Fintech Finance presents: The Paytech Magazine Issue 08 by Fintech Finance

ISSUE 8

THE Driving g the SME-conomyy From lendtechs in India to IwocaPay, transaction data leads the way

Crossing g continents Is a pan-regional payments network for Asia within reach?

API dayys How technology is emerging a hero from the crisis

Paid to be good The conscious finance platform that’s even got ‘Iron Man’ on side

FEARLESSINNOVATION INSIGHTS FROM Cinemark ● DBS ● Currencies Direct ● MYHSM ● Banking Circle ● Coconut

BPC ● Absa ● Tribe ● Chip ● ACI Worldwide ● Nucleus ● Bottomline ● Yolt ● BankservAfrica

PAYMENT

15/04 • 9:00 CET - 13:30 CET UNITED STATES

Michael Miebach CEO Mastercard

FINLAND

PANELS & INTERVIEWS

Denise Johansson Co-Founder Enfuce

FRANCE

INDIA

Gilles Grapinet Chairman Worldline

FRANCE

UNITED KINGDOM

Lizzie Chapman CEO ZestMoney

UNITED KINGDOM

Cyril Chiche CEO Lydia

Shachar Bialick CEO Curve

Simon Black CEO PPRO

FRANCE

Frederic Mazurier CEO Market Pay

INTERACTIVE ROUNDTABLES 15/04 • 14:00 CET - 18:30 CET

SPEAKERS AFTER HOURS

ISRAEL

UNITED STATES

DIGITAL ASSETS UNITED KINGDOM

UNITED STATES

VIRTUAL EXHIBITION HALL Yoni Assia

1 TO 1 NETWORKING

CEO eToro

FRANCE

Charles Cascarilla CEO Paxos

FRANCE

Pavel Matveev CEO wirex

UNITED KINGDOM

Denelle Dixon

CEO Stellar Development Foundation FRANCE

MATCHMAKING

Jean-Marc Stenger CEO Forge

Valérie Fasquelle

Dir. of Infrastructure, Innovation & Payments Banque de France

Dave Birch Director 15Mb

Ambre Soubiran CEO Kaiko

A Collection of Hybrid events all across 2021 25 march - 15 aPril - 30 june - 01 july - 12 october - 13 october - 18 november - 02 dEcember

Launch Price -40%

P r o gra m & Re gi s t ra t i o n

parisfintechforum.com

CONTENTS

COMMENTARY 37 How UK fintech can embrace the world Nium’s Russell Curzon shares his thoughts on The Kalifa Review

62 Opaque or opportunity What does the ‘o’ in open banking really stand for in Norway, asks Ado Fazlic from Neonomics

76 Act global, think local Correspondent banking isn’t redundant, but it desperately needs re-engineering says Banking Circle’s Jakob Bækkel

88 The lendtechs oiling India’s SME-conomy How India’s New Age lenders are extending alternative finance

AFRICA FOCUS 9 Continental shift Absa Group on cooperation and the changing payments landscape

12 A platform for change Africa’s payments landscape is evolving at dizzying speed. HPS discusses how banks can best meet the challenges and opportunities

15 A rapid response 2021 will be a pivotal year for BankservAfrica’s real-time platform

THEPAYTECHVIEW

2021

Ron Kalifa’s review of UK fintech, published in March, positioned the industry as ‘a core asset for global Britain’ as we sally forth from the EU. Under the direction of the former Worldpay CEO, the authors of the government-commissioned report have come up with a five-point plan to ensure the nation doesn’t lose some of its crown jewels, when it comes to innovation and entrepreneurship. Central to that is fintech becoming a totem for the UK’s trading ambitions – a standard bearer for the ‘international openness of the UK in a post-Brexit environment’. To that end, it recommends the Government doubles down on efforts to support internationally-focussed companies so that they can grab their rightful share of a projected £380billion

ISSUE #8

global fintech market. It proposes an international action plan for fintech, the launch of a Fintech Credential Portfolio to make doing business overseas easier, an International Fintech Taskforce, and a new body to ensue it’s all implemented. Among the regions it identifies as a good fit for UK businesses are the Middle East and North Africa, and sub-Saharan Africa, the latter being a huge source of opportunity for payment services in particular. Which ties in neatly with our special focus on Africa in this issue, and its fearless payment pioneers. Our last spine tingler, 'Banking establishments are more dangerous than standing armies' was a quote from Thomas Jefferson. Sue Scott, Editor

18 All aboard for contactless payments A journey by matatu was already quite an experience – now it’s also a digital one, thanks to BPC and partners

20 Unravelling the payments story

Standard Bank’s Sajid Gani on a new chapter in transactions data

23 Ahead of the Q Africa’s first national QR code payment scheme could finally deliver the digital prize for Ghana Interbank Payment and Settlement Systems

FINANCIAL INCLUSION 26 Inclusive by design Full access to financial services is key to building back better, argues Nina Kerkez of LexisNexis Risk Solutions

29 Leaving no one behind But product design is key say Mobiquity’s Matt Williamson and Chetwood’s Andy Mielczarek www.fintechf.com

Issue 8 | ThePaytechMagazine

Need easy (remote) access to your data? Monitoring your banking operations? Feeding niche data applications with real time data? Finding the hick-ups in your payments flow?

WE MAKE TRANSACTION D ATA A C T I O N A B L E I N R E A L-T I M E DATA ACCESSIBILITY TRANSACTION FLOW INTEGRITY SURVEILLANCE BUSINESS ACTIVITY MONITORING

info@intix.eu www.intix.eu

CONTENTS

40 71

65 55 At your service

CROSSBORDER

Railsbank Founder Nigel Verdon on how banking-as-a-service will fulfil the promise of democratised finance

32 FXing problems Currencies Direct is responding to unprecedented world events by developing a slew of new tools

34 Joining the dots What South East Asia really needs is a pan-regional payment system. Eli Shoshani of Bottomline and Medhy Souidi at DBS consider the odds

CLOUD

56 AIR apparent SmartStream has unveiled a new API suite to give financial institutions quicker access to services while saving on infrastructure costs

59 Now is the time to act on pay later Yolt Technology Services’ Michela Toffali puts the case for using open banking to counter online crime as BNPL comes under scrutiny

40 Thinking big Legacy banks have warmed to the idea of Cloud technology, but now they must go ‘native’, says Thought Machine

APIs

NEOBANKS

42 The show must go on

65 Saving the day It’s nuts that ordinary folk are depositing more but earning less and less on it. Savings and investment platform Chip is putting that right

Cinemas face an epic challenge as they exit the pandemic. Cinemark Brasil says APIs are the heroes of the hour

45 Mission critical moves How ACI Worldwide and MYHSM give Tier 1 banks confidence to move core process to the Cloud

48 Shuffling the payments pack Why TrueLayer believes open banking payments will replace cards online

68 Paying forward How conscious finance platform Aspiration is in a class of its own

71 For the people, by the Pyypl

51 Bring it on Why Latin America’s home-grown point-of-finance solution Addi isn’t fazed by global BNPL competition

The blockchain-driven fintech that saw an opportunity in the space between m-money providers and banks

74 The next frontier Australia’s open banking environment and an SME community hungry for new funding options has led UK startup Cape Down Under

SME FINANCE 78 Plugging the invoice gap The pandemic was an opportunity for Iwoca to address a persistent payment problem for SMEs

81 From alternative to mainstream The urgent need to pump cash into small businesses has given lendtechs driven by open banking a chance to shine, say Funding Options and Nucleus Commercial Finance

84 The lending sweetspot Platform providers like pioneering Ezbob will be indispensable to economic regeneration

86 Brave new worlds As small businesses emerge from the black hole of 2020, three fintech observers discuss how ‘alt fi‘ has been striving to support them

LAST WORDS 90 Comic genius Jim McKelvey’s graphic account of his approach to innovation at Square got Ali Paterson putting problems into a new perspective

THEPAYTECHMAGAZINE2021 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 Laura Raimondi

FEATURE WRITERS David Firth ● Tracy Fletcher Andrew Gaudion ● Martin Heminway Natalie Marchant ● Sean Martin Martin Morris ● John Reynolds Sue Scott ● Swati Sanyal Tarafdar Frank Tennyson

ISSUE #8 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 8 | ThePaytechMagazine

Hello, we’re Sabio We make sure your customer experience is brilliant, then stays brilliant. Sabio provides the expertise and solutions you need to respond to the ever-changing needs of your customers. Then with our analytics and insight, we’ll help you improve visibility, responsiveness and control across all your customer-interaction channels.

Find out how some of the leading banking and financial services firms are working with Sabio to optimise their customer experience and accelerate their digital customer journeys. sabiogroup.com info@sabiogroup.com @sabiosense Partnering with global market leaders to bring best-of-breed technology solutions to our clients.

AFRICA: SPECIAL FOCUS

AN EYE ON THE PRIZE It’s made up of 55 countries, comprising 1.3 billion people who speak more than 1,000 languages.

It’s grown 400-plus companies worth £1billion each, and yet 68 million of the population live on less than $5.50 a day. In some parts of the region, as many as 66 per cent of adults are unbanked, but the continent pioneered and still leads the adoption of mobile money services, with some of the highest penetration per head of population. And it’s just come together to create the biggest free trade area in the world. Africa is an enigma. So vast and so complex that outsiders often fail to recognise it for what it is: ‘one of the 21st www.fintechf.com

century’s great growth opportunities’, as was already apparent to McKinsey back in 2018. And it’s being propelled by a huge amount of entrepreneurial energy, not just in the startup community but also among governments and legacy institutions which are pushing economies towards a cash-lite, digital future in which everyone is brought along. While COVID-19 has been a regrettable catalyst for some of the most dramatic change, it hasn’t been for want of trying to improve financial services, particularly around transactions, including payments and remittances, and the infrastructure that supports them. The early origin stories for some of the innovations

revealed in this special section will surprise many in the West. But, as Kwadwo Ntim of GhIPPS observes, adoption happens slowly when you’re waiting for all the pieces – political, technical and cultural – to fall in place. But, with the arrival of the African Continental Free Trade Agreement to promote intra-continental crossborder trade, the confluence of major structural changes by many of the nations’ central banks and enabling technology partnerships, and a determination by governments to see the back of backward systems, the fractured picture that was once Africa is coming sharply into focus. Its time is now. Issue 8 | ThePaytechMagazine

OPEN for innovation

It’s time for a new way to write, deploy and consume financial software. At Finastra we’ve done just that, by developing a platform that’s open, secure and agile. It lets you integrate new technology seamlessly – bringing new products to market more quickly and with a better customer experience. As we say, it’s innovation with unlimited potential.

Join us at finastra.com

AFRICA: CROSS-BORDER A weighty moment: The Africa Continental Free Trade Area has profound implications for cross-border flows

Continentalshift Continental shift Vanessa Olver, Chief Enablement Officer at Absa Group, discusses African cooperation and the changing landscape for payments

Africa is a continent on the move. Bold steps are being taken to remove boundaries and promote economic integration, while mobile money is being adopted more enthusiastically than anywhere else in the world. And now, of course, COVID-19 is acting as a stimulus for further digital acceleration. Technology has been a driving force across Africa for a number of years; payments have been instant in much of sub-Saharan Africa since 2010. And when it comes to financial inclusion, it blazed a trail way back in 2007 with the launch of the M-Pesa mobile money service in Kenya. This created a mobile ecosystem that has expanded into every corner of the continent, spanning cultures and regulatory systems, so that nearly half of the world’s mobile money accounts held today are in Africa. Meanwhile, according to the United Nations Conference on Trade and Development, the number of online shoppers in Africa has surged annually by 18 per cent since 2014, while the GSMA, which represents mobile operators worldwide, says sub-Saharan Africa is mobile payments’ biggest market, www.fintechf.com

accounting for 45.6 per cent of all activity globally in 2018. “Well before COVID-19 boosted digitalisation, e-commerce and m-commerce were already on a steep upward curve in Africa,” points out Vanessa Olver, chief enablement officer for Absa Group, one of Africa’s largest providers of financial services where she has responsibility for operations and technology. “As a result, we’ve seen the growth of payments through initiatives such as digital wallets. Customers are beginning to use wallets to make payments for their everyday needs, which is a significant development.” Africa isn’t leap-frogging the paytech milestones laid down by the West, it’s carving out its own journey. “For the last decade, Africa has been a model of disruption,” says Olver. “Fintechs and mobile network operators have stepped in with new payment methods, fulfilling customer needs more quickly than commercial banks, and disruption is happening in Africa faster than in many other parts of the world.” Some of that now, sadly, is a reflection of the ‘isolation economy’ brought on by the pandemic. While COVID-19 underscores the need for social distancing, technology means people no longer have to come together physically, which, Olver says, is pushing payments further towards remote and contactless solutions. “In the next five years, big growth is predicted for e-commerce and m-commerce,” says Olver. “We’ll see

contactless, or low-touch, payments increase across Africa because of developments such as QR codes being scanned via smartphones. “We’re a youthful continent,” she adds, “which clearly plays a big part in the adoption of new and cool technologies. Africans like things to be instant and simple, but they also expect banks such as Absa to provide safety. They want fintech speed and last-mile delivery to be backed by the safety of a traditional commercial bank, and, of course, they want smartphone solutions.” Olver cites a McKinsey survey in Uganda that revealed there are more smartphones in that country than lightbulbs. “Just extrapolate that across the whole continent,” she says. “Cheap Chinese smartphones on the Android platform are what’s driving new tech and new types of payment. “People don’t have the patience to stand in queues or hang around malls. Instead, everyone wants stuff on their phones. Technology platforms are supporting SMEs that promote B2B and B2C commerce, and they are working with banks to build the entire payments backbone. In my view, much of the future is being invented in Africa.” Mobile network operators (MNOs) have an advantage over banks here because of their know-your-customer functionality. “MNOs can do KYC-lite,” says Olver, “while banks have onerous governance and control processes and can’t onboard as quickly for services such as digital wallets. The MNO advantage will become more apparent every day.” Issue 8 | ThePaytechMagazine

AFRICA: CROSS-BORDER Which is why PowerCARD, the integrated payments platform from HPS, is seen as being key to Absa’s development of future financial services. The bank’s association with HPS, a Casablanca-based software company that provides electronic payment solutions for financial institutions, processors and national payment switches, followed Absa’s breakup with Barclays, which announced in 2016 that it would exit Africa. The separation was finalised in 2020, and Olver says there has been a smooth transition of payments architecture to the new PowerCARD platform. “The big thing with this project was that the timeline was non-negotiable. What PowerCARD did was give us some of their best resources. They were flown in to South Africa, physically relocated with us, next to our teams, so we were able to make sure we all understood, in one common language, what needed to be delivered, and how to deliver it. “We did things in bite-sized chunks – a small country first, tried to get it over the line, did it very successfully, and eventually migrated all of our countries over, from a switch perspective. We then needed to move on to settlement, and settlement is far more complicated. All the schemes are involved, so we are dealing with Visa, Mastercard, China UnionPay, and getting all of those parties to work with us. “Again, what HPS did, very successfully, was allocate their deepest subject matter experts to work on the project, and they were with us day in and day out. “We did dress rehearsals of the go-live events and I think that was our recipe for success in getting it over the line, which was well in advance of our June 2020 deadline.” HPS completed the revamp of Absa’s African operations outside of the South Africa acquiring payments infrastructure last May for the eight countries where Absa operates: Botswana, Kenya, Mauritius, Zambia, Tanzania, Ghana, Uganda and the Seychelles. “HPS supports our business across Africa,” adds Olver, “and it’s helped us do a couple of things. One, it brings our acquiring business on to powerful next-generation technology. We were lagging behind, hampered by old technology, and now we have an up-to-date platform. Second, it creates a connected experience for payments. Whether it’s Google Pay, Android Pay, Apple Pay or other payment types,

ThePaytechMagazine | Issue 8

everything is integrated in a single backbone, powered by HPS. “From a user experience and user interface perspective, it’s far more friendly and easy to navigate, whether backend or frontend. Through the merchant portal, we can provide merchants with a customised dashboard where they can monitor what’s going on between their businesses and the bank, and see what’s happening with customers and what volumes are coming through.”

FULL VISIBILITY OF FLOWS Because Absa is now building its business on a next-generation platform, it can make changes much more quickly and cheaply than before, notes Olver. And it means Absa can evolve and harness market innovations to meet new needs and customer demands. “PowerCARD gives us clarity,” says Olver. “We can see transaction flows both internationally and domestically. Beyond that, we’re looking to HPS to develop QR codes, as everyone wants instant payments, and to develop biometric recognition. We’re working on instant payment projects in Mauritius and Zambia, and all these digital moves are very timely and relevant, given the increased need for contactless technology because of COVID-19.”

We’re a youthful continent, which clearly plays a big part in the adoption of new and cool [payment] technologies… much of the future is being invented in Africa It is among the first institutions to go live with the Ghana Universal QR Code, developed by the Ghana Interbank Payment and Settlement Systems, which allows customers to scan displayed QR codes with their smartphones to pay, or dial displayed quick codes with their feature phones to make payment. While the PowerCARD platform allows Absa to integrate different payment mechanisms in-country, cross-border payment flows inside Africa are becoming increasingly important. Volumes have typically been from Africa to the rest of the world, and dominated by greenback

dollars. Now there is a surge in intra-Africa transactions, and many will increasingly be conducted in local currencies. There is an important economic backdrop to this changing payments landscape – namely the arrival of the African Continental Free Trade Area (AfCFTA). Set to become the largest free trade area in the world, AfCFTA brings 54 African nations together to form a single market for goods and services, encouraging the free movement of capital and people. It’s a big moment for the continent and one that, it is hoped, will help shift Africa away from reliance on foreign debt. Trading in the AfCFTA began on 1 January 2021, its introduction a timely response to the one of the biggest lessons of the pandemic – that to be resilient, Africa must be less reliant on global supply chains and focus on developing regional and local ones. For Absa, the move reinforced the need for a payment architecture that not only facilitated B2B and B2C payments, but also inter-government and government-to-business transactions. “Managing payments across Africa is at the heart of our business,” says Olver. “It’s what makes us an international bank. There’ll be a lot more focus on intra-Africa payments now, and I think we’ll be trading in different currencies, with people moving their money into different jurisdictions. It’s not all about the US dollar now. Interoperability is the key, and you’ll be seeing more solutions from us that focus on FX and the ability to move currencies.” There are many facets to Africa’s digital journey. The new free trade area provides the framework for pan-African cooperation, COVID-19 is accelerating digitalisation, and Absa now has a strong partner with which to build digital services through PowerCARD. Add to this the demands of a youthful population, coupled with the desire of regulators and governments to push the digital agenda, and it’s easy to see why Olver believes the future is being invented in Africa. Today, the Africa payments opportunity is estimated to be worth more than a trillion dollars. Players who can create connected experiences will dominate the market and help governments establish regional trade routes, funding them through instruments like cash management, bank guarantees, and trade finance. Absa is definitely counting itself among them. www.fintechf.com

AFRICA: LEGACY & INNOVATION

Africa’s payments landscape is evolving at dizzying speed. Abdeslam Alaoui Smaili, CEO of multi-national technology company HPS, based in Morocco, discusses how banks can best meet the challenges and opportunities The payments landscape in Africa, in recent years, has been in a state of friction as financial technology has rubbed up against a continent where vast swathes of the population remain unbanked. The expansion of financial services, notably by m-money and e-money providers, has continued apace across a region with huge mobile phone penetration. That said, payment companies have continued to face an uphill battle in countries where physical currency remains king – it accounts for as much as 94 per cent of retail purchases. As Raghav Prasad, divisional president of Mastercard in sub-Saharan Africa said last year: “Our biggest competitor is cash.” Yet change is afoot, with coronavirus proving a catalyst for reforms that otherwise might have taken years to come to fruition. Millions of Africans have experienced the virtues of a cashless society, as African governments turned to digital payments to financially support citizens unable to work during the pandemic. That has, in turn, forced the modernisation of payment infrastructures. Meanwhile, the private sector continues to drive digital adoption. Home-grown technology company HPS, for example,

ThePaytechMagazine | Issue 8

recently partnered with Bank of Ghana subsidiary Ghana Interbank Payment and Settlement Systems (GhIPSS) to launch the Ghana Universal QR Code (GhQR) – the first national, harmonised payment system of its kind on the continent. Here, Abdeslam Alaoui Smaili, co-founder and CEO of HPS, which works with many of Africa’s major financial institutions, discusses how the payment landscape is adapting to changing needs. THE PAYTECH MAGAZINE: How has the payment ecosystem in Africa changed in recent years? ABDESLAM ALAOUI SMAILI: Africa has been a leader in mobile money, and in the way it has attracted the underbanked population into the financial circle. But, at the same time, it remained an extremely cash-dependent society. What is interesting is that the pandemic has really changed the situation and economies have been jumping noticeably faster into electronic payments. This has been reinforced by advice from the World Health Organisation, encouraging contactless mobile payments. The acceleration towards electronic payments has been really noticeable at a very large scale. TPM: What has been the impact of this shift away from cash? Has this been at the expense of financial inclusion in Africa? AAS: I think people are still left behind. What was achieved last year was done in an emergency, and most probably not in a very structured way; not at the whole continent level. Some countries have been more aggressive than others, or have been more exposed than others. So yes, the background was there, to be able to accelerate and the crisis has effectively

created the acceleration that we have been looking for – but there is a lot more to do. TPM: GhIPSS has been spearheading Ghana’s shift to a cash-lite society; Ghana’s president said Ghana would eliminate paper from most services and transactions this year. Are there particular trends in Ghana compared to the rest of Africa? AAS: Ghana is a pioneer in many aspects of what it does, and today the Ghanaian model is being followed by other countries, both in terms of Ghana’s internal operations and what it offers to local people. But also the way that GhIPSS and the Ghanaian ecosystem has been able to interface with fintechs outside the country, which has allowed fintechs in Europe and fintechs in North America to use the services that GhIPSS is offering in Ghana. To be able to make an instant transfer from an account in the UK, or the US, down to a deep village in Ghana, and all in an instant way? This is really magic. TPM: Fraud is a scourge on the Africa payments landscape, as elsewhere. How does HPS help combat it? AAS: Fraud is one of the risks, and a pain that our customers and the industry www.fintechf.com

Emerging payment systems: Africa has many challenges but also huge potential

players are suffering from. When you look at what is happening today, there are more and more unattended terminals, more and more independence given to the payee. Merchants are able to take payments on their mobiles, customers are able to pay on their mobiles; as we move into invisible payments, nobody knows really if they’ve paid or are paying. So the whole landscape is changing and so is the way that fraud needs to be addressed. What we have done at HPS is enhance our PowerCARD-Fraud solution to be able to address fraud from a global point of view, not just from a channel perspective. The PowerCARD-Fraud solution is customer-centric, and means we can link usage between this form and that form of payment, so we can protect the consumer, and also our bank customers. The mobile-first strategy is also important because we can empower the consumer, and also the merchant, to be able to play a role in fighting fraud.

has done with Absa, the South Africa-based financial services group, and the acquiring platform it provided for its ‘rest of Africa’ merchants? AAS: We have been able, with Absa, to deploy a multi-country, multi-currency, multi-regulator platform, enabling Absa to offer a more agile and more modern acquiring platform to its merchants in eight different countries – Botswana, Kenya, Mauritius, Zambia, Tanzania, Ghana, Uganda and Seychelles. Beside the swift, secure and uninterrupted high-quality service to merchants, they are now empowered with an improved 24-hours-a-day, seven-days-a-week, self-service portal covering the entire set of needed facilities, avoiding unnecessary waiting time on call centres. In short, this means less risk, less fraud. It is a very interesting platform that Absa is now offering to its subsidiaries outside of South Africa. TPM: How critical is standardised interoperability within the payments ecosystem in a digital world? AAS: Today, we have various initiatives that are being deployed in different countries to enable international interoperability, addressing diverse needs. And we are addressing the remittance business that is today a large business in Africa with specific solutions for specific problems, and all this in one, diverse platform. By a diverse platform, I mean we are able to interoperate with different actors, that are either competitors of HPS or partners of HPS: fintechs, banks, telcos and payment service providers. Because, in order to be successful, interoperability needs to go with the word diversity; diversity of actors, diversity of customers, and diversity of transactions, to ensure we have this critical mass that will make it viable.

