) and machine learning to detect and resolve unmatched settlements, and flag whether those might turn out o be benign or malicious. Practice lead for digital payments at SmartStream, Santosh Tripathy, believes accurate, real-time reconciliations might have prevented a Wirecard situation. And, if acted upon, perhaps even avoided some of the worst consequences of the activities exposed in the FinCEN files. We asked him how the company is helping to address the data integrity challenge.

THE PAYTECH MAGAZINE: How is ‘real time’ pushing innovation, AI and machine learning in payments and settlement? SANTOSH TRIPATHY: The entire payments industry, across the ecosystem, has ironed out the challenges with recent innovations. From issuing to the way we are acquiring transactions, to processing, to the whole settlement business, in addition to the new regulation that has come along in the form of open banking and the infrastructure around faster payments. Transactions have become more frictionless and seamless and, in settlement, we’re talking about real-time payments where settlement is instantaneous. Someone has described this as the ‘iPhone moment of payments’. Just as this saw the entire mobile ecosystem opened up, and Apple allowing developers to participate and collaborate to create most of the applications we are now familiar with... the same things has happened with open banking. The way fintechs are participating, and coming up with new solutions in payments, was unknown a few years ago. There is a statistic that 87 per cent of countries now have some form of open banking or application programming interface (API) banking. Issue 7 | ThePaytechMagazine

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TPM: How critical is it for banks to have their payments platforms streamlined for real-time checks and reconciliation? ST: Regulators, fintech providers and banks, all of them have now realised the importance

Running to keep up: Data will be checked and flagged at speeds we can’t yet imagine

of the right controls to handle the amount of volume and variations in the payments that are happening around the world. If the payment is happening in real time, the settlement has already happened, exceptions have happened; you can’t wait for the end of the day to take control of all these transactions that have gone wrong. It’s too late for that, and it increases the exposure to risk, both reputational and financial. Most clients have started looking at reconciliation on a near-real-time basis. Real-time payments definitely warrant that. But the amount of investment that’s happening in the control space is not enough. Companies, fintechs, banks, and the all players involved, should start focussing on the right controls, start

ThePaytechMagazine | Issue 7

investing in that space. If there had been the right controls, checks and balances by a third party, not internal and inward-focussed, we could have avoided a situation like Wirecard. That’s why it’s so important. TPM: With that in mind, then, what does SmartStream Air offer when it comes to payment reconciliation? ST: SmartStream is a specialist in the operations controls space. We take care of the entire burden of any risks, both financial and reputational, that an entity could face if it was not handling all of its transactions and operations properly. Our platform is available in the Cloud and as one element of managed services. Any new or existing player that wants to leverage the experience and capabilities of our platform and resources can start on day one,

in reconciliation, as we have done with SmartStream Air, helps to bridge that gap. A business or organisation does not have to worry about file formats, where this transaction is coming from and what the matching criteria needs to be for the datasets. That is the job of the platform. The client is responsible only for managing exceptions and risk. The platform algorithms are best in class and can onboard and reconcile transactions in almost real time. TPM: What’s SmartStream’s role within the payments ecosystem? ST: Everything has become a commodity or a service – from know your customer (KYC) to settlements, to issuing cards, to acquiring, there are specialists doing those jobs. Twenty years back, the entire burden was on one entity: a bank had to do the KYC, bring on the merchants, process transactions, settle, handle disputes, etc. We would encourage our partners – and some of them are already part of this journey – to use our expertise, both our solutions and our people, to expand their businesses. Let us manage their operations and the risks associated with them. Because we are on a mission here – to bring the same seamless and frictionless experience of making a payment, into the operations space. The velocity, variety and volume of transactions in the digital payments space,

Companies, fintechs, banks, and all players involved, should start focussing on the right controls, start investing in that space a

As transactions are moving faster, the The need to manage operations in real time, in a very seamless and frictionless way, is greater than ever. You cannot afford to wait until close of business to tackle these scenarios, you have to do it on a real-time basis. In a few years from now, transactions will happen at a speed we cannot anticipate, which means the operation has to support you at the same speed and level of innovation. How are you supposed to gain this speed and efficiency without including innovations like AI and machine learning in your platform?

without going through the entire journey of setting up these operations in-house. Our managed service is working particularly well for some of the largest banks in the world. It means that any new and growing business does not have to worry about the burden on its operations. That’s fundamental. We are there to ensure that no bank or fintech player is at risk of either losing its clients’ business or their money. The rapid pace at which innovations are happening, means businesses have very limited time to adapt, which means the platform they are using should be able to do that on their behalf. So, applying AI and machine learning

and the rate at which they are changing, is huge, which means some of these challenges trickle down to operations, and operations will find them difficult to handle in the future. If the payment modes and methods are changing, and the whole ecosystem is coming up with a new variety of transaction flow, you have to think about how operations would handle that. We have a platform that is robust and scalable, has no restriction on the way transactions are captured or processed, and allows the business to grow at the speed it wants to. Operations should not, and shall not, become a bottleneck in the growth of the business. www.fintechf.com

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CROSSBORDER

Seizethe Seize theday day As the lead for Global Payments and Transaction Services at BNY Mellon, Michael Bellacosa believes it’s up to the industry to set the pace on crossborder payments through collaboration In a sign of these more collaborative times, rather than build its own account validation software, global banking giant BNY Mellon decided to cherry-pick what it rated as the US market’s best. It forged a deal with fintech Early Warning Services earlier this year to deliver real-time account validation to BNY Mellon’s clients and those of banks with which it has white-label relationships, helping to stem both its own and their fraud exposure. Working together like this is increasingly the industry norm, says Michael Bellacosa, who heads up global payments and transaction services at BNY Mellon. It gets results faster than each bank ploughing its own furrow or, in the case of crossborder payments, waiting for countries’ regulatory stars to align. Cooperation has been a necessity for some time for global transactions. The most outstanding and enduring example is the co-operative global messaging service SWIFT, on which most of the world’s banks rely to disperse funds globally. The introduction of SWIFT gpi in 2017, which has developed to allow for the tracking of transactions and the identification of pinchpoints delaying their completion, has been a game changer in that regard, says Bellacosa. “We’ve moved from a world that was a black hole of crossborder payments – you

ThePaytechMagazine | Issue 7

initiated the transaction and it went into the deep, dark black hole, where nobody knew what was happening to it – to one where it’s exposed to the client. “For instance, I might want to be alerted when any item over $1million is paid to a beneficiary. We can also alert them, via various channels, if something hasn’t occurred. So, it’s not just used in the backend anymore, it’s something that we’ve exposed to the client, which can make for a better experience.” The bank is the first in the US, and only the fifth globally, to collaborate with SWIFT to offer gpi Case Resolution. The Cloud-based payment investigation and resolution service allows for dynamic query handling between banks on the SWIFT network, and enables banks to create efficiencies by quickly resolving inquiries where operational, regulatory or compliance information is incorrect or missing from payment instructions.

What SWIFT gpi has shown us is that, at the backend, there are probably about eight per cent of transactions that are held up Particularly useful to the bank and the wider industry, gpi allows it to focus on where there is a systemic problem that’s preventing the straight-through processing of a persistent, if relatively-small number of outliers, and find ways to address it. “SWIFT gpi has shown us that, at the backend, there are about eight per cent of transactions that are held up, and those are almost always driven by regulatory and compliance pressures, like specific sanctions scanning requirements, where additional

information is required about the remitter or the beneficiary to complete the transaction,” says Bellacosa. “That can take time. In some markets, currency restrictions and controls mean providing additional documentation. Working closely with the industry, we are trying to automate how we get and share that information, and agree service levels between participants, so that those outlier transactions don’t take as long to resolve.” The rollout of the ISO 20022 universal messaging standard on the SWIFT network is another example of decisive industry action, says Bellacosa. “This standardisation of how we structure data in messages to be more comprehensive, eliminates some questions about who’s paying who if properly completed,” he explains. “So, there are things we banks can really do to improve. It’s a lot and it’s complex, but it’s probably less complex than getting governments to change their regulatory views and align.” Clients clearly want more visibility of the payments journey, says Bellacosa. The proof is there with the impact of the Real-Time Payments network in the US, which was devised and developed by The Clearing House three years ago. Many of the bank’s business clients are now running the RTP Bill Pay API (application programming interface), which allows them to constantly monitor payments received, therefore helping to dramatically speed up the release of goods. With better visibility of crossborder payments, global trade could be transformed in the same way, says Bellacosa, while prevalidation will both reduce costs for banks and speed up delivery so crossborder payments are instant. “I think we will get there with the structures we have, though they will be improved. That then leaves other pieces of deep digitisation and, as each government considers its vision of the future, it will be interesting to see what that evolves into.” www.fintechf.com

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CROSSBORDER

Tracking and tracing Intix helps automatically trace transactions as they progress through a bank, and track and store every item of data relating to them. It’s not just an internal hygiene factor, but a powerful tool to aid business decision-making, says Managing Partner, Marc Braet The phrase ‘track and trace’ now trips off the tongue. It’s become part of our 2020 pandemic lexicon. But it’s been front-of-mind for financial chiefs for some time when it comes to payments. Innovative digital technologies being rolled out at lightning speed have led to a proliferation of choice when it comes to payment channels and the rails that underpin them. As a result, a complex set of internal systems, often across operational departments, support each institution’s role in the end-to-end processing of a transaction. When it comes to crossborder payments, that transaction’s journey becomes particularly opaque as it passes through ebanking portals, connectivity software, sanctions filtering systems, messaging middleware, core payment engines, interfaces, clearing systems and correspondent banks – a process that might involve a dozen or more steps before reaching a beneficiary account. Tracking and tracing those payments has never been more important for the purposes of regulatory compliance and reputational integrity, not to mention customer satisfaction. Throw into the mix the challenge of doing this with the legacy IT systems still employed by most longstanding banks and it’s easy to see why specialist data transaction firms like Intix come into play. Intix provides solutions to

ThePaytechMagazine | Issue 7

organise data accessibility by enhancing core IT infrastructures to make the end-to-end internal tracking of transaction flows possible. Its xTRAIL software indexes all data sources used by a bank and keeps them in a digital repository to satisfy compliance timeframes, while its xTRACE software provides granular tracking of transactions inside an institution, together with all the events in that payment’s lifecycle, and monitors them in real time. “Banks have to be even more capable than before of making their data accessible, so that whenever they get a regulation or compliance type of inquiry, they can address it very, very fast,” says Marc Braet, managing partner of Intix, which he co-founded in 2011. “We have seen with our customers, and prospective customers, that this really is an enormous challenge with the increasing complexity of all these payments flows and formats.

Banks have to be even more capable than before of making their data accessible so that whenever they get a regulation or compliance type of inquiry they can address it very fast “While Intix is quite often used as the entry point for a bank to start working on use cases linked to compliance and regulation, there’s also the fact that customers have much more stringent requirements in terms of information. They want to make sure that transactions are processed in real time so that beneficiaries get their money fast. “Intix developed xTRACE to track transactions end-to-end within the bank, so that whenever there is a hiccough we can inform the bank instantly of that problem so it can look for a resolution

without the customer being impacted. That’s really top-of mind for many of our biggest customers today.” In other words, Intix doesn’t fix the problem, but it alerts banks in real time to a problem that they need to fix. Most major banks already use SWIFT gpi (global payments initiative) for crossborder payments, which provides transparency around payment processing by correspondent banks. In December, SWIFT gpi Instant was rolled out first in the UK, connecting the high-speed crossborder rails with real-time domestic infrastructure – in this case, the UK’s Faster Payments scheme – and giving visibility as to where payments are in that real-time journey. Braet says that, as Intix’s xTRACE maximises ‘granular visibility’ of internal payment processing and performance, it complements gpi, with a ‘best of both worlds’ approach. Emphasising the point, he adds: “Combined with SWIFT gpi, our software can create full vision, full transparency around the value chain, and the lifecycle of a transaction, that goes beyond the organisation. That allows banks to better measure their service levels and, hopefully, increase them to the benefit of their customers.”

Not all created equal Perhaps the most important benefit of xTRACE is being able to assess the relative value at risk whenever there is a problem in the processing of a transaction, explains Braet. “Without knowing the value at risk, you can’t prioritise your decision-making. If I have two transactions stuck and they each have a value of €500, that’s a different priority to having two transactions stuck with a value of €100million each. So that is something that we see is really important to the actionable requirements of our customers, and that’s what we can address with our technology.” The cost of payments failure can be huge for institutions. www.fintechf.com

Following the payment footsteps: Intix provides an extra level of traceability

“If the €100million transaction gets stuck somewhere and will not be delivered in time to the counterparty, you incur financial losses, because there will be interest to be paid, you might be confronted with fines, and then there is, perhaps most important, the reputational risk,” warns Braet. As more providers enter the crossborder payments space, such as the local P27 platform launched in the Nordics this winter, Braet believes that transaction costs and speed, as well as the ease of IT integration, will be the main drivers of payment rails choice for banks. “We’ve seen that previously in Europe with the SEPA (Single European Payments Area) initiative. At the same time there were initiatives like EBICS, that popped up in Germany, France and Portugal, to do the same but in a much cheaper manner. “The fact that more innovations and initiatives are available now in the crossborder space is going to give the banks greater choice and I think that’s good. Choice is competition and www.fintechf.com

competition will also push all providers to deliver a better service at a lower price.” Choice, of course, can also bring greater complexity, meaning that transparency around the payment lifecycle has never been more difficult to achieve – or more crucial, Braet stresses. “You might have situations where a transaction starts on the P27 platform, it is continued over SWIFT and might, in the end, be transferred to another domestic platform. If you do not organise the transparency, then it’s going to be very complex for banks to monitor that,” he points out. “Especially in the real-time context, the technology Intix is implementing for its customers is really valuable in creating that transparency.”

Braet doesn’t see the future of payments processing becoming any less complex; in fact, quite the opposite. “We’re going to see a lot more new entrants, new initiatives, new technologies,” he says – not least of which, Braet believes, will be blockchain. “Whatever form they take, they will have an impact. And the more complex organisations become internally, the more relevant Intix is.” Issue 7 | ThePaytechMagazine

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Apply Financial’s acquisition by Accuity in early 2020 has paved the way for a new generation of data services to achieve straight-through processing – tools that could tick all the right boxes for banks and corporates, says Accuity’s Head of Global Payments and Apply Financial Founder Mark Bradbury

A winning combination The sale of transaction validation company, Apply Financial, to leading global payment data house Accuity got over the line just as the world locked down earlier this year. It was a timely exchange – at the start of an unprecedented uplift in global online payments – between two companies whose combined business is now focussed on timely exchanges. Together, they are preparing to offer a first-of-its kind package that could be one answer to the industry’s straight-through processing (STP) prayers. Apply Financial’s founder, now Accuity’s global head of payments, Mark Bradbury, reveals that the combined business is going through the approval process to become an Account Information Service Provider (AISP), offering a growing number of payment data services. For starters, it is now able to bundle account validation services – courtesy of Apply Financial – with Accuity’s existing know your customer (KYC) and anti-money laundering (AML) capabilities, offering the nearest thing the industry has seen to STP for global, corporate transactions. www.fintechf.com

What has made realtime STP such a challenge, thus far, according to Bradbury, is the sheer amount of data that needs to be checked before a payment can be made. Accuity will be leveraging open banking and the wider data transparency it brings, combined with the latest API technology, to achieve real-time processing in a more compliant and cost-effective manner. With Apply onboard, Accuity – owned by the RELX Group, formerly Reed Elsevier, since 2011 – now offers payment services, financial crime screening and compliance solutions to enable increasing volumes of transactions to happen faster, while identifying and preventing the corresponding increasing number of fraudulent transactions emerging as a consequence of these growing volumes. With 180 years of expertise in financial industry information, traced back through its Bankers Almanac brand, Accuity’s updated website now describes it as a ‘leading source of financial intelligence for more than 125,000 US financial institutions and 750,000 global ones, helping to validate payment codes to improve the certainty of a settlement, compress processing cycles, improve STP and assess the potential risk of onboarding new correspondent partners

around the globe to ensure compliance’. Speaking at the time of the Apply Financial acquisition, Accuity’s EVP global payments & KYC, David White, commented: “The payments industry is in the midst of a drastic transformation, with speed and efficiency at the forefront of its evolution. “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 STP rates and provide payments certainty. 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’ requirements.” This vision is rapidly taking shape, accelerated by COVID. “I thought the amount of payments overseas would drop due to less business going on, but the first six weeks of lockdown saw an uptick in volumes through our portal,” says Bradbury. “Some of our bigger clients then saw a drop of 20 to 30 per cent in volumes for a few months, but it’s picked up again and surged ahead. Issue 7 | ThePaytechMagazine

CROSSBORDER That’s because new business models are generating more payments and, sadly, repayments – of things like airline and concert tickets – is a growing market, generating more domestic and overseas transactions. When we look back on the volume of international payments at the year-end, it will probably be higher than it was last year.”

GREATER POSSIBILITIES Existing correspondent banking systems have been holding up well amidst increased demand, many now fully onboard with international payment messaging service SWIFT's improved service SWIFT gpi, which this year also added an account pre-validation facility. SWIFT announced at Sibos that it is now working on a platform that will allow banks to mutually benefit from fraud detection, data analytics, transaction tracking and exception case management. “Gpi is a very good thing. There’s more transparency, it’s faster and you can give the sender more information about what’s happening to their payment. The pre-validation of all the data gpi holds is a really useful tool to have,” says Bradbury. Is there a ‘but’ coming? “If you look at SWIFT message formats, and the number of fields that have to be populated with data, you could argue that most of it is irrelevant to a corporate entity, or even to a bank. They’re filling in lines just to make sure the payment straight-through processes. But, once you’ve validated that an account belongs to an entity, what else can you do with that data? Not a lot more, really. What the world really wants, now, is to know more about how that payment relates to an invoice, or a purchase order. If that data’s included inside a message, then it becomes very useful indeed.” A hint of things to come, perhaps? There is enough to do for now, just delivering real-time STP for corporates, says Bradbury. “It is a big challenge because it’s about time, and time means sub-second validation, not just of the message information but also of the recipient, to check they’re not a bad actor. At Accuity, we have validation and the AML and KYC tools to do all that. But it must be done in, literally, milliseconds, before a bad payment goes out and frustrates the sender.” That’s the core reason that Validate was added to the Accuity stable. It’s a niche

ThePaytechMagazine | Issue 7

solution to a common problem. “If you’re a fast-growing payments provider, like the foreign exchange players or new fintechs like Currencycloud and Revolut, the issue is how you grow exponentially without having to have lots of people fixing errors. “The two key errors that accompany payment failure are to do with data, i.e. out-of-date information – there are something like 7,000 changes a day around the world to Bank Identifier Codes (BIC),

Growth and complexity: Accuity saw crossborder payments increase in 2020

“Even when they’re using our system, still eight per cent of customers’ initial entries have errors in. The payment doesn’t get sent like that, of course, because we stop it and suggest corrective action. But if a company is processing a million payments, that’s 80,000 payments that, if they weren’t using our software, they would have to fix, at an average cost of £50 each, not to mention the other, unquantifiable costs around damaging the supplier relationship when a payment fails. Having a totally automated STP, so that the money gets to where it needs to, predictably, is massively important to everybody involved. “Clients like Ebury – an international payments provider and foreign exchange risk management firm – have used Validate for its classic purpose of validating beneficiary details. But the really interesting thing is how they are integrating our solution into their own white-labelled API products and marketing those to their partners, making it available to many more players. These companies are very innovative and it’s really fascinating to see how they’re using us,” adds Bradbury. Open banking is the key to the combined new service that is emerging from the Accuity/Apply Financial product set. “We want to provide not just validation but also the other tools we have here at Accuity – AML and KYC – in the same API, the same screen, as a one-stop shop,” explains Bradbury. “Becoming a regulated AISP will enable us to plug into UK banks’ open APIs and gain lots of information that we couldn’t access before. We can validate names and account status and look at whether it’s a corporate or an individual account, which will help with achieving a straight-through payment process and combat fraud. Organisations will know they’re sending the payment to the person with the correct name. We will then apply a similar approach to other regions and countries. “Integration, putting more into a single API, and then having open banking on the outside, is going to revolutionise the way people validate beneficiary details.”

We want to b provide not just validation but also AML and KYC – in the same API, the same screen, as a one-stop shop

for instance – and human error. We all know how easy it is to make a mistake when we’re stressed and typing something in. So, at Apply, we created a solution that makes sure the data components and rules are up-to-date every day. Then, if somebody inputs something incorrectly, the system looks at that error and suggests alternatives that will make that information correct. We surrounded that with lots of tools, so that clients can deploy an API from our system in minutes and use the tools to configure it, with no coding needed, enabling them to straight-through process without human intervention, and grow without having to expand the back office.” The potential savings for businesses, are huge, considering that most of the clients Apply deals with find 15 per cent of payments need some sort of manual or data correction.

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Going the extra miles Banco Santander’s investment in Ebury – the award-winning provider of financial services to internationally-focussed SMEs – will allow it to continue its globetrotting quest for ‘borderless’ transactions, as Chief Technology Officer, Toby Young, explains The phrase ‘small world’ has never rung truer than when describing cash management services provider Ebury – the UK company whose stated mission is to create a ‘boundaryless’ world of payments. Established in 2009 by serial entrepreneur Juan Lobato and financial services expert Salvador García, Ebury is one of Europe’s fastest-growing fintechs and is committed to ‘removing global finance barriers’ to achieve ‘as few boundaries as possible’. Its services include everything from providing CBILS (Coronavirus Business Interruption Loan Scheme) funding in the UK, to trade finance, international payments, mass payments solutions, currency accounts and collections, all via its proprietary online platform. At the core of the business, is providing SMEs with access to the financial products they need to expand across international borders. Growing fast, with 24 offices globally, Ebury has been recognised by a string of awards, including the FT’s Future 100UK in 2018/19. Its commercial ambitions have been jet-propelled, recently, by a string of deals, most notably a major cash injection www.fintechf.com

by Banco Santander, which acquired a 50 per cent stake for $453million in April. Ebury’s diverse services, which its website describes as ‘intuitive, fully auditable and secured by design’, are delivered by its own application programming interfaces (APIs) and platform, which can provide automated solutions for ‘crossborder and transactional banking, including a test environment, as well as complex tracking and reporting, and automation of business processes’. It prides itself in proving the kind of customer service, usually reserved for a bank’s biggest customers, boasting ‘whether you’re an international trader, an NGO, an ecommerce platform or a small business owner, our solutions are designed to create a seamless international finance process’. Over the course of this, the most challenging of years, the global transaction platform has built out its capability in a number of ways. In May, in the midst of the coronavirus pandemic’s first wave, it launched Ebury Instant, enabling its clients to make instant, currency-agnostic payments. Where both parties are Ebury clients, it deposits payments into the recipient’s account immediately, in their

originating currency. Then in September, it was one of five fintechs to share £80million of funding (Ebury’s share being £10million) from the UK government’s Banking Competition Remedies (BCR) Pool E fund. A month later, it announced its first acquisition – of Frontierpay, a step that increases its global reach exponentially, and provides a major new business line, that of payroll payments, which Frontierpay delivers across 180 countries. Notably, it also gives Ebury a way in to the lucrative Asia-Pacific region. Earlier this month, Ebury joined forces with fintech Cobase, giving it access to the leading fintech’s Cloud-based, corporate multi-banking platform, while Cobase will give its corporate treasury clients access to Ebury’s services. This announcement followed the launch of Cobase’s new Liquidity Forecasting and Foreign Exchange (FX) Exposure Management modules, enabling corporate treasuries to optimise cash positions and automatically hedge their foreign exchange risk. Chief technology officer at Ebury, Toby Young, says the industry backdrop against which Ebury is making such strides is one of ‘dramatic change’ in payments. Issue 7 | ThePaytechMagazine

CROSSBORDER “Over the last decade, this has been led by rules and regulation. The revised Payment Services Directive (PSD2), and the opening up of payments, away from banks to all payment services providers, has been the main driving force,” he says. “And, as those regulatory opportunities have opened up, technology has stepped in to provide services that people like us can utilise, or build, to provide our customers with a service that would otherwise only ever be provided by a bank.” He gives an example of what such services can look like in action for dients: “Take a flower wholesaler who is importing

Going with the flow: Ebury supports international supply chains

flowers from all over the world – maybe Kenya, Korea, or the Netherlands. Perhaps he’s buying tulips and knows exactly what he’s going to pay for them, so he knows what the margin is on the flowers he’s bringing in. Or he should do, but the problem is exchange rate fluctuation. So that client could use Ebury to hedge against any currency fluctuation by booking a window forward with us, for Kenyan shilling or Korean won, or even euro, and draw down on that hedge during each month to ship in those flowers. “Then, Valentine’s Day comes along and he needs to borrow £1million to ship all the roses. He doesn’t have £1million, so Ebury provides the capital. Though trade finance and will lend him £1million for three months, which he can draw down against his forward to buy those roses. We supply these types of facilities, both export and import, and supply chain capabilities, to our customers.”