Innovation is killed either by the cost of it, or by the time it takes to get to market

TPM: Can you talk about the work HPS www.fintechf.com

TPM: In an environment of high-volume, low-value payments in Africa, how can financial institutions stay ahead? AAS: Any new platform has to be futureproof, so any investment a bank makes needs to be done with a vision of what will happen – and things are

changing dramatically. At the same time, and especially in the African context, scalability is a real issue because we have a large population that could, in one jump, all be in one payments space. And, for me, the third aspect, because of the complexity of the economies and the need not to be trapped into complex technologies, is the need for a single technology platform. That would be interesting because it would be able to deploy, to invent, to put to the market sophisticated payment solutions. The industry is really changing in form, in its volume, in the type of attacks that are coming from outside. This means that a business has to be very agile. We need to have fast business model change, we need to have operations that can be changed from one day to another. As you can see, so many things have to be flexible. We talked before about time to market, but that was only for a product; the time to market is also about operations, and how we can deploy them internally. So this agility in being able to run and absorb new business models, with all the associated cost involved, is extremely important. And that can only be achieved if the platform is truly digitally native, and not being patched in order to accept a new channel, for instance. HPS brings a new platform to market every five to six years, so it’s not a cosmetic change to a legacy platform. TPM: Finally, how can HPS help large institutions innovate in a scalable manner? AAS: I think what kills innovation is time. Quick wins are absolutely the path to follow. And quick wins need to be, in a lot of cases, in conjunction or interoperable with legacy platforms. Numberless cards, for instance, is a product that is desperately needed these days and it’s something we have launched for some of our customers in conjunction with their existing legacy platforms. Another thing to bear in mind is that innovation in this payments space has to be mobile-first. So this is something that can be launched quickly, that really brings a lot of value to the customer, because it is frictionless. All this needs to be accomplished with reasonable cost. Because here again, innovation is killed either by the cost of it, or by the time it takes to get to market. Issue 8 | ThePaytechMagazine

THE BRANCH OF THE FUTURE BECOMES REALITY

Lean, multifunctional, and customer-oriented: this is Auriga’s #NextGenBranch model. A fully advanced digital branch solution for assisted remote banking. With Bank4Me customers can easily access ﬁnancial services 24/7 in self-service assisted mode and interact with the bank's consultants via video conferencing, in a safe and personalised way. Technology is here: you just need to leverage it and you will be able to deliver better experiences to drive customer loyalty and sales.

DIGITAL REMOTE LEAN SHARED

www.aurigaspa.com

AFRICA: REAL-TIME PAYMENTS Southern Africa’s major banks will shortly undergo what could be described as major transplant surgery – a procedure that will boost the region’s cardiovascular system for payments. The man overseeing the operation is Jan Pilbauer, CEO at BankservAfrica, who previously played a pivotal role in the modernisation of Canada’s core clearing and settlement payments infrastructure. Pilbauer is driving the development of BankservAfrica’s Rapid Payments Platform (RPP), which should go live in the second half of 2021 – the latest piece in an infrastructure jigsaw that BankservAfrica has been building for some time. It already operates the Automated Clearing House (ACH) for South Africa and also provides crossborder interbank clearing and integration into the Southern African Development Community’s (SADC) Real Time Gross Settlement system, allowing efficient processing of high-volume, low-value payments for 15 more countries. “The real-time nature of the rest of the world has not gone unnoticed in Africa; it’s a journey a lot of people have been on,” says Martin Grunewald, BankservAfrica’s chief business officer. “The challenge in Africa is infrastructure.”

Under its new leadership, BankservAfrica is shaking up the continent’s discombobulated financial ecosystem. The vision is to make BankservAfrica the leading ACH, not just in South Africa and SADAC, but on the entire continent. In a recent interview, Pilbauer said he wanted to ‘build something that is the pride of Africa and shows the world how payments can be done. Failure is not an option’. Reform is a bold and badly needed ambition. Transferring money simply between banks in South Africa can commonly take up to two days as BankservAfrica, which is predominately owned by FirstRand, Standard Bank, Absa and Nedbank, currently still uses a batch payments system for electronic fund transfer (EFT). And, although South Africa was among the first countries to introduce real-time clearing (RTC) way back in 2006, banks continue to demand a sizeable fee for it as that process is underpinned by a messaging protocol that has been left unchanged for more than two decades. As a result, RTC transaction volumes only comprise three per cent of total EFT volumes – an obvious anomaly in an age when consumers are increasingly demanding instant everything, and a serious impediment when trying to

transition an entire continent away from cash, as has been evidenced during the pandemic. It was those countries with a well-established RTC system that was affordable for consumers to use that saw the biggest migration away from notes and coins. But in South Africa, there was significant additional demand for withdrawals from ATMs. There is another compelling reason why banks throughout the African continent need to get their acts together to provide faster and cheaper, secure digital payments: a real and present danger to their payments’ business presented by alternative payment platforms. “It’s no longer just competition between the banks,” says Grunewald. “Suddenly, there are other wallets, other facilities coming in to the space.” Mobile money transfer is probably the most significant. Led by M-Pesa in Kenya in 2007, a partnership between network operators Vodafone and Safaricom, there are now almost 300 similar m-money schemes globally, but Africa remains the epicentre with the monthly values of mobile money payments increasing 25 times between 2010 and 2018. Their success has led some African banks to introduce their own m-money transaction services in partnership with telecoms.

A rapid response

2021 will be a pivotal year for payments as BankservAfrica introduces a new, API-driven, real-time platform, accessible to every institution and paytech alike. Chief Business Officer Martin Grunewald explains what it hopes to achieve www.fintechf.com

Issue 8 | ThePaytechMagazine

AFRICA: REAL-TIME PAYMENTS They rely on networks of agents to extend the financial inclusion that m-money facilitates, particularly in areas where few bank branches or ATMs exist. Togo-headquartered Ecobank, for example, now has a 44,000-strong agent network across the 33 countries it operates in. And the National Bank of Ethiopia is issuing m-money licences to new entrants as part of a wider package of reforms to encourage non-financial institutions to offer financial services to the unbanked. But there is still a lot more to do. Sub-Saharan Africa (SSA) continues to have one of the world’s largest shares of unbanked population with more than half of adults (57 per cent) having no access to accounts in financial institutions nor mobile money accounts, according to the World Bank’s 2017 Global Findex. And that is despite the percentage of adults with mobile money accounts nearly doubling between 2014 and 2017, from 12 per cent to 21 per cent. In a separate report into the economic impact of the COVID-19 pandemic, the World Bank calls for cooperation between SSA countries to drive forward financial inclusion using digital platforms, highlighting the ‘great potential’ for leveraging the scale of mobile phone ownership and internet access. Pilbauer and Grunewald believe the RPP helps them to tick that box. The modular platform, based on APIs, and microservices, will allow instant, cost-efficient, data-rich, mobile-friendly payments, using a single known thing about the recipient, such as a mobile phone number. In effect, it makes sending payments as simple as sending a text. And that is key. Many digital banking services require a smart phone, but while mobile phone penetration in Africa is high, in a number of regions the majority of devices are not smartphones, but feature phones, so text-based payments are all they can access, not the more sophisticated services offered by banks. Powered by global IT provider Tata Consultancy Services’ TCS BaNCS for Market Infrastructure, the RPP will be an ultra-high performance, low-latency and scalable solution, according to BankservAfrica. The APIs will be made available to other regulated players so they can host their own versions of it. But, unlike the existing RTC system, fees will have to be very

ThePaytechMagazine | Issue 8

cost-effective if it’s to be a successful ‘direct competitor to cash’, according to Pilbauer. Grunewald contends that creating an interoperable infrastructure like RPP to provide real-time, cost-effective and secure payments is essential to encourage participation in mainstream banking services, thereby driving up financial inclusion. “Payments are still too expensive on the continent,” he agrees. “If you look at the example of somebody in South Africa trying to send money home to Zimbabwe, besides all the compliance issues that they might have, it’s sometimes costing in fees 20-25 per cent of what they’re wanting to send. There has got to be better and smarter ways of doing it. That’s where our focus, in terms of BankservAfrica is – in

At the touch of a button: Sending a payment should be as easy as sending a text

“It helps in two ways. One obvious one is around customer service – you don’t want transactions going missing and you want to monitor that nothing’s going wrong; people aren’t inserting fictitious transactions, there isn’t fraud, etc. So, there are a number of advantages around just creating that visibility,” he says. “But we’re also really excited that, for instance, in our SWIFT bureau environment, customers can sit on their iPads, monitoring transactions themselves. That’s a great step forward. If you were to ask me what my wish list is in the future, I’d love all our clients to be able to sit on the iPad and literally watch our transaction flow.” That all transactions, large and small, are digital is, of course, the ultimate goal of governments looking to use demonetisation to curb corruption. India introduced its Universal Payments Interface (UPI) in 2016 to do just that, incidentally also using Tata’s TCS technology. Thailand’s Promptpay enables its 43 million users to make and receive payments into their bank accounts or into digital wallets linked to their national ID, mobile phone numbers, or email addresses. The scale of change required in Africa, though, is huge with an estimated nine out of 10 transactions still in cash – many people use mobile money services simply to ‘cash out’ the funds when they hit their accounts. But that reliance on cash comes at a significant cost with users suffering fees, missing out on interest, having to travel to find agents, ATMs or banks and exposing themselves to the evident risks associated with carrying and storing cash. Despite BankservAfrica’s best efforts with the RPP, it doesn’t expect South Africa and many African countries to become cashless societies overnight – if, indeed, they ever entirely give it up. But what the RPP will do is help the payments industry pump with a little more vigour – responding to the pressure from alternative payment providers, but also recognising that bank customers deserve a better experience. In doing so, it will address concerns about lack of interoperability between payment systems and thereby encourage more participation in mainstream banking services among Africa’s 1.2 billion people.

Payments are still too expensive on the continent. There’s got to be better, smarter ways of doing it

looking at those use cases and reducing the costs. It’s all about having an affordable, interoperable solution. That’s where we’d like to contribute, in creating that infrastructure.”

Customers in control One of the challenges in providing a real-time solution is monitoring the payment journey in real-time and identifying problems swiftly. BankservAfrica processes 9.5 billion transactions annually using SWIFT gpi tracking for larger interbank and cross-border transfers, while also employing data tracking software developed by Intix to follow payment journeys inside the bank. Together, they have taken traceability to a whole new level, says Grunewald, allowing transactions to be monitored in real-time, providing additional security, problem-solving and information.

www.fintechf.com

AFRICA: DIGITAL TICKETING

ALL ABOARD FOR CONTACTLESS PAYMENTS! Climbing onto a matatu in Kenya was already quite an experience – but now it’s also a digital one. Newraj Burton, Business Development Director for banking and payment technology company BPC, takes us on a contactless payments journey It’s estimated that 70 per cent of Kenya’s 52 million people ride the matatus – the famously loud, crazy-colourful buses that rock around the country, connecting communities and keeping thousands, if not tens of thousands of people, in work. Each one a unique, Banksy-style artwork on wheels, matatus pulse to the beat of high-volume onboard sound systems as they compete above the noise of city traffic for attention and fares. The buses and routes are privately owned by operators who ‘lease’ them to individual drivers who must meet daily financial targets, before generating their own earnings from passenger takings. Until recently, those fares were paid in cash. But in the capital of Nairobi, global banking and payment technology company BPC, in partnership with transport savings and credit specialists, NikoDigi, and Kenyan payments firm, Tracom, is taking passengers and drivers on a digital transaction journey. The destination is invisible payments, made possible by O-City, a contactless ticketing solution that leverages the simplicity and security of mobile money and other wallets.

ThePaytechMagazine | Issue 8

Based on its experience of working across public and private sectors in other parts of the world, BPC is solving a very specific, local problem – one that’s another step towards a cashless Africa and is tailor-made for a post-COVID world. BPC business development director, Newraj Burton, explains: “We were already working on the project in Nairobi but the pandemic certainly accelerated what we could offer, and when. “We knew there were many people using these buses, but paying with cash has a lot of insecurity in this pandemic environment. Money being passed hand-to-hand has safety and hygiene implications, for sure. That’s why, after a great deal of research looking into the business needs, how people behave and the country’s desire for innovation, we were able to deliver a service that is fully-functional and suited to the new requirements.” Kenya was primed for such a product. The country has been a forerunner in terms of cashless payments. Historically, it encouraged the widespread use of Visa and Mastercard when neighbouring countries were still only operating skeleton bank services. Then, in 2007, came M-Pesa – a mobile phone-based money transfer service that transformed the economy. Empowered by M-Pesa, the share of the population with access to financial services went from 14 per cent in 2006, to more than 80 per cent today. By the end of 2019, the total volume of mobile transactions was said to equate to almost half of the country’s total gross domestic product. Then, in March of last year, the Central Bank of Kenya (CBK) introduced emergency measures to remove transaction fees and increase the use of mobile money in place of cash. As a result, the monthly volume of person-to-person transactions

increased by 87 per cent between February and October, 2020. All of that created a fertile environment for the launch of O-City contactless ticketing, which utilises M-Pesa (adopted by 90 per cent of Kenyans), among other payment services. Passengers simply enter a code on their phone and a debit is made from their M-Pesa wallet, which can instantly be seen by drivers to grant access to their buses. “O-City has brought a revolution in the way payment is effected in the Kenyan transport industry,” says Burton. “We now have more than 2,500 drivers connected to the platform, and the number is increasing day by day. What we are doing is very much in step with the digitisation process of the Kenyan government. They are busy ensuring banking, payments, insurance, even the social benefit programme, are onboarded on e-services and e-platforms. Put simply, their priorities fit ours.” Less cash means better personal security as hard money invites crime. But, digging a little deeper into the Nairobi model, the value of O-City is bigger than simply offering safety and convenience for the

O-City has brought a revolution in the way payment is effected in the Kenyan transport industry ones riding the routes. The nature of the licensed operating model on which the matatu network runs, means reporting is also a vital part of O-City’s offering. “Transparency is key for stakeholders, and O-City gives more visibility to fare collection,” says Burton. “The business relationship between the matatu owners and their drivers and conductors is now www.fintechf.com

On a roll: BPC plans to extend contactless payments beyond Kenya’s famous matatus

better co-ordinated. Fraud has been drastically reduced as cash-free, frictionless environments, bring more transparency. It’s a lean way of collecting money because the debit and credit are processed automatically. And those leasing the vehicles for a fixed monthly amount can evolve in a win-win partnership – all while bringing quality and more timely services to the commuter.” Kenya’s National Transport Safety Authority has embraced O-City, because – well, because it works. But another benefit specific to the global pandemic also comes from the data being gathered. “The authority wants to bring forward contact tracing,” says Burton. “It’s very important for them to understand the mobility of commuters. Because there were some restrictions around coming into Nairobi city at a specific time, it was essential to know who was not following the regulations. Our platform was able to provide that kind of reporting.” A huge part of O-City’s bedding-in has come from a strong marketing and educational push. The pilot programme came with a campaign to get the bus www.fintechf.com

owners and drivers to become champions for the service (which takes 10 minutes to enrol in). In addition, field agents have been recruited to get on the buses, to ensure that the system is being adopted and to assist with any issues that arise. Burton adds: “It’s good to have communication through press and social media but, in certain places, it is vital to have a physical contact, and a physical explanation. Our field agents do that job for us very well. The simplicity of what we provide is key. It’s a clear message, a clear offering, where everyone involved – vehicle owners, drivers, conductors, passengers and local authorities – stand to benefit.”

OILING THE DIGITAL WHEELS Worldwide, O-City has been adopted by more than 130 cities and boasts in excess of 130 million transactions per month. With the platform now going great guns in Kenya, what next? Clearly, cashless transactions are here to stay, but surely a one-size-fits-all approach won’t necessarily work across the continent? There are inevitable infrastructure requirements, poverty, cost implications and the necessity

for governments to be keen advocates – all issues that need to be addressed before scaling up the operation in Africa. But, according to Burton, the high penetration of mobile phones here, the COVID crisis and good old-fashioned customer need means there are already plans to broaden the model to other countries in the region. “At the moment, we are putting a lot of emphasis on this project [in Nairobi], but we do expect to expand within the African continent. Our strategic partner is already operating in several countries,” he says. “Even in Kenya, we are not only focussing on buses and matatu. We are thinking of bringing this service to taxis, luxury coaches and intercity services. “The O-City platform enables high interoperability with different payment channels, and different means of transportation. The future is about integration, about interoperability and about bringing convenience to public citizens. Of course, there will always be cash – in rural areas with no access to mobile phones, for example – but frictionless transactions give us so many possibilities.” Issue 8 | ThePaytechMagazine

AFRICA: DATA

g n i t i r w Re th e payments st or y

Standard Bank’s Sajid Gani believes if traditional banks want to take the fight to Africa’s new challengers, they must first understand what transactions are telling them “Data always tells a story, if you look for the story,” observes Sajid Gani, head of operations for corporate and investment banking South Africa at Standard Bank. “You have to analyse what the data is telling you, because this will reveal a story, and the most important story to look for is that of your client. What is that story in terms of operational efficiencies, or lack of them? And, consequently, how do you use these insights to make an informed decision that will help you better service your client?” If banks can listen to those important narratives, he believes they can write

ThePaytechMagazine | Issue 8

a new chapter in their history on the African continent. If not, there’s every possibility they’ll be toast. Gani has seen a slew of competitors enter the market offering speedy, uninterrupted and cheap payment services to huge swathes of the population who hitherto had no or limited access to mainstream financial services, and among whom there is widespread mistrust of banks. “With new tech-enabled players, like PayPal, Apple, Google, Facebook, Ripple and other cryptocurrency and distributed ledger providers, and new digital banks providing not only seamless payments, but transparency and cost-effectiveness, too, the writing is on the wall for traditional banks,” says Gani. That is unless they to wake up to the transformational power that granular data has to improve the customer payment journey and internal processes. And he can point to his own bank’s work with data specialist Intix to demonstrate that. He believes it has provided a blueprint for

operational excellence that other banks could follow, and has allowed Standard Bank to be the author of its own success

THE AFRICAN CHALLENGE Standard Bank isn’t an outlier. One of Africa’s oldest banks and its largest by assets, it faces the same global challenges as its rivals. But some of them have failed to adapt to the reality of the payments landscape in Africa and the difficulties millions face, believes Gani. Take cross-border payments. They are a vital local income source, given Africa’s huge number of migrant workers wanting to send desperately-needed funds home quickly to their families. And yet the US $46billion-plus of remittances that cross sub-Saharan Africa every year are subject to some of the highest transaction fees in the world. “Cross-border transfer has to obviously be done at an extremely low cost. Migrant workers tend not to earn that much www.fintechf.com

anyway, so every penny really counts,” says Gani. “And it has to be simple, so that the families back home don’t struggle with a process or a technology that they might not fully understand.” The phenomenal rise in Africa’s mobile-to-mobile transfers, with many providers also offering instant cash-out via a vast network of agents, points to legacy banks’ failure to understand and respond to those needs. “Banks have to appreciate the nuances of the African unbanked environment, and I’m not sure that they all do,” says Gani. “In this environment there is genuine mistrust of banks, and concerns about fraud. So, business is typically done informally and there’s a very important sense of community. Banks need to find a holistic solution, to ensure that people, even in the most rural of areas, are able to effectively and comfortably manage their finances and, consequently, their lives.” That said, the success of those solutions depends on the durability and standards of infrastructure on the continent, while disparate regulatory environments are another challenge. Newer, more nimble payment companies are likely to find it easier to navigate these hurdles than older, bigger, and more unwieldy banks. But Gani believes traditional banks should, nevertheless, have been better prepared for their arrival. He says: “A few years ago, cross-border money transfer agencies came to the fore, and were able to offer what banks couldn’t: instant cross-border payments. I guess we should’ve seen the warning signs then. But we were still OK, as banked clients stuck with us, because of the trust and convenience.” US tech giants, like Apple and Google, and now crypto companies, who are upping their game in the payments arena and extending their geographic reach, are likely to be more testing opponents for Africa’s banks. Many are global brands; they offer a seamless payment process and complementary products to entice consumers – and they are comparatively cheap to boot.

CRACKING THE MARKET You don’t have to look far for evidence of how fast a simple, low-cost challenge to banks’ payment systems can take hold. M-Pesa is a case in point, says Gani. An early disruptor, M-Pesa’s m-money www.fintechf.com

service now has more than 20 million customers and has held almost 75 per cent of the mobile-money market share in Kenya where it launched nearly 10 years ago, driving the highest mobile-money usage rate on the continent. What it showed, says Gani, is that the key to success in Africa, is ‘enabling people to seamlessly transact and become financially stable in a way that’s simple, effective, non-bureaucratic, transparent and, don’t forget, cheap’.

TRANSFORMATIONAL INSIGHTS Yet Standard Bank is successful taking the fight to these rivals and the critical weapon in its arsenal is data. The payment journey can be mind-bogglingly complex and opaque as it passes across borders, through various portals, payment engines, interfaces and clearing systems. Products such as Swift gpi are already doing a good job of introducing transparency between correspondent banks. But when a payment enters a large institution that’s where the SWIFT tracking ends.

Banks need to find a holistic solution to ensure people, even in the most rural reas, are able to effectively and comfortably manage their finances The data insight team at technology company Intix has helped Standard Bank run a comprehensive tracking and tracing service from the moment transactions hit its internal processing. This has not only helped ensure it meets compliance and regulatory demands, but the data insights that Intix software provides have also helped ensure faster transfer times while potential problems, should they occur, are fixed in real-time. Standard Bank operates two key pieces of Intix software: xTrail indexes all data sources used by the bank and keeps them in a digital repository to satisfy compliance timeframes; xTrace, meanwhile, provides granular tracking of transactions inside an institution, together with all the events in that payment’s lifecycle, and monitors them in the moment.

VIRTUES OF A ‘GLASS PIPE’ Gani likes to refer to this transparent internal payments flow as a ‘glass pipe’ and identifies one of the key benefits it affords the bank as being able to understand the value at risk. Gani explains: “What differentiates banks is the ability to, firstly, recognise and respond to system issues, and then to quickly gain insights that will help understand the issue through the lens of the client. The sooner we’re able to do this, the sooner we’re able to manage it, migrate it, and, by doing so, minimise the impact to those clients. “The current journey that we are on with Intix will help create this visibility, and the capability, and it’s a key facet of our drive towards operational excellence.” Transaction failures and delays can be hugely costly to banks, attracting service level penalties, regulatory fines and, perhaps more importantly, creating reputational risks. By using Intix’s software, the bank can take an informed decision about which payments to prioritise, having understood the extent of the impact of a system or infrastructure outage on any one payment versus another – and to look at that across the entire value chain. This transparency can also be extended to the bank’s customers. “Once we have a glass pipe in place, the client should then be able to get full visibility and transparency of their payments,” says Gani. SWIFT gpi for cross-border payments already gives banks the option to embed a transaction tracker in a self-service dashboard for corporate clients. That, combined with the Intix lens on internal progress can provide a real market advantage for a bank. “Together, they provide end-to-end visibility and transparency and, in this regard, I think the partnership that we have with Intix is absolutely vital,” says Gani. It’s a particularly compelling proposition, given a growing propensity for corporate customers to switch banks precisely because they want this granularity of information. The banks that can offer this level of end-to-end insight into transaction data might not necessarily grow market share, but they won’t lose it, either. And that bodes well as Standard Bank starts writing a new chapter in the South African banking story. Issue 8 | ThePaytechMagazine

One Platform to Manage Financial Crime

Stay ahead of fast-evolving fraud patterns and financial crime behaviours The world’s largest banks, processors, and retailers trust Feedzai’s advanced risk management platform which uses machine learning to mitigate even the most complex financial crime and fraud in real-time. For more info visit feedzai.com

AFRICA: INFRASTRUCTURE

AHEAD OF THE Q

Ghana Interbank Payment and Settlement Systems has been working to put the country on a cash-lite footing since 2007. And the launch of Africa’s first national QR code payment scheme could finally deliver the digital prize, says Kwadwo Ntim Significant changes are afoot in the Ghana payments space, as the country transitions from a cash-dependent economy to a digital one. At least, that is how it’s been presented over the last 12 months, as the world’s media was drawn to Africa’s experience of the pandemic. In truth, these changes had been afoot since 2007, when Ghana slipped under the radar as the first country in the world to introduce a fingerprint-enabled smart card linked to the country’s national switch scheme – in effect, a biometric banking system. More than three million Ghanaians (a sixth of the adult population) hold what are known as E-zwich cards, the technology provided by South Africa’s Net1 UEPS as an alternative to the Europay, Mastercard and Visa (EMV) standard. The E-zwich card can be used by customers across Ghana, particularly the unbanked and underbanked, and often in rural communities without the communication infrastructure cardholders typically rely on in the West.

www.fintechf.com

Tasked with enabling this vision of a ‘cash-lite’ Ghana with a standardised and regulated payments infrastructure, was GhIPSS (Ghana Interbank Payment and Settlement Systems), a subsidiary of Bank of Ghana. It was setup by the central bank with a mandate to implement and manage Ghana’s biometric card-based payment system, move banks to an automated clearing house and operate the national payment switch. When given its ‘to-do list’ in 2007, even the processing of cheques was still in ‘semi-manual mode’, as Kwadwo Ntim, general manager for technology and operations at GhIPSS, recalls. “A few of its components had been automated, but people were required to physically transport cheques into a central location, exchange them for processing, go back to their offices with reports on the results of the processing and then make a decision whether to pay. Not only was the process tedious, it was also inefficient,” he says. The biometric card was introduced in

2008, Ghanaians being invited to register for them through their banks, recording their fingerprints, including an ‘alarm digit‘, for cards that could be used with point-ofsale (PoS) machines and ATMs equipped with fingerprint recognition pads. That was followed by the national clearing system in 2009, and the deployment of the national switch infrastructure in 2011, binding what was a fragmented payments industry into a harmonious whole. Implementing the national switch infrastructure was a major undertaking. “All the participants within the space, which were mainly banks then, were running their own payment systems infrastructures, of sorts. So, the thinking in 2007 was to have a harmonised system that was integrated, would allow for the sharing of costs, and encourage all parties to work to a level that brought efficiencies to everyone,” says Ntim. Today, the payments landscape is looking rather fragmented again, given the subsequent evolution of technology, including mobile technology and e-money providers, in particular. “Financial technology companies started out by providing technology solutions to finance houses, but in the process have tried to take advantage of the opportunities within the space to operate in a quasi-financial service company structure, up to now,” says Ntim. “More importantly for us, the internet has become the cheapest source of communication to facilitate the interaction between a customer and a processor, which is what results in the interoperability service we are trying to achieve.

Unpacking the potential: Ghana is the first African state to harmonise QR code payment systems at a national level

Issue 8 | ThePaytechMagazine

AFRICA: INFRASTRUCTURE “One of the primary reasons why, in 2007, we resorted to investing in the national biometric switch infrastructure, was that it offered the capability to work offline; in the sense that you could go to a point-of-sale terminal with your biometric card and be able to complete a transaction without having to make a communication/ connection to any other party outside of the terminal. “Having efficient and affordable internet communication is absolutely crucial for what we are now doing in this space.” At the end of 2019, the president declared that Ghana would have eliminated paper

A first for Ghana: The country is fast moving up Africa’s digital leader board

from most services and transactions by 2021. Digitisation of land registry, hospital and court records was already underway and the country had revived a national identity scheme that would form the basis of an integrated database with passports, tax identification numbers and drivers’ licences – all part of public policy to bring the informal economy out of the shadows. Just months later and Ghana was in lockdown and the volume of digital transactions captured by GhIPPS in the first quarter of 2020 surged by 81 per cent, including credit cards, banking applications, digital cash, mobile payments, smart card-based electronic payments and electronic billing. E-money accounts, held by 81 per cent of the population, saw a less noticeable four per cent increase on the previous quarter, but then, given their already widespread use, there was less headroom for growth; mobile payments represent 82 per cent of the nation’s GDP.

ThePaytechMagazine | Issue 8

Much of this increased activity was encouraged by government intervening to cap digital transaction charges – a major impediment to the adoption of cash-free payments. Which is why GhIPPS hopes that taking the opportunity now to roll out another new low-cost national payment service will get the mass buy-in it needs.

CODE FOR SUCCESS GhIPPS, in partnership with its payment technology provider HPS, recently launched Ghana’s Universal QR Code (GhQR) and Proxy Pay platforms. With GhQR, customers can make instant payments for goods and

the national payments platform. But while the expectation is for QR codes to have a significant impact, Ntim won’t celebrate it just yet. “In our experience, over the last 13 years, there are always adoption issues, some of which are infrastructure-based, some service-based and some to do with culture,” he says. “From a cultural point of view, there is a very high affinity with cash, which is going away, but very slowly.” In QR codes, GhIPPS has clearly found a mechanism that’s easy for the customer, cheap for the merchant, and not hindered by the smart phone/feature phone technology gap. With a little bit of societal engineering, it could use it to readily scale up digital payments across all channels and achieve the country’s cash-lite ambition. “We believe QR is the kind of technology that’s going to take us there, in the long run,” confirms Ntim. Such has been the rapid increase in customer interest in contactless transactions generally over the past year, that government is also reportedly considering requiring public transport operators to accept mobile money instead of cash, in preparation for when the pandemic recedes. Evidence elsewhere in

From a cultural point of view, there is a very high affinity with cash, which is going away, but very slowly

services from different funding sources (mobile wallets, cards and bank accounts) by scanning a quick response (QR) code on a smart phone. The facility also allows feature phone users to make payments at a PoS terminal using a USSD (unstructured supplementary service data) code from their payment service provider. The initiative makes Ghana the first state in Africa to harmonise QR code payment systems at a national level. Ghanaians are already used to seeing the codes printed on goods; the government has been using them for several years to speed up the payment of excise duties. But this latest move will mean traders and shoppers in rural settings, and in Accra’s busy Makola open markets, for instance, are able to download and set up a payment system that doesn’t even need a bank account, instantly, and be ready to transact. Crucially, it will route that payment through

the world – Transport for London included – suggests that making cashless the default payment for fares can rapidly scale digital adoption elsewhere in the economy. In Accra alone, 70 per cent of Ghanaians move around on tro-tro buses, so the potential to influence payment choice is huge. Ghana is lucky not to be hindered by legacy infrastructure, says Ntim. “Because we don’t have to spend money beyond what we’ve already invested, we can experiment with new and innovative technologies as they evolve. “Providing an interoperable ecosystem for payments and pushing payments to the point where the cost is next to nothing for all participants, will only improve the customer adoption rate, merchant sales, and businesses’ ability to innovate, produce more and create more jobs, which all of us benefit from in the long run.” www.fintechf.com

Securing Everyday Digital Payments Giesecke+Devrient’s future-proofed payment technology is securing billions of people on a daily basis globally: Our tokenized payment solutions are repeatedly awarded as best-in-class, and our worldwide customer base of renowned brands leverage on our proven track-record in securing everyday digital payments. With our secure digital payment solutions you will enjoy increased customer satisfaction thanks to frictionless payments – ready for you to customize and gain competitive advantages. Digital Payments your Customers will Love! #futurebanking

Rounded square Only use blue and/or white. For more details check out our Brand Guidelines.

FINANCIAL INCLUSION

INCLUSIVE BY DESIGN Giving more people full access to financial services is key to building back better, argues Nina Kerkez, Director of Consulting at LexisNexis Risk Solutions. The question is how?

Better for everyone: Financial exclusion exacts a price on society

That the economic effects of the pandemic have hit already financially-fragile communities hardest is indisputable; how financial services can prevent them free-falling further is now the urgent question, says Nina Kerkez. As director of consulting at data analytics giant LexisNexis Risk Solutions, Kerkez is well aware of progress made by fintech all over the world in bringing individuals and businesses in from the financial cold – ensuring access to

ThePaytechMagazine | Issue 8

basic bank services that can unlock opportunity and improve life chances beyond the economic. At an individual level, such access, she would argue, is a basic human right. But it’s not being extended nearly fast or far enough. And her fear is that the additional pressures on the marginalised created by COVID-19 will make society’s attempts to repair the damage of the last 14 months that much harder. This isn’t purely a humanitarian issue: un- and under-banked communities tend

to suffer worse financial, social and health outcomes – for which everyone pays. If the ‘build-back-better’ agenda is to work, it’s no good leaving the most vulnerable behind. But how financial services addresses the issue of financial inclusion in the post-COVID era could prove controversial. Kerkez argues that it might well require compromise – between, for example, universal access to services and data privacy. And that could leave industry facing a moral hazard. Current regulatory processes governing www.fintechf.com

customer onboarding can, she points out, disenfranchise significant numbers of people, such as new arrivals to the country, forcing them to go under the banking radar. “We know that, as an industry, we need to screen customers when onboarding them. Over the years, we have seen more scrutiny of that process, but there is also more scrutiny of what is deemed an acceptable individual or business. “My father, for example, has a UK-registered business. He’s not a UK resident and doesn’t come from an EU country, but the business, prior to Brexit, operated within the EU. He and his partner have struggled to open a bank account in the UK for their business – because, for all the reasons I just mentioned, as soon as he starts applying, red flags pop up, making it much harder for them to operate here. “Issues arise when somebody is deemed risky, and it’s often based on those standard background checks: a lack of credit history in that country and short residency. So entities – whether individuals or businesses – are being rejected from being allowed to have access to financial services. And that increases the risks of wrongdoing and doesn’t allow us to learn more about that person or business and their financial behaviour. “If we don’t include these individuals in the financial system, they are more likely to start operating in cash-only ways; they might struggle to rent somewhere to live, access healthcare, etc. We are creating a lot of societal issues around them.” LexisNexis Risk Solutions is among the global leaders in providing data and analytics-based software to assist companies in evaluating risk and improving operational efficiency. Its client base includes leading banks, insurers and pension providers for which it provides tools that help identify such things as customers on sanctions lists and politically exposed persons. Its people-tracing software is used by specialist debt collection and recovery firm Lovetts. The majority of UK banks use its software to ensure customer trustworthiness and fraud detection through advanced online risk assessments, silent authentication strategies, customer-focussed analytics, machine learning, and consortium www.fintechf.com

functionality that shares intelligence across the organisation and then wider UK banking network.

Getting to know you The common denominator among all these solutions is data and Kerkez believes its use can be expanded further to help those at risk of financial exclusion. She says: “Data is the king, and I know people have been talking about that for a long time, but we really need to rely more on data to try to understand about people and about businesses, to help onboard them, and understand the true risks actually associated with them. And often risks relating to an average individual are very, very low.” In fact, LexisNexis analysis found that 64 per cent of underserved customers represented a low risk to lenders. “So, what it is that we could be looking for? It’s potentially some alternative data and some alternative behaviour, such as online behaviour, individuals’ likes and dislikes. Knowing the customer in such a way can absolutely help mitigate those risks that a financial institution might be facing.” And therein, potentially, lies a conflict. “There are a lot of data privacy regulations out there, but we need to be thinking of what it is that we are trying to achieve,” says Kerkez. “If we are trying to eliminate some large societal issues, then, in those cases, that should be trumping some of the data privacy challenges.” This use of alternative data, providing a much more holistic look at people’s circumstances, will further democratise financial services, she argues, in a market that still heavily relies on credit rating agencies, which, paradoxically, require people to have credit in the first place to provide a score. “Alternative data refers to a dataset that could be used for credit decisions and fraud decisions, and some of those alternative datasets could be a lot of different things: so, public and institutional data, such as educational history, criminal history, any kind of professional licensing,” she says.

“You could be looking at property assets. You could be looking at where these people live as there are often economic trajectories associated with locations. You could be looking at court data as well; bankruptcies, evictions and such like could indicate some other alternatives when it comes to risk scoring individuals and businesses.” And then there’s digital behaviour. “Where are they accessing their accounts from? Which kind of tools are they using to operate online? There is all sorts of information out there that we could gather now, digitally, to understand this person and, potentially, some of their behaviours. From this, financial institutions could make an informed credit risk decision, and that will help increase financial inclusion and transparency. “As a result of not including people in the financial system, we end up with underserved customers because they lack traditional credit portfolios and they will be unscorable by traditional credit data sources. They could therefore be declined mortgages, loans and other financial services that are very important for them.” The fault lines in financial inclusion still run along race and gender. “There is definitely inequality when it comes to race, and while we’ve seen a significant increase in financial inclusion with a lot more people opening accounts, we know that the gender gap has not decreased,” says Kerkez. “So, 72 per cent of men have access to accounts, while only 65 per cent of women do. Women from poorer households, women who are out of the workforce. And I am conscious that the implications of the pandemic could increase that gap. “Including women in the financial universe is extremely important; it has positive effects on society. It allows them to build businesses, and it helps them to better manage their financial resources, which is very important – to have savings and pensions, and plan for emergencies,” says Kerkez. “We need to do better, as a society, when it comes to gender and financial inclusion.”

If we don’t include them in the financial system... we are creating a lot of societal issues around them

Issue 8 | ThePaytechMagazine

FINANCIAL INCLUSION Financial inclusion isn’t just a matter of providing easy access to services. Rather, it’s about delivering affordable, transparent products when people need them, say Matt Williamson, VP of Global Financial Services at Mobiquity, and Andy Mielczarek, CEO of Chetwood A recent report by the UK’s Financial Conduct Authority (FCA) makes for sobering reading. In its annual Financial Lives survey, it found that more than half of the adult population were showing signs of vulnerability as a result of the COVID-19 pandemic. While that takes into account a number of factors, those at risk due to economic weakness, including indebtedness or diminished savings, had grown from 10.7 million to 14.2 million over the course of 2020. The brunt of the impact was felt by younger working adults and the self-employed, who suffered a 40 per cent rise in indicators pointing to vulnerability. The headline findings were a reversal of the trend before COVID-19, but for a significant minority things hadn’t been improving even before the crisis hit. In fact, in a prescient report in 2019, the Resolution Foundation warned the government that financially vulnerable households would be less able to weather an economic downturn than they had been before the global financial crash of 2008. And this in one of the richest countries in the world. Globally, the World Bank estimated that the pandemic will have pushed as many as 150 million people into extreme poverty by 2021. The majority of those will have no or

only limited access to financial services – one of the key ways of building resilience. For all those reasons, Matt Williamson, VP of Global Financial Services at full-service digital design enabler Mobiquity, and Andy Mielczarek, CEO of UK digital bank Chetwood, believe improving financial inclusion will be high on the agenda this year – although Mielczarek takes issue with how that’s sometimes framed in the UK. “There’s a lot of noise surrounding financial inclusion, which can no longer be thought of as just expanding reach. “For us, the biggest thing is helping with price transparency in order to support financial wellness.” Both companies already have a track record in helping build financial inclusion. Mobiquity, for example, worked with Bank ABC in Bahrain to create its digital offspring, Ila Bank, the first Cloud-based bank in the Middle East, which consciously aims to help younger generations better manage their finances. Since its launch in November 2019, Ila has become Bahrain’s fastest-growing mobile-only bank and is developing more products to encourage financial responsibility. In 2020, it launched a tool called Hassala – the Arabic word for a traditional clay savings pot – which nudges customers to save towards their goals and aspirations.

The world needs many more such solutions if everyone is to benefit, says Williamson. But they have to be consciously designed to reflect the communities they target, if they are to be ultimately successful, he adds. “Financial inclusion is an incredibly important and emotive topic, and access to financial services isn’t necessarily guaranteed for all,” he says. “But what Ila Bank did was recognise that there was quite a lot of debt among young adults in Bahrain, and the best way to access that group in order to do something about this, was via digital services. “Most people in Bahrain have access to some sort of smart device, at a low-cost entry point, and the same with data plans. But we have to recognise, that may not work for everyone, so it’s imperative that we understand how we help people through this. Digital is excellent, but we need to make sure, no one is left behind and work out how we can do it securely and safely for everyone.” Chetwood, meanwhile, uses open banking data to provide finance to those who may have been previously denied it by cruder metrics and uses a Cloud-based digital infrastructure to keep costs low. The combination of insight and operational efficiency are realised in savings to consumers.

Leaving no one behind www.fintechf.com

Issue 8 | ThePaytechMagazine

FINANCIAL INCLUSION To that end, the Wrexham-based digital bank, founded in 2016, developed the world’s first dynamic loan called LiveLend in which the borrower is rewarded by a rates decrease whenever their credit score improves. Mielczarek says the success of LiveLend’s innovative approach lies in its price transparency – a core value of Chetwood’s business model. LiveLend and its two other products, SmartSave and BetterBorrow, are marketed as brands in their own right, directly to consumers and through partners. Collectively, they won the bank Best Use Of Data at the UK Business Tech Awards in 2020.

You need a flexible, digital architecture, that enables you to run with the punches and the challenges, and make sure your customers have access to what they require when they need it Matt Williamson, Mobiquity

Mielczarek says: “We’ve been running LiveLend for about 18 months now and 25 per cent of customers are seeing reductions already – we’ve got customers whose rates have gone down by eight per cent. We’re probably the top-rated bank on Trustpilot for that reason. “The way that the market works traditionally, is you advertise a teaser rate, you get consumers in the door, then you tell them ‘you can’t have the 2.8 per cent, because we’ve looked at your credit file. But great news, we can give you 30 per cent!’. “I think a lot of the digital businesses, like ClearScore, or MoneySuperMarket [both of which are partnered with Chetwood], are democratising information around credit in a really important way. So rather than just applying repeatedly for loans and getting beaten down, you can find out, with no impact on your credit file, who’s going to lend to you, what are they going to charge, and – what’s really exciting – also get coaching on how to improve the management of your finances.” As a business, Chetwood isn’t exposed any more than any other lender.

ThePaytechMagazine | Issue 8

“If the market says you’re a 35 per cent risk, you probably are today, but what we want to do is to help people get the incentive to improve their behaviour over time. And what we find is that people on those products put more effort into paying us, because they’re getting that ongoing reinforcement in the product. “Even though we deliver a net interest margin of about 20 per cent, for 95 per cent of customers who take our loan, that’s the best possible rate for them in the market. So by participating very carefully, we’re able to do a great job for a segment of customers, while still getting paid to do it.” The Chetwood business model reflects much of what Mobiquity champions: the importance of understanding individual customer needs and responding to them. With huge numbers of people across the globe now facing an income squeeze, there will inevitably be pressure for just these kinds of digitally-enabled services as consumers go in search of personalised financial offers and tools. Indeed, a new survey by Mobiquity in the US found that 46 per cent of under-55s would switch banks precisely because they offered better digital features. And those aged 25-39 – the ones most likely to be looking for ways to improve their financial resilience after the coronavirus pandemic – were the most likely to consider switching banks over the next 12 months. To Williamson the survey’s message to banks is loud and clear. “You really need to make sure you understand your market, your customer, and what they need, not just today, but in the months and years to come,” he says. “To do that, you need a flexible, digital architecture, that enables you to run with the punches and the challenges, and make sure your customers have access to what they require, when they need it. When changes come along – if we continue to be in and out of lockdowns over the next 12 to 24 months, for instance – you don’t then have to rip up and replace everything you’ve built, to service the next need or the next requirement.” Ensuring as ready access as possible to services will, for some institutions, require an omni-channel strategy. “You might consider additional access through an app, or additional access via the internet, or both. And perhaps also factoring in the ability to physically go and

see someone, and have a discussion about your financial needs,” says Williamson. That last option was a critical consideration when HSBC launched a current account for people with no fixed address in 2019. Being able to visit a branch to prove their identity in the absence of the usual checks was clearly important. Willliamson applauds the initiative but says, given that major banks, including HSBC and Santander, have since announced they will be making wholesale branch closures in the UK, they should perhaps rethink their high street presence as an alternative to withdrawing from the UK high street completely. “It may well be that the branches do close, but it’s the brand that’s important,” he says. “You don’t necessarily need a single location per brand; what about a community hub, or a coffee shop, that hosts multiple brands, who may be in competition but get the benefit of sharing services, or site costs?