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Of the pandemic’s impact on these fluctuations, he adds: “Any good chief financial officer (CFO) will have a treasury policy in place that sets budgeted rates for foreign exchange transactions across both their in and out cashflows for the year. But what’s interesting is that we haven’t seen a significant change in supply chains as a result of the pandemic. We do both hedging and spot business. In the spot business, which covers companies’ day-to-day needs to make payments and pay invoices, we’ve seen a pretty stable flow. “We did see a significant drop in the hedging business because, when the

showed was fascinating – actually, international payments were pretty quick and 98 per cent were getting to their destinations, including some pretty exotic ones, within 30 minutes,” says Young. “However, it also showed that perhaps a payment arrived at the beneficiary bank, but the reason the beneficiary themselves hadn’t received their funds was that their bank was doing a lot of checking to see whether the payment was good or not. We see that a lot in China, for example, where it’s not the correspondent banking chain that’s slow; it’s often the final beneficiary bank that wants to do final checks before crediting its own customer with the funds.” The interfaces between global and local payment infrastructures don’t help, either. “But we are a direct participant in the UK’s Faster Payments scheme, so we’re familiar with working with instant payment schemes, which allows Ebury to complete customer transactions faster. Because we see the arriving funds faster, we can reconcile them to the customer faster and so release the payment on the other side faster. It’s all about being able to delight customers,” says Young. Ebury uses its own white-labelled version of Accuity’s Validate to help rule out transaction errors. “It’s useful to understand the routing up front, before you even hit a scheme and get an error, and Accuity’s Validate can get those types of information; not just working out if an IBAN (international bank account number) is valid, but also which schemes it is valid for.” So, what does the future look like for this company that’s so impatient for change? “Our partnership with Santander brings an awful lot of opportunities that we can utilise. We’re looking at some specific new jurisdictions that are helped by that, like Brazil, which is very exciting, and the corridors between South America and our very healthy businesses in Portugal and Spain are super-interesting, too,” says Young. “We’re also going to be working a lot with mass payments, after buying Frontierpay, which we’ve rebranded Ebury Mass Payments. We’re really excited about building that business into a powerhouse for international payroll, particularly.”

What’s interesting is that we haven’t seen a significant change in supply chains as a result of the pandemic

pandemic started, there was a huge amount of activity and we did a lot of business helping customers lock in rates because of that uncertainty. But soon after that, once we went into lockdown, that slowed down and we’ve seen it slowly grow back up to normal. We’ve also seen people perhaps opting for less lengthy hedges. However, this, too, is returning to normal in our supply chain corridors across the world, so I see that as a relatively good sign for the global economy as a whole.” Despite Ebury’s clear success, meeting increasing real-time expectations, crossborder, has not been with without its challenges. “We were one of the first non-banks to join SWIFT gpi (global payment initiative), which allowed us to track international payments from beginning to end. What this

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COMMENTARY: PAYMENTS Ron Delnevo, Chairman of Cash and Card Consultants, ponders whether his fortunes would have been better served investing in a priceless work of cards, not art! I have always loved art and, in particular, paintings. My love is purely for originals. I like to own something unique. My budget doesn’t extend to buying old masters but, over the years, I have acquired a number of canvasses. Now, I must make clear that I have bought only works that I have liked. My first priority is getting pleasure from having them hanging on a wall that I also own. However, in buying more expensive items, I have also had one eye on the potential for them to be good investments. Hope springs eternal, as they say! It just so happens that, in late 2005, I bought what I viewed as a lovely landscape, painted by an English artist named David Smith. I had wanted one of his creations for quite a while and finally took the plunge by investing around $10,000 in a canvas depicting a particularly idyllic stretch of the River Chelmer in Essex. So, there I was, in 2006, proud owner of a $10,000 work of art – and an investment. How does my investment now compare with others I could have made at around the same time? Well, since I work in the payments industry, I thought of that industry first for a comparison. Happily, there was an easy option for the purposes of comparison, namely Mastercard, which went public through an Initial Public Offering (IPO) in May 2006. Taking account of subsequent share-splits, my $10,000, invested in Mastercard in 2006, would have left me the happy owner of 2,600 Mastercard shares

today. As I write, each Mastercard share is quoted on the stock market at $331, leaving my 2,600 shares worth a very cool $861,000. Plus I would, over the same period, have earned more than $10,000 in dividends. So, one way to look at it is that the dividends alone would have given me a 100 per cent return on my investment over the last 14 years. Of course, I alighted on an exceptional stock for this comparison. It happens that Mastercard has even outperformed Apple in terms of returns for investors. Needless to say, while the revelation of Mastercard’s stock market performance answered the question ‘how much?’, it also begged the question, ‘why?’. One reason is rather obvious. Though Mastercard did go through an IPO, the company was no new and naïve kid on the block. In fact, the history of Mastercard dates back to 1966, the year England won the football World Cup – yes, that long ago! – and 12 months before the world’s first ATM was installed in June 1967. Of course, corporate names sometimes change over the years, so what started as the Interbank Card Association didn’t adopt the name Mastercard until 1979, the year the UK elected its first female Prime Minister. I am sure that, in Mrs Thatcher’s famous handbag, there would have been at least one Mastercard, adding a little weight when she used her accessory to deal with errant cabinet ministers. Mastercard used its new name to good effect, becoming the first payment card to be issued in the People’s Republic of China, long before the planet’s first debit card was issued in 1987 – and prior to the awful stock market crash of 1988, However, the next 20 years were not ones in which Mastercard hit the headlines. True, the now famous ‘priceless’ advertising theme first started appearing in 1997, but, apart from that, the only significant piece of corporate deal-making that really impacted Mastercard’s long-term

prospects was its alliance, then integration, with Europay International in 2002.

Growth ambitions In 2005, the year my UK ATM company Bank Machine was acquired by Cardtronics, I remember discussing with my fellow directors that the activities of Mastercard (and Visa) would be likely to have an adverse impact on cash usage over the next few years. We certainly got that one right! Mastercard achieved warp factor growth shortly after its 2006 IPO. Between 2008 and 2012, it integrated with Europay France and acquired no fewer than four other companies: Orbiscom; DataCash; Trevica and Truaxis. But, in fairness, the most important acquisition Mastercard made in this period was its shiny and dynamic new CEO, Ajay Banga. This recruit had worked for Citigroup for many years and it didn’t take him long to make his mark at the card giant. He did so rather dramatically, just six months after his arrival, by declaring war; Mastercard’s keynote ‘War on Cash’ had begun! More acquisitions followed at steady intervals. Over the next few years, the following companies succumbed to Mastercard’s charms: Provus; C-SAM; PinPoint; 5one; NuData Security; VocaLink; Trans-Fast (now TF Pay); Brighterion; and Nets. That’s roughly one acquisition a year since Ajay Banga arrived at the company. The CEO is now 60 years old – he certainly didn’t waste his 50s! Buying so many companies would normally set the alarm bells ringing – some organisations acquire in this way to disguise the fact that their core business is in decline. Not in Mastercard’s case, though. It has mainly bought new platforms or, in some cases, businesses that added to its corporate skill-set. As well as acquisitions, Mastercard has been able to form alliances with a number of major partners, including China UnionPay, which lays claim to being the world’s biggest card issuer. Mastercard

The plastic billionaire and Old Master cash 24

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clearly sees promise in China, for in February this year the company announced that it had regulatory approval to re-enter a market it first visited 30 years previously. So, what will the future hold for that $10,000 invested in 2006? Mastercard is a brilliantly successful company, which has consistently invested in its future. A good example is the establishment of Mastercard Labs in 2010, which serves as an incubator for new ideas that can power the organisation to even greater success. It also invests massively in marketing. In one recent quarter, spend was a cool

$170million, a 26 per cent increase on the same quarter of the previous year. Mastercard can, of course, afford to spend big – in the same quarter, its revenue was approaching $3billion. There is absolutely no doubt in my mind that this company can build on the success of the last 15 years to achieve even greater things. After all, the ‘War on Cash’ that its CEO declared a decade ago is nowhere near being won. Eighty per cent or so of the world’s payments are still made using cash. Every percentage point Mastercard can win away

The ‘War on Cash’ that Mastercard’s CEO declared a decade ago is nowhere near being won

from cash is probably worth a billion or more dollars a year in extra revenue. Perhaps luckily for cash, Ajay Banga has decided to move on from his role as CEO. He may feel it is a good time to hang up his card machine, capitalise on his share grants and have some well-earned R&R. A talented, as well as lucky, man. Most generals don’t fight a war for 10 years, see off only around 10 per cent of the enemy and retire as billionaires. Cash, of course, has been around for 2,500 years and, though never supported by any significant marketing budgets, has survived many attacks. However, even if it is fighting a war that can never truly be won, there is little doubt that Mastercard can go on making significant territorial gains, building on the phenomenally successful strategy devised by a brilliant CEO. What will those 2,600 shares be worth in another decade? I would not be at all surprised if the $10,000 that became $810,000 increases again to $3million-plus within the next 10 years. Put another way, i f you haven’t got Mastercard in your share portfolio – assuming you possess such a thing – you must be at least one apple tree short of an orchard! Oh, I almost forgot: how has my investment in paintings been going, over the same period? Sadly, the lovely landscape I purchased for $10,000 in 2006, although it remains as pleasing to the eye as ever, is valued at less than $3,000 today. The artist – thankfully – lives on, but he has been too prolific to make me wealthy. So, I will keep my painting and continue to admire it, hanging above my fireplace – although I have to admit I sometimes wish I was looking at a nicely framed Mastercard share certificate instead!

Master-piece: The card company’s shares were more than worth it

www.fintechf.com

Issue 7 | ThePaytechMagazine

COMMENTARY: FINTECH v LEGACY The financial crash in 2008 split the banking atom – it started a chain reaction, releasing a new type of financial services provider like so many neutrons. And, just as the law of physics dictates, they have gone on to split other atoms, influencing the way we live our lives, be it shouting payment instructions to Alexa or selecting Klarna at the online checkout with not so much as second thought about the lift and shift of data going on behind the scenes. In other words, the crash created a steady generation of innovation energy that resulted in the explosion of choice we’re experiencing today. As a result, traditional banks are now operating in a fundamentally different way. “When none of them needed to change, nobody changed, and [then], three years ago, we had every bank come out and say it was a technology company,” says David Brear, co-founder of fintech consultancy 11:FS. “I think they now realise that they’re not. They want to be good at

David Brear of 11:FS and Tribe Payment’s Alex Reddish debate a future where ‘fintech’ no longer exists technology but, fundamentally, they are financial services organisations. “The change I’ve seen, in the last couple of years, is people realising what they’re good at and what they’re not good at. So, when you look at the things they’re now doing – Deutsche Bank partnering with Google to come in and sort out its technology, for example – that’s where we need to be. It’s about banks being realistic about what they’re good at, and bringing people in who are really good at the things they’re bad at. That’s just common sense.” This fusion is predicted to intensify over the next decade, so that, by 2030, many

insiders wonder if there will be any clear water between legacy banks and fintechs at all. If the last decade posited the idea that anybody can be a bank; in the next, maybe everybody can be a bank – be it a tech company, a ride hailing firm, an ecommerce marketplace or any number of niche players focussed on a specific financial life hack. A recent report by Tribe Payments, Fintech 2030: The Industry View, took the pulse of 15 leading businesses from across the fintech community, to get a view of the future from those who are creating it, and it surveyed more than 100 executives in the European fintech sector to gather insights into the landscape in a decade’s time. On one thing there was broad agreement: by 2030 there may not be a fintech sector at all. Fintechs were not predicting their own demise, Tribe said, but many saw a future ‘where financial services will be so embedded into other technologies – and therefore our lives – that the term fintech becomes essentially meaningless’.

THE DAWN OF

‘FINTECH 3.0’? www.fintechf.com

Issue 7 | ThePaytechMagazine

COMMENTARY: FINTECH v LEGACY “Fintechs, perhaps surprisingly, don’t see a future where they have won and incumbent players have lost,” it said. “There’s division over how exactly this will work – some see banks curating services, while others think banks will simply be a conduit between customers and other, better service providers. But, however they saw the details, fintechs envisaged a future where collaboration was essential, if not inevitable. A key theme for many was the idea of payments, lending and trading being invisible, seamless, and integrated – and finance in general doing the same.” Alex Reddish, chief commercial officer at Tribe Payments, which has just launched its own open banking application programming interface (API) allowing banks and fintechs to connect across its platform, points to a step-change in the attitudes of regulators of the world: to one of ‘promoting innovation, as opposed to restricting it’. “We’re very quick to say that the regulators are hindering our progress, but actually we’re probably quite lucky to have some forward-thinking regulators in different markets,” he says. These enabling regulations were the midwives for fintechs born into a digital space – specifically, the Open Banking framework in the UK and the revised Payment Services Directive (PSD2) in Europe, which were married with a specific technology, namely (APIs), that really took off around the same time. The first allows the permitted sharing of personal financial data; the second makes that happen and brings other technologies to bear in order to make sense of it, using, for instance, artificial intelligence, and turn it into something actionable for the customer. The ‘what’ that we, as consumers, are all interested in, while the ‘how’ that makes it happen goes on in behind the scenes.

EASE IS EVERYTHING The evolutionary shift in finance, that started in 2008, has echoes in today’s pandemic, where ease of executing payments has trumped other concerns. “People increasingly just want convenience,” says Brear. “The thing with the least amount of friction, that makes it easy enough for them to do the thing that they want to do.” Reddish agrees. “I have my underlying bank account, I have my PayPal, I have my phone; my trust is almost secondary to

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the convenience of getting the job done.” There is another reason to eliminate friction and make embedded payments the new normal – because of its impact on revenue. Tribe Payment’s report stated that a 23-click delay in using the checkout feature online, results in $236billion in lost sales revenue annually. “What we’re seeing is ecommerce moving up and down the value chain,” says Brear. “I don’t really know which one of the three credit cards I have is linked to Amazon. But I know, when I press that Amazon button, all of the fulfilment is done really well. Amazon is moving down that stack into the financial

“The challenge for financial services is when firms are expecting high margins, expecting to expand their horizons, and they’re both only getting smaller. They’re getting squeezed on efficiencies, in terms of their cost to serve, they’re getting squeezed on the margins that they can charge people, because, essentially, there are more competitors in the market. “The regulator made it so much easier to create competition, and now there is more competition than ever. If you fast forward,10 or15 years into the future, we’ll be in a situation where providers that are challenger banks now have become just banks. People will be picking between exactly the same things.” But in the shorter term, at least, Reddish believes that the levelling up of financial services, as a whole, ‘is something we should be grateful for’. “Challenger banks are focussing on how they can deliver their core product better. Their disintermediation is perceived as a threat, but if the banks understand it, and use it wisely, it doesn’t have to be. Because there’s still a trust Alex Marsh, discussion to be had Tribe Payments in financial services, and I don’t actually services space, and think we’ll ever shy giving me three-to-four away from that. As long per cent cashback. Why as there are people would I not do that? putting their money “Universal banking somewhere, they want as a principle was to know that it’s safe.” predicated on cross- and “I’m not so sure that upselling, where we’re going to move banks were relying on David Brear, 11:FS away from core banking the primacy of their infrastructure and products overnight. I just customer relationship, and selling them think we’re lucky that we’ve had those niches 2.3 or 2.4 products, on average, to make the within the different subsets of banking system work, from a profitability perspective. exposed and grown on, so it’s not just now But, we’re now seeing that customer one provider, providing 30 products; it’s 30 ‘ownership’ being unbundled and shared providers, providing one really good product.” between other providers, whether Amazon So, while it is now possible for anyone or players like Snoop. They’re provoking to be a bank, perhaps it’s better for both customers into moving, and making it really parties – legacy providers and fintechs easy for them to do so. – for everyone to be a bank. “That’s the really scary thing. We’ve seen “As David says, everyone will eventually this play out in other industries – mobile focus on what they’re good at,” Reddish network operators are a great example, adds. “I think we will see some fall by the because the consumer doesn’t care what wayside, as there’s more focus on unit that logo in the corner of the iPhone is economics, and what we’ll end up with now, they just care that it’s an iPhone. The is that rebundling, a fintech 3.0, where networks have commoditised themselves we start to see the aggregation of key into providing them with data and market players, providing a best-in-class coverage, which every one of them does, so product, rather being masters of none.” it doesn’t really matter [who they go with].

I think we’ll end up with fintech 3.0, where we start to see the aggregation of key market players, providing a best-in-class product, rather than being masters of none The challenge for financial services is when they’re expecting high margins, to expand their horizons, and they’re only getting smaller

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CYBERSECURITY

A moving

TARGET Nettitude was one of the earliest cybersecurity specialists to take a forward-looking, threat-based approach to penetration testing. Banks’ experience during the pandemic has only gone to show how right it was, says founder Rowland Johnson Staying ahead of the proverbial curve has long been the aim of Rowland Johnson, starting in 2003 when he founded one of the first cybersecurity companies, Nettitude. He subsequently turned it into a world-class, threat-led cybersecurity service for organisations across the globe so that they, too, could stay one step ahead of criminal cyberminds. Nettitude has grown from a small, UK-based team, into an organisation with offices in Asia, Europe and North America. In 2018, Johnson led the company through its successful acquisition by Lloyd’s Register as that organisation rises to the data-related challenges to supply chains posed by Industry 4.0. Johnson observed at the time that: “As the worlds of information technology and operating technology collide, the need to build integrated cybersecurity solutions will become essential.” It’s not, then, a cybersecurity consultancy focussed on delivering services for organisations that simply want to tick a box for compliance purposes; it’s aimed at companies that really want to understand the risks presented to their own organisation – and others that they deal with. “We operate internationally, through literally hundreds of offices distributed across the world, and work with some of the most sophisticated clients globally, delivering penetration (pen) testing and red-teaming services, as well as managed detection and response www.fintechf.com

services,” says Johnson. And it’s constantly scanning the horizon to understand what the various threat actors operating in what he calls ‘the wild’ are doing today. “We then tailor our services to mimic those types of activities, and, because we really are operating at the forefront of the industry, compliance almost hasn’t caught up to that space.” Bad actors are agile, quicker to respond to changing environments than legislation and regulation, which can be years behind industry developments, says Johnson. And how fast threats emerge has been demonstrated during the pandemic, when the volume and nature of online transactions changed dramatically, amplifying fraud opportunities as secure processes were put at risk of being compromised by the mass shift of staff to homeworking. Historically, testing focussed on organisations’ defences in their offices. As a result, many organisations have been found wanting when it comes to having a playbook for testing their resilience when staff are at their corporate laptop in their kitchen, shed or living room. “With COVID, two-thirds of the world is now working from home, yet most organisations haven’t really had any kind of assurance activity conducted to try and understand what risks are associated with that,” points out Johnson. “Many of our clients are seeing those threats and saying ‘OK, let’s do a simulation. Let’s do a test that mimics those real-world issues we’re seeing today’. They’re the types of clients

we can look at doing some really exciting work for.” Nettitude is closely involved in delivering the TIBER-EU initiative, which was designed to do precisely what these clients demand. Jointly developed by the European Central Bank and European Union national central banks, the European framework for threat intelligence-based, ethical red-teaming was also the first EU-wide guide to how authorities, entities and threat intelligence/red-team providers should work together to test and improve the cyber-resilience of entities by carrying out controlled cyber attacks. TIBER tests mimic the tactics, techniques and procedures of real-life attackers, based on bespoke threat intelligence for the organisation being targeted. They are tailor-made to simulate an attack on the critical functions of an entity and its underlying systems, i.e. its people, processes and technologies. The outcome isn’t a pass or fail; instead the test is simply intended to reveal the strengths and weaknesses of the subject, enabling it to reach a higher level of cyber-maturity. But such a programme shouldn’t be seen as a magic bullet, as Johnson notes: “Even if you look at organisations that have been through a TIBER exercise, or, before that, maybe a CBEST exercise, I suspect many of those tests were done in environments that look very, very different to the mode of operating today.” Nobody could have envisaged, 12 months ago, that most major banks would end up having the majority of their employees working from home. Issue 7 | ThePaytechMagazine

CYBERSECURITY These banks built infrastructures over which they had significant control, including monitoring traffic into and out of their managed environments. “Web services were typically being accessed from banks’ core data centres, or from bank branch offices, and they were coming from predictable IP address ranges. But now, in this new environment, suddenly all of those systems are being accessed by people sitting at home. How do you distinguish them from a bad actor?” says Johnson. Now much of the emphasis is on understanding whether or not these remote users can be compromised – not least because threat actors are targeting individuals. In a recent Insights report into bank security during the pandemic, KPMG noted that ‘fraudsters have been handed a new and very tempting field of play’, with employees more vulnerable to phishing emails and other scams. Hostile home

Raising the alert: The key to cyber-safety is constant surveillance of potential threats

networks – households where multiple family members could be logging in on the same network and clicking on links and content of many different kinds – potentially exposing corporate devices to malware that could then enter bank systems if the right endpoint controls are not in place, are a clear threat. KPMG also pointed to the huge rise in the use of video conferencing, some of which has been shown to have sub-optimal security standards, with suspected instances of uninvited parties eavesdropping or even hijacking conversations, as another new vulnerability. “What COVID-19 has created is effectively a huge monitoring challenge,” it said. And Johnson agrees: “By targeting users at home, the threat actor might pivot from that compromised device into a corporate network in a way that was never happening previously,” he says.

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It’s these kinds of issues, which are systemically important to the financial system itself, that regulators are alert to: threats with the potential to impact not just a single bank portal, such as a new mobile app, but the heart of the institution and the others it deals with. For that reason, cybersecurity protection isn’t a countryspecific issue and needs to be examined through the prism of whole regions, says Johnson. Rather than focussing on banks in country X or Y, what threat actors are looking to do is ‘identify service providers that exist in one country, that might have a weakness, and leverage a foothold they may find in those entities to then target another bank, or another financial institution, in another country’ he says. Hence, one possible outcome is that some attacks will pivot through multiple institutions, multiple parts of the supply chain and multiple countries or regions. As a consequence, ‘if you only take a domestic

targeting home-user networks and, from there, jumping to the corporate laptop, organisations are going to have to challenge the level of assurance they have against those types of infrastructure. Instead of saying ‘we can’t ever test the home user network’, I think people will have to accept they will be,” adds Johnson. And the threat is only increasing. As the US’ Office of the Comptroller of the Currency (OCC) recently noted in its forward look at cyber risks to banks this Autumn: “Cyber actors have become less inhibited and more sophisticated with their knowledge of the financial institution operations and vulnerabilities in bank applications or systems. In addition to exploiting susceptibilities, cyber actors continue to use popular exploitation methods, such as phishing and credential theft, to compromise bank systems. While banks overall have adequate cybersecurity systems, examiners continue to identify concerns in banks related to bank information technology (IT) systems, change management and information security.” Ransomware is of particular concern, given it can lead to disruption of core business activities, operational outages, lock-out from business data and switching to manual operations. Yet, for Johnson it isn’t simply a question of ‘do this one thing, and this will improve an organisation’s security posture’. Threat actors are moving targets who

We stimulate dialogue, encourage people to think that pen testing today needs to be different to pen testing six months ago... the tests in six months’ time will need to be different again approach to delivering assurance, you’re only looking at a fraction of the problem’, warns Johnson. Institutions need to take off their blinkers. “Many organisations say ‘we will test the things we own, we can’t test the things we don’t own. We will test the corporate laptop, because we own it, but we can’t test home users’ networks because we don’t own those’,” he says. “The reality is that old methods are now being challenged due to the possible impact on organisations posed by home networks.” Self-evidently, the home user network has a number of potential vulnerabilities. “If threat actors are known to be

invariably hold the advantage; their very flexibility means that testing an organisation’s security robustness is a constant process which should be informed by real-world experience and not seen as a box-ticking exercise. COVID-19 has shown that the threat today is demonstrably not the same as the threat yesterday. The pandemic is (hopefully) a once-in-a generation occurrence, but as our finances become embedded in our lives, with our homes, our transport and even our bodies connected with financial services providers, the key is to stay one step ahead of the exponential curve in cybercrime. www.fintechf.com

SECURITY

Tocatchathief Cybercriminals were quick to spot vulnerabilities as millions more transactions were conducted online during the pandemic. So, how should the payments industry respond? We asked Omri Kletter, Global VP for Bottomline’s financial crime and fraud department, and ‘The Ethical Hacker’ Ralph Echemendia As the pandemic continues to create uncertainty across the world, fraudsters have been making the most of what they see as a golden opportunity. Indeed, one study from Javelin Strategy & Research estimated that there has been a 35 per cent rise in global fraud attempts during the outbreak. Financial institutions shouldn’t rely on regulators to help them tackle this onslaught – according to cybersecurity expert Ralph Echemendia, aka ‘The Ethical Hacker’, the law will be years behind the criminals. That doesn’t mean banks and other financial services providers are impotent as the threat level rises. In fact, according to Omri Kletter, global VP for the financial crime and fraud department at business payments technology provider Bottomline, while the pandemic has created a unique opportunity for online crime, it’s also handed companies the best weapon to combat it… data. The rapid global increase in digital payments and online banking has facilitated the collection, sorting and fusing of data into fraud solutions. Armed with this intelligence, smart providers will develop data science teams to unleash its full potential, says Kletter.