Even though we deliver a net interest margin of about 20 per cent, for 95 per cent of customers who take our loan, that’s the best possible rate for them in the market Andy Mielczarek, Chetwood

“Banks will realise that they’re better off collaborating even more than they already are, not just with fintechs disrupting their space, but also with each other, to make sure they stay relevant, understand the market and adapt to the times.” Mielczarek, whose banking career has seen him run HSBC’s UK network of branches, understands why, from the perspective of financial inclusion, a physical presence is important. But he wouldn’t open a branch today. “My own view is, if you’ve got it, double down on it, and if you don’t have it, don’t try to build it,” he says. Digital technology is clearly key to extending the financial franchise. “But we need to make sure no one is left behind,” says Williamson. “And work out how we do it securely and safely for everyone.” www.fintechf.com

CROSSBORDER

Currencies Direct has been smoothing rough edges off the crossborder transfer experience for 25 years. Now, it’s responding to unprecedented world events by developing a slew of new tools, as Head of Product, Hardik Shah, tell us here Founded in 1996, Currencies Direct can truthfully claim to be a financial industry trailblazer: the first non-bank crossborder payment provider to offer a solution to the growing demand for affordable global transfers. It launched as Europe’s first money transfer provider and has expanded to employ 500 people across over 20 locations including London, Spain, France, Portugal, the USA, South Africa and India. Known for its award-winning customer service, Currencies Direct offers an omnichannel experience, operating a retail presence and phone service alongside online and mobile apps. Winning MoneyAge’s Money Transfer Provider of the Year award several years running, the serial innovator has so far helped 350,000 people manage their payments. And, as head of product, Hardik Shah, tells us here, they ‘don’t just involve instant, one-off payments’. The multiple ways in which individuals, small businesses and corporate customers want to use and manage their foreign exchange (FX) constantly changes, which is why the Currencies Direct portfolio of services is evolving alongside them. Macro-economic developments have played to the company’s strengths, with the increasingly global economy, an explosion in worldwide e-commerce triggered by COVID-19, and market volatility related to both the pandemic and Brexit increasing demand for competitive and innovative FX solutions.

ThePaytechMagazine | Issue 8

Such volatility has seen rates fluctuate significantly. The GBP/Euro exchange rate, for example, swung between €1.10 and €1.15 from January to March, 2020, a value difference of €10,000 on €200,000 bought at either end of that range. In response to such volatility, Currencies Direct offers multi-currency wallets; providing customers with the ability to buy and store currency when the rate is favourable. It’s also launched a batch processing platform for corporates making multiple transfers. Large or small, in all cases, it partners with Apply Financial’s Validate to verify the recipient’s payment details in real time. TPM: So, what industry problem was Currencies Direct originally built to solve, and how has that evolved over the past two decades? Hardik Shah: We were the first specialist, non-bank international payments provider. Over time, a lot has changed within the competitive landscape, as have customer expectations, but the reason for our existence stays the same – to provide a better experience for consumers to move and manage their money across borders. We’ve continued to evolve the business to meet changing expectations, and to differentiate ourselves by offering an unparalleled customer experience and service proposition, using market-leading technology. As a result, our Trustpilot score, at 4.8, is among the highest in the industry. Unsurprisingly, customers just want to send their payments as quickly as possible, with the least amount of effort, to the right destination. However, with the increase in fraud, money laundering and unethical behaviours, we’re seeing enhanced regulations across the globe, which vary by country and currency. For example, to send a Canadian dollar, you need to have

the recipient’s address, whereas, to send a payment to India, you need to have a specific reason code, and this makes the transaction journey more complex than we would like. To make these transfers and varying customer journeys as frictionless as possible, we’re working with third parties like Validate. TPM: Have customers’ expectations changed and, if so, how do you continue meeting them? HS: A few years ago, customers were solely after the rate and you’d get their business if you provided the most competitive one. While this is still a core requirement, they now also want transparency around any fees involved and when their payment will be sent and received, and a feeling of being in control, with the ability to send the payment when they want, with multiple settlement options, whether that’s debit card, credit card, PayPal, etc. Also, lots of newer banks are mobile-only, but we continue to invest in an omnichannel strategy as our target customers want to trade via their channel of choice, whether that’s mobile, online, offline, telephony or branch. Customers also want reassurance. A recent industry report found that 39 per cent of those sending international payments, worry about entering the wrong details and losing money. That’s huge, considering all the new technology available today, and something we’re actively working on addressing. For example, for years, customers, in both our own research and industry research, have been saying they want to track their payments. It’s funny that you can track a pizza delivery, but not a £500,000 payment sent across the world. So, we’ve recently introduced a payment-tracking feature allowing customers to follow their payment, from initiation to it being accepted by the corresponding bank.

You could track a pizza delivery, but not a £500,000 payment you sent across the world

www.fintechf.com

Volatile markets: A new tool helps customers ride them

We’ve got some way to go before we can provide end-to-end tracking functionality in real time, where customers can see the money land in their recipient’s account, but we will continue to work with the industry, and our partners, to get to that end goal. TPM: With that in mind, where in your payment flow do you use Validate? HS: We use Validate in our online transaction journeys, for both mass market consumers and corporates. One of the major anxiety moments is setting up an international payment to a new recipient. Customers worry about the details being incorrect, and payment being delayed. So, we use Validate to verify the beneficiary details prior to making the transfer, and play back the results to the customer so that they can see they are correct, and address any errors. This saves payments being delivered to the wrong place, or falling into manual repair queues, which creates a burden for operations and internal teams, and results in delayed payments. We’ve introduced a corporate mass payments platform for business customers, which is fairly unique in the market. I couldn’t imagine the pain a customer would have to go through to manually verify the payment details for thousands of payments that need to be made in a matter of minutes. Our platform, launched in 2020, allows corporates to process 1,000 www.fintechf.com

payments per minute. We utilise Validate to verify payments in real time, and process them quickly and seamlessly, with minimum fuss. TPM: What does the future look like for Currencies Direct, and the crossborder transaction market it serves? HS: Our goal is to offer customers a richer experience, by continually introducing new products and services, optimising current features and utilising services like Validate further. Events like Brexit and COVID mean global money management is becoming more prevalent than ever. Crossborder e-commerce transactions, salary settlements and funds to support people living and working between different countries, are just some of the aspects we’re actively developing products for. In the corporate space, we believe the future lies in integration and partnerships, like the one we’ve recently announced with Hargreaves Lansdown, to process FX payments to its customers, and this is where our focus will be over the next year or two. Removing pain points is one of the biggest parts of my role at Currencies Direct. For example, when adding a new recipient, lots of customers think, from previous experience, that they need an IBAN (international bank account number), a SWIFT/BIC (business identifier code) and the bank address and branch name, before they can make a payment. We’ve tried to streamline that transfer

journey by utilising services like Validate, where a customer only needs an IBAN, and it’s like a ‘wow’ moment when they come onto our platform, enter an IBAN number, we validate it internally and then, using Validate, play back the bank information. That creates a delightful moment in the customer’s transaction journey, because they only have to add one reference point and they can see all the details they would have entered previously, done on their behalf. We’re also evolving our multi-currency wallet offering which allows a customer to buy a currency, store it and then use it at a later date, because we see different examples of how customers want to use and manage their money across borders, and they don't just involve instant, one-off payments either. For instance, I was in a research session recently with a lady whose son lives in Australia, and she needed to send him money for student fees. She said she saw a great rate and thought she’d buy the currency and send it to him, but was then worried he might use it all up immediately, so now she sends it in chunks. But since then the rate has dipped. We’re also considering how we could utilise conventional products, like forwards, where customers book a rate then draw down at a later date. This is very technical, but we’re trying to turn it into a customer proposition, using a subscription-based model, in line with current trends. Issue 8 | ThePaytechMagazine

CROSSBORDER Power in networks: But making payments work across APAC will require collaboration

JOINING THE DOTS South East Asia is a diverse region in every respect: economically, politically, socially… and digitally. What it really needs is a pan-regional payment system, but what are the chances of that? Well, quite good, according to Eli Shoshani, Head of APAC at Bottomline, and Medhy Souidi, Head of FinTech, StartupXchange and Customer Development at DBS With innovation hubs, most notably the rival fintech cities of Singapore and Hong Kong, already firmly established, South East Asia is fertile ground for banking 2.0. The market here is a rapidly evolving, if still fragmented, one. And the financial power centres are coming under increased pressure from third parties such as Thailand and Malaysia, desirous of a more active role in a region where local, regional and global banks already rub shoulders with fintech and blend status readily. Where many of them meet is in the payments space – highlighted in McKinsey’s November 2020 report The Future Of Payments In Asia. It noted that the region already has the largest contribution to global payments revenue, generating more than $900billion in 2019 alone – or nearly half the global total. While the COVID-19 pandemic may have caused a temporary reset – McKinsey forecast a one to eight per cent payment revenues hit in 2020 – longer term fundamentals for the region bode well, with expectations of a ‘fairly rapid’ return to mid-to-high single digit annual growth and forecast annual revenues of $1trillionplus by 2022/2023, the report said.

ThePaytechMagazine | Issue 8

However, the post-COVID payments landscape will likely look very different – McKinsey identifying ‘five Cs’ indicative of change. Firstly, crossborder links, including more bilateral payment systems and possibly the emergence of a pan regional one – the million-dollar question being who will provide it. Then, consolidation, given there probably isn't room for the sheer number of digital payment providers that have emerged. Contactless consumers are demanding an increasing focus on wallets and QR codes. Connected commerce – as competition drives down the cost of payments, providers, especially banks, need to find a way to monetise them, which goes beyond transaction fees. And, finally, cashless economies, as Asia leads the world league table in transactions that don’t rely on paper and coins. For all these to progress, requires both an enabling payments infrastructure and forward-thinking regulatory environment – both of which Hong Kong and Singapore have worked hard to put in place, says Medhy Souidi, head of fintech, the StartupXchange and customer development at Singapore bank DBS, based in Hong Kong. He observes: “In Hong Kong and Singapore, we have highly efficient, diversified, and

inclusive payment ecosystems right now, with fast payment solutions. So in Hong Kong, (under the Faster Payments System), you can pay in the blink of an eye, anytime, anywhere.” As in Singapore, the aim is to drive the ecosystem to ‘something more digital, seamless, and also without friction ’for companies and customers’. In February this year, the Monetary Authority of Singapore gave major licensed non-bank financial institutions direct access to its domestic real-time payment system FAST (Fast and Secure Transfers) for the first time, as well as the overlaid PayNow central addressing service. That means consumers will be able to make real-time funds transfers between their bank accounts and e-wallets, instead of using cards for top up, and to push cash between e-wallets, which was not previously possible. Staying competitive means pursuing innovation and collaboration like this, says Souidi. “So, for example, the HKMA (Hong Kong Monetary Authority) has pushed many banks to collaborate through different, interesting processes, such as data exchange between banks and the local market. We have also a blockchain platform named eTradeConnect, connecting banks www.fintechf.com

with the People’s Bank of China, more specifically on the trade finance side. “HKMA is very proactive in terms of supporting those companies with access to multi-currency and multi-dimensional platforms, to link the payment system to other countries,” he adds. “Unlike Europe, Asia is really fragmented; we have a lot of currencies, a lot of c entral banks and a lot of regulations, but all countries are pushing for a more collaborative approach.” Previous efforts to develop a SEPA-style payments network, emulating the Single European Payments Area’s successful collaboration between multiple states, stalled for all the reasons Souidi lists. So what’s different today? According to one report, Envisioning A Pan-Regional Real-Time Payments Ecosystem In South East Asia, emerging payment standards and new technologies now make such a network feasible. The global payments messaging standard ISO 20022, which will be adopted by SWIFT bank members – as well as local schemes including Singapore’s MEPS+, Hong Kong’s CHATS, and Australia’s RITS – in 2022, will be crucial in ensuring the interoperability

multiple players to have entered the payments market with some of the most advanced crossborder tech, including Visa B2B and Ripple, many customers should still have to put up with T+1 and T+2 payments. As Shoshani puts it: “Amazon Prime gives you same-day delivery and Amazon next-day delivery. So why can’t we deliver a payment instantly?” Part of the answer lies in risk mitigation – a critical aspect of the payment process. “You need to secure the payment before it heads into a real-time network, because it’s irrevocable,” says Shoshani. “At Bottomline, we provide tools to the banks, in order for them to secure it in a very simple, smart way, using AI.” To achieve real time in domestic payments is one thing, but in crossborder is another. Completing a transfer between Hong Kong and Singapore inside the same group, such as DBS, isn’t that tricky. “The difficulty is when your customer wants to do a crossborder payment, in different countries and with different regulatory entities,” says Souidi. That calls for greater collaboration. “We have had meetings with the regulators in Hong Kong to discuss their

We believe, by 2025, most of the Asian markets will be ISO 20022 compliant

Eli Shoshani, Bottomline

of a South East Asia real-time, crossborder payments platform, as well as driving usage and participation, it says. ISO 20022 is important because it will allow more data to be attached to the payment message itself, ensuring greater transparency in crossborder transactions. “We believe, by 2025, most of the Asian markets will be ISO 20022 compliant,” agrees Eli Shoshani, head of APAC at Bottomline, which aims to makes complex business payments simple, smart and secure through a variety of software services, including secure financial messaging, to banking and other industries. “Due to the fact that it’s a multi-cultural, multi-currency region, you must enrich the message in a much better way than when the old SWIFT messaging system, which was designed in the 70s, allowed us to do. The new XML format allows us, as a payments technology provider, to give more information to the client,” adds Shoshani. Yet he is frustrated that, given the www.fintechf.com

apps, including the mighty Alipay, handle more transactions in a month than PayPal does in an entire year, and are now becoming active in Hong Kong. And the country has a keen interest in the development of central bank digital currencies (CBDCs). Singapore has indicated it would collaborate with China over its multi-year multi-phase Project Ubin CBDC programme, which has involved JP Morgan in its most recent iteration. The aim is to explore the use of distributed ledger technology (DLT) for the clearing and settlement of payments and securities. Hong Kong and Thailand’s central banks, meanwhile, have jointly developed a distributed ledger technology-based proof-of-concept prototype that will eventually enable the use of CBDCs to make payments between the two countries more efficient. American blockchain technology company ConsenSys, has been tasked with working on the second implementation phase of the project, along with PwC and Forms HK. “How you can create an e-yuan, how you can create an e-Hong Kong dollar, or e-Singapore dollar in the future – these are really hot topics for banks right how,” says Souidi. “And we are looking at those specific new payment methods as something that is not only really challenging, but also really exciting.”

Unlike Europe, Asia is really fragmented... but all countries are pushing for a more collaborative approach Medhy Souidi, DBS new initiatives and how we can collaborate more, by bringing our expertise from other countries,” Souidi says. “For example, corporate identity or digital passes for customers that you have in Singapore, but not yet in Hong Kong.”

CHINA INFLUENCE In this hugely diverse region, albeit one with valuable and well-established trading links (Asia accounts for more than a third of global trade in goods), politics is as influential as any technology. That’s particularly true when it comes to the presence of China, which prefers not to rely on SWIFT and runs its own payment systems on proprietary networks used for settling in renminbi and major foreign currencies. The country’s payment super

He and Shoshani need to be across all of the above trends, aware of the burgeoning technologies and shifting politics of Asia and trying to second guess the next move. “I see a very bright future for payment innovation in Asia, and the reason is that it’s moving very, very fast,” says Shoshani. “In the near future, we are no longer going to be talking only about physical currency, but digital currencies, and virtual currency. “Even with a DLT platform, though, ISO 20022 will be the backbone. The right format will enable everybody to use a common language. Because if we’re not talking the same language, we won’t be able to communicate with each other. We need to build collective harmony between players – fortunately, that is what Bottomline does best.” Issue 8 | ThePaytechMagazine

COMMENTARY: THE KALIFA REVIEW

HOW CAN EMBRACE THE WORLD Russell Curzon, General Manager, UK & Europe, for FS platform Nium, shares his thoughts on The Kalifa Review’s recommendations for advancing UK fintech at home and abroad

Worldwide, fintech is hailed as the future of finance. From the evolution of open banking platforms to the use of AI, fintech revolutionises the global economy by changing the way businesses and individuals bank, invest and make payments. Over the past decade, the UK has witnessed technology-led disruption across the financial sector. With more than 10 per cent of the global market share in fintech, this sector is today worth more than £11billion a year to the UK economy, according to government figures. High-quality talent, progressive and clear regulations, availability of capital and access to an innovative financial services sector, have established the UK as a global fintech leader. This trajectory, however, is at a crossroads – overseas competitors strive to match the UK’s success, Brexit causes regulatory uncertainty, and the pandemic has accelerated digital adoption. There’s also an immense opportunity to leverage technology, to ensure inclusive and sustainable growth for the economy. Commissioned by the UK government, The Kalifa Review Of UK Fintech, published in February, is an independent review, led by Ron Kalifa OBE, which aims to help the UK retain its leading global fintech position. It outlines a strategy to highlight www.fintechf.com

the opportunity for UK fintech firms to scale up, penetrate global markets, acquire highly-skilled talent, deliver improved financial services and gain competitive advantage over other fintech hubs internationally. The combination of world-leading financial services and a vibrant tech sector has created a fertile environment for the industry in the UK. The country’s groundbreaking open banking framework has fuelled increased innovation among large financial

GOVERNMENT SUPPORT

The UK Government recognises the significance of the financial sector and encourages it through positive regulatory policy. This has led to several empowering measures, such as the establishment of an innovation hub that helps firms understand the regulatory framework, and a regulatory sandbox that provides a secure space for firms to test new products.

EVOLVED CONSUMERS The UK has a high proportion of tech-savvy citizens who demand top-quality financial services and products. Seventy-one per cent of the population is using the services of at least one fintech company, says Statista.

TALENT POOL The UK’s talent prowess is evident from the 76,500 people employed in the financial technology sector. Additionally, strategic actions such as the inclusion of fintech courses in education curricula and fintech-related programmes, are helping attract new talent to the fintech ecosystem. institutions, paved the way for the emergence of neobanks and other fintechs, and inspired similar regimes around the world. The UK has more billion-dollar startups than anywhere else in Europe, and enjoys ample demand for fintech products. Four factors, identified in the review, are crucial for the UK to retain its throne as one of the leading fintech nations:

ACCESS TO CAPITAL The UK has a well-rounded funding ecosystem, supported by robust infrastructure. Firms have easier access to funding here than in any other European market. According to Innovate Finance, $4.1billion of fintech capital was raised here last year, placing the UK second only to the US.

The Kalifa Review intends to trigger sustainable innovation and define considerations with reference to best practices in key international markets: India, the Middle East and North Africa, sub-Saharan Africa, and China. One of its key recommendations is to consolidate international operational support and increase the ease of doing business. Global connectivity – from the free flow of data to harmonised regulatory standards – is critical to success. The UK must focus on crossborder collaboration to maintain its reputation as a global fintech hub. The review therefore calls for the launch of an international Fintech Credential Portfolio, a Centre of Finance to drive international collaboration, and an International Fintech Taskforce. Issue 8 | ThePaytechMagazine

COMMENTARY: THE KALIFA REVIEW An international taskforce is one, important means of driving global connectivity. But fintechs and the private sector can and should play a crucial role in driving international collaboration. Nium, for example, has its roots as a Singapore-based company with expertise in the Asia Pacific region and holds licences around the world. We enable fintechs, banks and financial institutions which aspire to expand their footprint globally. We also recognise the importance of an open, collaborative dialogue among UK firms and other countries, and support the UK’s efforts in strengthening collaborative ties with other economies focussed on the inclusive, sustainable growth of the digital economy. The UK fintech sector has the potential to grow to approximately £38billion in revenue by 2030, says the report, provided it can maintain its current market share. However, this leadership position cannot be taken for granted. The UK’s positive growth story has become a benchmark for overseas markets to emulate its approach. While London is still the top attractor of fintech venture capital investment, Berlin, Paris and Barcelona are fast catching up. In order to uphold its rank, the UK must continue to strengthen its inbound global investment, as well as looking to boost outbound growth, by addressing factors

that may hinder its prospects in this regard. For example, regulatory hurdles can be a deterrent for businesses looking to enter the UK or expand internationally. Support for crossborder expansion and easier access to updated information, including guidance on legal and regulatory requirements and market navigation, will allow fintech firms to expand overseas. In an effort to minimise regulatory barriers, the UK Government-supported ‘fintech bridges’ with other nations aim to bolster ties between governments, financial regulators and the industry. Optimum use

Fintechs and the private sector can and should play a crucial role in driving international collaboration of these agreements will provide assurances for sustained collaboration and growth in a post-Brexit environment. Entering into more ‘fintech bridge’ agreements will help the UK reap the benefits of international cooperation among other growing fintech hubs. Early-stage companies encounter a variety of hurdles when trying to expand internationally, many of which have been

highlighted in the review. These include the ability to build partnerships with established players, having a limited international profile and the absence of any mechanism to formally attest to their credibility. One of the biggest obstacles, however, is how to penetrate highly regulated markets confidently and cost-effectively. Time and again, partnership has proven to be the most effective way to gain access to these markets. Nium’s global financial infrastructure and partnership approach helps companies navigate the roadblocks. Our global portfolio of licences gives customers quick access to financial services in highly-regulated markets, and in new and often complex geographies such as Africa. We enable customers to bring suppliers, business partners and clients together in a single platform to send and receive funds through bank accounts, cards, and e-wallets, including real-time payments, to more than 65 countries. The recommendations of The Kalifa Review aim to propel the transformation and development of the fintech sector in the UK at a crucial moment. The UK must chart its course for the future by harnessing the high-growth potential of firms, and establish new international relationships, if it is to cement its position as a leader.

INTO AFRICA: A CHECKLIST FOR NEW ENTRANTS Nium announced its intention to expand into Africa at the end of 2020 and, by March of this year, had established in-bound payment corridors with partners on the ground in Ghana, Kenya, South Africa and Tanzania. Partnership and early dialogue with regulators has been key to Nium’s strategy when entering one of the world’s most challenging payments markets, says Clara Wanjiku Odero, VP of partnerships and growth in the Middle East and Africa, based in Kenya. She urges any business entering the continent and, indeed, any African-born startup, not to make the mistake of thinking one size fits all here. “If you come from a card-bearing country like Nigeria and are going to one that predominantly uses mobile money, the infrastructure is totally different. So what your profit looks like is going to be totally different, too,” she explains.

ThePaytechMagazine | Issue 8

“As with all companies entering a new market, the key is to establish local relations. That’s also one of the key challenges in Africa – the fact that it’s such a diverse region. Having feet on the ground and also understanding the local payments environment is extremely important. Nium’s focus is to enable businesses to unlock new revenue opportunities and improve cash flow, and to efficiently navigate their crossborder operations, so we are constantly looking at partnerships and collaboration opportunities that allow us to do that.” She counsels new entrants to start transparent and constructive conversations and work early on building relationships with local regulators, saying it’s ‘better to ask for permission, rather than for forgiveness’. “I’ve dealt with regulators in multiple countries and I’ve yet to meet one that wasn’t open to having a conversation,” she says.

The Kalifa Report highlights North and sub-Saharan Africa as key potential markets for UK fintech, with a focus on payments and remittances in the latter. In selecting the first four countries in which to launch its services, Nium was looking for markets with high remittance flows, as well as favourable regulatory environments and strong growth. Kenya, for example, hit a record US $3,094million in remittance inflows in 2020, making it an obvious choice. As in South Africa, its central bank has a progressive attitude to fintech innovation and interoperability, having established a special office to oversee emerging payments. South Africa Reserve Bank, similarly, set up a fintech innovation hub and sandbox. “Africa has long been an untapped region for most fintechs,” says Odero. “Our expansion on the continent represents an important milestone as we continue to drive global growth and partnerships.” www.fintechf.com

Let’s talk about the next wave in AI, Machine Learning & Managed Services

SmartStream’s fully integrated suite of solutions and platform services for middle- and back-office operations are more relevant than ever – proven to deliver uninterrupted services to critical processes in the most testing conditions. Their use has allowed our customers to gain greater control, reduce costs, mitigate risk and accurately comply with regulation. With AI and machine learning growing in maturity, these technologies are now being embedded in all of our solutions and can be consumed faster than ever either as managed services or in the cloud. Simply book a meeting to find out why over 70 of the world’s top 100 banks continue to rely on SmartStream.

info@smartstream-stp.com smartstream-stp.com

CLOUD Comfortable in the Cloud: Native technology allows banks more freedom to innovate

g n i k Thin

BIG Legacy banks have warmed to the idea of Cloud technology, but now they must go ‘native’, says Gareth Richardson, COO of Thought Machine The announcement by Lloyds Banking Group in the middle of 2020 that it would work with Form3 on developing a Cloud-native payment-as-a-service platform was somewhat overshadowed by everything else occurring that year. And yet it was a significant, strategic leap for a legacy bank to signal its intention to re-architect the infrastructure for a mission-critical operation like payments. Form3 is a payments processing partner to Cloud-native core banking provider Thought Machine, which had already begun work on migrating the first wave of

ThePaytechMagazine | Issue 8

customer accounts from a Lloyds division to the company’s core banking engine, Vault. It’s designed to deliver a range of banking services, including checking accounts, savings accounts, loans, credit cards and mortgages. Being API-by-default, other functions can easily be layered on top, and banks can also use Vault to build their own custom products. Founded in 2014 by ex-Google staffers, Thought Machine follows the GAFA approach to technology building: flexibility is baked into a system that’s characterised by the use of Cloud-based microservices. It provides a secure and flexible architecture

on which to hang a modern bank – not an excuse to lift and shift existing operations from a mainframe, which only succeeds in creating new silos on a remote private, public or hybrid system. Vault is constantly upgrading, always improving – another hallmark of the Big Tech approach – and it demands a different, more collaborative mindset within the bank when it comes to technology development. “The vision of a Cloud-native world is where everything is running with microservices and is horizontally scalable across multiple regions, giving all the resiliency that we need. And that really www.fintechf.com

starts to replace that mainframe effort,” says Thought Machine’s chief operating officer Gareth Richardson. “The configuration is such that you can write code on it, and that enables system integration (SI) partners and other technology vendors to get involved via our APIs. It’s a team sport,” he says. “So whether we’re working with Form3 on the payment gateways or even the likes of IBM and Accenture, who really know how these legacy systems work, we’re able to bring best of breed to a project.” It’s not all about legacy, though. Standard Chartered’s late-2020 speedboat launch Mox was among Thought Machine’s most recent Cloud-born projects. One of Hong Kong’s new virtual banks, it has been entirely built around Vault. Mox shows the potential of a Cloud-native environment, which brings lower build and operating costs, plus real-time data streaming into the corporate core. It allowed the challenger to imagine new types of integrated products, says Richardson. “We are starting to build products where you’ve a current account, a credit card and a debit card, all on the same card, with a savings account,and interest-bearing aspects to it. Then you can start doing loans through that card, too.” The Mox card, which currently functions as an ATM and debit card, has performed beyond expectations, attracting more than 80,000 account openings in its first five months and generating 1.5 million transactions. One of the biggest incentives for customers to use it is having cashback rewards instantly credited to the card. For the bank, that’s gold dust, giving a real-time stream of data. Richardson acknowledges that it’s easier to build a platform for a start-up like Mox, shaping everything from the ground up, than it is to transform incumbents where legacy, product complexity and old ways of working present more of a challenge. www.fintechf.com

“It takes a collective effort to help banks migrate,” says Richardson. “We don’t do it alone, it’s a group endeavour with many different fintechs and other parties contributing. But once you make the cultural change, and have the speed of delivery, there’s a big payoff.” That is becoming evident at Lloyds Banking Group where customers are benefiting from more tailored products, and because everything is built in the Cloud, development cycles are much faster and more cost effective. “With Lloyds, we’re seeing an increase in efficiency just through new tools and techniques,” says Richardson. “That’s the result of doing things that are Cloud-native, that allow multiple teams to work independently, not tied to a silo of a single unit, which was the old core.” While Thought Machine works across the industry, Tier 1 banks are a different beast, observes Richardson. “Managing products at scale, for an incumbent bank, means managing potentially thousands of products. It’s complexity on another level, so you need to have engines that are totally flexible, something with the agility to drive an industry in a different way. It’s no longer about the limitations of the core, because

With Lloyds, we’re seeing an increase in efficiency just through new [Cloud-native] tools and techniques we can completely eliminate that conversation by offering a Cloud-native solution. Costs come down, stability goes up, and we can run a platform at scale, going up or down as the bank grows and changes.” And when huge sums are spent to keep a Tier 1 bank running – ‘as much as two or three billion pounds a year’ – that sounds appealing, especially in a low-interest environment and where traditional revenue streams are beginning to feel the heat from challengers. “We’re entering unknown territory when it comes to fees and the level of

‘value add’ that we must include over the top for those fees,” says Richardson. “And when you get into negative interest rates, or perhaps zero net interest margins, you have to stop and think. Just having savings could become a liability. Market conditions reinforce the need for product innovation.”

Building the future Barely five years old and Thought Machine is already plugged into an industry-wide endeavour to help banks embrace the Cloud. Last year, it joined the Banking Industry Architecture Network (BIAN), which combines leading banks, technology providers, consultants and academics, where it is part of a Strategic Advisory Group, helping to promote a common architecture for banking. It encourages sandbox developments to help third parties integrate and try out new products and features, and welcomes any partnership that promotes Cloud-native goals. But when working with legacy clients, it also takes a pragmatic approach, acknowledging the huge strides they must make in bridging the gaps between old and new. One example of that is Thought Machine’s payment hub, which orchestrates payments for BACS. “Most technology providers aren’t building full-batch payments hubs,” says Richardson. “Instead, they’re building integrations. But for the next few years, banks will need batch processing, so we built a hub to meet that demand.” That said, if the mainstream banks still want skin in the game, they need to get their heads around product agility. “That means bringing together fintechs, but also the different cores, which enables you to start thinking in a different way,” says Richardson. “If you’ve no silos between any of these products, you can take a different approach. You can launch products really quickly and start testing what’s going to work. Is it good to be able to put investment alongside a savings product targeted for a high net worth, for instance? Things like that are possible when you can move seamlessly between different areas of the bank and settle really easily at the back end.” Issue 8 | ThePaytechMagazine

APIs: E-COMMERCE

The show must go on Cinemas face a challenge of epic proportions as they exit from the pandemic. Eduardo Tardin, IT Manager for E-commerce with Cinemark Brasil, says APIs are emerging as the heroes of the hour Can you recall the last time you went out to see a movie… being shut in a room full of eerily-lit strangers in the dark, fumbling to turn off the phone that inevitably starts vibrating in the pocket of the coat you stuffed under the seat, and trying not to elbow the cinema-goer next to you as you wrestle with your oversized pouch of popcorn? Like many pre-pandemic experiences now denied to us, going out to watch a film is probably imbued with a certain amount of nostalgia. And it’s unlikely it will ever be the same again. But, much like the late Tony Stark’s tear-jerking observation at the close of the Avengers blockbuster trilogy: “Part of the journey is the end.” And for die-hard fans in North and South America, now slowly returning to movie theatres, that journey is being enabled by digital technology that redefines the relationship between cinema and customer.

ThePaytechMagazine | Issue 8

As Eduardo Tardin, IT manager for e-commerce with Cinemark Brasil, part of the leading chain of picture houses in Latin America, and the third-biggest chain in the States, says: “After lockdown, in which all the movie theatres closed, we had to change our priorities and think about solutions to make the experience of going to the cinema more secure. “It accelerated our desire to create a more digital experience, focussing on maintaining a journey with less friction and more social distancing.” Cinemark had made strides in the direction of e-commerce long before coronavirus was on the radar. Way back in 1999, it became the first in the industry to offer customers the chance to buy tickets in real time, online, via a link to an affiliate website, enowshowing.com, which it had developed with Dallas tech firm Vectrix. The tickets were immediately printed at the box office for collection. It was clunky, compared to today’s mobile-first e-commerce experience, but it was a start. In 2011, Cinemark Chile started working with technology company Modyo to provide an end-to-end digital experience, including integrated payments, for customers. Every Cinemark in Latin America migrated to the platform, based on a hybrid on-premise/Amazon Web Services-hosted model, in 2018. Then, in 2019, Cinemark signed up to the first-of-its-kind social movie-ticketing platform Atom Tickets, which allows filmgoers to search for films, invite friends via their contacts, reserve seats, order concessions and check in on their way past the box office via the app. Leaning in to new technologies in this way, to improve the movie-going journey, was part of an ongoing, industry-wide attempt to counter the cannibalisation of box office sales by streaming services that offered the ultimate in convenience. And it was working. Then Contagion-for-real happened and theatres across the world were shuttered. Cinemark wasn’t alone in haemorrhaging cash. In the third quarter of 2020, it saw revenues across the United States and Latin America drop by nearly 96 per cent. At one point, it was burning through reserves at the rate of around $50million

a month, forcing it to raise new debt and revolver borrowing. But the good news is that the appetite for big screen movies hasn’t been as seriously diminished by the pandemic as many feared. Sixty per cent of consumers polled by one US survey in February said they were keen to return to movie theatres within the following three months. The restrictions imposed by the pandemic, and customers’ expectations, though, including social distancing, contactless service and the need to control and predict demand more accurately, especially given seating capacity has been dramatically reduced, have challenged Cinemark and others to come up with innovative digital solutions. Movie fans booking for its roster of Oscar-nominated films in April 2021, for instance, found features including ‘seat buffering technology’, which automatically blocks seats adjacent to a party as soon as they purchase a ticket. While mobile and online booking is encouraged, some Cinemark locations have also replaced box offices with digital kiosks to reduce contact between customers and staff. And a new grab-and-go-food ordering tool has been introduced, accessed via the Cinemark app and WhatsApp using QR code, to reduce contact with staff and avoid people hanging around in the lobby. The net result of all this has been to create more customer channels to monitor and integrate, and more tasks to manage – ever-conscious that a prevailing pandemic might force a rethink at any moment. Having an API-first strategy already in place was crucial to handling that, says Tardin. “APIs can bring a fast way to customise customer experience. They make it easy to create new products and features. Combined with an agile approach, and the right software architecture, this helps to accelerate digital transformation, bringing the possibility to work with new forms of business, like selling in marketplaces. “The strategy depends on your business context and the problem you want to solve, of course, but one of the main benefits is the possibility of enabling the development team to rapidly put things to work, and put

www.fintechf.com

the business at a greater advantage. To learn fast and change the strategy, according to customer behaviour.” For instance, through the Atom platform, movie fans who prefer to watch a film with their ‘quaranteam’ of family and friends, can book Cinemark private watch parties for up to 20 guests, selecting from new releases or classic movies, starting at $99 per screening – that’s around a fifth of what it cost for a private viewing, pre-pandemic. Managing that type of customised demand would be impossible without APIs, says Tardin, especially in an industry which has historically often been wrong-footed by movies over- or under-delivering on expectations when it comes to box office takings. “APIs and digital technology have an important function in helping us to monitor customer behaviour at the peak sales events, and this data makes it easy for us to know what applications we need to scale and where to focus our performance. Extreme digital: That applies to screen, sound and the booking experience

and Android and movie-goers can sign up to showtime emails with discount concessions coupons and other incentives. Every channel is being squeezed to get film fans to turn out in greater numbers and all eyes are now on this year’s releases, including long-anticipated big-screen spectacles Dune, Black Widow, Godzilla vs. Kong and, of course, the much-delayed final outing for Daniel Craig’s 007 – only some of them ring-fenced for theatrical

be able to adapt from a traditional economy to the new economy. “The technology already exists to be able to do that and, at Cinemark, we will continue working to integrate our channels and create customer experiences with less friction. “The pandemic has taught our business a great lesson. We need to learn and adapt, and the technology is a great enabler to help us put that to work fast.”

Quaranteams: The booking app automatically blocks off seats for safe viewing

The pandemic has taught our business a great lesson

We learned from events in the last two years, which helped us to prepare for the next one – so we are ready to receive three or four times our expectations and not impact the experience.” Undeterred by the previous 12 months, in March 2021 the chain opened a new extreme digital (XD) viewing cinema in Kirkland, Texas, which boasts ‘print at home’ online ticketing. There is also the option to purchase and download tickets via iPhone

www.fintechf.com

release in advance of streaming. The question is, given the choice between the sofa at home or a seat in the stalls, will audiences save themselves for the full, movie-going experience? “Many things have changed due to the pandemic,” says Tardin. “All retailers need to stay closer to their customers and understand their needs better. And they need to

APIs: SECURITY

Mission critical moves

When Tier 1 banks take the decision to move a core process such as payments to the Cloud, they want to know it’s secure. We asked Ciaran Chu of ACI Worldwide and Darren Busby of MYHSM how they go about convincing them

Cloud technology is helping banks to modernise and change their business models. At the same time, innovation must be matched by tighter security and rigorous standards. Technology partnerships can overcome the challenges of digital progress while maximising the benefits, and ACI Worldwide and MYHSM are two companies that are working together to smooth the way. ACI Worldwide provides real-time payment solutions to most of the world’s leading banks, and MYHSM is a global provider of Cloud-based payment hardware security modules (HSMs) as a service. It was recently acquired by Utimaco, which manufactures HSMs, underlining how collaboration is also becoming consolidation. Here, Darren Busby, who is responsible for global sales at MYHSM, and Ciaran Chu, head of ACI Worldwide’s public Cloud business, discuss how technology, partnerships and changes in the payments infrastructure are enabling Tier 1 banks to innovate like fintechs. www.fintechf.com

THE PAYTECH MAGAZINE: Banks are revising their view of the Cloud and technology partnerships. What’s driving this change? CIARAN CHU: If you think about how banks make money, it’s mainly been by charging transaction fees and using interest rates to boost income. Interest rates are now at an all-time low, with little sign of changing, so banks realise they must change their business models to achieve a better cost-to-income ratio.

The message is now clear that it pays to harness the Cloud and form partnerships to develop different revenue streams Ciaran Chu, ACI Worldwide

Public Cloud providers such as Amazon, Microsoft and Google, have shown that the Cloud is a viable way to lower costs and increase customer focus. The message is now clear that it pays to harness the

Cloud and form partnerships to develop different revenue streams. Startup banks and challengers have led the way by focussing on customer experience, rather than doing all the things that add time and cost without benefitting customers. DARREN BUSBY: Time and cost are certainly problems. For decades, banks have had no option but to run their own IT infrastructures and technology – and that was simply to maintain the status quo, with no scope to innovate and differentiate. Only a few years ago, it was unthinkable that a bank would take its mission-critical payment systems and put them in the Cloud. Now, however, we’re comfortable with the public Cloud, it’s trusted and tested, and banks can outsource with confidence. I think the whole infrastructure will eventually move into the Cloud. TPM: What’s the rate of change? Are banks following a phased approach? CC: About 15 months ago, we asked customers if they are ‘Cloud-first’. The answer was a resounding ‘yes’. Issue 8 | ThePaytechMagazine

APIs: SECURITY Then we asked if that meant for customer relationship management and front-end solutions, or core payment infrastructures. The vast majority intended to move their core payment infrastructure into the public Cloud in the next 18 months, reflecting what Darren said about everything eventually moving to the Cloud. COVID-19 has obviously impacted that journey. The pandemic has lifted home working to an unprecedented level, and banks have had to focus on their operating processes because many now have distributed workforces. That’s helped to generate use cases, with banks taking mission-critical systems and saying, for example, ‘we have to have standing authorisation today, it has to be high availability, so why don’t we test that as a backup in the public Cloud?’. By doing that, banks are developing new capability, realising new business value, and making savings. It’s a phased and well-considered approach, and the speed of change depends on aligning the transformation agenda with the business and the culture. DB: There is no way Tier 1 banks and big financial institutions will do a big bang and risk taking mission-critical elements such as the payment HSMs and move these into the Cloud overnight. What we do is provide different approaches to help with migration. For example, moving the test service to our service. Then, once they’re ready, customers can move elements of their production environment, segregated by local master keys (LMKs), in a phased way, under their own control, from an on-premises model to a fully outsourced and managed service. TPM: Beyond phasing, how do you overcome the challenges of digital transformation? What are the priorities? CC: ACI has customers with different agendas and transformation needs, so the first thing is to understand the priorities for change. Real-time payments and fraud prevention are very logical use cases. Often, time and resources are the biggest transformation challenges facing our customers. They are too busy to innovate, to run use cases and proof of concepts, so we help them outsource things like testing in the Cloud, working with Cloud providers to improve operations. One of the biggest challenges for

ThePaytechMagazine | Issue 8

incumbents and neobanks is in-house skills. Key knowledge often sits with just a few people, which isn’t ideal for operating mission-critical systems. Our job goes beyond providing mission-critical software. We help customers transform through training, which is vital for transformation, and forging technology partnerships. DB: Removing complexity is fundamental to our service. The front end might be the bit that excites people but someone has to take care of all the Trust is king: Banks know how vital it is to their customers

TPM: What impact does MYHSM’s subscription model have on costs and flexibility? DB: We offer a monthly subscription model, as opposed to doing it on- premise which is a big capex purchase, locking banks in for the lifetime of that hardware model, typically around seven years. Rolling 12-month terms and subscription-based fees allow them to evaluate their needs before committing to long-term contracts. They turn capex cost into opex, and it’s a fraction of doing it on-premise. It’s about unlocking revenue and enabling banks to focus investment elsewhere, to their timescale. TPM: Can banks maintain their trusted reputation when moving to the Cloud? CC: With the banks I’m talking to now, there are two big areas of debate. One is how to create a compelling subscription-based business model. The other is how to generate incremental value around their trust franchise. By that I mean how to inspire confidence in electronic payments and data innovation, and gain more data insights to help customers and thus strengthen the banking relationship. As we shift towards the Cloud and outsource more time-consuming activities, banks can move beyond just transaction processing and add value while reinforcing trust.

The Cloud absolutely improves the security of banks. But to win their trust, we must demonstrate that what we do is rock solid

back-end stuff, the payment HSMs, the glorified PCs that sit in the back office. This makes huge demands in terms of regulatory compliance, particularly payment card industry compliance – PCI PIN Darren Busby, MYHSM (personal identification number) and PCI DSS (data security DB: For me, the Cloud absolutely standard) – and requires a skilled team improves the security of banks. and a secure infrastructure. These are But to win the trust of banks, we must complex and costly parts of any payment demonstrate that what we do is rock solid. business – and are the parts we handle. There are plenty of new banks and providers of other financial services, but If you analyse them, they’re just used for CC: I’d add that, with the upcoming transactions. That’s because people prefer PCI changes, if you’re a big bank, to have their salaries paid into a traditional you’re not running one or two HSMs, bank. Trust is the jewel in a legacy bank’s you’re running maybe 40 or 50, so it’s a real crown and they don’t want to lose that, capex cost that’s going to tie you down for which is why they work with suppliers like the next few years. Having a partnership MYHSM, which provide the highest levels with MYHSM has been really powerful of security. Equally, they want to offer from ACI’s perspective, because it boosts customers more, which is why we and thought leadership. With MYHSM and the ACI combine security with the ability to likes of Microsoft and Amazon, you have develop modular payment offerings the tangible proof that there is a better way that compete with the newcomers. of doing things.

www.fintechf.com

APIs: OPEN BANKING

Shuffling the payments pack Ossama Soliman, Chief Product Officer at TrueLayer, on why open banking payments will replace cards online Open banking is set to have a big impact on online payments, and 2021 could be the turning point. The convergence of technology, regulation and economic conditions is giving open banking the momentum it needs to offer a mass-market alternative to card payments. As more customers have turned to digital channels to manage every aspect of their lives, they have experienced a poor payments service. The problem is cards, which weren’t designed for use online and have been retrofitted into current online payment flows. Newer, digital approaches, such as Google Pay or Apple Pay, paper over those cracks but don’t change the fundamentals. The introduction of strong customer authentication (SCA) adds another layer of friction to cards, with workarounds that deliver a poorer customer experience. Some studies have suggested that the impact on conversion could see Europe’s online economy lose €57billion. But with open banking payments, authentication is integrated into the payment flow, with the consumer often using biometrics such as fingerprint or face ID to identify themselves in their banking platform.