Here, Echemendia and Kletter discuss the changing nature of fraud, the importance of people, not just tech, in its prevention, and why data transparency may prove the best way to defeat the problem of cyberfraud. THE PAYTECH MAGAZINE: Has payments modernisation been matched by equal advancements in fraud prevention? RALPH ECHEMENDIA: There’s been a lot more focus on fraud prevention across the entire banking and transactional community. Regulatory compliance has forced the industry to get better at it. When it comes to technology, machine learning is being used more and more for fraud prevention and overall security. So, it certainly has got better and continues to improve. OMRI KLETTER: The bad guys have also advanced dramatically. At Bottomline, we’re seeing singular, or even dual hacking environments, evolve into organised crime. I would even go as far as to say that we are seeing state level [crime]. And that’s a different ballgame. It’s a call to action for us in the industry. If I think about it from a board-level perspective, if I’m a head of payments or technology, I must make sure that my company invests much more in

security because the protection is not against one or two singular hackers – there are much more advanced, serious concerns out there. We talk a lot about technology, but people are also very important to this. Many more financial institutions are saying ‘we need to build this new paradigm of fraud experts in the organisation’ – dedicated data scientists within the bank. TPM: What type of new fraud attempts have come about as a result of the pandemic and the increasing use of digital banking by customers? OK: If there is one thing we’ve learned from this pandemic, as a society, it’s that it’s important to watch what happens in different territories: viruses are without borders, as are fraud and financial crime. So we are working

Fraud tends to follow speed, popularity and confusion. So, it’s almost a play for fraud in the pandemic era

Omri Kletter, Bottomline

Moving target: Fraudsters are too often several steps ahead

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www.fintechf.com

with customers to see what’s happening in datacentres everywhere. As to what is changing, in these specific times there are basically three types of fraud. First-party fraud, the traditional kind, where the customer is the fraudster; third-party fraud is where the customer is the victim; and the third kind, which is a focus area for us, because we have a dedicated solution for that, is internal fraud, where the employee is the fraudster. Unfortunately, all of these types of fraud, which can have a catastrophic impact on an organisation, are definitely on the rise – and we can all understand why, because of the stress and distress caused by the pandemic, people working remotely, etc. One of my best mentors taught me that fraud tends to follow speed, popularity and confusion. So, it’s almost like a play for fraud in the pandemic era. If you think about those three things, we can see what happens if there is a new scheme for a loan application after COVID, for example, where it’s not clear who is doing what. RE: I can tell you from my research on the dark side of things that [new fraud attempts] are happening but it’s not something that we’re going to feel the impact of until much further

The more secretive the data is, the more value it has for criminal use. So, if we have more transparent systems, that data becomes less usable by criminal elements Ralph Echemendia

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down the road. The one area that I think is really taking a hit right now, is the crypto space. I’ve had so many cases where an incredible amount has been stolen in cryptocurrency – because a lot of people have been obviously dipping their toes in the cryptocurrency space over the last few months. It’s alarming as that’s an area that doesn’t really have much, if any, real fraud prevention. TPM: New initiatives like SWIFT gpi, ISO 20022 and Visa B2B Connect are changing the industry in terms of real-time and straight-through processing. How can banks realistically prevent fraud when payments are going at these speeds, and across different territories, too? OK: All these changes create a new normal, which makes it harder to profile in real time. We definitely need to adapt to this new normal and, if I were a head of payments or operations, I would be bringing in my fraud and compliance guys much earlier on because we are seeing the benefits of planning in advance. Secondly, there are advances around technology, particularly analytics – our ability to use smart computing and understand each and every transaction. We are heavily investing in machine learning, both supervised and unsupervised. The popularity of ‘let’s do digital payments more and more’ is obviously good for us, to a certain degree, but also a challenge. RE: As Omri said, so many organisations make the mistake of not including the right human resources early enough in the process, to evaluate what’s

truly needed, because, at the end of the day, this is all a matter of risk management. That’s the name of the game here – how do we mitigate and reduce risk? There’s no way we can completely get rid of it, but we can make it work within a certain framework. TPM: What’s the migration to ISO 20022 specifically going to mean for banks when it comes to fraud prevention? And how critical is it to have clear, transparent data for people to then act on? OK: ISO 20022 is a data opportunity and fraud detection loves data. One of the biggest challenges today is actually not those cases where someone hacked accounts and pretended to be the customers, they’re cases where the technology used by the bad guys was so sophisticated that the transaction has been authorised by the genuine customer, such as authorised push payment or business email compromise. Our target, especially in cases of authorised fraud, is not just to understand what happened, but also the intent. If we really modernise our platform and make sure our fraud solution is tightly coupled to it – so that we know how to consume and profile the data – we are then in a better position to understand the intent behind the payment. RE: The more secretive the data is, the more value it has for criminal use. So, if we had more transparent systems, that data would become less usable by criminal elements. Why should your bank account number be private, when you happily give out your mobile number or email address? If having the account number on its own is enough to commit fraud, we’ve got bigger issues to deal with. The truth is that we still haven’t, on a global scale, come to an agreement on things such as privacy. OK: I had a meeting with one of the heads of fraud prevention at a Nordic bank recently, and asked him how he worked with competitors on that. He responded: “Omri, my competitors are not the other banks; my competitors are the fraudsters.” I agree with Ralph, that if we want to unleash the full potential of fraud protection, we must think about sharing data between organisations in a much smarter way. Issue 7 | ThePaytechMagazine

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COMMENTARY: SMEs Supporting SMEs: Will open finance come to their rescue?

The moment that

matters

Open finance has been a way of offering sinking SMEs much-needed ballast during the COVID crisis, according to Silicon Valley Bank’s David McHenry, and Codat’s Peter Lord – and now it’s here to stay Earlier this month, DoorDash and Airbnb floated on the stock market with all the confidence and serenity of a cruise liner pushing free of its moorings for the first time. That their initial public offering (IPO)exceeding splashes took place above the wrecks of millions of SMEs will have stung those small business owners whose firms have been terminally torpedoed by the coronavirus crisis. The cemetery of submerged SMEs looks set to grow in 2021. According to a survey conducted by Alignable, just 43 per cent of small business owners believe they’ll survive through to June 2021. Another survey, this time from SME experts Fundera, found that only 48 per cent of small businesses currently have their financing needs met. However you choose to slice it, the prognosis for half of the world’s SMEs is as gloomy as it gets. SME failure is shaping up to become a pressing problem. In the UK, some 5.8 million SMEs contribute £2.2trillion, or 52 per cent, towards the country’s gross domestic product (GDP). They also account for 44 per cent of the nation’s employment. More importantly, SMEs drive the profits of buoyant big businesses. DoorDash and Amazon are built upon SMEs; without them, they’d www.fintechf.com

have no food to deliver, and no products to list online. Repairing holes blasted in the hulls of SMEs in 2021 will be an economic imperative, not a romantic effort to revive much-loved local stores. Any SME rescue package will focus on improved access to capital. In ordinary market conditions, funding issues are the primary reason SMEs cease trading. Now, Fundera reports that 87 per cent of SME owners say they need additional funds to survive – with 60 per cent admitting that need is ‘critical’. The problem is, only 63 per cent of UK bank loan applications are successful. Lending appetites are at their lowest levels since 2008, driven largely by tentative and outdated legacy institutions. The solution, in the eyes of fintech thought leaders, is open finance. The free flow of financial data between SMEs and the financial institutions they use to bank, borrow, save and invest. Larger reservoirs of data, the wisdom goes, offer real-time financial insights and quicker, more responsive loans. For David McHenry, who heads up global treasury and payments advisory in the EMEA for Silicon Valley Bank (SVB), the pandemic has been a watershed moment for such initiatives. “COVID has been this inflection point that’s driven innovation in so many areas – due to rapidly changing conditions, the

fact teams are distributed, they’re trying to share information and they need single sources of truth,” he says. “Open banking was already starting to crack that open, with banks freeing up that information – now, SMEs need to make decisions quicker and take advantage of lending and working capital. Open finance has been driven to the front of the queue by COVID.”

A PIVOTAL SOLUTION McHenry’s bank, founded in 1983, is an expert in the innovation economy: SVB has funded more than 30,000 startups, including a whopping 69 per cent of US venture capital-backed companies with an IPO in 2019. It’s little wonder that a bank based in Silicon Valley has profited from funding US tech unicorns, though now SVB also operates from offices in the UK, the EU, and China – anywhere that cutting-edge technology is developed. Peter Lord is CEO and co-founder of Codat, which provides the plumbing, through a single white-label application programming interface (API), that connects financial services software into one, centralised system for SMEs to make use of. Codat is open finance realised and applied. And he’s in agreement with McHenry that the pandemic has hastened efforts to innovate in the funding space. Issue 7 | ThePaytechMagazine

COMMENTARY: SMEs “Codat deals with SMEs – and we know small businesses don’t use one monolithic system; they use lots of different products and services, and want those services to be connected seamlessly,” says Lord. “And, in order to have an understanding of their financials, they need a central place where all that data can exist, connected.” Codat is currently integrated with 65 financial institutions, including two Tier 1 banks which serve 100,000 UK SMEs. The firm reports that 15,000 new SMEs connect to Codat’s API each month, and that £2.5million in new funding from the UK’s BCR (Banking Competition Remedies) fund will enable Codat to offer accounting integrations that could serve up to 90 per cent of UK SMEs. As of November, financial institutions connected through Codat’s API had processed 20,000 emergency loans, backed by the government, to pandemic-hit UK SMEs.

SEEKING A NEW WAY Designed to offer ballast to the SME sector, the early UK loan stimulus schemes were dogged by inefficiencies and delays – and small business leaders say many SMEs are still struggling with funding rejections. Only half of the UK SMEs that applied for a government-backed loan were successful – and, according to Censuswide, 42 per cent of those waited more than two weeks to hear back from their bank. In the US, it was revealed that big business gobbled up the majority of the $660billion earmarked to support companies through COVID – leaving SMEs short-changed. It seems traditional lending protocols simply couldn’t handle the strain of the pandemic – especially in a post-2008 environment of de-risked portfolios and near-paranoid underwriting procedures. Many SMEs were unfairly penalised for being young, with an inadequate credit history. Others were denied coronavirus relief loans for defaults caused by the coronavirus crisis itself. Often, banks’ data on the SMEs they purport to serve was so myopic and one-dimensional that rejected loan applications were an inevitability. No wonder half of SMEs in the UK are actively looking for alternatives: in a pivotal period for their businesses, traditional lenders failed them.

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“There’s this idea of moments that matter,” says McHenry. “The idea that businesses can gain not just insight from open finance, but also solutions for certain points in time – whether it’s liquidity or deposit options – I think that’s a big draw of open finance.” Lord believes things have already taken a great leap forward since the first lockdown. “Businesses have gone online and that means there is now a vast amount of data that SMEs, banks and lenders can utilise,” he says. “I think we’re seeing this open movement gather steam. We had open banking, now we’re talking about open finance, but it’s all part of a much larger open data shift.” It’s taking place on both sides of the Atlantic, too – though, according to McHenry, it’s driven by different forces.

more open operating standards,” he says. It’s a warning shot towards incumbent lenders, many of whom are already aware of their declining reputations with SMEs. According to Reparo Finance, only 52 per cent of SMEs in the US are confident their bank would grant them a loan – down from 59 per cent last year. Data from an Accenture report, meanwhile, has found that 42 per cent of surveyed SMEs believe alternative lenders offer a better service. As SVB will readily inform heel-dragging traditional lenders, many small businesses wind up as unicorns. Underserve this segment, Codat would argue, and you risk losing your chapter in future startup success stories – and the associated returns.

HUGE OPPORTUNITY

It’s unclear whether alternative lenders presently make better partners to SMEs than traditional ones. In the UK, lendtech firms have encountered their own liquidity issues this year and the fact remains that while the approval rating of institutional lenders amongst SMEs, according to Fundera, sits at 66 per cent as of November 2020, alternative lenders’ approval rating trails at 56.8 per cent. Whether this gap narrows and is overturned in the coming Peter Lord, Codat months will depend “Open, aggregated upon incumbents’ information is already engagement with open happening in the US finance – provided by – but it’s not mandated or enabling firms like Codat. regulated – it’s happening A recent report from through the players that venture capital firm, Finch want to be involved,” Capital, declared the McHenry says. onset of a ‘big pocket’ “In Europe, battle between the David McHenry, SVB open banking was incumbents and their regulation-driven. But financial institutions challengers, to decide who can develop that want to be successful in future the best, most-integrated digital services. will adopt open finance. It will be The spoils? The custom of billions of customer-centric and driven by demand, consumers and small businesses who have so enterprises will have to embrace it. become more comfortable transacting “What’s really interesting, especially in online since March. the US, is that small businesses are Open finance – the productive demanding this connectivity,” adds integration of disparate data sources into McHenry. “That’s a big influence to make one ‘single source of truth’ for consumers things happen in a short period of time. and SMEs – will almost certainly come “There’ll be some voting with the feet, to define this battle. And with surviving when it comes to connectivity – and that SMEs licking their wounds, it’s a will obviously have an impact, in terms competition that the global economy, of the financial institutions and the not just the UK and US, will wish to see extent to which they want to adopt play out as quickly as possible.

Small businesses don’t use one monolithic system; they use lots of different products and services, and they want those services to be connected seamlessly

Businesses gain not just insight from open finance, but also solutions for certain points in time

www.fintechf.com

Data

Intelligence

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NEOBANKS: LENDING

2020: ENTERING A NEW DIMENSION

Curve’s timewarping technology has already given account holders a unique way to manage their personal cash flow. The startup’s latest tool further expands the financial management universe. Head of Curve Credit, Paul Harrald, explains why it’s boldly going into lending... With the global pandemic playing havoc with people’s financial stability and employment status, and buy now, pay later (BNPL) credit models such as Klarna, Clearpay and Laybuy coming under fire for pushing people into long-term debt, the issue of responsible lending has never been more pressing. Technology has made consumer lending incredibly slick. Customers enjoy near-instant credit checks facilitated by a diverse range of data feeds, including www.fintechf.com

those powered by open banking connections. The rise of BNPL payment options at website checkouts also means it can now take just one click to make a purchase. BNPL apps are a preferred payment method for online shoppers worldwide. More than 85 million users in 17 countries are clicking on Klarna alone. But consumers may not always appreciate the distinction between buying and borrowing in this blurred reality, and that’s where the possibility of taking on unaffordable debt arises. Now Curve, the London-based fintech that consolidates multiple cards and accounts into one digital card and app, is attempting to set ‘the gold standard in responsible borrowing and lending’. Using its unique ‘back in time’ function, customers can choose to switch any transaction made on any connected card at any merchant, at any time, into a Curve Credit instalment plan in a single app. Curve Credit has been designed to simplify the borrowing experience to ensure that consumers do not burden themselves with debts they cannot afford to repay. Curve will tell them if they're building up too much credit

and let them know if it thinks their next splurge is a bad idea, much like any other deferred payment scheme. The key difference, however, is that it’s the customer’s Curve account that is extending the credit (currently financed from Curve’s own balance sheet) and there is no pressured point-of-sale decision presented by a BNPL lender. Also, unlike other BNPL finance tools, Curve doesn’t require merchants to directly support Curve Credit as a payment option at the checkout. Credit has been getting some negative press lately, but for head of Curve Credit, Paul Harrald, consumer lending is almost always a force for good and ‘an astonishing enabler’. Done well, he says, lending holds unambiguous value for society, but irresponsible lending or borrowing decisions do not. “If I were to level any criticism at credit cards, it would be that people can accumulate debt, whereas what they thought they were doing was just transacting and buying things. “I think there has to be a limit to the ease with which credit can be taken out – almost an artificial limit – because it needs to be undertaken thoughtfully, in my opinion. Issue 7 | ThePaytechMagazine

NEOBANKS: LENDING “That doesn’t mean there should be an onerous burden and lots of agonising about credit. Credit is almost universally good for people. It leaves them with the flexibility to meet unexpected needs, it smooths their cash flow, it allows them to purchase more durable items, rather than less durable items, and for people on modest means, it makes their life less expensive, not more expensive. “All of those are good borrowing decisions, it seems to me; the idea that you buy a better quality item, rather than a cheaper one, because you can afford it on credit. Let’s be clear, credit buys most people houses.” Curve’s new credit option is enabled by the startup’s ‘go back in time’ technology, which lets customers retrospectively

Creating its own future: Curve will evolve as a platform

change the bank account or card they’ve used for a transaction. Instead of Curve switching a recent payment from their current account to their credit card, for example, it is re-routed to Curve Credit, where they are presented with a repayment plan and any interest they’ll be charged. Right now, when consumers are facing a financial hit from the global pandemic, the ability to change their minds (up to 90 days from the moment of purchase) about which account they want to take the money from – or, indeed, whether they want to convert it to an instalment plan – may prove invaluable.

A TIMELY SOLUTION Coronavirus has put millions of British households under pressure. In September, research by leading debt charity StepChange found that household borrowing and arrears linked to the pandemic have soared 66 per cent since

ThePaytechMagazine | Issue 7

May, to £10.3billion. The number of people who are in severe debt has risen to 1.2 million – nearly doubling since March – with a further three million people at risk of falling into long-term debt problems. Harrald doesn’t buy into criticism that people are being lured into borrowing. They are generally smarter than that, he says, if the lender behaves responsibly. “Larger borrowing decisions, or accumulation of borrowing, should be thoughtfully done. The way to do that is not complexity; the way to do that is to create a simple enough borrowing experience, that the consequences of a person’s borrowing decision are crystal clear. The way Curve Credit will approach this is that users will always be asked to

we have beautiful payments technology, which means that it would be remiss of us not to provide a lending experience like this. Curve sits directly at the nexus between payments and borrowing, just like credit cards do. “To me, the argument to create this system was overwhelmingly obvious, to a student of fintech, to anyone who’s been a lender, and anyone who’s a student of business lending models. I don’t need the success of Afterpay and Klarna, and others, to tell me this is a good idea.” It's also inevitable that, at some point, Curve will need to start generating serious revenue. In August, it was reported that the business was seeking to secure between £100million and £120million in a Series C funding round, which would build on the £44million raised by the business in 2019. When Curve Credit was announced earlier this year, it was suggested that Curve planned to build a marketplace model, giving access to multiple lenders, but its immediate future lies in the ‘relatively simple world of closed-end instalment loans’, says Harrald. “We could be a broker. Curve could go out to multiple lenders, saying ‘hey, we’ve got access to customers. Do you want to sell your loans through us?’. We could be a peer-to-peer lender quite easily – the future of Curve, as a platform, is unbounded.

To me, the argument to create this system was overwhelmingly obvious… I don’t need the success of Afterpay and Klarna, and others, to tell me this is a good idea review the effects of their potential borrowing decision. Curve Credit will look at their current situation, it’ll look at what they’re committing to Curve Credit on a monthly basis and they’ll be afforded the opportunity to carefully consider that.” The lending industry is getting better at running affordability checks, yet lenders remain largely poor at spotting vulnerability, because it is difficult. As Curve arguably has a much clearer picture of a user’s transaction history than a single bank or credit lender, it is able to augment traditional credit scores with its own data. Harrald indicates that it was almost inevitable that Curve would enter the short-term loan environment. “We have a beautiful user experience and

“But lending generates revenues, and it is true that it’s increasingly difficult to raise venture capital funds, or private equity funds, without revenues. People want to see revenue. So, Curve Credit is not just an inevitable next step; it’s also proving the revenue generating possibilities of Curve in the most direct way. “Curve is an unashamedly commercial enterprise. At some point, it needs to continue to increase its revenues, and credit is a complementary addition to other revenue sources, lending is a natural way to do that,” says Harrald. “So, Curve will expand its products, it will expand its geography and, ultimately, be this nexus between content creators. The future of Curve, as a platform, is unbounded.” www.fintechf.com

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NEOBANKS: TURKEY With its internationalist outlook, in-app crypto tools and dizzying number of financial life hacks, Turkish challenger Papara is connecting users to a wider community, says Chief Operating Officer and Managing Partner, Cenap Doǧru In 2016, Papara, now one of Turkey’s leading startups, was launched with a vision of giving consumers access to financial services that were more relevant to their everyday needs, and connected them to a wider world. It was a vision that sought to bypass boundaries imposed by the traditional banking system and embodied an exhilarating sense of not just financial, but social freedom. That was two years before Turkey’s currency and debt crisis hit the headlines. Now there is little faith left in the Turkish Lira (TRY). Inflation is running at around 12 per cent and there has been a 33 per cent

drop in value against the dollar in one year. Turks have been snapping up hard and, more recently crypto, currencies at record levels – all this against a background of 14 per cent unemployment, depleted central bank reserves and Western sanctions. And that’s without the hit to the economy from a pandemic that has badly impacted tourism and trade. So, maybe it’s not surprising that consumers are increasingly turning to new methods of finance – more so because, while many people may not have access to traditional banks, a high proportion do have access to smartphones. Papara, an electronic payment institution currently applying for a banking licence in Lithuania, began by offering online money transfers, foreign exchange (FX) transactions and bill payment services, with deposits enabled into accounts via wire transfer or cash at ATMs, bank branches, postal outlets and even convenience stores. Among the many benefits of Papara’s services were that they were (and remain) mostly free, and available 24/7, online. Extremely generous cashback programmes, in partnership with monster

brands, followed, along with a card account for teenagers. Other life hacks, including split the bill, are coming soon, demonstrating how apps like this can easily bypass the traditional banking system by addressing real-world problems that real people face. The fact that a secure, easy and fast way to transfer fiat money to and from cryptocurrency exchanges has been embedded in the app since 2017, illustrates just how ‘normal’ Papara saw crypto becoming. And, as it turned out, that was a shrewd call. “There are lots of rules in the financial system which prevent people from reaching out for financial products easily,” says chief operating officer and managing partner of Papara, Cenap Doğru of the motivation behind the concept. “So, we said ‘OK, why don’t we give people the freedom to send and receive funds instantly?’ It was the idea of freedom; freedom to access financial services.” The startup’s target audience included more than 30 million people in Turkey who did not previously have access to the banking system – not necessarily because they couldn’t open an account with a traditional bank, but because they did consider having one was necessary.

Citizens of fintech www.fintechf.com

Issue 7 | ThePaytechMagazine

NEOBANKS: TURKEY

Crypto goes mainstream: All part of the financial freedom people crave

Now the digitisation of Turkish life – particularly over the last few months – has created a compelling reason to move from a culture where cash is king to online platforms that allow people to engage with the world on a daily, even hourly, basis. And nothing represents that global community better than cryptocurrency. Turkey now has one of the highest adoption rates for investing and trading in the cryptocurrency markets, and is the highest-ranking country in the region on blockchain analytics firm Chainalysis’ Global Crypto Adoption Index, coming in at 29th overall. Given the volatility of the Turkish Lira, it is understandable that one in five people are now investing and trading in crypto, which isn’t, as yet, a state-regulated activity. The recent surge in its use has prompted the country’s Capital Markets Board to develop a framework to oversee the markets, however, and legislation is to be anticipated. Papara first partnered with cryptocurrency company Binance in 2017, to integrate cryptocurrency services into its app, and, in 2020, it extended its offering with Bitpanda. “We know the situation with the Turkish lira – people want to invest in a variety of products. Crypto is one that makes them feel engaged with the world,” says Doğru. He acknowledges the risks of the brand being associated with buying and trading in unregulated cryptocurrency, but growth,

ThePaytechMagazine | Issue 7

he says, does not come without risk. Four years on from its launch, and Papara has expanded to include a multitude of other features which are now being used by millions of customers: features such as tracking monthly spending using a chart overview; notifications that alert users to upcoming, overdue and paid bills; automatic bill payments; instant charity donations, and even purchasing credits for their favourite games. Cashback with the Papara Card saves users up to 50 per cent on major brands

We know the situation with the Turkish lira. People want to invest in a variety of products. Crypto is one that makes them feel engaged with the world such as Netflix, Spotify and YouTube Premium, which is instant and hassle-free. It also offers request-to-pay to contacts via message – once the request is accepted, Papara automatically completes the transactions for free. Planned future features include additional payment options, further investment opportunities, additional cashback programmes and collaborations with other startups and multinational companies.