BUILDING A HEAD OF STEAM Digital banks were among open banking’s earliest adopters, using it to provide money management services to customers. It is adding value to a much wider range of businesses, from

ThePaytechMagazine | Issue 8

app-based investment and trading platforms, foreign exchange and remittances, to e-commerce and online gaming services – where card processing fees and manual bank transfers are stinging merchants. Open banking-enabled payments will become the default way to pay online, replacing debit cards and benefitting businesses and consumers. In our experience, they are already comfortable using open banking payments and they are increasingly displacing cards in customer checkouts. The open banking adoption figures in the UK speak for themselves. In mid-February 2021, the UK Open Banking Implementation Entity (OBIE) announced that more than three million people and businesses are using open banking-enabled apps and services in their daily lives. In 2020, the number of open banking users doubled to two million: it’s taken just five months to surge by another million.

Speed is also a big benefit. In many industries, slow payments are a long-standing source of frustration, complaints, bad reviews – and, ultimately, customer churn. A 2020 study from YouGov and TrueLayer, found that 60 per cent of customers are more likely to trust a provider that offers instant payments. In the case of services like online trading and investment platforms, around half of customers are likely to switch to a provider that offers instant withdrawals. There are, of course, challenges in introducing a new payment method that consumers aren’t used to. However, our clients typically find that open banking payments reach 30 per cent share of checkout within three months of launch. Customers paying this way also deposit 30 per cent more in value, and three times more often, than those using other methods.

BENEFITS TO THE CONSUMER The economics for the consumer are simple: it doesn’t cost anything but provides them with a lot more. How many times have you got to a payment step and realised you need to grab your card because you can’t remember the full number or CVV (card verification value) code? We’ve all been there. Open banking removes the need for customers to know their card details. Instead, payments are authenticated with their face or fingerprint on their mobile device, instantly and securely. Plus, they’ll never need to update stored details if their card is lost, stolen or expires. There’s also more protection as they’re less likely to be the victim of fraud, since open banking payments use bank-grade security. www.fintechf.com

BENEFITS TO THE MERCHANT There are various reasons why open banking payments make sense for merchants, too. The biggest is that they offer higher conversion: with success rates above 95 per cent, and a 20 per cent higher overall conversion than cards. That means higher revenue and potential profits. Take the example of a large e-commerce retailer which, every month, sees customers put £100million in potential sales into their carts and go to the checkout page. With cards, a little fewer than half of customers will actually fill in their card details. So the £100million becomes £50million. Of those customers who do fill out their details and click pay, 85 to 90 per cent will experience a successful transaction. So, from a potential £100million put into carts, the retailer is actually netting £45million in sales. With open banking payments, that would be £70million. TrueLayer has some customers who, based on that scenario, are consistently netting the equivalent of £90million.

I’ve used an average case to illustrate the point but, even there, open banking payments are increasing sales from £45million to £70million or more. That is a 40 to 50 per cent increase in sales, equating to hundreds of millions in recovered revenue each year. That differential is likely to get even bigger, as merchants implement workarounds for card payments due to SCA. Some studies suggest it could negatively impact card conversion by 20 to 30 per cent. And there’s another bonus. While card-based fraud losses continue to hurt businesses, open banking payments are authenticated directly with the bank, and biometrically with the payee, significantly reducing fraud risk and saving businesses around half-to-one per cent of revenues.

SETTING A NEW STANDARD It’s time to fundamentally change the way we pay online, from cards to instant bank payments, via by open banking. Open banking is digitally-native and mobile-first by design. Bank-to-bank payments move money at a fraction of the cost, securely and conveniently, while also delivering a vastly better consumer experience. There is a huge opportunity for banks to improve the experience, remove legacy card infrastructure and move money at a fraction of the cost, more securely and with a higher level of customer service and convenience. We’ll see open banking brought to the masses through sectors such as subscriptions, marketplaces and e-commerce. In just a few years, it will be the default way to pay online.

Open banking-enabled payments will become the default way to pay online, replacing debit cards and benefitting businesses and consumers

Open banking payments key: The shift dramatically reduces cart abandonment

www.fintechf.com

Issue 8 | ThePaytechMagazine

Data

Intelligence

Financial Innovation and Insights Happen at the Intersection of Data + Intelligence Only Envestnet | Yodlee – a market leader in financial data aggregation and open banking – brings together data + intelligence™ using the best financial data available across banking and wealth management from tens of millions of consumers. Applying data science, machine learning, artificial intelligence, and leading security practices, Envestnet | Yodlee constantly redefines the future of digital financial innovation and insights, so financial institutions and FinTech innovators can deliver better financial outcomes for their customers. Learn more at yodlee.com/data-intelligence

© 2020 Envestnet | Yodlee. All rights reserved. Technology protected by one or more U.S. Patents or Patents Pending. Yodlee and the Yodlee Logo are trademarks or registered trademarks of Envestnet | Yodlee in the U.S. and other countries.

APIs: LATIN AMERICA

Bringit Bring iton! on! Addi is a home-grown point-of-finance solution in Latin America – the second fastest-growing region for e-commerce in the world, but also one of the smallest. It’s why Co-founder Daniel Vallejo isn’t fazed by global BNPL competition As in other fast-growing e-commerce markets, such as Africa and Asia, the online payment experience in Latin America is far from ideal. While less than 20 per cent of Latin Americans own credit or debit cards, according to the World Bank, those that do often find they are not enabled for online transactions; and only a small number hold international payment cards, so their buying choices are limited. Interest rates are, in any case, crippling. The Brazilian government recently considered capping rates charged on consumer credit products, including credit cards, which have climbed as high as 200 per cent APR. Partly as a response to this restricted use of plastic and partly due to regional governments’ policy of digitisation and financial inclusion in an area of the world www.fintechf.com

where only just over half of adults hold a bank account, there has been an explosion in alternative local payment methods. The first-ever instant payment system, PIX, was launched in Brazil in November 2020, and e-wallets, Nequi in Colombia and PagBank in Brazil, for example, have witnessed massive growth. But there is another defining characteristic of this colourful payments market: instalment plans. Known as parcelas in Brazil, cuotas in Argentina and meses sin interés in Mexico, interest-free, split payments began as a way for in-store retailers to survive periods of hyper-inflation when cash was scarce. Today, it’s estimated that, across the region, more than 60 per cent of transactions on- and offline, are enabled by instalments – even for comparatively low-ticket items – and up to a whacking 77 per cent in some countries. But, even here, there are drawbacks, not least that instalment plans are often linked to credit cards and tie up a cardholder’s credit line until the entire instalment plan is paid off; and getting approval for point-of-sale (POS) finance is frequently a long-winded process. Buy now, pay later (BNPL) startup, Addi, aims to get around such limitations. It uses just an ID card, email address and WhatsApp account to extend finance instantly at the checkout.

The company was founded in Colombia in 2018, and in the middle of the COVID-19 pandemic, in May 2020, raised $15million in a Series A funding round. It will launch in Mexico and Brazil by the end of the year. Addi uses APIs to integrate with merchant sales processes online and in-store. Right now, the focus is on the latter, but with e-commerce forecast to grow by 19 per cent across the region in 2021, online is where the real potential to scale is. Latin America is now the second fastest-growing market for e-commerce in the world: in Colombia alone, online payment platform PayU saw nearly 1.500 new merchants sign up in the second half of April 2020, alone. “Nevertheless, e-commerce in Latin America is still less than 10 per cent of all commerce,” says Addi co-founder, Daniel Vallejo, “so, there’s a huge opportunity to grow. The other key thing to remember about e-commerce is that transaction approval is incredibly low. More than 70 per cent of transactions in some markets are declined. So, retailers spend on Google and Facebook ads, generate the traffic, get the consumer interested in buying – and then they can’t.” Addi’s API-driven platform presents loans to consumers as instalment plans at the checkout, with a clear schedule of payments. Applications can be approved in less than 10 minutes. Issue 8 | ThePaytechMagazine

APIs: LATIN AMERICA Existing in-store credit options can take hours or several visits to organise. So, for consumers, Addi addresses both the issue of lack of access to affordable credit and reduces friction at the checkout. For retailers, it builds consumer loyalty, so that customers return to spend more. Crucially, it also gives merchants access to huge amounts of data, cementing and growing that sales relationship with the customer, which tends to increase the ticket value of items purchased. Addi’s API-powered offer, both online and offline, is one of its key selling points, says Vallejo. “API availability and adoption in the region has made life for retailers much easier. There is just a tonne of efficiency opportunities, for example, in the supply chain – just-in-time inventory, managing your cash flow, etc – that definitely can be impacted by APIs. “But when it comes to the front end of their operations, which is directly linked to our work at Addi, what APIs allow retailers to do is two-fold. First, it can help to significantly increase the breadth of their target audiences, either because they tap into new channels, or because they just open up new physical ways of selling. “The second is to do with the customer experience. APIs have allowed retailers to make this much better and easier. For example, the know-your-customer information required when you buy online; as a client, you don't have to fill in every single field because the information is fetched and fields populated automatically. API connections to different data providers allow retailers to make buying much more seamless and convenient. And there, in that step, is where we plug in. We take the information from the retailer, and from the client, and try to make a match in terms of what credit the retailer can offer that client for them to make a purchase. “When you think about how credit has been underwritten in the past, especially in terms of credit cards, what financial institutions do is underwrite an open-to-buy limit. That’s what a credit card is, right? You’ve got a limit and you can buy beers, English courses, dental treatment or whatever, until you reach it. “Through the use of APIs, mainly, we get to understand what it is that you are buying at that exact moment, and with that detailed information, we can better

ThePaytechMagazine | Issue 8

underwrite the credit with adjusted limits and differential pricing. APIs are key to our existence.” When it comes to e-commerce, Addi extends services to hundreds of thousands of small retailers by partnering with virtual store platforms such as VTEX and Nuvemshop, the Latin American equivalent of Shopify. “The way we achieve distribution at scale is by partnering with content management systems like these. Two of our partners, between them, have more than 200,000 retailers connected to their e-commerce enablement platforms. That is a very important channel for us.” Data vision: Addi is enabling e-commerce through innovations and partnership

an impact on nearly all aspects of daily life for people across the world, and has put the global economy on an uncertain footing. For the payments industry, the pandemic and its consequences have accelerated existing trends. Ongoing shifts toward e-commerce, digital payments, instant payments, and cash displacement, have all been significantly boosted since March 2020, adding to the market opportunity for paytech companies. In 2019, retail e-commerce sales in Latin America surpassed US $70billion. According to forecasts, taking into account the impact of the pandemic, this figure is expected to reach almost US $116billion by 2023. It would be foolish to think, therefore, that the region is not on the radar of global BNPL operators such as Europe’s Klarna and Afterpay in Australia. “Will they represent strong competition whenever they come here? Yes. But they’ll have to adapt from operating in developed markets with much better bureau data, high credit card penetration, etc,” says Vallejo. “In Latin American markets, the game is not only about cannibalising credit card usage, but also expanding the credit box. That is a big difference for them and is going to take them some time to get their heads around. “Plugging into the Latin American ecosystem of retailers is going to be different as well, especially when you think about developer-first cultures,” continues Vallejo. “When you are in a developed market, and you expose your API, even SMEs and long-tail retailers are able to hop on. In Latin America, it’s different, and so distribution strategies have to be different. That will also present a challenge for them. “Having said that, having them here would actually be great! It would help us to expand the category. There is plenty of space for more than one point-of-sale lender to do well, and the bigger the market, the easier it is to specialise, for instance in medical services, vocational education or apparel. “It’s going to be awesome whenever they get here. There’s lot for them to learn about the region – and there is a lot for us to learn from them.”

They’ll have to change a tonne of concepts from operating in developed markets… but having them here will help us expand the category

Everything in Addi’s technology stack, is ‘home-grown’. “We have done everything from scratch, starting with our proprietary loan management system, which is multi-currency. The infrastructure is all Cloud-based. “In terms of how we think this will evolve, we’ve divided our different tech domains into core and generic. For whatever is generic, we try to get the best provider of that potential technology. It doesn’t make sense to build a customer relationship management system from scratch when you have people like Kustomer, Zendesk, etc, doing it for a living. So, for those pieces, we integrate with third parties,” says Vallejo.

THE MORE, THE MERRIER The COVID-19 public health crisis has had

www.fintechf.com

ENERGISE YOUR BUSINESS WITH OPEN BANKING £12

£1,848

Find out how our API can transform your business Account information services (AIS) Payment initiation services (PIS) Data enrichment

yts.yolt.com

Instant Payments are becoming the new normal in Europe. But is your payments infrastructure able to scale payment volumes autonomously and deliver speed to market? Banking and payments infrastructure technologies are inherently complex and costly to maintain, upgrade and change. That’s why banks are now turning to specialist Fintechs to outsource their core infrastructure. Form3 has proven that there is a cheaper, simpler and more efficient way for banks to handle large payment volumes and scale dynamically without a heavy infrastructure burden. We help banks to orchestrate their payments business in a secure, scalable and cost-effective way through an API-first, cloud-native platform, and deliver it as an always on, fully managed service.

Form3.tech

APIs: BANKING AS A SERVICE

At your service

Nigel Verdon, serial fintech founder, most recently of Railsbank, describes himself as a banking-as-a-service evangelist. Here, he sets out why he believes it fulfils the promise of democratised finance The last few years have been eventful for the financial services industry. Whether it’s Brexit, the plethora of new regulations, or the profound impact of COVID-19 on both finance and financial behaviour, there’s been a proliferation of developments keeping us busy.

Amidst this unprecedented level of change, there’s another major shift that’s gaining momentum and changing the industry for the better. The concept of banking-as-a-service (BaaS). The BaaS model is changing the game. Innovative BaaS platforms enable fintechs, developers and brands to prototype, launch and scale financial services capabilities without developing the underlying infrastructure themselves. This allows ambitious businesses, ranging from seed producers to supermarkets, to provide their customers with banking services without first having to apply for a banking licence. They can connect with core financial products through APIs, ideal for building the digitally-native business models and digital economy that the pandemic has accelerated. At its heart, BaaS abstracts the complexity of banking products and processes, making them easily accessible and consumable to third-party enterprises, regardless of whether their core business is financial services. It’s widening access to financial services by providing a simple way for businesses to interface with banking and www.fintechf.com

payments infrastructure, and then embed financial services within their products and services. Make no mistake, this is the true democratisation of financial services that people have been searching for. Traditional financial services infrastructure that supports banks, insurance companies, and so on, can’t move at the same agile pace that modern digital enterprises demand, nor does it have the real-time governance technology needed to keep up with modern financial crime. BaaS providers combine the best of both, ensure innovation, and enable faster time-to-market. Today, we’re seeing high-end retail and e-commerce businesses successfully launching cards and lending. BaaS is one of the hottest things in London right now, and it’s not happening by accident. Nor is it a fashion or fad that will fizzle out. It’s the direct result of a fintech ideology that’s caused a revolution, the impact of which has been felt across the whole global financial services sector. The overall market size of embedded finance, powered by BaaS, is expected to more than double, to more than $7trillion, by 2030. It has its origins in 2011, when London-based fintech Currencycloud became the first to give developers a complete set of bank-grade payments and foreign exchange APIs. Prior to this, there were various attempts by banks to launch

APIs but none was successful ‘outside the tent’, due to the APIs only being aligned to corporate banking silos as opposed to what customers and developers actually wanted to consume. Then, in 2016, Railsbank launched the world’s first complete BaaS platform. We’ve recently announced the launch of our Houston no-code platform and OpenRailz API, which make embedding finance into apps and customer journeys as simple as point-and-click. We hit this milestone by spending the last four years deconstructing all financial products into core digital components, enabling us to do for financial services what Apple’s iTunes did for the music industry. And BaaS is continuing to evolve. Today, there are more than 50 companies, globally, focussed on pureplay BaaS, which are incorporating more specialised services and catering for specific verticals, such as crypto companies, which have their own unique banking and payments challenges. BaaS has opened up banking to industries and sectors that have traditionally been under-served by legacy banks with their decreasing risk appetites. The impact that BaaS is having, and will have over the coming decades, cannot be stressed too highly. It hasn’t only changed the game, it’s changed the playing field, changed the economics, changed the teams, and changed the rules.

BaaS is the result of a fintech ideology that’s caused a revolution

Issue 8 | ThePaytechMagazine

APIs: RECONCILIATIONS

AIR apparent Two enhanced solutions have been added to the SmartStream stable since it launched version 2.0 of its AI-powered reconciliations program AIR in 2020. CEO Haytham Kaddoura explains why it’s proving a gamechanger

The beginning of 2021 saw the release of two enhanced solutions from SmartStream, the financial Reference Data Utility (RDU) provider. As many of the world’s banks move to consuming services via API, the company began rolling out an API suite, allowing them cost-effective access to specific security and regulatory reference data without the need to implement complex, time-consuming and expensive IT projects. It also re-engineered its Transaction Lifecycle Management (TLM) Aurora Universal Data Control to reflect the changes banks are introducing to their core systems under the combined impact of ISO 20022 and the pandemic’s effect on internal operations with more staff accessing systems from home. The latter solution was very much a product of the innovation labs that had launched AIR 2.0 just a few months earlier… THE PAYTECH MAGAZINE: What did running the first version of AIR teach you about the way major institutions want to consume AI? HAYTHAM KADDOURA: It gave us a good understanding of where AI adds significant value to their operations. As a result, we realised that there is even bigger scope for the service. So, our innovation lab began incorporating features that have never been seen before in the industry. Chief among those is Affinity. This is AI that learns not only from what people do – but also from what they don’t do. It’s called observational

ThePaytechMagazine | Issue 8

behaviour learning and it’s pretty much what we all, as human beings, do from a very young age. We look at how we can apply that to the reconciliations space. Once the records have been matched, there are 10-to-11 per cent of exceptions, on average, that need manual intervention. That represents billions of dollars of cost for institutions, as well, of course, as additional risks. Our AI engine observes the operators, how they do the manual matching, and makes its first assessment of that data directly, based on the history of what that institution has been doing, on how the records were being handled in the past. Affinity then goes into live learning mode, observing in real time as operators change the rules and regulations, and the matching criteria. Applying that learning pushes up efficiency significantly. We are talking way beyond 98 per cent – more than a typical reconciliation platform. Reducing an 11 per cent exception rate down to two per cent has massive impact on a bank’s operations. Whether you’re looking at capital-as-a-service or cash and liquidity management, it trickles down through most financial institutions and has an impact across different functions – because, in today’s world, with many more people working from home, there is increased potential for errors, combined with massive growth in volumes of payments data, not to mention additional regulatory pressures. TPM: So, let’s address the elephant in the room here… AI takes over tasks that were performed by people. So, why not just throw a huge number of staff at this problem instead? HK: Doing it the old way, throwing people at it, is exceptionally difficult these days. It’s hard to onboard them and they don’t have the physical environment where they can interact with each other and validate. Now that workforce is heavily work-from-home oriented, that actually creates exponential problems. By

contrast, AIR, which learns from observing behaviours, has a massive impact on speed and efficiency, and allows people to really focus on what’s important – and that’s the exceptions. What our AI takes over are the relatively mundane tasks, so that the people can be skilled up to make more meaningful and strategic contributions within institutions. In very few instances have I found that the introduction of AI has led to the ultimate dismissal of people; it’s more about re-skilling and re-utilising them because there is a significant skills shortage across the board, especially for these operational roles. Sometimes, AI is incentivising people to upskill. There’s a generational change, too. Accepting mundane roles is becoming less and less attractive to younger generations. TPM: We’ve seen, during recent months, a huge increase in the volume of payments. I’m talking specifically about low-value card and wallet payments. If you’re doing a million reconciliations every hour but then, in a year’s time, you need to do 20 million, how does adopting AIR help with that? HK: That’s the beauty of a Cloud-native platform like AIR. It was built from scratch on Cloud technologies, so it’s able to expand by hundreds of times the existing volumes of some institutions. During lockdown, it was quite difficult – and still is, in certain geographies – to physically expand the hardware. We’ve seen instances of institutions reporting tenfold growth in volumes during the pandemic, which, of course, were totally unplanned for. But we coped with it. A Cloud infrastructure, as opposed to a physical one, allows for much, much faster expansion and adaptation. TPM: You have a huge number of other products – not least you RDU – and managed services. How does AIR 2.0 work with the rest of the portfolio? HK: Well, for a start, we are usually the first client for any new product. So, www.fintechf.com

when my innovation lab comes up with a technology, we insist that it is first run within SmartStream’s managed services. We build our models based on maximising operating efficiency for us, and that translates into greater savings for our clients. So, AI is fully embedded within our managed services, and the benefits our clients get from adopting AI within their environments directly are exactly the same as the ones we are driving for. TPM: So, the RDU, for example, is using AIR 2.0, which lowers its costs, and those savings are passed on to clients. So, even if they’re not a direct customer of AIR 2.0, they are benefitting from it? HK: Exactly, we tend to share the upside and clients expect that. I’ve had a lot of discussions where a bank’s senior management expects us to be building efficiency into their process and, subsequently, lowering what we charge them, over time. And that’s the proper model. Yes, there are higher onboarding costs, but that trickles down, with time, as a result of efficiencies. As we’ve recently announced, AI is also being deployed and embedded within our flagship reconciliations solutions. We’re looking at areas such as intraday liquidity stress testing for our cash and liquidity management solutions. So, yes, the impact of AI is exponentially growing, both internally, in what we utilise as services, and in what our clients need.

our AI platform, it’s literally a matter of taking out a subscription. They just drop us a line, we enable access to our Cloud platform and, either through Amazon Web Services (AWS) or Microsoft Azure (and, by the way, we’re looking at other platforms), it’s done. They can hit the ground running within less than a day. TPM: Decades ago, banks would try to keep everything in-house. They’d have their own internal datacentres, their own developer team, etc. New entrants are born into an ecosystem , so they don’t, for example, have to worry about being a specialist in know your customer. How do SmartStream and AIR work within the marketplace of third-party providers? HK: You still have the odd financial institution that insists on doing it itself, and, nine times out of 10, the project is halted within a year or two due to cost overruns. There is value in giving projects to an experienced company that knows the best practices and has learned from multiple institutions. We’ve proved we can do it faster and more efficiently. We’ve been handling managed services for financial institutions for almost five years now, and we’ve seen a massive jump in demand. It’s expanding because it hits clients’ bottom lines very fast,

I don’t think there is an option for anyone running any significant reconciliation not to have AI-enabled technologies

TPM: Banks do have a bit of a reputation for investing in technology and then not using it properly – and with an incredibly powerful AI tool like AIR I’m guessing that could be a danger? HK: The beauty of AI, and the way we are rolling it out, is that it requires minimal intervention from the technology gurus at financial institutions. It’s like downloading an app on your mobile phone, clicking it, running it, uploading the files… it’s self-explanatory. I’d say practically idiot-proof. For any client that wants to come onto www.fintechf.com

in terms of the efficiencies we bring, both from a cost and an operations perspective. Right now, it’s super-hard to build a business case where a financial institution needs to bring in the hardware and the people necessary to run something non-strategic. Shareholders have an eye on that. They expect performance. If it’s not a strategic or core function, and therefore one that could be outsourced, it doesn’t make sense to bring it in-house. TPM: Returning to SmartStream AIR, what are the future potential use cases? Is there an opportunity to apply this technology to elements like security and data analytics, or are there other, unexpected areas where AIR can be deployed? HK: We’re looking at heavily transaction-driven industries, from telcos to transport and insurance. More broadly, the impact of AI will continue to grow, even in our day-to-day lives, where we see it impacting on everything from our washing machines to our fridges and the way we run our cars. It’s making our personal lives easier, and makes the work of financial institutions and other of our clients easier, too. When it comes to reconciliation, I don’t think there is an option for anyone running any significant reconciliation not to have AI-enabled technologies. It’s nonsensical. You’ve got something that makes it more efficient, smarter, less error-prone. Why wouldn’t you adopt it?