As it stands, Turkish legislation prohibits neobanks from offering interest and credit, which makes the fact that Papara turned a profit in year two – pretty unusual in the fintech startup universe, but even more noteworthy because it’s based on a model that monetises transactions rather than persuades people to trade up to endless premium tiers. Having proved its money-making potential, no wonder it is looking to expand internationally. The large Turkish diaspora in Europe is an obvious way into other markets, especially because, as Doğru says, sending remittances is a hassle – one it is planning to solve. Turkey is among the world’s top 10 countries for emigration, with more than six million Turks living abroad, the vast majority in Western European countries. Germany, the Netherlands and Austria host the largest Turkish expatriate populations in the world. “Our next plan is to expand to Europe and then neighbouring countries like CIS [Commonwealth of Independent States] and maybe North Africa,” says Doğru. You can see how borderless fintechs like Papara (of which there are a growing number in the fintech hub of Istanbul) provide not just financial literacy and freedom, but wider liberation, too. That's especially for Turkey’s metropolitan class of well-educated, digitally-savvy young people: all citizens of fintech who are therefore citizens of the world. www.fintechf.com

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NEOBANKS: CROSSBORDER

For FX sake! Frustration at having to pay dearly for using their bank accounts abroad led Currensea’s founders James Lynn and Craig Goulding to launch their own ‘decoupled’ debit card – and (despite you know what) it’s flying! In late 2017, old friends and colleagues James Lynn and Craig Goulding were chewing the fat over a few beers and found themselves bemoaning the onerous banking fees they were being charged after family holidays abroad. Why, they asked, were their banks levying such draconian rates for purchases and ATM withdrawals while on foreign trips? And why should you need to manage a separate account or top up a prepaid card in order to avoid them? Good question and the answer, they decided, was to create a paytech based on a Mastercard debit card that’s decoupled from a user’s bank but linked to their account. They launched Currensea in the UK earlier this year. Yup, that’s right, two months before the world of travel came to a grinding halt. So, the fact that the card has been successfully used in 115 countries already, despite a global pandemic, means there must have been some pretty big pent-up demand for such a solution: one that allows holders to spend money overseas with no foreign exchange purchase or transaction fees. “After those beers in the pub, we spoke to our friends and it became obvious that this was a common problem, particularly among the over-35s,” says Goulding. “In this age group you’ve got pretty complicated lives, you’ve probably got a longstanding www.fintechf.com

relationship with your high street bank and want to continue using them. You just don’t want to pay those fees. “The need for ease of use, combined with the fact that banks were charging between three and four per cent of the [overseas] transaction, screamed pretty loudly that there was a gap for something new. We saw the problem and wanted to solve it.” With Lynn and Goulding’s background in financial services, they knew that open banking was the key. This was not to be another foreign exchange (FX) card, or a facilitator to move money around. Instead, Currensea has delivered something they say is unique – the world’s first debit card that’s powered by open banking. “There are challenger banks out there, there are prepaid cards out there, but they have one thing in common, which is that you do need to maintain that separate pot of cash, transfer money across, pre-pay, and all that is quite inconvenient,” says Lynn. “We wanted something different; we wanted something really convenient, which offers value as well. Years ago, Travelex tried to do this with a product

called the Supercard but it failed because open banking wasn’t around back then. We are in a position and have a model that allows us to pare back the complexity. Our clients simply log on to currensea.com, provide a little information and select their high street bank from the options provided. That navigates over to their internet banking, where they log in as normal. They don’t share any credentials with us, it’s entirely between them and the bank. The customer then gets prompted to give consent to connect Currensea up to their account, and that’s it. All done. “By pressing that button they now own a debit card that they can use around the world, which is linked to their account but doesn’t have the same charges or fees.” The pricing plan is, indeed, simple. For £2.50 per month or £25 per year, consumers benefit from an exchange rate that’s zero per cent above wholesale. In addition, they can withdraw up to £500 a month, fee-free from an ATM (one per cent after that). A subscription-free option gives customers an exchange rate 0.5 per cent over wholesale, with no ATM withdrawal fee up to £500 per month with two per cent charged thereafter.

We wanted something different; we wanted something really convenient, which offers value as well

Issue 7 | ThePaytechMagazine

NEOBANKS: CROSSBORDER Lynn and Goulding attribute much of the ability to provide keen rates to Currensea’s small and lean backend. Goulding says: “We’ve done everything in the Cloud and tried to automate as much as possible, making everything self-healing so that we don’t have an army of people fixing things. We employ a small, tight team of developers who pulled this whole thing together – very good, smart, experienced guys. We’ve done all the integrations with all of the high street banks, all the FX integration, we’ve built artificial intelligence (AI) engines... basically built this whole thing with a handful of people.” NAME: James Lynn TITLE: Currensea, Co-Founder/Co-CEO 2018-present PREVIOUS ROLES: Jamatto, Co-Founder 2016-2018 Billon, MD UK 2015-2017 RBS, Global Head of Electronic Transaction Banking 2014-2015 Barclays, Head of Digital Strategy and Development 2011-2014

While the Currensea consumer debit card has already seen surprising success, given the challenges the startup has faced this year, the obvious implications of the COVID crisis have seen a shift in emphasis in recent months. There was already a demand from consumer customers for a business debit card but COVID, and the significant reduction in consumer travel, brought forward its arrival to November. “The consumer card was fairly focussed on travel, but the SME offering we’ve launched is more focussed on goods and services abroad, which is a really big market,” says Goulding. “It sort of diversifies our risk. “At its core, the business card connects to the underlying bank account of the SME. The vast majority of business current accounts in the UK are concentrated in the big four banks, so in spite of a lot of challengers, they still dominate. And it’s actually really hard to change bank accounts. So, again, our proposition means you get a Currensea card, link it to your bank account and just use it as

ThePaytechMagazine | Issue 7

you would your normal bank debit card, but eliminating all your FX costs. “One of the beauties of this is that there is basically no process change, in terms of your accounting package integration. When you do a Currensea transaction, it just appears on your normal bank statement. So, because you’ve already got the integration between your bank and your accounting package, everything just happens seamlessly. To all intents and purposes, the SMEs are just changing the card number they are paying with.”

can be sourced to first-hand experience. “At Currensea, a lot of our costs are in US dollars, as that’s how we pay for all our infrastructure,” explains Goulding. “And it was very frustrating for us because we were using our normal bank debit card, and every month we were getting hit by these awful charges. It was almost physically painful! So we swapped our bank debit card for a Currensea card, and just updated the card number. We’ve basically saved three to four per cent of our technology costs, just by changing one card number.” “Yeah, we were our own good case study,” laughs Lynn. “There are clearly Groundswell of support alternatives – we could’ve tried to open up An interesting aspect of the Currensea a second account, or some sort of prepaid product, but actually, it is such a hassle that we didn’t do it. So I can imagine, if we didn’t do it, then a lot of people would be NAME: Craig Goulding in the same boat. TITLE: Currensea, “Our business product came Co-Founder/Co-CEO from our own need, pretty much 2018-present like the need we had as individuals PREVIOUS ROLES: for the consumer card,” adds Lloyds Bank, Lynn. “And, with all the pain and Chief Engineer Open uncertainty around COVID and Banking 2015-2018 Brexit, if we can save small NatWest, MD, businesses more than three per Electronic Trading cent on every single foreign 2010-2015 exchange transaction they make J.P. Morgan, MD, using our card, then that can Investment Banking CTO only be a good thing." 2005-2010 model is the way in which it has been funded. A combination of private investors and crowdfunding via the Seedrs platform (three rounds) has meant the business is, by all accounts, on solid footing. But Goulding says it is the crowd-funding element that speaks to the ethos behind the company. “The thing about crowdfunding is that you are able to offer small shares to a large number of people. And, because our offering was so good, we had an incredible amount of interest. Each one of those people, I think it was 700 or 800, didn’t just become investors, they became our ambassadors. We’ve got some great brand advocates now, who are really interested in our progress and updates – the kind of people who give you ideas and really want to contribute. It’s fantastic to be sharing our journey with them.” Again, as with the ‘moan over a few beers at the Duke’s Head in Putney’, the inspiration for the SME business card

GREEN CURRENSEA

Partnering with OneTreePlanted.org (one of the world’s leading reforestation organisations) Currensea’s consumer clients can choose to contribute a portion of the savings they make to plant trees. For every 75p donated, Currensea will plant one tree on their behalf. “It’s a way for our customers to offset their carbon footprint,” says Goulding. “So far, 10 per cent of them are using 20 per cent of their savings to plant trees. If we then plant one tree, it’s essentially offsetting their carbon footprint for a transatlantic flight.”

www.fintechf.com

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COMMENTARY: INNOVATION

Challenging the challengers

Neobanks would have nothing to rage against – wouldn’t be ‘new’ – if there weren’t ‘old’ banks that had failed to respond adequately to a world that was changing rapidly around them. They were the neglectful mothers of invention; challengers were the children of necessity. At least, that’s the way Muhammed Salim, director of product design at one of those rebellious offspring, Revolut, sees it. “All the fintechs, the new banks that have arrived, they wouldn’t exist if the traditional banks were never there. Perhaps we are the children; we grow and move on but the parents will stay there,” he says of a previous generation that, in his opinion, has reached ‘peak bank’. And, try as they might to impress the kids with new tools and services, it’s a bit like having to watch the embarrassing dad dance. “What we’re trying to do, all the time, is think ‘what’s going to make a difference?’, so we’re not just playing catchup,” says Mark Hipperson, CEO and co-founder of Ziglu, a next-wave neo that embraces crypto like a native, who was also founder and former CTO of the UK challenger that broke the mould. www.fintechf.com

Challenger or incumbent, how do you keep the flywheel of continuous innovation turning? We asked three experts with different banking and technology backgrounds: a customer experience designer; an established neobank and a baby-faced startup at the forefront of Generation Crypto “I remember, when I was at Starling, we were the first in the world to design ‘pause your card’ in-app. It was three years later we saw an advert for Barclays, where someone was sitting on a bus and doing the same – three years behind us, despite all the money those guys have to do stuff,” says Hipperson. “It comes back to the innovation mindset: making a difference, trying to get things done and having people that care about customer service. It’s not about making money. Money will come if you do a great job. The mindset should be ‘how do I put my customer first

and give them something really exciting and innovative?’.” That’s all very well, if you’re a fintech sitting on a seemingly bottomless pot of venture capital – as many appear to be – with a long runway, comparatively low fixed costs and no urgency to turn a profit. But when the first and second wave of neos are themselves ‘established’ brands and faced with rivals that are pushing even bigger envelopes, how will they keep the flywheel of innovation spinning? By relentless focus on the customer, according to VP of global financial services at Mobiquity, Matthew Williamson. The digital enabler is at the cutting edge of transformation, helping to build digital banks (standalone challengers or as part of an established institution’s digital strategy) and its goal is to ‘transform points of friction into sparks of innovation’. To help achieve this, Mobiquity has developed friction reports, a proprietary method of analysing hundreds of thousands of reviews and ratings from customer feedback channels like the iOS and Google Play stores, to help companies from different industries understand what’s working well and where there is room for improvement. Issue 7 | ThePaytechMagazine

COMMENTARY: INNOVATION “For example,” says Williamson, “some users are unable to make payments, or their login page doesn’t load, or the app sometimes doesn’t recognise the user.” Pretty fundamental roadblocks to the customer experience, then – and they’re not limited to incumbent banking apps. For Salim, consistency is a key cause of frustration. Although it might be easy to view an account balance, it might not be so simple to replace a blocked card, which means an uneven experience. “The challenge is to make sure that every single app has a consistent flow,” he says. “IOS and Google Material Design have tried their best to unify the experience, but opinions are divided. The way things appear or behave doesn’t appeal to everyone.” From Williamson’s perspective, the login challenge is one of the biggest bugbears, along with onboarding, accounting for about a third of friction points. Customer service is another contentious area, with issues around how to resolve questions within the app. “In many cases,” says Williamson, “we find that if people click on a customer service requirement, it takes them out of the app to a webpage or a URL, and then they have to scroll to find the answer. Obviously, it’s good customer experience to solve everything within the app.”

STAYING RELEVANT Over the summer, Mobiquity took a deep dive into technical issues and customer service complaints surrounding banking apps across the industry, finding significant user problems with many of them. Williamson believes that making this feedback part of the innovation loop is key to staying relevant. “Finding the right balance between the risk banks are prepared to take, and the simplicity of onboarding and making payments, is critical,” observes Hipperson. “The Monzos, the Starlings, the Revoluts, and I’d like to think ourselves at Ziglu, we’re trying to get the balance right, to give people a straightforward but secure journey.” Salim adds: “The way I see it, it’s about convenience and speed to outcome. Convenience means is it accessible; is it informative; does it put users in control? Speed to outcome means how many steps does it take to get the desired result? That applies to onboarding, sending money, requesting information and so on. If you get these two things nailed down, it works.”

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It would be wrong to assume that banks have been totally overtaken by fintechs on innovation, says Williamson, but although they’ve invested in ways to improve customer experience, he says they haven’t always understood the fundamentals. “It’s about achievable outcomes,” he says. “What are you trying to achieve? Are you trying to make something look fresher, or are you really focussed on customer requirements?” In which case, he says, more collaboration and focus will prevent change for change’s sake.

Hipperson points to Revolut as an innovative company with the right balance of customer focus and internal initiative, meaning that sometimes it has to lead users to the Promised Land. Although not a crypto native like Ziglu, Revolut has embraced it. “You need to do some thinking yourself,” continues Hipperson, “and try ideas with customers to see what they like. That’s what challengers do really well. But that’s not the way with the traditional guys, because the risk committees put a stop to it. It’s that innovation mindset again.” So, while customer feedback can lead to modifications and improvements, if you want to keep that innovation spark alive, it’s important be clear about wants and needs. A want is often a need, but a need doesn’t always equate to a want. That approach is embodied in the Ziglu experience, which is based on two underserved areas, namely, crypto and foreign exchange. “We’re giving customers what they want,” says Hipperson, “and they love that they can buy cryptocurrency in three or four seconds, hold it and spend it with the friction taken out of it.“ But, as crypto takes its place alongside fiat currencies, an account that Pain points: has no problem handling Innovation is about both and a card that can focussing on them seamlessly transact in “At Mobiquity, we find either will increasingly out what our customers be what they need. really want to achieve, No high street UK and whether they bank has yet dared to go understand the end user’s that far, not because the needs. If what they do technology doesn’t exist or isn’t customer-centric, because there is no desire they’ll only end up with among their millions of a shinier version of what customers, a significant Mark Hipperson, Ziglu they had before.” number of whom will Salim agrees. “We dig this year have considered, deeper, do the research and make all the if not actually bought and sold crypto. small but important differences to a service.” Incumbents have been dismissive of crypto It’s happened recently with Revolut’s in the past; now they are assembling teams subscription tool. “We ensured that users to explore it and looking to regulators in the can block the merchant if they’re not UK to create an enabling framework that happy,” explains Salim. “And we introduced derisks their inevitable involvement. But a warning when their trial subscription is when they do run adverts of delighted about to end.” customers waving shiny dual-currency cards That said, says Hipperson, you do have and trumpeting the technology behind it, to have the courage to reach for the ‘next Hipperson, for one, will be smiling wryly. big thing’, even if customer feedback On one thing they all agree. As Williamson doesn’t dictate it. “It’s the old Henry Ford says: “Innovation is about cultural change adage: ‘if I asked my customers what they with a focus on human centricity: tech want, they’d say faster horses’,” he says. for tech’s sake doesn’t solve anything..”

What we’re trying to do, all the time, is think ‘what’s going to make a difference?’, so we’re not just playing catchup

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INFRASTRUCTURE

The year of the Cloud In a year defined by disruption, Cloud tech has proved its mettle as a vital tool for building resilient, responsive and scalable banking solutions. That’s certainly been the experience of Nigerian challenger Kuda Bank – one of 2020’s fintech success stories. It recently raised $10million in a seed funding round led by Target Global – said to be the largest of its kind in Africa – to build out its Cloud-native, branchless ‘bank of the free’. In a sign of the times, the deal was concluded via Zoom, the Cloud meetings app. Kuda launched in 2019 as Nigeria’s first full-stack, licensed, mobile-only bank, and has been hailed for ‘revolutionising’ financial services in a country where 40 per cent of the population is unbanked. Founder and CEO Babs Ogundeyi says its Cloud-based tech stack is key to meeting the needs of its customers – both now and in the future. “It gives us an opportunity to build a different kind of stack,” he says. “To build for what we know the future will be. We can really tailor how we put together our technology to make it suit what we’re trying to achieve. At Kuda, we have our own core banking system, that

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Legacy or neo, the advantages of Cloud hosting became urgently obvious during 2020, as transaction volumes surged and banks were forced to rethink operating models. Ciaran Chu of ACI Worldwide and Babs Ogundeyi of Nigeria’s Kuda Bank discuss we’ve built in-house, so we own our own banking rails, and we’ve built different businesses around that. In the future, we’ll have an insurance platform, for instance, and other types of services. Using Cloud means all of these things can work independently of each other, so you don’t have to wait until everything is ready; you can just continue adding things and, if something doesn’t quite work out, you can remove it. Typically, that hasn’t really been the way things work.” “That’s really the power of the Cloud,” agrees Ciaran Chu, head of Cloud at

payment solutions provider ACI Worldwide. “It allows you to focus on better serving your customers and transforming your business model.” Powering $14trillion of payments for more than 6,000 organisations worldwide every day makes ACI Worldwide extremely well-placed to understand the challenges posed by legacy infrastructure and how Cloud can solve them. But, while ACI Worldwide provides payments services to global clients and Kuda builds its own Cloud bank for a much smaller target market, both Chu and Ogundeyi agree on the main advantages of the technology. Being able to innovate and deploy more products, faster, thanks to the Cloud, is something that can benefit all financial service providers. “Whether you’re a startup or an incumbent, I think the ultimate challenge comes back to the cost-to-income ratio,” says Chu, whose company serves 18 out of 20 of the world’s largest banks. “Historically, banks have relied very heavily on interest rates being very low, as well as transaction frees, to generate revenue and then, obviously, the cost base has been very linear,” he explains. “I think what Cloud has really www.fintechf.com

enabled – and we’re seeing this with our customer base – is a reduction in that cost-to-income ratio. “Not only are you able to outsource a lot of activity that is very time consuming – so a big drag on that cost base – but the Cloud also allows a lot faster provision and deployment. This means that you can innovate a lot more effectively and really start to transform your revenue base, so that you can move from transaction-based services to more value-based ones.” Kuda Bank processes $500million in transactions every month through the Kuda card, for which there is a lot of fandom among its users, and bank transfers. It’s a drop in the ocean compared to the volume ACI handles, but both experienced a sharp rise in throughput during the pandemic, which is likely to be sustained. Kuda needed the built-in flexibility to handle bigger flows, notwithstanding COVID-19, because the reality is that Nigeria is still a heavily cash-using nation, with a central government intent on turning it cashless. Digital payments, including for very small transaction amounts, were rising anyway but soared during the pandemic – something which would previously have put a lot of strain on older systems, let alone in such a large and traditionally cash-orientated society. “That’s the whole point of Cloud-based and new-age technology. We need to be in a position where, as we scale, we’re also understanding the speed of growth,” says Ogundeyi. “Typically, with the old structures, you kind of just had to pre-prepare and anticipate that scale, which doesn’t work; you can’t anticipate that scale. But with an application programming interface (API)-driven, Cloud-based bank, you can just move with the growth,” says Ogundeyi. “It’s literally a switch, it’s automatic. As you grow, your service base just expands with you, and you really don’t have to do anything. It allows you to scale very quickly, without having to keep coming up with additional infrastructure.” It also means providers can focus more on their product and proposition offering, rather than on regulatory provisions. In Kuda’s case, this could prove key in helping seize the massive Nigerian market opportunity, where the epayments penetration is just 0.4 cards per inhabitant out of a population of nearly 200 million, www.fintechf.com

but where smartphones are the main access point for 56 per cent of people. As such, it is vital that any new financial service provider – particularly one targeting people who have never had a bank account – addresses local customer demand for mobile-based services and new payment technology. “So many people’s financial needs are underserved,” says Chu. “So, things like simple instalment loans or microfinancing, will be big opportunities moving forward. The question becomes how you do it in a really customer-centric way. “Emerging markets and developed markets are very different,” adds Ogundeyi. “We can use the same technology, but the business dynamics, and the way you approach the customers, are very different. Kuda could serve the greatest need which, in an environment with less affluence than more developed locations, is financing and credit. Good customer experience is needed

Ogundeyi’s observations echo ACI Worldwide’s experience in India during the adoption of the Universal Payments Interface. As the country’s leading immediate payments provider, the company adopted a Cloud-first standard to both scale up infrastructure and address payment intelligence and fraud. But, while users wanted to know they were protected from potential loss, they also didn’t want a transaction to be flagged incorrectly as fraudulent. “I think that’s really how the Cloud provides benefit. It allows you to think differently about how you package and bring that technology capability to market – to ensure you’re serving your customers’ needs and spending more time generating revenue for them, as opposed to just dealing with all the compliance and regulatory overheads,” says Chu. He predicts that customer experience and security will be big drivers of banking transformation in the next couple of years, and being on the Cloud will help to facilitate this. “The art of banking is not particularly complex. It’s about providing funds to those who need them, in an increasingly transparent manner,” he says. Not complex, but powerful: Chu cites an International Monetary Fund (IMF) report from 2018, which concluded that expanding access to financial services can help people climb out of poverty, reduce inequality and lead to higher economic growth. In this light, neobanks such Ciaran Chu, as Kuda can be seen as more than ACI Worldwide just challengers in a global industry. too, but, in places They can play a vital societal role by where interest tackling financial exclusion, with rates are relatively Cloud-based technology enabling a high, we’re in a simple, seamless and secure banking unique position experience for people who might where we’re able not otherwise ever had an account. to do social good While both Chu and Ogundeyi by meeting agree the future of banking and demand for credit, payments lies in the Cloud rather Babs Ogundeyi, Kuda Bank in a profitable way. than on server-bound legacy It’s about the right balance.” infrastructure, neither expects change to Chu believes one of the biggest happen overnight. There will need to be problems facing legacy payments integrations with traditional banks and infrastructure, is volume. shared services, such as ATM transactions. “That’s why, in an emerging market “In 10 or 15 years’ time, we’ll see a shift like Nigeria, where there are going to towards the way challenger banks build be so many people doing so many small products – incumbents too,” says Chu. “But transactions, it really makes sense because they’re so big – and they’ve had to build a business – not just in financial so much success, over many years – it’s services but in any segment – that’s driven going to take time to get to that point. But by the Cloud,” he says. it’s happening. We’re seeing it already.”

You can innovate a lot more effectively and start to transform your revenue base, so you can move from transaction-based to more value-based services It gives us an opportunity to build a different kind of stack. To build for what we know the future will be

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INFRASTRUCTURE As SWIFT launches ambitious new plans, we caught up with Mark Buitenhek, ING’s Head of Transaction Services and a SWIFT board member, to find out more about the cooperative’s thinking, the role that open banking will play in reshaping the industry, and how the West can keep up with the fast-moving Asian payments landscape The payments world is changing rapidly and Mark Buitenhek, ING’s head of transaction services, is at the heart of it. As a board member at SWIFT, he helped set the scene for the banking cooperative’s forward-looking new strategy at Sibos 2020 – itself a much-altered event this year, in light of the ongoing pandemic. “SWIFT wants to go further than it’s done before,” says Buitenhek. “It wants to make international payments as simple as domestic payments are, and, to accomplish this, it has created a platform vision that we launched online at Sibos.

The ultimate beneficiaries will be our clients, because with these moves, we, as financial institutions, will be able to provide them with more and better payment services.” SWIFT’s bold new strategy seeks to expand beyond financial messaging to provide comprehensive transaction management services, enabling seamless transactions from one account to another, anywhere in the world, with end-to-end transparency and predictability. This approach will support and accelerate innovation, paving the way for financial institutions – independently, or in collaboration with fintechs – to create new, value-added services to support their business growth. The planned platform capabilities build on SWIFT’s recent successful transformation initiatives, including SWIFT gpi, a new benchmark in crossborder payments messaging, and will be underpinned by SWIFT’s continued investment in cybersecurity and risk management to ensure resilient and secure transactions. Users will benefit from the capabilities, with minimal disruption through backward compatibility.

Collaboration with bright fintechs in this brave new world of payments is important for Buitenhek. At Sibos 2020, ING used its virtual ‘stand’ at the online event to promote a number of the fintechs that it’s been busy working with. “We were supposed to be in Boston this year but we adapted quickly so that we could present them in a virtual way,” he explains. “We brought some exciting, innovative ideas, for instance a digital vault that corporates can put their know your customer (KYC) material in, and then open it up for other banks, rather than having to send the information to multiple institutions.” We also showcased Cobase, which is an aggregator platform we are working with, and FINN, an Internet of Things company – all cool stuff. Despite the pressure everyone has felt over the past six months due to COVID-19, one big plus of the pandemic – if anything associated with it can be positive – is that there has been an enormous boost in terms of innovation and digitisation. “Contactless payments are basically everywhere, online and ecommerce businesses have thrived, digital signatures, you name it. This is actually the dream for those who talk about digitisation, to reach something in just a few months, where normally it would take years to get there.”

Opening up the future of payments www.fintechf.com

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INFRASTRUCTURE OVERCOMING THE TRUST BARRIER Much bank-fintech collaboration, and indeed digital innovation as a whole, is powered by open banking, which is now becoming much more prominent in markets around the world. Many of the newest financial services are apps that rely on data sharing via open banking, a function that enables a customer to share their personal financial information with multiple parties, for purposes such as payments, money management or investment.

New frontiers: Everything is possible in international payments

The latest ING International Survey, based on polling in 13 European countries, reveals that consumer attitudes to open banking haven't changed much since a year ago, but reported usage has. For example, in January 2020, data suggested that customer use of open banking in the UK, the European leader, surpassed one million, doubling over the previous six months. This was despite only 23 per cent of Britons in the survey saying they would be happy sharing information this way. “Open banking has triggered the debate about the future of payments,” says Buitenhek. “And not only in the UK. The European Commission has announced that it intends to go even further, so they will move not so much from the revised Payment Services Directive (PSD2) to open banking, but immediately jump to open finance. We’re seeing this as the future of the financial industry – where we’re much more open, and we have to share the data, as long as we have customer consent.”

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The ING survey highlights an interesting attitude-behaviour gap. What people say and what they do when it comes to their finances don’t necessarily align. The findings suggest that sharing personal data and interacting with technology in new ways are not developments that people unanimously support and there are significant differences in attitudes across countries. And yet many will use tools that rely on these capabilities if they provide them with obvious value.

and we have more than 40 million customers, so it’s still relatively small.”

LESSONS FROM THE EAST The hope is that the West quickly becomes more comfortable with open banking and the payment innovations it can fuel. If not, it risks falling further behind the East, which is generally less constrained by regulation and privacy concerns. “We are carefully watching what is going on in Asia,” explains Buitenhek. “Whether it’s Singapore or Hong Kong or wherever else, there are lots of really interesting things happening without any real form of regulation. Australia is also catching up fast. It has embraced the implementation of instant payments with a completely new platform (the New Payments Platform – NPP) and is building all kinds of value-added services on top via application programming interfaces (APIs). “APIs are the future. I’m now getting requests from our corporates to expose APIs, whether it’s on reporting or, lately, payment requests,” says Buitenhek. “During COVID-19, for example, we worked on a pilot with one of the largest supermarkets here in the Netherlands. They, of course, deliver groceries but were finding that people didn’t want to touch their machines when it came to card payments. So we offered them a payments request with a QR code, which works a bit like WeChat, and that got a tremendous response. When we started this in February, we did a few hundred, and once COVID-19 came, this increased to 10,000.” ING’s focus, according to Buitenhek, is on making itself more digital to support customers amidst the spectre of more waves of the pandemic which could lead to further lockdowns. Longer-term, he is in no doubt that open finance is the future. “I hope that we, as an industry, get there ourselves. I hope it is not necessary for the European Commission to say ‘by 2024, you will all need to be open on every product in the financial industry’ – though I guess that would certainly drive it! We’ll keep investing in this, because our clients are asking for it. Everywhere.”

SWIFT wants to go further than it’s done before. It wants to make international payments as simple as domestic payments are

To many people, sharing their finances with organisations other than their most trusted provider sounds scary. Only 30 per cent of respondents, on average, across Europe, were comfortable for companies to share their data if they gave consent. That is despite open banking being regulated in Europe since 2016 through PSD2. “They’re still afraid to use it,” says Buitenhek. “They ask questions about data integrity and data protection, and all those kinds of things. What we are seeing in terms of the usage of PSD2-related services, not only on the payments side but with all kinds of new ideas popping up, is a doubling every month of what people are using, but from an extremely low starting point. So if I look at ING, we are now at roughly 250,000 of our clients using these types of services,

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The COVID-19 pandemic continues to test the world’s resolve in pretty much all aspects of life. That is particularly the case for businesses. Lockdowns and forced closures have had a shattering impact for many, with the consequential effect of shrinking global GDPs.

Lloyds Bank is developing its own Cloud-native payments platform to drive greater payments efficiency while keeping a weather eye on innovations yet to be unleashed, Head of Product – Payments, Gavin McLean, explains 62

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But one area that’s proven remarkably resilient against this severest of challenges is payments. Being able to make and receive payments is, of course, the very lifeblood of successful commerce and, according to a Lloyds Bank Commercial Banking report, the UK payments sector had to adapt and innovate as hitherto slow-burn trends skyrocketed when social distancing measures came into force. The use of cash, for example, declining four per cent a year pre-pandemic, shrank by 50 per cent within days of the UK’s lockdown in March. LINK, which operates much of the UK’s ATM network, found 75 per cent of respondents to its own survey were using cash less than before the pandemic, no doubt encouraged by the rapid raising of the contactless

payment limit to £45. And, to further add to the weight of evidence, retailers, such as large supermarkets, have seen card use rise 78 per cent year-on-year, according to Lloyds Banks’ figures. As the old Chinese proverb goes, ‘when the winds of change blow some people build walls while others build windmills’. Firmly in the windmill camp is Gavin McLean, head of product – payments, at Lloyds Bank Commercial Banking, part of Lloyds Banking Group, which is involved in one in every three payments in the UK. He’s helped the bank put its considerable weight behind improving or accelerating the use of technologies to help the payments process for both its business customers and individual consumers. Some pandemic responses have been incremental, such as increasing values for cheque imaging via its app. But Lloyds has also encouraged payment by URL, where a web link is made available by email, WhatsApp, SMS or QR code. And, as ecommerce becomes ever-more important to replace face-to-face transactions, it's continuing to invest in application programming interfaces (APIs), which offer both speed and new levels of automation. The Lloyds Bank Payables API, for instance, allows machine-to-machine instructions for the initiation of faster payments, as the clients’ system instructs the bank’s systems via an API, significantly www.fintechf.com

reducing the need for human intervention. The ability to make multiple payments in seconds has so far been used for car finance, salary advances to employees and the rapid return of funds on the sale of investments, with many other uses under consideration. McLean acknowledges that the trend towards digital in the payments sector has been supercharged by the pandemic. “At Lloyds we are now partnering with a fintech provider to give us payment by QR code and we’re seeing really strong demand, particularly from our leisure, hospitality and retail clients, who, of course, want to offer quick, secure but, ultimately, socially-distanced payments,” he says. “These are unprecedented times, but we’re excited to be working with our fintech partners to extend the range of products and support our customers.” Unlike many emerging nations, which pretty much seamlessly jumped from cash to digital, the UK’s, and much of Europe’s, payment architecture is layered up with legacy solutions, like cash, cheques and chip and PIN, which took several decades to develop and bed in. They continue to co-exist alongside peer-to-peer, pay-by-social and a plethora of other methods. This has, quite reasonably, raised questions over whether the current retail payments architecture, both inter-bank and intra-bank, is fit for purpose. That question is being addressed by Pay.UK, which manages many of the payments systems, such as Faster Payments, on which British banks – and therefore their customers – depend. Pay.UK is working towards the implementation of a New Payments Architecture (NPA), which has a single, robust and resilient clearing and settlement core for all payment types, and which will incorporate the universal ISO 20022 messaging standard fields being adopted by all the world’s banks using SWIFT by 2022. McLean sees regulatory changes as catalysts for innovation at the bank. “Some of our best product innovations have actually been built on the platform of regulatory change,” he says. “If you look ahead to some of the changes that are happening in the UK, in Europe and across the world in the ISO 20022 messaging format, that can be seen as a great opportunity to allow more data to travel with transactions, which www.fintechf.com

helps businesses to identify and reconcile them more easily. “Not only that, but, because we’re using structured data, we can use that to identify the good actors from the bad actors much better than was possible in the past. So, I think the industry has got to – and we certainly do at Lloyds Banks – view the innovation as a real opportunity for the benefit of our customers.”

POWERFUL PARTNERSHIP In a move that puts it ahead of the curve, Lloyds has recently announced that it will be the first to go live with SWIFT’s new gpi Instant service, which is being initially rolled out in the UK. It connects SWIFT gpi, the high-speed crossborder rails, with real-time domestic infrastructure – in Lloyds Bank’s case, with the UK’s Faster Payments scheme – enabling faster speeds, clarity on fees and predictability on when an end beneficiary's account will be credited, 24/7. Simultaneously, Lloyds Bank is developing its own Cloud-native payments-as-a-service platform with payments technology provider Form3. In announcing the deal, Lloyds Bank highlighted its potential to greatly improve the simplicity and efficiency of the group’s

Competition in payments is healthy... that leads to improved speed, improved visibility, and improved reliability payment processes, creating ‘the basis for Lloyds Bank’s response to the industry NPA initiative while also providing support for enhanced data and new overlay services. “The competition in payments is healthy – it’s very much keeping SWIFT on its toes – and that is good for end users because that leads to improved speed, improved visibility, and improved reliability of the payments that we all rely on.” McLean says he is convinced that using Cloud-based technology will also help Lloyds Bank to achieve one of its primary aims of bringing enhanced efficiency – and

therefore cost savings – for both the bank and its customers. “We see the services that Form3 is developing and bringing to the market as being of real appeal and, yes, I think in our own technology environment around payments, we see partnering with a fintech like Form3, and its use of Cloud technology, as a way of reducing the total cost of ownership for delivering our payment services,” he says. “I think that generally applies to any business. Cloud is going to play quite a big part in the digital transformation, not just of banks, fintechs and payment service providers but also of businesses more generally.” The seemingly unlimited processing power offered by Cloud-based technologies will also be transformative, forecasts McLean, helping to make permanent many of the changes forced by the pandemic. Giving examples, he says: “Along with other technologies like the rollout of 5G, it certainly opens up a world of possibilities for business banking customers. “When it comes to crossborder payments, we also have to deal with things like time zones and the interoperability of the messaging formats we’re using. That’s probably one that’s going to need more technology combinations to come together to solve. “Where I think the Cloud is going to play a big part, is in making permanent some of the very rapid and very dramatic changes that we saw to consumer behaviour and payment habits as a result of the COVID pandemic. For example, enabling safe and secure remote and digital payments, so that people can pre-order, and click and collect, and pay-at-table – methods that have become very popular, which means the changes from COVID remain permanent. “I think all of the enabling technologies are going to have a big part to play in making sure that we have payment systems and networks that can cope with the demand that is going to bring,” adds McLean. While we hope that, by then, COVID-19 itself will no longer be a spectre, it looks as though the wind of change it blew through payments in 2020 scattered the seeds of innovation that will still be influencing all our lives. Issue 7 | ThePaytechMagazine

INFRASTRUCTURE

An island of innovation Medhy Souidi shares how AI is transforming DBS – Singapore’s biggest bank – with towering implications for the ASEAN nations it serves

When Singapore first achieved independence in 1965, the island nation’s skyline was just two storeys high – its shoreline dotted with ramshackle fishing huts, crumbling colonial villas, and large warehouses storing goods imported from its Southeast Asian neighbours. The Development Bank of Singapore (DBS) was created three years later with a clear function: to finance the newly-sovereign country’s plans for economic expansion. DBS could hardly have hoped for a more fruitful half-century of development. Downtown Singapore is now a glittering metropolis to rival that of Hong Kong or Shanghai, boasting a towering financial centre that overlooks the luxury, 2,500-room Marina Bay Sands resort – an iconic symbol of Singapore’s unquenchable ambition. Indeed, in testament to the country’s ceaseless innovation, even its hotels boast a sense of next-generation development. Corridors are patrolled by trundling room service robots, bearing endearing digital smiles and plates of piping-hot Asian cuisine in their metal bellies. Local startup Vouch provides an artificial intelligence (AI)-enabled ‘digital concierge’ to Singapore’s hotels, while Travelstop’s AI-automated expenses reporting serves the thousands of business travellers who visit the country each year. To the casual observer, Singapore has developed beyond its architects’ wildest dreams – rendering the ‘Development’ in the DBS title almost absurd. No wonder the bank’s executives have flirted with a name change: the firm’s 2017 annual report features a front cover with a line struck through the old D-word, and ‘Digital’ scrawled in its place. Nomenclature aside, DBS has clearly focussed heavily on digitisation since the

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arrival of former Citibank executive Piyush Gupta as CEO back in 2009. DBS launched mobile banking in 2010, and a digital wallet in 2014, ahead of the trend. In 2016, Euromoney awarded the bank the title of ‘Best Digital Bank in the World’ – a recognition DBS appears keen to live up to, having invested a further $3.2billion in IT in the four years since. And, in September, DBS announced its latest bolt into the future, unveiling a number of AI applications as part of its new ‘Intelligent Banking’ strategy. That includes AI-enabled budget recommendations for banking app customers, which DBS reports have already delivered 13 million insights since the tool’s introduction earlier this year, nudging at least 33,000 customers to measurably adjust their spending habits. The bank’s head of fintech, startup exchange and customer development, Medhy Souidi, has seen how AI can reduce the workload of staff, too. “I’m a big believer that technology is here not to cut jobs, but mostly to improve the quality and efficiency of humans,” he says. “For example, in credit assessment, collecting all the documents from credit card companies and bank statements can take two weeks – just to assess someone’s credit score. But using AI, we can decrease that time to 90 seconds.” The colossal efficiency savings derived from AI continue to astonish, even if they’re well on the way to sounding like old hat in today’s fast-moving financial sector. But, for DBS, intelligent banking is also tethered to its new slogan: ‘Live more, bank less’. Each new AI deployment at the frontend, the bank believes, should effectively re-personalise banking services – with the important qualifications that new features must be non-intrusive and as friction-free as possible.

That means customers can issue single-swipe approval for regular, everyday transactions, or use an industry-first mobile banking feature that enables them to pay all their monthly bills at once, with a single tap of their smartphone. The number of clicks required for customers to open a DBS account has also been ruthlessly reduced. Meanwhile, customers of iWealth, the DBS wealth management platform, now enjoy AI-generated stock-buy recommendations to complement their existing portfolios. The same engine issues alerts whenever foreign exchange markets are in their favour, or other equity markets are shifting to their benefit. According to DBS, transactions on the iWealth app jumped by 217 per cent between June and August this year – when these features were first introduced – compared to the same period in 2019.

SERIOUS SKILLS INVESTMENT Earlier this year, DBS prompted a slew of tongue-in-cheek headlines by declaring its new digital approach to have been built on the ‘GANDALF’ model. If Middle Earth seems a little incongruous with www.fintechf.com

We do a lot of training to understand how to collect data, understand data, and how to structure it in a basic way. Also, importantly, how our employees can understand the outcome high-flying, ultra-modern Singapore, it’s because ‘GANDALF’ is an acronym of today’s tech giants: Google, Amazon, Netflix, et al. The ‘D’, if you’re struggling, stands for DBS. Other than spooning financial news editors a giggle or two, GANDALF is based on a serious, and seriously important, insight: the world’s most successful tech firms are populated by the world’s most knowledgeable technicians of the www.fintechf.com

digital age. DBS has set out to replicate this level of skills investment in its own 28,000-strong workforce. “A model can be complicated,” says Souidi, “and one of the things that banks need to do is to understand the model. At DBS, we do a lot of training to understand how to collect data, how to understand data, how to structure it in a basic way but also, importantly, how our employees can understand the outcome.” The aim isn’t just to avoid those ‘computer says no’ moments between staff and customers, but to foster better dialogue internally, between the firm’s tech wizards and its dyed-in-the-wool bankers. The ambition to up-skill every employee, from executives to clerks, is a central part of DBS’ ongoing digitisation strategy, as Souidi explains with a retail analogy. “If AI says to a clerk ‘you need to sell these kind of sneakers to that customer’, the clerk can’t explain why,” Souidi says. “But the data scientists in your company can explain it, because they will understand the internal neural architecture of the model. So they will say ‘OK, based on this data collection here,

and this analysis here, we can understand why the computer came to you and said you need to sell more sneakers’. This is something we still need to train. It’s a new skillset we try to give to all of our employees, and also to the future ones who will come to the company later on.” DBS has already put 3,000 clerical staff through their paces on an Amazon Web Services AI learning course, which teaches the basics of AI through a motor racing game. Another 1,800 DBS workers have gone through an intensive six-month training programme, focussing on big data analysis, with 2,000 more lined up for next year. The objective, as DBS sees it, is to create ‘translators’ between the highly-complex digital world and the older world of banking services. From the frontend to the back office, AI is pulsing through DBS. And it’s pulsing through Singapore, too. Singapore is second in the world, behind the US and ahead of the UK, for per capita investment in AI companies, investing $68 per capita last year – compared with more than $150 in the US, and $34 in the UK. Yet the country’s closest neighbours all invest less than $1 per capita. That means ASEAN (Association of Southeast Asian Nations) countries are likely to take their lead from Singapore in the race to implement AI – a feat that, if successful, is predicted to add trillions of dollars to their GDP by 2030. Singapore is clearly motivated to become Southeast Asia’s AI hub, having recently launched AI Singapore (AISG) to build and support innovative local AI solutions. Hosted by the National University of Singapore, education is front and centre of AISG’s aims to nurture a flourishing AI scene in the region. Just as DBS educates its workforce, AISG runs education classes for students, parents – even primary school children. For both DBS and AISG, investing in skills is regarded as a prerequisite to investing in successful AI. As the bank’s investment in AI is proving, ‘development’ is no longer about funding bricks and mortar renewal, as Marine Bay’s high-rise buildings and high-society bars testify. ‘Development’ now is about building digital; helping to develop a regional AI capability that’s powerful enough to lift Southeast Asia’s entire economy, from Myanmar to Manila. Issue 7 | ThePaytechMagazine

INFRASTRUCTURE Online platform Kabbage was one of the first to use granular payments data to inform lending decisions, as Co-founder Kathryn Petralia explains The ebb and flow of cash – payments in, payments out – is the beat to which every small business marches. And understanding how fast or slow, large or small the sound those payments make, can help unlock working capital in ways not previously possible, using data analytics driven by artificial intelligence (AI). But banks have been hard of hearing, if not tone deaf to the opportunity, as Kathryn Petralia, co-founder of US platform Kabbage, which was among the first lenders to up the tempo, explains. “A hundred years ago, when you knew your banker – and you probably went to high school together and lived in the same small town – it might’ve been a bit easier to get access to financial services,” says Petralia. “But the challenge now is that institutions – large ones in particular – are trained on larger businesses, because it’s really hard to verify small

business data. Kabbage started by getting access to verified third-party data in real time and automated the process, which allowed us to serve small businesses cost-effectively.” Kabbage uses machine learning to assess and then lend to SMEs. Its technology gathers information about small businesses – such as bank account, payment processing, social and shipping data – to make automated, fast loan decisions, sometimes in the space of 10 minutes. Somewhat appropriately, its headquarters are in Atlanta, the city that 80 per cent of all electronic payment transactions in the US flow through.

FROM THE COAL FACE Founded in 2008, the lendtech unicorn’s origins can be traced back to eBay. “It was actually my co-founder Rob [Frohwein]’s idea to serve small businesses selling on eBay,” says Petralia. “EBay had launched an application programming interface (API) the previous year, that gave rise to the idea for Kabbage, so we got started by making loans to small businesses using the marketplace. “We used that API to allow our customers to share transaction and seller-level data with us, so that we

could verify that businesses were actually in business, what their transaction value was, and understand how to underwrite them. In about three minutes, they could come to Kabbage and get access to capital.” As the API grew in popularity, so did Kabbage, because it was able to connect to more and more data sources that allowed it to deliver that same service to more small businesses in different industries. The company has since gone on to further develop its lending portal to unify online bill payment, credit lines and cash flow management tools, also creating Kabbage Payments, which lets small businesses generate and send invoices to customers ,and create a URL through which they accept card payments via Kabbage for a 2.25 per cent-per-transaction fee. Fifth Third Bancorp sponsors the service. But the Kabbage ethos remains centred around helping small businesses get access to capital in a way that traditional lenders can’t. “It costs banks the same amount of money to originate a $5million loan as it does a $50,000 loan, so they focus on the $5million loans because they can’t automate it,” says Petralia. “It requires people, paper and time.”

Striking the right notes www.fintechf.com

Issue 7 | ThePaytechMagazine

INFRASTRUCTURE Kabbage’s lending platform and ability to automatically verify companies are who they say they are, led to it being one of the first fintech companies selected to issue loans through the US Small Business Administration’s Paycheck Protection Program (PPP) during the COVID-19 pandemic. Although a task it would surely rather not have had to undertake, it nevertheless helped drive business through the platform, which had itself been severely hit by the pandemic-induced recession. “From our perspective, it was really easy to do, because we had already automated that identification process,” says Petralia. “It made it far less likely that those customers would perpetrate fraud.”

New tools: Kabbage saw the potential in helping SMEs manage cash flow

By August, Kabbage claimed to have processed $7billion in PPP loans, thereby providing support to more than 300,000 SMEs and helping safeguard an estimated 945,000 jobs on Main Street America. It was around the same time that American Express (AmEx) announced it was to buy ‘substantially all’ of the online lender, including its proprietary data analytics a nd machine learning technology, along with taking on all of Kabbage’s employees. This will enable AmEx to expand beyond its commercial card products and begin making its own loans to small businesses at a time when many of them are still suffering the effects of the global pandemic. Speaking at the time of the acquisition was announced, Anna Marrs, president of global commercial services at AmEx, said: “The acquisition accelerates our plans to offer US small businesses an easy and efficient way to manage their payments and cash flow in one place, which is more critical than ever in today’s environment.

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“By bringing together Kabbage’s innovative technology and talented team with our broad distribution capabilities and over 60 years of experience in backing small businesses, we can better help our customers to successfully emerge from this challenging period and beyond.” Kabbage has rolled out a number of innovations over the last year or so – the most recent, in September 2020, being business current account. But in 2019, it launched startup Drum – which was backed by American Express Ventures, among others – and connects SMEs with gig workers and influencers. Shortly afterwards, it created Kabbage Payments, which lets firms create and send invoices

“A couple of years ago, we realised that we were in a relationship with our customers,” Petralia explains. “Customers were borrowing from us 15, 20 times during their lifespan. So we thought, one of the biggest problems our customers have is cash flow. For a small business, it means ‘do I have the money I need next week, and next month, to do the stuff I need to do?’.” Kabbage realised that it had, in fact, been predicting cash flow for its clients for years – with its models showing how likely it was that individual customers were going to have sufficient revenue to satisfy the obligations the lender was giving them access to. “So we turned that into a cash flow management suite, which includes things like payment processing, bill paying and invoicing, and checking accounts,” Petralia says. Kabbage’s checking accounts were launched in September. Data from these accounts also helps Kabbage understand how a business might be performing. “It sounds counterintuitive because, theoretically – and we hope – they will borrow less,” says Petralia, “but it also means they will borrow more precisely, and spend less on fees. That is our goal for customers. And we believe they’ll stay with us for the long term if we help them to do that, hence the suite of cash management] products.” Looking to the long term is vital for

One of the biggest problems that our customers have is cash flow. For a small business, it means ‘do I have the money I need next week, and next month, to do the stuff I need to do?’ to clients and customers. Partnering with Fifth Thirds Bancorp for its payments product, the company also enables users to send a custom pay link, with a unique URL, through which they can accept card payments. Earlier this year, the company debuted its short-term loan product that enabled Kabbage Payments customers to repay in as little as three days – instead of its previous six, 12 or 18-month terms. Kabbage described the integration of the last two services – lending and payments – as the first of ‘many new solutions’ designed to increase its offering to help small businesses efficiently analyse and manage their cash flow. Expanding its services beyond loans and into financial management was something of a natural move for the company.