Intelligent choice: SmartStream’s AI is accelerating reconciliations

Issue 8 | ThePaytechMagazine

FINANCIAL INFRASTRUCTURE YOU CAN BANK ON Banking Circle’s proprietary technology enables Payments businesses and Banks of any scale to seize opportunities, compete and grow. From multi-currency accounts to real-time FX, international payments to local clearing, we’re quick, low-cost, and secure. Bypass old, bureaucratic and expensive systems and enable global banking services for your clients. bankingcircle.com

APIs: BNPL FRAUD

NOW IS THE TIME TO ACT ON PAY LATER FRAUD As the buy now, pay later (BNPL) industry booms, so too have incidents of identity theft and payment fraud associated with the payment method. Recent cases have led to calls for stronger regulatory protections and, in the UK, this is now set to happen, with the Treasury announcing in February 2021 that the sector would be brought within the scope of the Financial Conduct Authority (FCA). Under its watch, BNPL firms will have to conduct proper affordability checks before lending, as well as applying tougher scrutiny to fraud cases. As such, they will have to quickly find solutions to improve processes and meet the new standards coming into effect.

UNDERSTANDING THE THREAT Fraudsters have taken advantage of the relatively new BNPL payment process, with account takeover the most prevalent fraud risk for consumers. If a fraudster can obtain the login details for someone’s BNPL provider account, they can log into any e-commerce site that accepts that provider and make purchases from their account. Cases involving this kind of fraud have www.fintechf.com

Michela Toffali, Head of Marketing for Yolt Technology Services, puts the case for using open banking to counter online crime as the BNPL sector comes under tougher scrutiny reached national news, with victims having items delivered to their homes that they didn’t order, and unauthorised funds taken from their bank accounts. Cases of stolen identity can have a significant impact on companies offering BNPL services. If a merchant’s legitimacy isn’t properly confirmed, then we could see fake merchants submitting falsified orders, using stolen customer details to collect payments for products they sold but never shipped. In these cases, the BNPL vendors would likely assume the risk and would be left potentially needing to compensate the consumer and invest time and resource into reporting the fraud and supporting an investigation by the relevant authorities. BNPL vendors also face the same general security challenges as other payment

providers, with consumers entering card details to make purchases. Credit card data, in particular, is frequently targeted by fraudsters, and is a key risk for businesses. Last year, British Airways was fined £20million under the General Data Protection Regulation (GDPR) for a security incident that exposed customers’ card numbers, expiry dates and card verification value (CVV) codes. As a result, BNPL vendors face a fight on two fronts: identity theft and payment fraud, which require constant monitoring, while regularly adapting security measures to combat increasingly sophisticated fraud.

HOW THE COSTS RACK UP The impact that fraudulent transactions can have on businesses and consumers alike is profound in both the short, and long term. The immediate impact of fraud cases, for businesses, is the financial loss. In the UK alone, the private sector lost around £140billion to fraud in 2017. Fraudulent transaction costs include victim compensation, shipping and insurance, as well as chargeback fees, potentially running into hundreds of pounds per transaction. In some cases, businesses must also replace lost inventory and pay for manual reviews of suspicious transactions. Issue 8 | ThePaytechMagazine

APIs: BNPL FRAUD In the longer term, businesses may also lose out because of the impact on their brand reputation, with consumers no longer confident in dealing with them and investors potentially looking elsewhere. Alongside this, businesses may lose confidence in their own ability to spot fraudulent transactions, and so opting to pay more to deploy an external fraud detection and prevention solution. Another potential knock-on effect is the implementation of checkout processes that increase friction for consumers and result in higher rates of abandoned sales, further costing the company. The impact of fraudulent transactions has been further exacerbated by the COVID-19 pandemic, with businesses already struggling financially due to the severe economic downturn. Merchants spend three-to-five per cent of their revenue combatting fraud, which, combined with lower profit margins and shop closures due to the pandemic, means such instances have been more keenly felt, pushing some companies closer to administration or even bankruptcy. The accelerated shift to online services during the pandemic has also meant companies have had to quickly upgrade their online fraud detection and prevention services, representing another significant cost during a difficult time. For businesses that weren’t able to upgrade, or have chosen not to, the switch to digital has meant it’s been harder for them to detect and prevent fraudulent transactions, further raising costs.

bank balances and income to expenses and spending habits. As a result, AIS is well-placed to help businesses and BNPL firms detect cases of identity fraud in these transactions, while boosting the security measures already in place. By running an instant API call through AIS, businesses can immediately get the bank account name from a transaction, which has already gone through verification via their bank’s secure authentication. Consequently, AIS can help businesses better detect and prepare for when a suspicious bank account has made a BNPL purchase. PIS can help businesses and BNPL Smarter carts: AIS with PIS helps to tackle fraud

Open banking has the power to future-proof the growth of BNPL vendors

FINDING THE SOLUTIONS With fraud hitting businesses harder than ever, many are looking for solutions that can provide additional security while reducing their costs. Open banking-powered services such as payment initiation services (PIS) and account information services (AIS) are becoming increasingly popular options, and both are able to combat identity theft and payment fraud within BNPL transactions. AIS gives businesses instant access, with consent, to customers’ transaction data, allowing them to build an accurate picture of their finances, from

ThePaytechMagazine | Issue 8

against identity fraud and payment fraud, being able to identify potential cases far quicker and reduce the number of fraudulent transactions. They’ll also be able to save significant amounts of money on things such as insurance and chargebacks from fraud cases, which is crucial, particularly for SMEs, during a severe economic downturn when every penny counts. In the longer term, too, the additional security provided by AIS and PIS can help businesses feel more confident about expanding their operations without the threat of fraud looming.

vendors tackle payment fraud in other ways, too. It allows bank customers to access their accounts directly, to authorise payments, make online purchases, pay bills or transfer money between bank accounts, using secure payments systems such as UK Faster Payments or a SEPA (Single Euro Payments Area) transfer. Using PIS, BNPL payments are verified through the bank’s security measures, meaning the consumer doesn’t have to enter sensitive account or credit card information on the merchant’s website. As a result, there’s an additional layer of security for the consumer during the payment process, and the business can feel more confident about their fraud detection capabilities. With both AIS and PIS in place, businesses will have additional protection

LOOKING AHEAD BNPL payment methods are set to continue booming in the coming years, but, with increased regulation looming, businesses must adapt their security measures and combat BNPL fraud to save money, reduce customer concerns and meet regulatory standards. With open banking solutions such as AIS and PIS, businesses can leverage their security and make it easier to spot when fraud is taking place, saving them money and giving them the confidence to grow. Furthermore, with PIS, customers can set up future-dated transactions, giving merchants even more certainty of collecting payment. Open banking has the power to future-proof the growth plans of BNPL vendors, securing their business models and supporting consumers and retailers by maintaining access to this much-valued and increasingly utilised payment method. www.fintechf.com

Bridging real life to digital. At BPC, we are bridging real life to digital by equipping our clients with the right technology to create payments services that fit right into the customers’ lives. Real life needs of people who make payments or do business transactions converge into digital services. Is it a traditional card payment, mobile wallet or an instant payment, is it initiated via a mobile, through an agent of embedded into an app via an API? It no longer matters; everyone wants it fast, easy and secure, and not having to think about it. We have been doing this for 25 years, for more than 230 clients in 80+ countries, using the model that best fits the business objectives – be it in house, managed services or complete outsource.

SmartVista Solutions • Digital Payment & Banking

• Instant Payment & National Infrastructure • Commerce & Payment Processing • Smart City & Digital Ticketing • Financial Inclusion & Agency Banking • eGovernment Solutions

info@bpcbt.com bpcbt.com

COMMENTARY: OPEN BANKING

OPAQUE OR OPPORTUNITY? Ado Fazlic, Head of Marketing at Neonomics, observes the rollout of PSD2 in Norway and ponders what the ‘o’ in open banking really stands for If you look back at some of the press surrounding the initial roll-out of the revised Payment Services Directive (PSD2) in Europe and the UK, you would assume that we were on the precipice of an era-defining change. The open banking (OB) environment it created was being heralded as a potential cure-all for many of the missed opportunities lurking in the dusty corners of financial services. Better access to data would enable new companies to revolutionise the way consumers across the globe interacted with financial services and, in turn, the world would become a better, happier place. Fast-forward three years and the reality across Europe is a bit more complicated. Brexit aside, the UK has taken the most tangible steps to create and foster a collaborative environment to harness the potential power of open banking initiatives. It is far from perfect, but the numbers do not lie. According to the UK’s Open Banking Implementation Entity (OBIE), around three million UK consumers and businesses now use open banking-enabled products to manage their finances, access credit and make payments. That may not sound like a lot, but it is important to note how this has evolved. API call volume has increased from 66.8 million in 2018 to nearly six billion in 2020. This is quite a big jump in a relatively short period of time, considering the various

ThePaytechMagazine | Issue 8

forces at play that are both enabling and, to a degree, stalling this growth. This incremental progress didn’t magically happen: the path was mapped by major stakeholders, working closely together and aligning over shared self-interests. The biggest banks in the UK, representing the vast majority of all account holders, supported the initiative out of a desire to meet the evolving needs of customers, among whom an alarming number were beginning to ask some fundamental questions, such as ‘why have I banked with the same bank for so long?’. And even ‘why do I need to use the same bank as my parents?’. UK regulators saw the open banking initiative as a potential differentiator to reinforce London as the financial capital of Europe, post-Brexit. Big tech and new entrants, meanwhile, saw the data recently unlocked by open banking, which was sitting unused, as a gold mine waiting to be tapped to create services and eye-watering valuations.

NORTHERN LIGHTS In the UK, open banking in 2021 is starting to look like we imagined it would in 2018. But what about the rest of Europe? Neonomics is based in Norway and we are a country that prides itself on being an open society. The five million or so Norwegian consumers tend to be more digitally savvy then most other Europeans when it comes to

www.fintechf.com

financial services. The top five banks in Norway, much like in the UK, account for the majority of all accounts and the largest of them, DNB, has played a leading role in rolling out digital financial services to all Norwegians, not just its own customers, partly thanks to its backing of Vipps, the country’s only peer-to-peer payment app, which has seen widespread adoption. The banks saw investing in PSD2 compliance as a way to streamline and modernise operations while creating an ecosystem for innovation that could be tapped to address arising opportunities. The banks, on paper, were all in. Norwegian banks‘ websites feature blurbs about their commitments to open banking and fair and equal access to data. But one undercurrent that has recently rippled to the surface is lack of access to bank APIs and the apparent reluctance of regulators to take on the nation’s largest financial institutions over potential PSD2 infringements. A highly-motivated fintech community, which is seeing its burgeoning business propositions delayed because the flow of data it was expecting from banks has proven much harder to access then envisaged, is pushing for greater scrutiny. A new organisation, Fintech Norway, was recently formed to highlight these issues and push for Norway to create something similar to the UK’s OBIE. Speaking about the situation, Chris Andvig, CEO of Oslo-based bank API aggregator and founding member of Fintech Norway, Neonomics, says: “We were among the first in Norway to begin building our business around the opportunities presented by PSD2 and API aggregation. We consulted extensively with the regulators and the banks, and were the first and the only company to secure a payments institution licence to operate as a regulated entity in this environment. We did everything by the book and, unfortunately, there are still

www.fintechf.com

banks in the region that do not have adequate accessibility in place, and require much more heavy lifting from our side to enable and maintain access.” The apparent lack of accountability raises questions as to whether banks’ lack of proactivity has a tangible, negative impact on consumers. Part of the foundation of the PSD2 mandate was to foster competition and innovation in payments. More competitive offerings typically result in consumers getting better deals and services. But, at present, the Norwegian market has seen consolidation of service providers under single entities with little room for new entrants to gain a foothold. Vipps is an example of that. Built by banks for banks, it is meant to be a stand-alone organisation, treated like any other fintech. But, because of its backers, it has greater access to the very data supposed to be shared with all fintechs.

At present, the market in Norway has seen consolidation of service providers under single entities with little room for new entrants to gain a foothold Why hasn’t there been a bigger public pushback against this preferential arrangement? Probably because the average consumer has only recently started experiencing the benefits of open banking solutions; faster and more streamlined payments, easier and more responsive financial management tools, and increased access to a wide range of niche investment platforms have all been built via APIs connecting customers to their bank accounts in third-party platforms at much lower transactional costs than established offerings.

But fintechs big and small are demanding change because, not only are they legally entitled to access this data flow, it is in the entire ecosystem’s interests to make access as functional and reliable as possible. Fintech Norway has submitted formal requests for a review to the Ministry of Finance, and the Norwegian Financial Supervisory Authority (FSA) is in ongoing dialogue with multiple stakeholders. The banks have responded, and have started to make changes, but time will tell if this has a lasting impact on the status quo.

‘O’ FOR OPPORTUNITY? Stakeholders across the ecosystem can agree on two things: the opportunities open banking can enable are immense if managed properly, and that change is happening, albeit slowly. In Europe, banks have obligations to comply with PSD2 and existing levels of compliance have been achieved in a variety of ways: banks following the rules to the letter; banks working with service providers to find quick and dirty solutions; and regulatory flexibility. At present, the environment has almost exclusively benefited specific solution providers, who make their money from the banks’ lack of flexibility. The downstream benefits have not yet hit critical mass, but as reduced transaction costs continue to proliferate, the potential to upend the status quo is becoming more realisable. Depending on who you ask, the ‘o’ in OB can stand for different things. Optimists might see it as ‘o’ for official, as in the official way financial services should be operating. For the rest of us, money talks, and whatever side of the fence you are on, there is a need to fight for position. The mere fact that so many actors across the ecosystem are jostling for that shows the ‘o’ is for the opportunity open banking represents, even if the implementation is still a bit opaque.

Issue 8 | ThePaytechMagazine

More than 400 million Europeans have a bank account Why don’t you let them connect and pay with it?

Frictionless payments Real-time financial data Privacy by design

Say hello to open banking that simply works.

NEOBANKS: SAVINGS

Saving the day It’s nuts that ordinary folk are depositing more of their income – but earning less and less on it. It made no sense to Simon Rabin, nor to thousands of others who joined savings and investment platform Chip

2020 was a year for squirrelling away cash. With holidays, weddings, and other big-ticket occasions cancelled, UK households’ savings-to-income ratio increased to record levels – from 9.6 per cent in Q1 to 29.1 per cent in Q2, according to government figures. Not everyone had spare cash to stash. A sizeable number of lower income households, in particular, also ran through reserves at alarming rates. Meanwhile, even those whose deposits grew, often watched them being eroded by real-term negative interest rates. It's why, for those with an appetite for it, Robinhood and the merry band of similar day-trading platforms with a promise of double-digit returns, have attracted such attention from retail investors over the past year. But their gamified, fast-moving and often high-risk investment tools aren't for everyone. Many savers have more modest ambitions: they don’t want their

money idling in a bank deposit account, but neither do they want to actively engage in the markets. “They’re not asking for the world. Right? They don’t need 20 or 25 per cent returns per annum. People just want to beat inflation, they want to feel that they’re leaving their savings in a place that it’s going to grow in the medium to long term,” says Simon Rabin. Rabin is co-founder of Chip, an AI-driven, automated savings and investment platform that seeks to give ‘the little guy’ just that. In the first month of this year, it brought in around £34million of new deposits – a record for the platform – and the vast majority of those were under £20.

Rabin founded Chip three and a half years ago, using open banking-powered auto-saving features to help people put their money away easily, regularly and efficiently. Over the last couple of years, it’s built a 300,000-strong community of users, who’ve saved more than a quarter of a billion pound, more than 20,000 of whom – the Early Adopters formerly known as Chipmunks – have helped evolve the product. Many are also invested in it. Chip has smashed every Crowdcube funding target it's set – the most recent in September last year when it raised a million in minutes. “I think we are the second most equity crowdfunded company in Europe, and we have one of the largest investor communities, as well,“ says Rabin. Chip was born out of Rabin’s personal frustration at ‘being unable to save, or being really bad at identifying how much money I should put away each month, and where I should put it’.

They don’t need 20 or 25 per cent returns per annum. People just want to beat inflation

For a rainy day: The Chipmunk community has helped design products

www.fintechf.com

Issue 8 | ThePaytechMagazine

NEOBANKS: SAVINGS An autosave function, which determines how much a user can comfortably put away by plugging into their account to determine their earnings and spending patterns, was relatively simple. The bigger challenge was solving the second part of Rabin’s problem. “How do you earn the best possible return on those savings? How do you understand investment funds, risk, and what you should be doing with your non-day-to-day money? That’s a problem experienced by the vast majority of what we call the mobile generation,“ he says. The answer Chip chose was to democratise investments, not by turning ordinary people into mini Belafontes, but by giving them managed, safe access to the world in which he famously moved. “Our customers have got to ask, ‘why is it that my 1.5 per cent easy-access cash account has suddenly dropped down to 0.1 per cent over the last nine months as a result of the pandemic, yet US markets are up 30 per cent over that same period? What’s going on there? And why am I, as a consumer, being excluded from that?’ Products like Chip are going to answer that question for people,” says Rabin. And it did it by partnering with one of the leading fund managers in the world, BlackRock, to give access to some of its leading investment funds to consumers. Meanwhile, Chip’s user experience was designed to be mobile friendly. “You can create goals, you can add images, you can see your progress towards them,“ adds Rabin. “With autosaving, our algorithms basically analyse your spending, in your connected current account, and automatically save an amount of money for you into Chip. If that’s not suitable, you can set up recurring payments, with our Payday Put Away feature, or you can just make deposits, as well. It’s as easy to use, if not easier to use than your actual banking app, but provides with you the market’s best returns.” Much of where Chip is heading has been determined by the feedback and strong connection with its community. “Everything we do – the building, evolving, the pricing of the product, the

ThePaytechMagazine | Issue 8

individual accounts that we introduce – is done hand-in-hand with our early adopter and investor community,“ says Rabin. “That way of building products, and way of building the company, has been incredibly successful for us, and creates a really powerful barrier to entry for others.“ Such a valuable asset needs special care. “I certainly encourage all the functions across the business, from marketing, to product, commercial, finance, design, to try to engage with our community as much as they possibly can,“ says Rabin. “When you engage your community and they’re very much part of that process up

Easy access: Chip’s mobile UX was designed to be easier to use than a banking app

front, they’re far more excited, and far more willing to buy and to use the product that they’ve been a part of developing.“ It was the community that wanted investment opportunities that had, historically, not been available to them as ordinary savers, says Rabin, reflecting a wider sentiment in 2020. “We saw it in what’s been going on with GameStop and WallStreetBets and so on.

Consumers are standing up and saying, ‘we’ve had enough of this. There’s no reason why we, as ordinary people, can’t have access to these same financial instruments, can’t play in the market in the same way that the big financial institutions can’, “ says Rabin. “The vast majority of people, perhaps, don’t feel comfortable actively stock trading, don’t feel knowledgeable enough in that space to be doing that themselves, but they do want to have their money in a place that earns them a decent return, far better than what their bank’s giving them. “Chip is very much focussed on trying to increase that, trying to democratise people’s access to far better returns than they’re being offered in the market at the moment.” This democratisation of access to capital markets, to passive investments, he identifies as a ‘third wave’ of fintech – one that Chip will lead. But for it to be fully realised, open banking principles need to be far more widely embraced in spirit and in practice by financial institutions. “When we built the first version in 2016, we were trying to use all these things that were promised with open banking and there are still issues. We’re seeing the same problems now with payment initiation services – there are quite a few limitations in what they’re able to do. “Open banking absolutely needs to happen and it will happen, but the pace hasn’t been quick enough and I feel it will continue to be quite slow.“ Chip’s savers aren’t slow, though. They’re still busy hoarding and contributing to the next stage of development – investment accounts, ISAs, potentially any savings pot, including pensions. “Ultimately, I want to see hundreds of millions of people, across the UK, Europe, and beyond, with Chip on their mobile phones. For it to be the go-to place for them to save, invest, manage their money, and, eventually, leverage that joint community power to buy insurance and access all sorts of other financial services,“ says Rabin. And the rate it’s going, he’ll crack it. www.fintechf.com

Global e-commerce is easy... right? Not really. First, you have to figure out which digital payment methods are popular in which country. You’ve then got to add them to your platform. But here’s the problem: integrating local payment methods and processing global payments is bureaucratic, time-consuming, and expensive.

That’s where we come in. We’re PPRO. (Hello, Ciao, 你好!) We help businesses roll out local ways to pay so they can break into new global markets. It’s all made possible by our local payments infrastructure, designed to help companies avoid the costs and complexities of doing it all themselves. Some of the biggest names in fintech, banking, and payments rely on us to expand their global reach and multiply their conversions. So no, global sales isn’t easy. Unless you partner with a pro.