Kabbage. In March, it furloughed a significant portion of its team and shut down its SME credit lines a month later, before slowly switching its services back on when it became a PPP lender. However, the government-backed scheme is only temporary and it is worth noting that the AmEx acquisition did not include Kabbage’s extensive loan book – covering previous loans, which are now difficult to value, and those made under PPP. Since October 16, these have been managed through its new K Servicing site. But, on a positive note, by consolidating its services with payments giant AmEx, Kabbage can now orchestrate a much bigger piece of work on behalf of the country’s SMEs – and that must be music to their ears. www.fintechf.com

Visa Business Solutions

Helping you and your customers thrive

Panel discussion

Frictionless finance: using data to accelerate and connect businesses Watch the discussion live on Wednesday 7th October 21:00 CET, or on demand afterwards, via the Sibos 2020 Conference Portal. Join Alan Koenigsberg, Global Head of New Payment Flows, Visa Business Solutions, and a panel of leading industry experts as they discuss how data strategies around the world are being leveraged to accelerate and connect businesses. Hosted by EY.

APIs, RETAIL & ECOMMERCE

A WORLD WITHOUT BORDERS FOR MARKETPLACE MERCHANTS Individual countries’ regulations and processes still present a challenge for merchants selling through marketplaces. But payments providers and fintechs can deliver a solution. Anders la Cour, Co-founder and CEO of Banking Circle, explains how The world of online trading is maturing, but it is still feeling the pain points of a rapidly-growing and evolving marketplace where entrants face multiple barriers to operating because established financial institutions have a fear of the unknown. As an innovative financial infrastructure provider that aims to help fintechs and payments businesses improve financial inclusion for smaller businesses, Banking Circle builds solutions from the ground up. Through detailed market research, we have identified the gaps in the market that our solutions can then address. Earlier this year, we carried out a Europe-wide survey involving more than 1,500 SME online merchants. Our study found that online merchants access a wide range of services from their current banking partners. Around half use short-term loans, overdrafts, finance agreements for specific purposes and settlement accounts for crossborder payments. One in three uses foreign

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exchange (FX) services. But, crucially, just 15 per cent of the SMEs surveyed have not experienced problems when trying to arrange crossborder payments through their banking partners. UK and German banks seem to be the most successful providers: 21.5 per cent of merchants based in the UK and 18 per cent of those in Germany stated that they haven’t experienced issues. But that’s still a small proportion of all SMEs wanting to trade internationally. And, at the other end of the scale, less than one in 10 (9.9 per cent) of French firms have experienced problem-free crossborder payments. While there are a wide range of issues at play, the most significant difficulties are relatively consistent across the regions. Just over a third of all firms found high fees an issue – the most problematic area for all regions, except the Nordics, where merchants struggled more with slow bank responses. Poor FX rates provided challenges for around one in three of all online merchants, although they were less of an issue in the UK compared with the other regions. Interestingly – and particularly in light of the acceleration of digital services in response to COVID-19 – a poor digital experience hampered a quarter of respondents. Poor customer service affected a similar proportion.

EASING THE PAYMENTS PATH When a new business launches, payments are typically quite low on the list of priorities. Funds and transactions will usually be managed through a familiar and trusted bank as the startup cannot invest in researching alternative options.

However, SME banking charges can be prohibitive, especially when looking to expand internationally. Crossborder payments are slow and expensive through traditional banks, as they use the correspondent banking network, with each bank in the chain charging a landing fee. Traditional banks’ legacy systems cause inflexibility for their own operations, so they struggle to provide the best payment solutions for SMEs. Online marketplaces are an increasingly-popular avenue for smaller businesses and startups to rapidly grow their customer base. However, when a customer in another country places an order, profits and cashflow take a hit as the funds make their way from buyer to seller. Payments businesses have stepped in to bridge this gap and provide a faster, more cost-effective transactions solution, but changes introduced under the revised Payment Services Directive (PSD2) have brought an end to online marketplaces being exempt from payments regulations. For marketplaces to remain exempt, the flow of funds must bypass the marketplace. To meet this new need and address pain points identified in our market research, we have used our innovative financial infrastructure to build a solution with the needs of the industry right at the heart: Banking Circle Marketplaces. Banking Circle is a new, fully-licensed bank, free of legacy systems. We are committed to building and delivering accessible and affordable solutions to help businesses of all sizes compete and prosper. The suite of innovative Banking Circle solutions is increasing financial inclusion by providing

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previously-excluded businesses with access to affordable, compliant payment solutions. Banking Circle Marketplaces enables payment service providers (PSPs) to accept payments from marketplace buyers in the name of the marketplace seller and settle the funds back to the seller’s account in the currency of their choice. This allows them to take control of the foreign exchange conversions. Online sellers join marketplaces to get instant access to global markets. Some marketplaces settle merchants in the currency of their home country, regardless of whether the merchant’s home accounts can accept the currency used at collection, with the result that they can face additional FX costs. Addressing this issue, Banking Circle

Banking Circle Marketplaces uses virtual IBAN accounts to give payments businesses serving online marketplaces genuine added value, without any requirement for upfront investment in systems or process changes

Marketplaces provides sellers with local IBANs (international bank account numbers) in the country they want to sell in – typically the UK, Europe and the US.

THE VIRTUAL BENEFIT Banking Circle Virtual IBAN is a unique solution that gives payments businesses the ability to issue multi-currency IBAN accounts to their customers in multiple jurisdictions. They can now access a reliable and fully-flexible crossborder payment system. As such, merchants can make and accept payments, crossborder, in different currencies, in a way that traditional banks are unable to facilitate. Banking Circle Marketplaces was specifically designed to support payments businesses servicing online marketplaces, and their sellers. The solution uses virtual IBAN accounts to give payments businesses serving online marketplaces genuine added value, without any requirement for upfront investment in systems or process changes. Accounts deliver full transparency and faster settlement, enabling payments businesses to offer marketplaces and their sellers a full transactional service at low cost.

Improvements are experienced across payments acceptance, screening time, reconciliation/settlement times and customer experience. Payments are made and received at low cost per transaction, delivering a valuable competitive advantage previously unavailable to smaller sellers.

BARRIERS TO BANKING The opportunity is clearly there for fintechs and payments businesses already supporting the online merchant space. They can deliver genuine added value by providing their merchant customers with banking services, including access to funding. And, in the current climate, that support is going to be more valuable than ever. Indeed, for payments providers that demonstrate a real understanding of SME needs, there could be a significant long-term gain. n The full white paper, Mind The Gap: How Payments Providers Can Fill A Banking Gap For Online Merchants, is available to download for free at https:// www.bankingcircle.com/whitepapers

Fill your eboots! Banking Circle Marketplaces is a solution that benefits everyone

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meniga meniga

APIs, RETAIL & ECOMMERCE SumUp, the payment solution for microbusinesses, pivoted during the pandemic to provide merchants who had been forced to shut up shop with a suite of online transaction services. For some, it’s proved transformational, says the company’s Peter de Souza Like many small traders in Italy, COVID restrictions threatened to put Marco the parrot seller out of business – just as demand for pet birds during lockdown was taking off. With no visitors allowed to his store and no means of taking payments other than face to face, he turned to small business payments provider SumUp to help him launch a ‘parrot post’ – a home delivery service, with transactions facilitated by text message. Now, he says, parrots are literally flying out of the door. Marco is testament to the resilience of millions of microbusinesses that, despite the initial confusion, panic and doom, have found ways to survive – even thrive – during the pandemic, because technology, in the form of new payment channels and solutions, has come to their rescue… when the going gets tough, as they say, you've still got to keep the cashflow going. That’s not to play down the catastrophic impact the pandemic has had on small businesses. In the UK alone, 234,000 of them have already permanently ceased trading since the start of the crisis.

And of those left, a study by Simply Business found that 67 per cent had suspended trading at some point in the last six months, suffering an average loss of around £11,000 (this jumps to £21,000 in the hospitality sector). When you consider that SMEs account for 99 per cent of all UK businesses, contributing a combined £2trillion to the economy, and are responsible for 60 per cent of all employment, it’s clear that those individual tragedies affect all of us. But a recent regional report from Lloyds Bank gives grounds for optimism. It shows that a whole host of businesses have embraced new ways to trade – specifically by going online. Half of them, the report finds, would have ceased trading without it, with almost a quarter moving online for the first time. Moreover, a third said they had increased their online trade since the pandemic started. Another third reported cost savings from using it, while half said the internet and digital adoption had helped simplify their businesses.

SumUp, which was launched specifically with the payment needs of micromerchants with up to 25 employees in mind, has responded to this rapid change in fortunes with a new suite of service options.

Ever-increasing portfolio Founded in 2012, SumUp operates in 33 countries, and is backed by the likes of American Express, BBVA (Banco Bilbao Vizcaya Argentaria), Groupon and Holtzbrinck Ventures. Originally, it largely focussed on face-to-face, physical payments, but with this year’s increased abandonment of cash, it has transformed its offering, providing additional tools and partnership services. SumUp’s head of demand generation for sales and partnerships in Europe, Peter de Souza, explains: “Early in 2020, we expanded into multi-channel payments, which means we now offer an online store, we have payment links and invoicing, and even a SumUp card. “What this means for all different types of businesses – the coconut seller in São Paulo, the taxi driver in Berlin, the café in London – is that they can not only accept card payments, but do it from anywhere. All it takes is connectivity with a card reader or mobile device, and customers can pay them however they want to. That’s the key change.” It’s clear that 2020 has been as transformative for this company as it has for the micromerchants it serves. In March, it introduced SumUp Invoicing and Mobile Payments, but it was the launch of the SumUp Online Store that de Souza regards as the real game-changer.

Keep calm and carry on trading www.fintechf.com

Issue 7 | ThePaytechMagazine

APIs, RETAIL & ECOMMERCE The SumUp Store comes in various forms. The Starter Plan version is a stripped-down, simplified model of an online store, allowing microbusinesses to display their products or services and take payments through various social media channels, including Instagram, Facebook, Messenger and WhatsApp. The interface is familiar to customers used to shopping online and the entry-level option allows for tracking of all sales and a user-friendly customer order history. The service is subscription-free and charges 2.5 per cent per transaction. The Professional, Advanced and Premium Online Stores subscription charges start at £9 per month, with transaction fees ranging from 1.95 per cent to 2.5 per cent. For this, SMEs can quickly set up and design their own online stores and enjoy email and notification features, online payments, product catalogues, customer management, marketing and social media functions, and employee accounts – to name but a few tools. The new services also incorporate the SumUp Card, which is powered by Mastercard and allows small businesses easier and quicker access to their funds. “We really upped our game this year,” says de Souza. “We saw the opportunities and the genuine demand from microbusinesses. Our role – or mission if you like – is to create a world in which businesses are really successful in doing what they love. We believe that providing a variety of solutions, including ecommerce, offers these customers huge help by enabling them to do exactly that.” It has allowed Goodeats, for example, to integrate an online takeaway ordering and delivery fulfilment solution with its SumUp account, allowing eateries to offer collections, deliveries and table ordering, while enabling customers to pay in various ways. “We’ve seen some pretty cool and creative stuff out there,” says de Souza. “Bricks and mortar businesses are utilising our Online Store products to expand into ecommerce and delivery, to keep their businesses moving. “For instance, in response to COVID, some cafés have securely fixed our card reader and a mobile device to their shop windows, so that people can order outside and pick up at the door. Amazing stuff.”

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Spreading its wings: From pet shops to cafés, SumUp is helping small businesses to fly

We really upped our game this year. We saw the opportunities and the genuine demand from microbusinesses Removing barriers to pay SumUp currently serves three million merchants globally, and claims to have 5,000 businesses joining every day – not solely due to the impact of coronavirus, although COVID-19 has admittedly accelerated a change in habits that has been developing for years. The phrase ‘cash is king’ used to hold sway. Today, contactless or virtual payments have comprehensively taken over. “We recognised that there was this huge and underserved market of micromerchants who were struggling to find suitable access to traditional payment services,” says de Souza of the company’s original aim. “We wanted to democratise payments, making services available to even the smallest of businesses, taking away the barriers of cost and complexity.” This meant allowing merchants to pay transaction fees without a contract, with access to inexpensive mobile payment terminals that work with a powerful free application, so that they weren’t paying for a terminal they were not using. “The cashless revolution is moving quickly,” confirms de Souza. “Only a decade ago, in the UK, 60 per cent of payments

were made using cash, and coins. Then, in 2017, we saw debit cards overtake cash as the preferred payment method, and, since then, you’ve had lobby groups like UK Finance projecting that cash could actually make up only 10 per cent of payments by 2028. So, I think the pandemic has just fuelled trends that already had momentum.” If the momentum is there, what can we expect from SumUp in the future? “Our microbusinesses are being empowered by the pure influx of choice we provide,” says deSouza. “Flexibility and simplicity are everything and I’d like to think we are just scratching the surface of the opportunities out there. We will see more cool things happening in terms of personalisation, rich media and artificial intelligence, which will further develop retail and ecommerce. And there is the potential for 10 per cent of the population in every European country to become a SumUp client – who wouldn’t be excited by that!” Who’s a clever boy, then? www.fintechf.com

CLOUD-OPTIMIZED SOLUTIONS. MADE POSSIBLE BY ACI.

When fast, flexible payments are critical to the success of your business, you need a payments solution that doesn’t slow you down. ACI’s cloud-optimized payment solutions give you the ability to accelerate innovation to meet market demands — without requiring a substantial investment in infrastructure or IT resources. ACI’s solutions are simple to integrate and easily scalable to match transaction volumes while minimizing operational and regulatory burdens. To see how cloud-optimized solutions from ACI deliver faster time to market at lower total cost of ownership, visit www.aciworldwide.com/cloud.

APIs, RETAIL & ECOMMERCE

Has COVID pushed APIs? the button on APIs Sensedia’s Lucas Tempestini on how the API economy is boosting retail – from payments to packaging – by banishing backlogs and bottlenecks Last month’s COVID-19 vaccine announcements, with pharmaceutical companies tumbling over one another to share their final-stage trial successes, saw the needle jump once more on the pandemic debate. Talk of super-spreaders, epidemiology, and the R-rate was replaced by a new point of focus: distribution – getting hundreds of millions of vials of medicine shipped across the world. Cue supply chain wonks quipping about ‘bottleneck bottlenecks’, the global shortage of medical-grade glass that’s set to hold up the roll-out of life-saving jabs. Experts have identified hundreds of similar distribution pinch points,

Making the connections: APIs can help businesses scale to meet major peaks in demand

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many of which were exposed earlier in the pandemic when supermarket shelves lay bare for weeks on end. In a sense, the handling of the pandemic is being passed on, from the doctors and scientists to logistics experts and end-to-end delivery management teams. As with all big projects, the success of these new actors will depend on how they interact, integrate, and cooperate. On this front, vaccine distributors might take inspiration from the digital-first firms that pulled through during the early months of the pandemic, the likes of Amazon – the pandemic’s biggest winners. Despite global GDP falling by 5.2 per cent this year, Amazon has seen 40 per cent more sales,

eye-watering profits, and a robust reputation for on-time, end-to-end delivery. Why did Amazon keep delivering, where the likes of Tesco, Sainsbury’s and Argos were left scrabbling around desperately for stock? To answer this, you’d need to look at Amazon’s huge market advantage: its expert use of integrated application programming interfaces (APIs), linking the point of sale with real-time demand calculators and concurrent, automated stock-ordering software. Lucas Tempestini is global marketing manager at API management firm Sensedia. He’s seen firsthand how smart API deployment – integrating dozens of crucial software solutions – can help companies scale and adapt during peaks in trade. He sees no difference in approach between the pandemic’s peak in online commerce, and the industry’s usual seasonal surges. “Seasonal peaks are very important for ecommerce in general,” says Tempestini, “yet they can be a double-edged sword. Many retailers are excited to round up revenue for the year, but at the same time they need to be very well-prepared, or they’ll miss out on trade.” Ecommerce sites routinely crash during Black Friday and Cyber Monday, even after months of planning and IT investment. “Preparation is key,” says Tempestini. “To be successful, you need to stress-test all of your architecture – and understand if and when your APIs are going to play a major role in the strategy you’re adopting for seasonal peaks.” APIs are now both well understood and well regarded. A landmark report back in 2017, produced by McKinsey, estimated that the widespread use of APIs would add $1trillion to the global economy by 2022. The following year, open banking helped www.fintechf.com

pave the way for quicker and more collaborative API integration in the UK, laying the path for open finance. Nevertheless, the technology’s effective adoption remains relatively low. According to one report published this year, the average company uses 900 applications – but, on average, only 28 per cent of them are integrated. A recent PwC study, meanwhile, found that only nine per cent of firms have ‘real-time, end-to-end integration and planning platforms’. Put another way, that suggests 91 per cent of businesses operate with sub-optimal API architectures.

THE CONNECTED CULTURE Founded in 2007 in São Paulo, Sensedia is an API apostle, and evangelises with fervour about integrated, mutually-reinforcing IT ecosystems. The firm provides ‘full lifecycle API management and professional services’ – which is another way of saying they have their fingers in every single API pie: their deployment, their management, their omnichannel interaction, and their global governance. “Establishing a good digital presence with smart APIs is not only a matter of growing your business – it’s become a matter of survival for businesses,” says Tempestini. “Even the more traditional retailers are now using APIs to tap into the power of their legacy systems, connecting and leveraging information out of them. It just takes an internal cultural shift – in the way you think about your own solutions.” This culture shift has already taken place for API-enabled ecommerce payments, driven by the increasing importance of varied and accessible digital payments options. This year’s Capgemini World Payments Report notes that global non-cash transactions had surged by 14 per cent between 2018 and 2019, setting a new record at 708.5 billion transactions for the year. The booming ecommerce sector, using new payments APIs, helped facilitate this growth. Of course, the pandemic has poured jet fuel on this growing inferno of integrated online payments. The number of consumers who made over half of all their purchases online doubled during the early months of lockdown, according to Capgemini. As a result, Sensedia reported www.fintechf.com

a 34 per cent increase in API consumption by its retail customers during the first two quarters of 2020 as they scrambled to invest in their online stores. Better ecommerce is certainly one silver lining of the coronavirus pandemic – like our collective realisation that ‘just-in-time’ order fulfilment is unsustainable under stress. And yet, for too many firms, APIs are still not being optimised as they are at Amazon. As Tempestini argues, integrated APIs can achieve so much more than they currently do at the digital checkout. “APIs can be a single source of truth – all your information about your inventory, or about your partners,” he says. “If you have a solid API strategy, then you’re connected and integrated with your single source of truth, so you know where everything is.” The implications of integrated APIs – delivering what technicians like Tempestini would call ‘omnichannel experiences’ – are astounding. From the point of a single sale, integrated APIs ripple in contented recognition of a

We’re seeing retailers integrating with financial services – being able to provide loan services or credit. That’s going to transform the way that businesses interact new data point, feeding one another instant information that’s conveyed to warehouses, logistics and transport planners, and production facilities. The result, real-time supply chain agility, has become a top priority of retailers in 2020. No wonder Amazon – with its advanced Amazon Web Services infrastructure – keeps its Prime next-day delivery promise. Over in China ‘super app’ Alibaba is another example of smart digital data management across retail and payments. The firm processes five billion data exchanges every day, through a mind-boggling array of 1,500 interwoven APIs. Sensedia is working to make such bristling API armouries the norm. One of the firm’s first customers, the Panvel

drugstore chain in Brazil, now uses an integrated, API-enabled sales system across all its 600 stores – hugely helpful in responding efficiently, and nationwide, to the novel medicinal demands of the coronavirus. Panvel also use lockers – in airports, gyms, and colleges – for ‘click-and-collect’ style deliveries. Thanks to smart APIs, the average delivery time to these locations is just 35 minutes. It’s mind-boggling achievements such as these that have prompted surging interest in the wonderful world of APIs. At the start of this year, 71 per cent of the 200 US organisations interviewed for an IDC report said they planned to triple their use of APIs in 2020. Since then, supply chain bottlenecks and order backlogs have emerged from the shadows of the back office to command centre stage in our pandemic-panicked world. Smart APIs have found their moment in the spotlight. Still, Tempestini is clear that each API integration requires a sound business case. “What we know for a fact is that your API strategy must be built upon your business strategy,” says Tempestini. “It’s your business strategy that is going to dictate where APIs are going. You need to build your API strategy on top of your business strategy to generate value out of your API strategy.” When utilised right, there’s no limit to the richness of the API ecosystems that firms might build. “We’re seeing retailers integrating with financial services – being able to provide loan services or credit,” says Tempestini. “That’s going to transform, big-time, the way that businesses are interacting with each other. “We’re creating bigger ecosystems; retailers are no longer competing only with other retailers, but ecosystems compete with other ecosystems, and the competition becomes much, much bigger in the process.” Sensedia maintains a vision of the world that has APIs swirling energetically at its core. For these API experts, data should move at the speed of light – not the speed of fingers on a keyboard. For Sensedia, every digital payment should be its own ‘super-spreader’ of internal information: pinging between interlinked applications – from supply chain management to delivery agents – to optimise business efficiency, banishing the bottleneck to retail’s manual past. Issue 7 | ThePaytechMagazine

APIs, RETAIL & ECOMMERCE

Scaling the payments stack Silicon Valley Bank UK both lends to and banks the companies that are building the payment tools and processes of tomorrow. Here David McHenry, who heads up the bank’s global treasury and payments advisory team, ponders the impact of regulation in Europe, the advent of contextual commerce and the disruptive potential of CBDC

It’s three years since the launch of the EU’s groundbreaking revised Payment Services Directive (PSD2) and Britain’s Open Banking framework were introduced – arguably the biggest drivers of change for the world of payments. David McHenry from Silicon Valley Bank (SVB), which continues to invest strongly in payment systems that harness the power of improved connectivity, security and data use, is certainly of that opinion. The California-based commercial bank has boosted headcount at its London office this year to take advantage of private equity investors’ appetite to sink funds into UK-based tech firms. In one of the most recent funding rounds, SVB provided €5million of financing for money-transfer fintech TransferGo, to develop its real-time payment platform used by foreign workers and small firms. Despite global lockdowns, 2020 has been successful for SVB – third-quarter results delivered in October reported its net-income-for-stockholders profit measure was $441.7million, 65 per cent higher than the same quarter of 2019. Reserves set aside for bad loans were reduced as borrowers who had deferred during the COVID-19 lockdown resumed payments. Plus, its full-year outlook forecast growth for profit and loan balances, as well as circa 20 per cent deposit balance gains. McHenry, who heads SVB’s global treasury and payments advisory team for the UK, Europe and Israel, cites PSD2 as the spark that continues to ignite payments innovation. We spoke with him to ask what has been achieved since the legislation's launch in January 2018, and what he predicts for the future. THE PAYTECH MAGAZINE: How has open banking, and other regulations around it, been the leading cause for innovations within the payments sector? DAVID MCHENRY: PSD2 had such a wide scope – it covered everything from open banking to application programming interface (API) guidelines, to how payments were to be processed and how secure customer authentication (SCA) worked. It demanded so much that it has swallowed up financial industry investment for the past three years. You could say some of that

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investment was to become minimally, viably compliant. But PSD2 was a huge shift since it put everyone on the same footing in terms of capabilities. Now we're seeing what can be built on top, whether it’s the baseline account aggregation pieces that are starting to happen, or biometric secure authentication for online transactions. Specifically, in the UK, we've got a great regulator in the Open Banking Implementation Entity, which did a good job of standardising the technology. It now leads the way in regulating the new breed of third-party processors, on both the information and the payment side, so that they can build solutions. There is also some great regulation happening in Asia-Pacific, India and Australia. Conversely, open banking in the US is driven more by consortia, and payments are evolving differently there compared to the rest of the world. TPM: It does seem that we are at the absolute tipping point of possibilities at the moment. What are some of the moon-shot elements that PSD2 can bring in? DM: Contextual commerce is an important trend which was developing even prior to PSD2. Hopping out of a taxi without having to pull out cash or your card, or the Amazon Go convenience stores where shoppers pick up items and walk out of the door. Many of these systems are built on top of standard issuing and acquiring payment rails. Now we’re seeing the adoption of augmented commerce [for example, where customers can ‘see’ the product in their home or on their person using a tablet or phone] giving them more information and context. I think we’ll see much more of such change. Open banking will put more security around payments, with SCA. Biometrics will make life much easier. Then there’s the idea that we’ll have more interaction between our bank accounts and platforms, which will result in more push payments. It’ll just be one person initiating a direct payment to another via digital platforms, instead of via the mechanisms that sit behind a card. TPM: With the world of payments becoming high-volume, how critical has it become for your customers to have a streamlined payments platform? DM: It’s absolutely critical to have real-time capability. When standing at a till, if it takes www.fintechf.com

more than a second for a transaction to go through, you notice it. When chip and PIN was implemented in the US, the additional three-to-five seconds that were added to transactions became a frustration point for consumers. So, the speed of the type of payment that you’re using is critical. When you then look at bank-side payments, Faster Payments here in the UK – that can move money between accounts in minutes – they are pretty amazing, compared to other parts of the world that have next-day or even three-day payments. To be honest, there’s no patience left in the world for things like that. TPM: Now that contactless payments have become the mainstay, how critical is it for banks to see transaction data with more clarity; and, with the scale increasing, what can they do with that information? DM: Data is crucial for banks across all operations, from onboarding customers efficiently to monitoring transactions, to client management and making lending decisions.

If we create more account and payment types, more non-banking financial data, and tie that in with payments, we’ll move to a new level Also, banking is as much about the safety and soundness of money as it is about the data in it. With real-time transactions, what once happened over days now occurs in milliseconds. A transaction must be authenticated properly, funds must be known to be in an account before money can leave, data about the receiver must be vetted for both transaction and fraud monitoring. It is critically important for banks to scale towards this. TPM: What does this change mean for Silicon Valley Bank’s focus? DM: With our focus being on the innovation economy, whether it’s venture capital and private equity investors or banking startups that are scaling up, we’ve seen such a growth trajectory around the idea that the tech ecosystem is now the baseline for all of our lives.

Many of our investments are driven by the need to better digitally enable our clients, better embed payments capabilities within their platforms, and support their growth through these solutions and our expanding branch and banking network. We will continue to build our capabilities as our clients want them. As for our experience of open banking, the first use cases were more around integrating account information with accounting or personal finance management platforms, then making lending decisions based on data from third parties. Looking ahead, progress can be made at point of sale, whether online or in person, to enable faster payment initiation. We get excited about the idea of open finance rather than just open banking. Open banking, to me, is about minimal viable compliance, which is mainly about payment accounts and doesn’t encompass an individual’s other accounts, such as investments. If we create more account and payment types, more non-banking financial data, and tie that in with payments, we’ll move to a new level – payments aren’t just about moving money, they’re about the context and information tied to them. TPM: Finally, tell us about something truly blue sky – how will central bank digital currencies (CBDCs) change payments and enhance open banking? DM: In recent years, banks have reformed their tech stacks to revitalise core platforms and payments architecture, so big things are now possible. With CBDCs we don’t yet know how far change will go. Will it replace the real-time gross settlement mechanism that moves funds between banks? Or will this open up that central bank currency further afield, beyond the central bank’s balance sheet, so that it becomes a digital currency that is as good as holding a pound coin, or a US dollar, or a Mexican peso? And how does it change our interaction if individuals can send digital currency rather than Faster Payments as we have now? Do I need that payment mechanism when I can just send you a digital currency? So, there’s a lot that potentially can be rewritten by the use of these digital currencies at central bank level, including whether digital currency will stand alongside or replace physical, fiat currencies. And that’s a huge question that central banks have to figure out. Issue 7 | ThePaytechMagazine

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APIs, RETAIL & ECOMMERCE

The etrolly dash Data from pandemic-fuelled online shopping gave Klarna an insight into our collective psyche.Can the payment solutions provider and its etailers now use it to ride a permanent digital wave? Senior Analytics Director Alex Marsh thinks so The world slowed to standstill in 2020 – at least for many of us. No frantic commuting, no rushing to get the kids out of the door to school. We rediscovered family life, spent more time in the garden, took up bread making, even. The Sunday morning feeling extended into the rest of the working week. That slowdown was only in the world visible to most consumers, however. Because, behind the scenes, the reverse was happening; online stores were surging with activity, payment platforms rushing to make themselves available to shops that had closed their doors but were now suddenly packaging up deliveries for new, online customers – everyone scurrying to get digital systems up and running as face-to-face retail evaporated. A seismic shift was happening – and payments platform Klarna has been helping traders ride the resulting tsunami since March. What’s more, it looks like surf’s up for etail until at least March 2021, when a vaccine will perhaps restore some sense of normality. Alex Marsh, senior analytics director at Klarna, who also leads its UK division, has been crunching the numbers: “ONS (Office for National Statistics) figures suggest there has been a 44 per cent increase in online purchases since January,” he says. But he doesn’t need the ONS to tell him that; Klarna’s own data shows transactions across its payments platform increased by 43 per cent in the first nine months of the year. Klarna was already Europe’s largest fintech startup, having been valued at $5.5billion during a funding round in 2019. “We’ve brought on up to 9.5 million UK consumers,” says Marsh – an astonishing proportion of the population, given that the 20 to 35-year-olds who typically make www.fintechf.com

up the market for online goods only number 15 million individuals. But nothing this year is typical. “All age groups and demographics are shifting to online: our fastest-growing age demographic during lockdown was actually Generation X, i.e. the 40 to 54-year-olds,” he adds.

All age groups and demographics are shifting to online: our fastest growing age demographic during lockdown was actually Generation X

So, it wasn’t that the pandemic caused millennials to buy more clothes from ASOS, then – rather, it caused people who’d never shopped online before to figure out how to fill digital baskets. This demand was met by a corresponding surge in supply – businesses that had never sold online before figured out how to use ecommerce. “Savvy garden centres were even using Facetime to demonstrate the plants that they had on offer to their customer base, – I love that,” Marsh says. COVID-19 has added £5.3billion to UK ecommerce sales this year – and, while much of that was through Amazon, a significant amount has also been driven by smaller outlets that had previously put their fingers in their ears when anyone talked about digital opportunities. As Marsh points out: “It took six years for the proportion of ecommerce to move from 10 per cent to 20 per cent, and then in three months this year, between February to April, it moved from 20 per cent to 30 per cent.” For retailers to put pedal to metal and get online so quickly, you might think they too had been on some kind of pandemic trial drug for traders. But it turns out, Klarna was all the boost they needed. "Particularly for small merchants and independents, we’ve definitely seen super-strong demand for partners to support them on building the sort of capabilities they need to compete,” he says. ”Ecommerce platforms can often have Klarna as a payment method live within 24 hours of the initial enquiry.” Being behind the scenes of such a shift offered Klarna a unique, sociological window to peer into the human soul during the pandemic. Marsh talks of a ‘very consistent pattern, across the different markets that we support’. Issue 7 | ThePaytechMagazine

APIs, RETAIL & ECOMMERCE “First of all, consumers were thinking ‘we’re going to be confined during lockdown, we’ll stock up on food and essentials’,” he says. “Stage two saw consumers looking for ways to interact with friends and family. We had this shift in terms of house parties and other mechanisms to interact with friends – with a 180 per cent uplift in gaming payments.” By stage three, people were investing in leisurewear rather than sofawear – ‘a physical benefit to help the mental benefit’ of slowing down, according to Marsh. “We saw a really interesting shift into health, wellbeing and exercise, and a 105 per cent increase in running shoe sales.” The fourth and final stage, where we are now, has ‘an element of return to normal’, says Marsh. “People are out of the house, they’re interacting more. That’s where we’ve started to see increased purchases of clothing and shoes again.” More than therapists, businesses can learn from this pattern for future geopolitical and even natural events, suggests Marsh. For all the planning in the world, it is inevitable that businesses will sometimes get caught under a wave they failed to see crashing onto the retail shore – so wetsuits and protection in the form of digital channels are advisable. “We saw, during lockdown, that the key for merchants is being super agile, to react to customer preferences quickly,” Marsh says. So that is what it’s now focussed on helping them to do.

accounts to trusted third parties’, up from one million in January. Klarna is already an example of embedded finance – a button that consumers can click on at checkout for a straightforward payment process – but it is also enabling an ecosystem of similar services involving other financial institutions with which it can exchange data with the consumer’s permission. Already a licensed bank in Sweden, with an open banking platform, Marsh explains

An easier way to pay: Some of the payment habits developed during the pandemic will stick

We saw, during lockdown, that the key for merchants is being super-agile, to react to customer preferences quickly

The great enabler Klarna has invested in open banking outside of its main business model, connecting fintechs with more traditional financial institutions. The company wants to simplify open banking and open up the playing field to smaller players – it has already connected third party providers (TPPs) with more than 5,000 banks in Europe. It believes this will allow TPPs to go to market quicker, and improve customer conversion because, for example, the due diligence is less onerous. Indeed, COVID seems to have opened consumers’ eyes to the benefits of open banking – two million people in the UK now connect their

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they wouldn’t have had previously. It’s a win-win for everyone, he says. Post-COVID, Klarna is keen to make sure that online doesn’t become a poor substitute for in-person shopping – which is exactly why flexible payment methods, such as ‘try before you buy’ (its digital equivalent to changing rooms) are key. It’s also making headway with social shopping, which Marsh describes as ‘supporting consumers in terms of wish lists, the types of items they want to buy’, as well as, most appealingly, tracking

that this transparency, allows Klarna to make better decisions about who to extend its buy-now-pay-later credit scheme to, particularly now, with consumers’ wallets under even greater stress. “Think about a consumer who has quite volatile income, or potentially has not used that many credit products before,” he says. "The access to open banking, and being able to see all of their transactions, can help us build a better picture, to make a decision about their ability to repay”. He admits there is still a ‘battle to be won with consumers’ around sharing information, but it is about ‘bringing to life the benefits of doing that’ – such as access to an interest-free payment option that

price drops so that customers are aware when items they want go on sale. Klarna realises there’s a vaccine on the horizon that could push the reset button – but it also knows the cat’s out of the bag when it comes to online shopping, and Marsh is confident that experiences during the pandemic will drive further adoption by merchants whose customers had previously shunned digital. We might embrace our old way of life (quite literally) when social distancing is no longer the rule. But we might not be so keen to reclaim certain aspects of our previous shopping experience – queuing, wonkey-wheeled trolleys, packed changing rooms and out-of-stock items among them – with the same enthusiasm. www.fintechf.com

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COMMENTARY: PARTNERSHIPS Partnerships have come to define neobanks. But how do you ensure it’s a happy marriage? We asked Norris Koppel, Founder & CEO of Monese, and Ray Brash, CEO of its supplier PPS In the banking space, real innovation doesn’t just improve the technology; it fundamentally rethinks the model in order to build something completely new.

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In many cases, that means decoupling from the infrastructure that legacy banks thought it was essential to own and control, but which, when regulation bust open the data vault, proved to be a prison. Even though technology had handed banks the key to the cells, the monkey-in-a-cage mindset made it difficult sometimes for those banks to walk out and start a new life. But fintechs were born into a global village, an extended family of solutions providers, all coming together to build and maintain the proposition of a neobank. Such fraternity and ‘openness’ brings with it risks, too, of course. The most recent example of how things can go spectacularly wrong when you rely on a strategically important partner that then lets you down, was the Wirecard collapse of 2020. It doesn’t appear to have been a reset moment, though. Rather, it served to demonstrate how critical partnership working and the ‘as-a-service’ model has become, and how the challengers’ approach to it must be mature to protect both them and their customers. Norris Koppel, founder of challenger banking app Monese, says that, if anything, fintechs are being compelled to seek out these more strategic, long-term relationships at unprecedented rates. “There is less now of the quick and dirty kind of partnering,” says Koppel, for whom partnerships were fundamental in getting Monese off the ground in 2015. Looking back, he admits that, during its early years, Monese chose partner companies that ‘roughly ticked a box’, and that Monese could ‘actually afford’. But it’s www.fintechf.com

only through rigorous selection and due diligence since that it’s been able to build a European bank across 30 markets, one that relies on partners to offer customers localised services in each, and all made possible by its relationship with bankingas-a-service partner PPS. It’s an example of a partnership that, in Koppel’s words, can ‘properly add value and strength to a business – to the partner’s business, too’. Most recently, PPS facilitated French IBAN accounts for Monese to extend its ‘bank like a local’ concept to customers living and working there. At the same time, it joined forces with Paysafe to offer ecash top-ups via barcode for millions of customers, starting in France. “When you look at technology business, it’s very easy to build a prototype, push it live, see how customers react, but in financial services, just waiting for the licence can take a good couple of years, and what young fintechs don’t typically have is time. So I think relying on partnership is absolutely mandatory,” says Koppel. While the COVID-19 pandemic has inflicted financial damage on fintechs, with the likes of Revolut, Monzo and Monese making job cuts across Europe, it has also created unprecedented opportunities for financial services companies to form alliances with data management companies, Cloud-based providers, end-to-end reconciliation services… the list goes on, all in order to manage and respond to the globe going digital in double-quick time. Circumstances caused by the crisis have seen, for example, wealth management companies cosy up, including app Nutmeg launching an investment partnership with JPMorgan Asset Management, while digital wealth firm Freetrade got into bed with application programming interface (API) provider TrueLayer to launch open banking in app.

AN ‘OPEN’ RELATIONSHIP Like Koppel, Ray Brash, CEO and chairman of PPS, only sees these relationships growing and deepening, particularly across an increasingly fragmented payments industry. “There are hundreds of players coming in,” he says. “A fintech would not necessarily need to build its own open banking interface, for instance, www.fintechf.com

And rightly so, says Koppel: the buck stops with them. “You can’t say ‘oh, our partners failed. Don’t worry, we are on it’. It must be the brand itself that picks up those pieces, instead of sending a customer to a partner to sort it out. “When you look at younger businesses, they are typically much riskier for big partners then the other way around, because a company with a limited track record and money is automatically more risky, that’s for sure.” That wasn’t the case with Wirecard, of course, when it collapsed with fears that it would disrupt much smaller partners, such as Revolut and Curve. In the event, the contagion (in the UK) was contained, But Brash points out that Wirecard’s demise is a cautionary tale. He said: “I think any firm that woke up and found its funds frozen, suddenly realised, in hindsight, they should’ve paid a bit more attention to who they were partnering with.” Railsbank, the UK startup backed by Visa, has now purchased Wirecard Card Solutions, the UK arm of the firm. But the controversy raises questions about whether partnerships should be kept below the radar, preventing a public outcry if things go wrong. Not a good idea, says Brash – you only have to look Ray Brash, PPS at banks’ experience with offshoring customer call centres, where the quality of service fell below efficiently, and standard, to see used partnerships why transparency is to build their Norris Koppel, Monese important. “That’s an brands – in many example of where it was pretty visible cases diffusing the risk associated with that the outsourcing was not what the scaling – as proof that you don’t need to customer was expecting,” Brash says. And own all that you need. many brands are now making a public There is a ‘but’. The corporate world, virtue out of their UK call centres, including particularly in financial services, is littered a recent TV campaign by Starling Bank. with examples of big brands being Ensuring the culture of the brand and undermined by the failings of an its partners, as experienced by the outsourced entity, raising questions customer, is indistinguishable is essential about the extent of a brand’s to success. In all its partnerships, Brash due diligence. Remember when TSB says PPS is invisible to end-users – and it’s suffered a customer backlash over an they who will decide which tie-ups work IT fiasco in 2018 that was caused by and which don’t. “That’s why Norris shifting data to an outsourced IT spends all his time talking to customers!” system managed by its parent company Koppel agrees: “The strength of good Sabadell, which bought TSB in 2015? partnerships is you can move fast, you are Thousands of furious TSB customers, safe, you are regulated, you can get quick locked out of their accounts, weren’t customer feedback. And, ultimately, they interested in who was providing the IT; the bosses. You can’t mess with them.” their anger was directed at the bank. because it can partner with a business that’s already built it.” PPS provides challengers such as Monese, Tide and Yolt, with banking and payment solutions, including a white-label payments platform. Brash advises startups to bolster their businesses through partnerships instead of wasting money building services that might be soon be commoditised in-house. He says he can’t think of a single successful fintech that didn’t have a partnership to help get it off the ground. Such a strategy also helps cash-strapped founders under pressure from their venture capital investors who want to know where their money is being invested. “Especially if you’re broadening your offer – going into credit, going into marketplaces – then a good way is to partner,” says Brash. He points to successful, asset-light companies like Uber and Airbnb, which have utilised existing infrastructure more

Especially if you’re broadening your offer – going into credit, going into marketplaces – a good way is to partner There is less now of the quick and dirty kind of partnering

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CRYPTO Lightbulb moment: Ziglu is giving customers what they want,and that’s crypto

BuildingZiglu Building Ziglu Ziglu offers accounts that treat crypto like any other currency. Is this what the next wave in financial services looks like? Founder Mark Hipperson talks ‘neo v2.0’ with Joanne Dewar, CEO of GPS Launching a successful challenger is all about opportunity, means and execution. If your burning desire is to launch a crypto-native neobank in the UK, then all those things might take a little bit longer to come to fruition. But that time has come for Ziglu. Founded by Mark Hipperson, former chief technology officer and co-founder of Starling Bank, Ziglu is a personal money app, offering an account, card and simple way to buy and sell crypto. Hipperson had kept an eye on crypto developments while building Starling, the UK’s first licensed challenger to offer a current account, but which doesn’t – as yet – include crypto facilities. In fact, few of the first wave of

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UK challenger banks do. Revolut, Monzo (and N26 before its departure from the UK) have extended some functionality to account holders, but they are a long way from treating it as mainstream. Ziglu, on the other hand, has developed a truly global account for the digital age, one where users can manage traditional and digital currency all in one place, enjoy competitive and instant cryptocoin exchange services, and will soon be able to use a Mastercard debit card to spend whichever of four currencies Ziglu currently supports – Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH) and Litecoin (LTC). It’s challenging the challengers. “We all know the big banks have been ripping us off and letting us down for

years. Starling Bank tried to fix that and I think we did a pretty good job of changing people’s attitudes… but a lot has changed in the last five years,” says Hipperson in his pitchdeck message to crowdfunders who went on to help Ziglu smash its target raise in a matter of hours in September. It was over-funded, infact, by 500 per cent. Hipperson had clearly caught the zeitgeist. “We’re a modern financial services challenger that does crypto as well, because that’s what a modern financial services company needs to do,” he says. “I’m not an evangelist for cryptocurrency; all I’m doing is providing a service to people because they’ve asked for it. And I want to try to provide something that doesn’t rip them off. www.fintechf.com

“We offer the opportunity to simply buy, sell, hold, send, and – soon – spend.” You could join Ziglu and not buy, sell, hold, send or spend any cryptocurrency. And that’s the point. Crypto should be just another tool in your banking app, like account aggregation or Apple Pay. Hipperson could have gone anywhere to launch a crypto service – but he chose London. “I genuinely believe London is the best place to be launching anything in terms of fintech. There are a number of reasons,” says Hipperson. “But one is, obviously, regulation here; the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) really do support innovation in the fintech marketplace, and help good businesses going through the licensing process.” As you’d expect from a former CTO of Starling Bank, Hipperson has done things properly. Ziglu is licensed as an electronic money institution (EMI) by the FCA, and is one of the first digital currency companies to be registered under the UK’s Money Laundering Regulations. Being belt and braces, it has also gone to the trouble of insuring up to £50,000-worth of its users’ crypto assets against hackers, too. “We think all that sets us apart from the competition right now,” says Hipperson. It’s been piling on users at a rate of knots – in the summer it was onboarding one every three minutes. So, there’s certainly no shortage of interest. Even the CEO of Ziglu’s payment services provider is captivated by it, actively engaging with crypto for the first time through Ziglu’s app. “Ziglu’s part of the next generation of neobanks,” says GPS’ Joanne Dewar. “The whole neobank race kicked off in the UK, and therefore we, collectively, as a country, as an industry, have more experience here than elsewhere. Mark is taking all those lessons learnt and building them into a new offering.” One of those lessons was that, like Starling, you need to own your infrastructure. “The core of what we are is designed, built and owned by us,” Hipperson explains. “All our application programming interfaces (APIs) integrate with our banking ledger in real time, so whether you’re spending money in Australia on a Ziglu Mastercard, processed by GPS; making a payment or onboarding somewhere in Scotland, that all goes through to our banking ledger in real time. We’re www.fintechf.com

controlling all the events, and all the transactions around that. Because it’s ours, we can change and evolve it. If we want to offer an innovative product or service, we can program that in, and get it to market in weeks; we don’t have to go to a third party.” His approach runs counter to the bank-in-a-box model promoted by many others in the neo space. “I’m not saying that’s not the right thing to do for some companies; we’re a tech company, first and foremost, with an FCA licence to allow us to do current account services, and crypto, as well. Others may feel that they can’t build that, and therefore go to a provider to say ‘look, can you give us a head start?’. While they might get to market a little bit quicker, they’ve still got to integrate with all the different systems, to be able to provide cards, payments, know your customer (KYC) and anti-money laundering (AML). But you’re paying for all of those. Every single time you use a third party to be your banking ledger, you’re paying somebody else for that. But when I’m raising money as Ziglu, people know

requirements are quite sophisticated. There’s a constant need to upgrade, to keep pace with scheme requirements, where Visa and Mastercard keep creating upgrades, and for good reasons, in terms of, new fields, new chargeback mechanisms, 3-D Secure, etc. And the reality is that you have to have serious scale to make that work if you’re not going to use a third party.” GPS was embedded in the emerging Ziglu business model from the start. “We pivoted at the beginning of this year, because in March/April, we realised there was a period of time where people weren’t going to be travelling. So, we decided to push back cards a little bit and brought forward some of the features on crypto, because that’s what people wanted to use. They weren’t using their cards or foreign exchange (FX), so we delayed that, in terms of the roadmap, which allowed us to get something to market,” says Hipperson. “It’s been almost a ‘perfect storm’, in a negative way, for many banks. They’ve struggled with the environment this year: people they want to lend to not wanting or needing to borrow, others having bad debt, people not using their debit cards so that the interchange rebate is lower than ever – 54 per cent down at its lowest point – no FX, and low interest rates. The fundamental point people are learning from this, is that there needs to be profitability in a business model. I’d like to think we have that innately within ours.” Mark Hipperson, Ziglu Right now, of course, interest in what they’re investing crypto is reaching record highs. in... the core of what we “I’m no longer having conversations are is owned.” trying to convince people it’s going There is one area mainstream,” says Hipperson, “because Joanne Dewar, GPS of banking service, people can see it’s going mainstream however, that it made sense to outsource: now, with governments and with major payment processing. banking companies. Facebook’s been “There are a number of brands that are saying it wants to get into it for a while. So not in financial services themselves… we know it’s happening, and people want they’ve got an app, they’ve built loyalty and to know how they can just buy £50 worth, they’re then wanting to move into financial or £100 worth, and hold it alongside their services as a way of enabling those traditional currency. end-customers to be able to do something “It’s called ‘cryptocurrency’, but in reality with that built-up stored value,” says Dewar. it has been so damn difficult to use like a “And for those kinds of players, going to currency. So that’s what we are allowing a banking-as-a-service provider makes total people to do through the card, provided sense; it’s never something they’re going to by Jo’s company.” develop the deep expertise in. But if their She believes the challenger bank business is financial services, their options community should be collectively proud could be limited. of what it has achieved so far. “It’s raising “The card processing piece, though, is the bar of expectation,” she says. quite unique, in that it’s very deep, and the But perhaps Ziglu a tad more than most.

I’m no longer having conversations trying to convince people that crypto’s going Ziglu’s mainstream part of the next generation of neobanks

Issue 7 | ThePaytechMagazine

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CRYPTO

What’s driving IDV in crypto? Delphine Chen, Business Compliance Manager at global cryptocurrency exchange Wirex, and Charles Roberts, who heads up the financial services team for Germany-based identity verification business IDnow, believe harmonised regulation and the use of biometrics are crucial for the future of the crypto industry One of the biggest obstacles to mainstream cryptocurrency adoption is the widespread stigma of illicit activity attached to the crypto industry. In an effort to dismantle the belief that cryptocurrency is largely unregulated and hazardous, the last couple of years have seen crypto firms implementing new identity verification (IDV) services, with enhanced customer due diligence. According to Delphine Chen, business compliance manager at global cryptocurrency exchange Wirex, despite many changes over the past decade, regulatory solutions are lagging behind technological ones. “Regulators are still trying to find their way in terms of how to regulate enough, but not too much”, says Chen. On the other hand, there have been numerous, innovative IDV solutions coming from third-party providers. Crypto platforms have come a long way from asking users to upload a photo or www.fintechf.com

scanned copy of their ID, and manually funds and data. Roberts believes the reviewing their documentation. Machine human element of video authentication learning and artificial intelligence (AI) services is crucial to fraud prevention, technology have been leveraged to because talking with the person allows automate this process. Users are now firms to better assess their credibility. asked to take selfies holding their ID, while the technology scans the document and REGULATORY CHANGES AND AML5 checks its originality, extracts information In 2018, the European Commission using optical character recognition (OCR) published the new Anti-Money Laundering and performs facial recognition faster, and Directive (AML5), which amended and with more precision, than humans can. was built upon AML4. The deadline for German IDV services provider IDnow has EU member states to incorporate AML5 taken it a step further by offering customer provisions into national law was January identity authentication via video calls. 10, 2020. The new Directive extends to Recently, the startup has seen an uptake in virtual currencies and includes updates on requests for its services from crypto firms. know your customer (KYC) procedures. Charles Roberts, who heads up its financial Roberts explains that, from the services team, identifies two dominant beginning of this year, cryptocurrency drivers: fraud prevention and regulation. exchanges and wallet providers need to Fraudsters have been comply with local AML creative in finding new regulations and perform ways to get away with their own due diligence, forgery and identity theft, or KYC, on their customers. putting crypto firms Voluntary AML and under pressure to protect countering the financing the credibility of their of terrorism (CFT) platforms and show has been turned into customers that they care a mandatory regulatory Delphine Chen, Wirex about the security of their measure.

Regulators are trying to find their way in terms of how to regulate enough, and not too much

Issue 7 | ThePaytechMagazine

CRYPTO Both Roberts and Chen acknowledge the necessity of regulatory changes and the benefits of AML5 for crypto firms and their customers. Working for a crypto exchange herself, Chen believes that ‘regulating provides better legal certainty for us as a crypto business, on the one side, but also for customers, as they will know whether this firm is legitimate or not’. However, there’s a lack of mutual licence recognition and universal national implementation of this new regulatory framework, which, as Chen says, ‘could cause legal uncertainty for crypto-asset businesses’. Some countries, including Germany, are enforcing their own crypto regulations on top of EU ones. In the past, if you were a UK-based crypto business, regulated by the Financial Conduct Authority (FCA), and wanted to expand your services to Germany, you could simply passport the FCA regulations. Now, however, if you want to trade in Germany, the national financial authority, BaFin, requires foreign exchanges to obtain a local licence as well. Moreover, you can run into different regulatory approaches within the same country, working for different companies. Some of them have a higher risk threshold than others so, as a third-party service provider, you need to adjust to these requirements. The European Commission has already introduced a draft proposal for a new comprehensive framework, to be implemented by 2024, which would encompass crypto assets that haven’t been covered under AML5, such as utility tokens, asset reference tokens, central bank digital currencies (CBDCs) and stablecoins. Recognising the challenge, Chen and Roberts remain optimistic that we can expect a single licensing regime by 2024.

VIDEO AUTHENTICATION It’s one thing being diligent about who you’re onboarding and trading with – it’s another making sure those screening processes don’t impede legitimate user journeys so much that they end up abandoning the platform. It’s the old simplicity/risk conundrum. Roberts and the IDnow team believe video is the best identity verification method for crypto exchanges right now. The benefits, he says, are numerous. Firstly, clients take comfort from having a human agent who guides them through

ThePaytechMagazine | Issue 7

the process. Previously, crypto platforms relied on their customers’ tech literacy, which could prove really challenging at times. Now, less tech-knowledgeable clients will get the support they need. IDnow agents have control over users’ devices and can turn their camera around to scan the document properly, and turn the flash on if needed, instead of relying on the users’ environment. This method is more secure because the agent can notice if the client is reading a script or following someone else’s instructions. Video authentication might feel alien to the UK market but in Germany, Roberts says, it’s already second nature.

Video authentication might feel alien to the UK market but in Germany, it’s already second nature

“Customers expect to go through a video verification call to open an account, and to transact.” Recently, IDnow has been working closely with a number of clients from the UK and Ireland, from small businesses to banks, and, since video onboarding isn’t mandatory in the UK, IDnow can provide them with a hybrid version that combines artificial intelligence (AI)automated procedure with a video call. Wirex, Chen says, is using video chats only for suspicious onboarding or high-volume transactions. “Usually, we would use it to verify that the customer is really the customer, via Zoom, Skype, WhatsApp or Google Hangouts, and we would ask additional questions when we’re onboarding them.” She explains that video onboarding isn’t mandatory at Wirex because the procedure is more time-consuming and requires a good Wi-Fi connection, and the full-time assistance of a customer agent.

Roberts says IDnow has received more requests for video-based authentication as part of enhanced due diligence for high-volume transactions. Crypto exchanges typically use AI to verify users’ identity when they register for an account, and require video authentication when they pass a certain transaction threshold. Roberts again emphasises the role of the customer agent as a moderator in solving problems, for example suggesting the client switches to 4G on their phone, which in most cases immediately improves the connection. A lot of these platforms and companies, not to mention the banks, already have a fully-fledged call centre infrastructure or back-office compliance teams that can jump in for the video ID verification (IDV). IDnow also deploys its own call centre agents for its as-a-service product.

COOPERATION LEADS THE WAY We can’t neglect the overwhelming changes in our relationship with technology that have been triggered over the past few months. We’ve been forced to transfer a lot of our daily tasks online, and to work and study remotely, so it’s only logical to ask what the new normal would be for identity verification services. Wirex has transacted around $4billion, so as a crypto-native, operating across multiple regulatory jurisdictions. Its view on what works and what needs to be done to strengthen IDV carries weight – Chen clearly thinks harmonised regulation and biometrics are the way forward, as well as further cooperation between fintechs and solution providers. Wirex has itself established great communication with its third-party provider, which provides feedback, creative ideas and information on any new fraud patterns it has detected. According to Chen, the recipe for a trustworthy IDV service provider is a combination of quality; regulatory compliance (with a focus on the EU); a straightforward, user-friendly procedure, and an openness to considering the platform’s feedback. Roberts would agree with that, but adds that, in the short-term at least, ‘businesses that have had to close their doors are going to be looking for an alternative onboarding method, and video-based is probably the next step for them to look at, in terms of verification online’. www.fintechf.com

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PARTNERSHIPS Name and number: SurePay worked with an in-house team from Mobiquity on its breakthrough solution

If a letter is either incorrectly or incompletely addressed, it may well go astray; a wrong ‘address’ on a payment instruction means it may not only fail to reach the right destination, but be deliberately diverted to the wrong one. That’s because fraudsters are actively exploiting transaction weaknesses and leaping on any opportunity to harvest funds through authorised push payments (otherwise known as bank transfer scams). With the massive growth in online and mobile transfers, and the relentless quest for faster payments, the risk of a delivery error is increasing, whether malicious or accidental. Finding a solution to this problem was the inspiration behind Dutch fintech SurePay, a specialist in Confirmation of Payee (CoP), which developed a way to validate transfers by matching entered payee name with the genuine account holder’s name. If you make this vital match at the point of payment, you can be sure you are transferring money to the intended person or company, which SurePay says is

ThePaytechMagazine | Issue 7

Who are you, GB29 NWBK 6016 1331 9268 19?

David-Jan Janse (below) and Marcel Rienties, Co-founders of SurePay, designed a cutting-edge Confirmation of Payee solution to match account names, so payments never go astray. Mobiquity developed the IT from scratch to a sound service reducing online banking-related identity fraud by more than 80 per cent and misdirected payments by 67 per cent. As an indication of the scale of the misdirection problem, in 2019 alone it issued 53 million warnings of a mismatch between between the entered payee name and the genuine account holder’s. A spinoff from Rabobank, the multinational banking and financial services company which owns a majority stake in the company, SurePay was co-founded in 2016 by former Rabobank

staffers David-Jan Janse and Marcel Rienties, now its chief executive and chief product officer respectively. Janse describes how he joined Rabobank from university and, for 25 years, has been involved in innovation projects and ways to improve customer experience. From the very beginning of the internet revolution, he was developing online banking initiatives and mobile banking services. Then, in 2015, came the watershed moment. “Everything came together with algorithms, Cloud, application programming interfaces (APIs) and big data,” says Janse, and this was when he and Rienties realised emerging technologies could solve a growing problem. Namely, if you have to pay with an IBAN, how do you know it is correctly paired with the intended recipient? How do you ensure the payment goes to the right person or company? Their solution was IBAN-Name Check (aka Confirmation of Payee), which today is employed by all the Dutch banks and used for more than 98 per cent of online payments in the Netherlands. www.fintechf.com

Janse says that although there had long been a compelling need for this kind of verification, it proved more complex to develop than one might think, partly because it needed the organisations acting on behalf of the payee and beneficiary to communicate and partly because there’s just so much in a name. “It’s a huge problem to fix,” says Janse, “because a payer bank has to check on the data of the payee bank. And then there’s the possibility of name confusion. For example, because my name is Janse, without an ‘n’, and Jansen is the most common name in the Netherlands, will I get a true match? If you say ‘no match’, I don’t get paid. If you say ‘match to Jansen’, it’s a mistake. Other examples would be the difference between ‘Elizabeth’ and ‘Liz’ or ‘Limited’ and ‘Ltd’. False negatives and false positives are the heart of the problem, so you need to address all the permutations and nuances.” Across Europe, and indeed the world, nomenclature has discrete rules – the order in which a name is written, the use or omission of a dot here or a comma there. All of which the algorithm is capable of. Janse adds that because of the General Data Protection Regulation (GDPR), there was also a permission issue, which limited what personal data could be disclosed. In short, payments were stuck in a rut, with transfers being made to numbers rather than to individuals or companies. But the innovation gene was strong in Janse and Rienties. They refused to accept the banks’ way of thinking, which was often ‘we cannot, we may not, and we don’t have to’ –an excuse not to improve something – insisting instead that ‘you can, you may and (perhaps more importantly) you should’. Jumping those three hurdles were the motivation for a creative breakthrough. The SurePay algorithm solved the ‘may’ part, enabling checks without disclosing more information than was permitted. SurePay has performed three billion checks since 2016 and has been constantly tweaking and improving the algorithm ever since, says Janse. The serious development began in 2017, when SurePay selected Mobiquity, a team-as-service provider and digital enabler, to build the algorithm and work on data aggregation and APIs. “We chose Mobiquity because, at that time, it was one of the few companies in www.fintechf.com

the Netherlands that could build a platform-as-a-service Cloud solution. And remember, this was when ‘Cloud’ was not the best word in a banking environment.” But opting for the technology gave SurePay ‘runway speed’ in the early days, because it didn’t have to build and code the environment. It also helped to keep costs down. With the team-as-a-service support from Mobiquity, the startup created a minimum viable product, which was relentlessly tested, including among Rabobank employees, before going live. But it was all accomplished within a year. From day one, it performed three to five million checks a day. Mobiquity has been a good cultural fit for the project, says Janse, not least because it had already proved itself on another innovation project at Rabobank. “One of the key benefits was Mobiquity’s team-as-a-service approach,” he says, “and it was well organised from the start. We don’t want the Mobiquity team to be a Mobiquity team; we want it to be a SurePay team. That means SurePay email addresses, SurePay phone numbers, and the SurePay voice and brand.”

We continually improve our algorithm. The product just gets better and better Janse emphasises that clear communication and well-connected teams are essential for innovation so that a single ‘team vibe and spirit’ permeates the organisation – and the Mobiquity team truly integrated into the SurePay team in spirit, in actions and in delivery. It proved valuable not just in startup mode, but also subsequently as the company expanded into other countries and products – because expansion and diversification have been features of SurePay’s early life. Having scaled very quickly thanks to the Cloud-as-a-service, the team-as-a-service approach and, of course, the creative enthusiasm and can-do attitude of its founders, co-founders and business developers, SurePay’s algorithm has many more use cases and potential customers. Following its success with Dutch banks, the solution has found favour with many

corporates, which is why there are now two generic services: IBAN-Name Check for Banks, and IBAN-Name Check for Organisations. There is also a service called Pay To Mobile, where customers can easily and securely make banking app payments to people on their mobile contact list, and SurePay Switch Check, which lets them know immediately if a contact person or company has switched banks. For the UK – SurePay’s biggest market outside Holland – it provided a bespoke solution that met the regulator’s requirement for Confirmation of Payee, which the UK’s six biggest banks were obliged to introduce for customers by the end of June 2020. The SurePay solution has been adopted by Tier 1 banks as well as challengers, NatWest and Atom among them, to combat fraud and misdirected payments. SurePay currently validates 25 per cent of all online payments in the UK, although it can perform the check on all UK CoP participants, which respresents 90 per cent of the payments. That solution is also playing a key role in safeguarding UK tax office COVID-19 payments. Likewise, SurePay is helping to verify COVID-19 payouts in the Netherlands. Fraud comes in many forms and new scams are continually evolving. Genuine mistakes can also result in unintended and damaging consequences for industries and businesses, insurance being an obvious example. SurePay can help not only with claims fraud but also with achieving swift payouts. “We’re no longer a startup,” says Janse. “We’re a fully-fledged, ISO-compliant fintech, audited by a range of banks and corporations with more than 20 bank brands and more than 100 corporates connected to our service. We continually improve our algorithm so the product just gets better and better.” Tackling crossborder payments may well be next. SurePay’s early momentum and creative energy has already carried it far. From a promising idea, cultured in a Rabobank lab in 2015, to a successful private limited company in 2020 with a Tier 1 client list, SurePay at least knows where it’s going – unlike all those misdirected payments it’s helping to prevent. “It’s all about drive and social purpose,” says Janse, “and the conviction you’ll find the right answers.” Issue 7 | ThePaytechMagazine

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PARTNERSHIPS A good partnership is the key to many successful fintech ventures. We asked Louisa Murray, COO Europe for Railsbank, and Aaron Holmes, CEO of Kani Payments about how you build a strong one, the fallout from Wirecard, and how open banking is shifting the dial

Unlocking the power of

partnerships The Wirecard scandal was a standout moment in a year of standout moments for the payments industry. The repercussions continue to be felt, but it’s encouraging to see other fintechs and financial institutions stepping in to help contain the damage. Earlier in the year, Railsbank, the London-based banking-as-a-service platform, agreed to purchase Wirecard Card Solutions, taking on its card technology and associated assets, including existing client business and some employees. 2020 has been something of a landmark year for Railsbank. Following its $37million fundraising round, the rapidly growing fintech has just announced, at the Singapore Fintech Festival, the launch of its Houston no-code platform and Open Railz application programming interfaces (APIs), which will make embedding finance into apps and customer journeys as simple as ‘point and click’. It has achieved this by deconstructing all financial products into core digital components, enabling Railsbank to do for financial services what Apple’s iTunes did for the music industry. It’s therefore a busy time for Railsbank, and the company relies on its partners to share the load. One such is Kani Payments, which develops software that helps www.fintechf.com

fintech companies run their operations and finance functions more efficiently. It takes data from processors, card schemes, banks and more, and creates automated reconciliations and best-in-class reporting. Railsbank has been working with Kani Payments (which was recognised by the European Payments Association as the 2019 Leading Payments Start-up) for around 12 months. Interestingly, Kani’s CEO Aaron Holmes started his career in Newcastle Building Society’s card solutions team – which was then acquired by Wirecard, which, of course, has now been acquired by Railsbank. We brought Holmes and Louisa Murray, Railsbank’s new European COO, together to delve into the power of partnerships, hear their thoughts on the importance of a clear and comprehensive dataset, and how they see open banking progressing.

Unless you’ve got an absolutely enormous budget behind you and a cast of thousands, you need to partner smartly to get to where you need to be Louisa Murray, Railsbank

THE PAYTECH MAGAZINE: Can you tell us a little more about the companies you work for and your specific roles? LOUISA MURRAY: I’ve been at Railsbank pretty much since the beginning. I was employee number four, and we’re up to 200-plus people now. I’m head of everything customer-facing at Railsbank, and that includes sales and marketing. We’re an enabler. We have a platform that allows any type of company, whether it’s a fintech, an insurance company, or a retail company, to embed financial products into its offering. It’s white-labelled, so we do all the heavy lifting in the background; we’re the building blocks that allow our customers to concentrate on their frontend, and their customer acquisition. AARON HOLMES: I’m the founder and CEO of Kani (a play on the word 'canny', meaning good with money and also a north eastern English phrase meaning 'good'). As you might guess from that, we’re based in the Northeast of England! But we are rapidly expanding to other countries now. Prior to this, I was the COO, and then chief innovation officer, at Global Processing Service, the transaction processing platform behind many fintechs you’ll be familiar with, such as Starling Bank, Revolut and Curve. I Issue 7 | ThePaytechMagazine

PARTNERSHIPS I founded Kani two years ago to try to solve a problem that we repeatedly saw: companies understanding their data. They needed a technology system capable of actually dealing with the massive transaction volumes going through their platforms and coping with the difficult files you sometimes get from companies in the payments ecosystem. We’re trying to help companies to upskill their teams, drawing on our knowledge about the differences between a reconciliation date and a settlement date, and why that makes a difference to reconciliations and payments. We’re a team of 13 at this point, building up to 18 with our current recruitment round.

we are, and, like us, absolutely focussed on automating processes. TPM: Would it be fair to say that fintech has always been defined by partnerships? LM: Yes, because fintech wants to move quickly, and you cannot sit back and think about what you’re going to build over the next few years. You want to be there immediately, you want to be allowing your customers to move quickly, so you’ve got to move quickly. Unless you’ve got an absolutely enormous budget behind you, and a cast of thousands, you need to partner smartly to get to where you need to be. AH: I think that’s why the UK fintech industry has been so successful. It’s

TPM: The payments industry has gone through huge changes. How critical is it going to be to have a complete and clear dataset? AH: Absolutely critical. I think a lot of companies knew how important it was before, but the issue at Wirecard really rocked the fintech industry. It’s damaged confidence in some of the great things that companies are doing. I can already see on the horizon indicators of increased regulatory scrutiny, and I wouldn’t be surprised if the UK regulator, and other regulators around the world, looked at what happened with Wirecard and put steps done a great job of in place to make sure it fostering the right sorts doesn’t happen again. of partnerships between Increased regulatory companies. Its success scrutiny, and the ability has been in implementing to evidence, on demand, microservices, and the exactly where all your idea that individual money is, that all payments modular components are reconciled, and that can be swapped in and you’ve done everything out, and worked on, Aaron Holmes, you were supposed to do, without it disrupting Kani Payments is going to be incredibly the entire system. important in the future. TPM: Scale is, of course, so important, LM: We’ve got an absolutely but it can come with its own set of enormous range of customers, from hindrances. When it comes to the risk/ startups to the big brands, and they’re reward in a fintech partnership, do the all at a different stage of their lifecycle. opportunities outweigh the risks of We needed to have the tools to be able to partnering with another organisation? reconcile at transaction level, and as deeply as we could. It seems really simple, on LM: Yes, I believe so. But it has to be the outside, but actually, it’s really, really more than just a contract. It has to be complex. We knew we were never going to something that you both believe in, and be able to build that in time ourselves, so want to do together. And the beauty of we had to partner and Kani was very much fintech is that everyone’s growing up and geared towards the type of company that doing it together. So, we can have mutual

The issue at Wirecard really rocked the fintech industry. It’s damaged confidence in the great things companies are doing

ThePaytechMagazine | Issue 7

customers, and we can introduce other customers. We’ve both got to be helping our customers get to where they want to be, to be successful. AH: The culture of the organisation is very important. When determining who to go to market with, it’s not just about the technology – the cultural fit has to be right, too. That’s what really makes a partnership greater than the sum of its parts. TPM: Finally, open banking has been a real enabler of fintech growth, especially in terms of collaborations and partnerships. What do you think open banking can do for card schemes also moving forward?

Strength in numbers: Partnering is the best way for companies to grow

AH: There’s been an interesting debate, in the past, around whether open banking was a threat, or a complement to card schemes. I think what we’ve seen, though, is that card schemes have really embraced it, and they are trying to align the solutions they provide to the open banking infrastructure. We’re at the level, with our platform, where I think we have about the same volume of card payments and non-card payments flowing through for reporting and reconciliation. So, clearly, companies and consumers are adopting open banking, and I think it’s really up to the card schemes to embrace that technology and keep up. LM: I think there’s still an enormous amount to do before open banking realises mass adoption. We’ve got lots of customers who do use it, and that’s led to more business for us. But I do also think there’s lots of other products coming along out there that’ll be just as innovative as open banking. And on a more global level. www.fintechf.com

Deliver Deliver amazing amazing Deliver amazing Deliver Deliver amazing amazing customer customerexperience experiencefast fast

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LAST WORDS: ATMs

Across the world, operators are moving to touch-free and biometric-enabled ATMs – and not just because of the pandemic. Jeni Boomfield, Research Analyst with strategic research and consulting firm RBR, explores the trend

The post-COVID ATM Amid ongoing concerns about the COVID-19 pandemic, many industries have been forced to rethink their daily operations. Banking is no exception to this, where we have seen increased interest in contactless technology accelerating developments that were already underway. Most people are familiar with contactless payments, but this technology can also be found at ATMs, allowing certain transactions to be made without inserting a payment card and, in some cases, without even having a payment card to hand. According to RBR’s Global ATM Market And Forecasts To 2025, the year prior to the pandemic was an important one for contactless ATM technology. Cardless, near-field communication (NFC) and QR code readers were adopted in several major markets for the first time. Much like contactless retail payments, customers can tap a card or even their mobile phone to transact at an ATM with a NFC reader, while ATMs with QR code readers scan a code displayed on a mobile phone. This technology was already common in countries like Turkey and Spain, but, in 2019, several new markets began to adopt it, too. In Canada, two major banks, Royal Bank of Canada and Scotiabank, began a rollout of NFC-equipped ATMs. Though yet to offer cardless point-of-sale transactions, these banks are the first in the country to do so at an ATM. Meanwhile, in China, ICBC (Industrial and Commercial Bank of China) introduced QR code readers at ATMs. 2019 also saw the first use of biometric withdrawals, as CaixaBank launched a

ThePaytechMagazine | Issue 7

biometric ATM pilot in Spain. These ATMs allow withdrawals via facial recognition and soon proved to be popular. In fact, by October 2019, 80 per cent of the bank’s customers who were offered facial recognition as an alternative to typing a PIN, had chosen to use it. Overall, RBR’s report found that the number of ATMs able to offer cardless withdrawals had increased by 26 per cent in 2019. This includes ATMs offering cardless withdrawals via NFC or QR code readers, as well as those that require the customer to scan an on-screen QR code with their mobile phone or use a one-time PIN. Other cardless transactions, such as deposits and bill payments, can be made at ATMs, but cardless withdrawals are the most common.

The number of ATMs that offer cardless transactions is likely to increase, spurred on by the COVID-19 pandemic but also by the long-term drivers of increasing ATM security and convenience Security is a key driver behind the growth of ATMs offering cardless withdrawals. Cardless withdrawals improve ATM security in a number of markets by eliminating the risk of card skimming and even the risk of carrying a card itself. In the USA – where the number of ATMs offering cardless withdrawals tripled in 2019 – cardless technology is

considered by some ATM deployers to be a secure alternative to the costly migration to Europay, Mastercard and Visa (EMV) compliance. Customer convenience is also driving the adoption of cardless ATMs. Cardless withdrawals are typically faster than traditional ones. This reduces the time spent at the ATM, benefitting not only the customer making the withdrawal but also anyone waiting to use the ATM. Cardless withdrawals via mobile phone are considered especially convenient in markets where mobile payments have gained in popularity, such as in the USA.

COVID-19 SPURS INNOVATION These developments were all happening before the pandemic. COVID-19 has only served to heighten the relevance of cardless withdrawals at ATMs. In Spain, Caixabank has continued to roll out biometric ATMs as facial recognition limits customers’ physical contact with the ATM. Meanwhile, in India, AGS Transact Technologies, which manages around 72,000 ATMs on behalf of banks, has developed and tested a ‘touchless’ ATM solution. This solution uses on-screen QR codes to allow the customer to withdraw cash without touching the machine’s screen or keypad. Looking forward, the number of ATMs that offer cardless transactions is likely to increase, spurred on by the COVID-19 pandemic and by the long-term drivers of increasing ATM security and convenience. The rollout of ATMs equipped with NFC readers in Canada, points to interest in contactless ATM technology even in a market not yet offering cardless transactions at the point of sale. www.fintechf.com

Putting the human touch in touchless banking With 200% growth in new mobile banking users and an 50% increase in app usage in 2020, banking clients demand

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The importance of payments modernization has never been more urgent in addressing new customer behaviours and expectations. We have the opportunity to improve our organizations. In our world, that means improving the way we help our customers pay and get paid – the way we engage with our customers and the way we protect them against fraud. The modernization will be different for every payments organization, but this much is clear – manual and paper-based payments and analog banking processes simply aren’t agile or resilient enough for such an important function.