Find out more at www.ppro.com

NEOBANKS: CONSCIOUS FINANCE Doing good: Aspiration aligns people’s values with spending and investment

Paying it forward Joe Sanberg didn’t want to co-found another fintech that promised change while relying on a broken financial system that was bad for the planet and for society. In that sense, Aspiration isn’t one “Where you choose to receive your payroll, and what you use to buy your groceries, is more than just a choice of financial services – it’s a choice of social values.” That’s Joe Sanberg, entrepreneur and outspoken critic of fintechs, which he believes are in a uniquely powerful position to change the world... but, for the most part, don’t. Which is why, when he launched what looks suspiciously like a fintech with Andrei Cherny in 2013 – both men from the wrong side of the social tracks who’d clawed their way up the

ThePaytechMagazine | Issue 8

professional ladder – the ambition was for Aspiration to be in a sector of its own. A platform that pays people to be good by closing the ethical loop between spending and saving, Aspiration is a fully-automated vehicle for environmental, social and governance (ESG) impact services, which offers guaranteed fossil fuel-free investments, a payment card providing cash incentives to steer users towards more conscious consumerism, and a carbon-offsetting credit card that sees a tree planted somewhere every time it’s used. “It’s a category that’s never existed before. Aspiration has defined it and, having created it, is growing it,” says Sanberg. “We happen to use financial products as one of the ways we deliver automated social impact services, but I have zero interest in being a fintech company.” Aspiration has, of course, (as with most challengers in the States) had to get close to a licensed bank – in this case Coastal Community Bank – to issue its debit

cards and look after its cash, while Aspiration itself is registered as a broker/dealer managing the $124million Redwood Fund, which has consistently outperformed Morningstar-rated funds as well as the S&P 500 over the past five years, including through the pandemic. Named after the tallest trees on Earth, the fund uses rigorous analysis of a companies’ sustainable ESG practices to find impact investment targets that it believes are poised for growth. It makes no secret of the fact it despises most mainstream banks’ investment policies, declaring on its homepage: “There’s a good chance your bank is using your money to fund oil projects that destroy the climate.” It goes on to state that the four biggest banks in the US lend more than $240billion of ‘dirty money’ to fossil fuel projects every year, asking ‘did you know that’s what your money was going towards?’. “The uncomfortable truth is that most people don’t,” says Sanberg. “When they www.fintechf.com

do find out that their money is being used for loans to fossil fuel projects, or to private imprisonment companies that perpetuate institutionalised racism, or gun companies – they are shocked. And as more people awaken to that reality, Aspiration can offer them a home for their financial services as well as their social impact.”

INFORMED INVESTING What drives Aspiration is the idea that we can all, through more considerate investment and spending decisions, ‘make money while making the world a better place’. The problem is, most consumers don’t have time to do the research to balance those decisions – hence, Aspiration’s automated model. Account features include receiving up to 10 per cent cashback on socially-conscious spending from mission-based merchants such as TOMS shoes, whose tag line is ‘we’re in business to improve lives’ and which donates one third of its profits to good causes. Users can also help plant trees with every purchase by rounding up to the nearest whole dollar. Meanwhile, the handy Aspiration Impact Measurement tool acts as a ‘personal Fitbit for your social impact’. “It’s an algorithm that shows you a people score and a planet score for the places where you spend money on your Aspiration card,” explains Sanberg, “so that you have the tools at your fingertips to choose merchants that are most aligned with your social values.” Premium customers can also use the Aspiration Plus Planet Protection feature, which tallies up the carbon output of all their fuel stops, then automatically buys offsets to help counter the climate change impact – although, for all its good intentions, it is perhaps worth noting that environmental campaigners such as Greenpeace argue that planting trees and offsetting your carbon footprint is still nowhere near as effective as reducing emissions in the first place by cutting out journeys altogether. But, in a world where we’re often shamed by our choices, automatic offsetting is at least a step in the right direction. All of these features require technology, but Sanberg’s insistence that Aspiration is categorically not a fintech company is perhaps more to do with the ideology behind it rather than the mechanics. He particularly takes issue with fintechs across www.fintechf.com

the financial sector who help perpetuate the myth of no-fee banking or no-fee trading. “Nothing is free,” he says. “If a company tells you that something is free, that means one of two things. Either you are the product – your data is the product – or they’re going to find some way to charge a fee that is disguised as something else.” It’s a cruel myth, he claims, because it plays into a deceit that the poorest can participate. “Our customer base is primarily middleand upper-middle-income people,” says Sanberg. “We don’t have a feature set that’s built for low-income people, because – here’s the truth that venture capitalists won’t tell you – you need government to help low-income people. “I believe in the power of business to solve some things, but I think, for the hardest problems, we need government action. We need big, bold FDR (Franklin D Roosevelt with his New Deal)-style government action.” That’s a view borne of personal experience. Sanberg was raised by his single mum and the pair lost their home to foreclosure when he was a teenager – forcing them to live pay cheque to pay cheque, ‘like so many Americans’, he says. “It’s different from the story of so many founders. Unfortunately, a lot of innovation capital has funded people who grew up with wealth and privilege and, as a result, a lot of companies that are more or less built to serve other rich people,” he says. Both he and Cherny worked their way through college, after which Sanberg wound up in financial services, while Cherny eventually walked through the doors of The White House, working for both President Clinton and Vice President Gore, and supporting Senator Elizabeth Warren in her campaign to launch the Consumer Financial Protection Bureau. He was also a financial fraud prosecutor. “Having spent time in both the public and private sectors, I saw first hand that big banks and Wall Street too often put profits ahead of what is best for people and the planet,” Cherny has said. “We both saw this need for a financial company that could help people move their money in a way aligned with their values,” explains Sanberg.

Aspiration itself operates a freemium fee structure, but its ethics dictate that users should come to their own judgement on what its services are worth. Its Pay What Is Fair policy on its basic account enables customers to pay what they can afford – but that still gets them five per cent cashback on socially conscious spending and the plant-a-tree cash round-up option. “To be clear, we don’t communicate that as a no-fee offering,” says Sandberg. “We say ‘we hope we’re going to do a good enough job so that you want to voluntarily pay. And if you don’t think we’ve done a good enough job, you have the right to pay us zero and we’ll try and do better’. Think about the distinction, in terms of integrity, between that, and saying something is free but then hiding fees somewhere else.” Customers can, of course, opt for the $15-a-month Aspiration Plus account, which includes carbon-offsetting their fuel and up to 1.00 annual percentage yield on their savings. But, whatever the spread of those users, in line with its ethos of paying forward to protect the planet, Aspiration commits to contribute 10 per cent of its earnings to charity. It’s built tools to enable customers to automatically support causes aligned with their beliefs, too, because, as Sanberg says: “Part of aligning your values and your money is knowing you have to service other people with your money, to the extent you can.” Aspiration’s positioning has struck a chord, particularly as societal values shifted during the pandemic. Two million ‘fans’ are now signed up – including several activist Hollywood A-listers. Most recently, Aspiration announced an investment from actor/producer Robert Downey Jr.’s Footprint Coalition Ventures, part of an additional $50million raised from institutions including Deep Field Asset Management and AGO Partners, as well as individuals including Cindy Crawford and Kaia Gerber, which takes its total fundraising to more than $250million. “I think people are craving more tools to do good in the world,” says Sanberg. “In the private sector, Aspiration is the leading deliverer of those kinds of tools – and we’ve only just scratched the surface.”

It’s a category that’s never existed before. Aspiration has defined it and, having created it, it’s growing it

Issue 8 | ThePaytechMagazine

BANKING SIMPLIFIED Develop new revenue streams and delight your customers by embedding innovative fintech capabilities with HUBUC.

ONE API ONE CONTRACT ONE PARTNER Contact us at www.hubuc.com or info@hubuc.com

NEOBANKS: BLOCKCHAIN Antti Arponen saw an opportunity in the space between m-money providers and the banks in a region where opportunity is boundless, but access to finance limited. With blockchain-driven Pyypl, he hopes to plug the gap Having previously worked at Virgin Mobile for 13 years as country CEO, group COO and group chief digital officer for the Middle East and North Africa (MENA), Antti Arponen was well aware of how a lack of infrastructure can seriously hold back poorer communities. “At Virgin, we believed that everybody should have a mobile phone with an internet connection,” he says. “Our whole reason for launching in the MENA region was that we saw how incumbent telecom providers gave preferential treatment to high-income population segments, and so weren’t bothered about working to offer quality service at a reasonable cost to the masses.” It was while building this missing link for the telecoms sector that Arponen came up against a similar roadblock to universal access to financial services –

and it inspired him to found the financial technology company, Pyypl. Pronounced ‘people’, the blockchain-powered startup’s first focus was a virtual pre-paid card, which was available to everyone and, crucially in this part of the world, allowed them to spend anywhere – including online. “At Virgin, when we began tracking how our users paid their Virgin mobile phone bills, we realised that the few people who did have credit or debit cards were unable to use them to pay online. We couldn’t believe this,” recalls Arponen. “The process of obtaining a credit card in many of these regions is often a long one: you need to go to a branch, you need to fill in a pile of paper, you need to have a credit score, which you can’t have if you are not banked yet, etc. The fact that even

For the people, by the Pyypl www.fintechf.com

those who were successful in their application still didn’t have online financial freedom felt crazy. “It turned out that banks were in a position to offer the service, but their cost structure simply didn’t make it possible for them to extend those services to low- and mid-income markets. And non-bank alternatives were faced with the challenge that the regulatory approval to provide such options was a three- to four-year procedure, which needed to be done for every single country in the region separately.” Believing that online payments should be accessible to all, Arponen made the decision, then and there, to start the painstaking regulatory dialogue needed to build an online payment solution that could work not just across the MENA region but the whole of Africa, and Central Asia, too. It was a bold move, given the regulatory disparity between what are still mostly cash-based states. “People perceived us as masochists for welcoming the headache, but we didn’t see it as such,” says Arponen. “We love the regulators – they’re just trying to protect the consumer. And that’s 100 per cent aligned with what we wanted, as well. Regulators have a really difficult job, and we know that first-hand from our co-founder, Phil, who worked in senior positions for two of them.” Now five years into his journey, Arponen believes engaging in deep dialogue with regulators before the technology was even built, to really understood the landscape in the United Arab Emirates (UAE) and beyond, gave Pyypl a distinct first-mover advantage, especially over the many foreign startups now taking an interest in the region. “Innovation couldn’t have happened on a superficial level by building some nice-looking app or grafting an American or European fintech,” he says. “It needed to happen at a deeper, regulatory level because we were in new territory. Moreover, many of these regions are entirely based on cash, so foreign business models built on foundations which are invalid here, would fail.” Issue 8 | ThePaytechMagazine

NEOBANKS: BLOCKCHAIN Arponen has previously described Pyypl as sitting between the growing number of mobile money providers and the banks. While some of the former, including M-Pesa – Kenya’s transformative m-money service for the masses – allow both online and cardholder-present transactions, card take-up from banks is limited for the reasons Arponen outlined. Pyypl, however, offers both phone-based and digital wallet options, and includes a prepaid card that can be used across all payment channels without restrictions, as well as mobile airtime top-up, and domestic user-to-user transfers. It was launched in 2019 as a graduate of the Abu Dhabi Global Market’s fintech sandbox, RegLab, and Apernon says total transaction volumes are growing by 49 per cent month-on-month. Currently being used by 106 nationalities in 48 currencies, it’s driven by blockchain-based architecture developed in-house, which adds the simplicity of an m-money service onto a framework that can deliver the sophistication and reach of a bank, plugging more people into a broader range of financial services.

The value of blockchain It’s human nature to find workarounds to apparently intransigent problems, which is why, according to Statista, as of 2020, cash was the main payment method used in online retail in Egypt, Kenya and Morocco, accounting for 55, 40, and 41 per cent of the total share, respectively. Although poor card penetration clearly hasn’t hobbled the growth of e-commerce – in some of Pyypl’s target states, e-tail sales are growing 25 times faster than most other areas of the world – not only is consumer experience often clunky, but cash payment on delivery doesn’t advance financial inclusion or move states beyond a cash-driven economy with all the inherent drawbacks. Meanwhile, M-Pesa, the most widely used mobile money service, provided by Safaricom, can be used for peer-to-peer (P2P) transfers, physical point of sale (PoS) and online purchases, among other things, but many of its users simply see it as a convenient way to cash out funds. It’s not a store of wealth.

That’s not to say there hasn’t been progress. While it might be true that legacy banks find it hard to address the issue of financial accessibility, Africa, in particular, has seen an explosion of fintechs doing just that – such as Kuda Bank in Nigeria which has a Naira Mastercard that can be used for online purchases (albeit only domestically for now). So where, ultimately, does Pyypl see its future in this landscape? “In our user base right now we can identify about 20 completely different ways of using the Pyypl product. We knew this would be the case from the beginning, so we built our technology platform to accommodate this. While it looks the same app from the outside, Pyypl is actually customised for every single user. They have different services offered, depending on their demographics,” says Arponen. Currently operating as a payment app in the UAE and Bahrain, its ambition is to be in 25 countries by the end of 2025, when, according to the GSMA, which represents the interests of mobile operators worldwide, smartphone penetration will reach 900 million people (out of a population of 1.2 billion) in Africa alone. By then, Pyypl won’t be known just as a payment app, because the real value lies in its blockchain-based technology, which has been developed to deliver a wide range of financial services. Granted regulatory approval in Mozambique, Kazakhstan and Kenya, it was admitted to the latter’s Capital Markets Authority sandbox – the first to be launched by a regulatory authority in Africa – last year, to test a phone-based, blockchain-powered tool for entrepreneurs to raise funds by issuing unsecured bonds. “We’re pretty hardcore when it comes to technology and regulation, but what we really want is to make people feel equal,” says Arponen. “We’re not here to solve just the payment problem; we want to help address societal issues. It’s part of our DNA.” Pyypl’s genetic code can be distilled into four Fs: functional, familiar, focussed, first. “Functional sounds dry, but is important, because in these parts of the world, daily life can be a struggle, so removing hurdles

We’re not here just to solve the payment problem; we want to help address societal issues – it’s in our DNA

ThePaytechMagazine | Issue 8

As many uses as users: The Pyypl app is supremely customised

allows people to spend time doing things that they want to do, bringing smiles to their faces,” explains Arponen. Familiar means that, like an old friend, the Pyypl brand is trusted. “Because even though there are one billion mobile phone owners out there and 80 per cent of them are without a payment card, we are still talking about other people’s money and a culture where trust on a personal level is everything,” says Arponen “Focussed means we put all our effort into doing the best for our users, employees, regulators and partners. We focus on people. “And first means we don’t mind taking the hard path, removing obstacle after obstacle to get things done. And if somebody else benefits from our trailblazing, we’re happy about it.” In Africa, in particular, you can't get very far without addressing infrastructure, and blockchain is seen as a way of helping the continent leapfrog several staging posts, including in the financial space. Deloitte concluded in its report Over The Horizon: A New Infrastructure For Financial Services, that one of the most significant impacts of blockchain was creating an environment where ‘firms and regulators get along better’. Arponen would agree. “Once you work with the markets and governments to build a little bit more infrastructure, you become part of the infrastructure,” says Arponen. “Research is showing that the next-generation financial infrastructure will be more valuable than the Internet, Cloud and mobile put together. Amazon, Apple, you name it, they’ll be nothing compared to the value-add that a new financial infrastructure will deliver.” www.fintechf.com

NEOBANKS: SMEs

THE NEXT FRONTIER Australia’s open banking environment and an SME community hungry for new funding options has led Edo Omoniyi, Co-Founder of Cape to head Down Under By almost any metric, buy now, pay later (BNPL) has found a natural home in Australia. So-called ‘soft credit’ providers such as Klarna, Afterpay, Humm, Zip, LimePay and LatitudePay have already staked their flag in the territory, allowing consumers to defer payments for purchases. AfterPay alone saw the value of its transactions double last year, from A$5.2billion to A$11.1billion. During the 2020 online holiday shopping season, it is believed one in three Australians made a BNPL transaction. In March, Australia’s biggest lender, Commonwealth Bank, revealed that it’s throwing its hat into the ring with its own offering, while PayPal announced that it would launch a BNPL option in Australia this June. From clothing to conveyancing services, consumers are falling over

ThePaytechMagazine | Issue 8

offers to ‘spread the cost’, often for zero fees. But what about businesses? Various studies put the funding gap for Australian SMEs at between A$70billion and A$103billion. While that is partly being addressed by the federal government’s Small Business Stimulus/ Relief Package, announced in January in response to the pandemic, it’s been estimated that as many as 160,000 of Australia's two million small businesses won’t survive having their cash flow choked off by the crisis. That’s where small business financial provider Cape, which offers a ‘recession fighting’ business credit card and expense management capability for SMEs, has spotted an opportunity to step in. “There hasn’t been a massive focus on BNPL for SMEs so there is a huge opportunity there. We can understand businesses, provide them with more choice and deliver a brilliant way of lowering borrowing costs,” says co-founder and COO, Edo Omoniyi. Developed in the UK, Cape is the brainchild of former 11:FS staffer Omoniyi and ex-Funding Options MD Ryan Edwards-Pritchard. Powered by open

banking, it’s due to launch first in Australia where SMEs find traditional credit models unfit for purpose, says Omoniyi; they are too rigid and data-poor, especially in a COVID-impacted world. “Look at the current route that lenders or banks use to try to assess the picture of an SME, or assess risk – it is pretty rigid and wooden,” he says. “They wouldn’t seek the information you need to have an up-to-date accurate picture of a business. That’s the space we can occupy. “We’re simply trying to solve the issue of access to working capital for SMEs. For example, if you are a relatively new business, you don’t typically have the track record that a traditional lender will require. They might instead want a personal guarantor or secure a line of credit against your home. “What we want to do is knock down some of those barriers to credit for SMEs, remove all that unnecessary complexity and provide a flexible solution.” Cape is one of a growing number of fintechs that are chipping away at the old ‘one-size-fits-all’ approach to business banking, which never really suited the SME multiverse.

www.fintechf.com

“They’re all unique, they have different characteristics, depending on the industry, and all of these need to be catered for,” says Omoniyi. “Business banking always seems to be the last to have any product accessibility or forward thinking, but you can create lots of interesting propositions to help serve different parts of the market and serve them well.” Understanding the nuances of a particular SME requires data, and lots of it. Cape seeks to look ‘under the hood’ of a business – providing insights into cash flow, spending decisions, and workable credit limit. An open banking native, it will use Australia’s progressive regulatory landscape to create a tailor-made approach to credit. “The progress in open banking means we have a rich seam of data to use,” says Omoniyi. “Even access to accounting data, from accounting-as-a-service platforms, like Xero or QuickBooks, allows companies like ourselves to ingest this data, and offer services or products off the back of that. “At Cape we are looking at data outside the traditional parameters. So we’re pulling in all of the data from credit bureaus, all the data around the business, to understand them, but also looking potentially at vertical or industry data, that’s specific to them. “If they’re a software-as-a-service (SaaS) business, for example, we’re

looking at their invoices, to understand their unrealised revenue. Maybe they’ve sold a contract to another business, or some licencing to another business, for a year; they’re six months in, so there’s six months of unrealised revenue. We would try to pull that into our credit model, to understand, and underwrite that company. The same goes for an e-commerce company, looking at some of their trading data, or trading history that comes out of the e-commerce platform. That’s where I think it gets really interesting, where we can really set ourselves apart and differentiate from a traditional lender or a bank. “One of the key issues that we find with lots of SMEs, is around cashflow and access to capital. At the best of times, it can be very difficult for a business to understand what their position is, what their forecasted sales might be, especially during a pandemic. We give them the ability to try to surface some of this through our products, especially our cashflow forecasting and analytics tools. We’re trying to enrich the experience for SMEs, around not just the line of credit, but also to understand what they’re spending, how they’re spending it, and improve their confidence around that.” Australia has been something of a poster boy for BNPL. So what is so attractive to businesses looking to set up in that country?

There’s been a real shift in how fintech is evolving in Australia. Open banking changed everything

Well, certainly the introduction of the Consumer Data Right (CDR) in 2020 paved the way, giving individuals and small businesses control over their banking data and how it is used. Another reason may lie in the fact that Australians’ credit card debts fell to a 15-year low in July 2020, according to Reuters; the shift from credit to debit, a result of people and businesses prioritising repayments as the future became uncertain. The subsequent pressure on credit growth and fee income for banks results in an opportunity for providers like Cape to absorb these losses with alternative offerings. Meanwhile, the phased introduction of data sharing mandated by the Australian government will see information on business overdrafts, finance agreements, investment loans, lines of credit, asset finance, and cash management accounts, fully exposed this year. Like many UK fintechs, which have been actively encouraged and welcomed by the Australian government, Omoniyi believes Australia is ripe for expansion and Cape has been busy beefing up its leadership team in readiness for launching with early adopters in a closed BETA during the second quarter of 2021. Tanya Ward (chief financial officer), Rahul Pakashi (chief risk officer) and Gerry Hoare (non-executive director) are now all part of the endeavour. “I think there’s been a real shift in how fintech is evolving now in Australia,” says Omoniyi. “Open banking has changed everything. And, for us, it’s going to be a busy, busy year!”

Taking its place: Cape is among several UK fintechs welcomed by Australia

www.fintechf.com

Issue 8 | ThePaytechMagazine

COMMENTARY: CORRESPONDENT BANKING A new approach: Crossborder payments, settled locally could promote post-COVID trade

Act global, think local Banking Circle’s Head of Institutional Banking, Jakob Bækkel, doesn’t believe correspondent banking as a means of crossborder settlement is redundant. But it desperately needs re-engineering

With the COVID-fuelled e-commerce explosion and year-on-year rises in global transactions expected to resume as the world regains its feet, better solutions to international settlement is no longer just desirable, it’s imperative for global economic recovery. Yet many of the worldwide banks currently providing the rails for such payments, keeling under the weight of legacy systems, processing costs and regulation, are struggling to live up to this increasingly urgent need. Does this put the traditional correspondent banking, that underpins the majority of crossborder transactions, in jeopardy? Or has news of its death been much exaggerated? Global banking services provider Banking Circle’s head of institutional banking, Jakob Bækkel, doesn’t think correspondent banking as a means of

ThePaytechMagazine | Issue 8

crossborder settlement is on the way out – but it’s certainly no longer the only kid on the block. And banks’ failure to fully acknowledge that and reform global payments in response – notwithstanding SWIFT’s efforts – has forced SMEs to look elsewhere for solutions. Alternative providers have been only too happy to oblige. Bringing correspondent banking back from the brink will require some serious self-criticism by banks, and a willingness to innovate and partner with others to create a future-proof new hybrid model, believes Bækkel. International payments have typically been settled via a combination of correspondent banking, direct central bank clearing and global processing network SWIFT. However, although SWIFT gpi has dramatically improved payment speed, transparency and security, users are increasingly unwilling to stomach the hefty charges associated with traditional methods, much less not-uncommon, five-day turnaround times, frequent hiccups, and the fact that they often have no idea where their payments are on their journey from A to B. Processing crossborder payments still costs banks dearly, around US $25-30 per transaction, according to McKinsey, against a backdrop of increasing competition and pricing pressure from fintech entrants.

Some major banks have already decided to derisk by pulling out of correspondent banking geographies, at a time when businesses and consumers need to transact abroad more than ever. Bækkel believes there are workarounds to sluggish and costly correspondent banking arrangements – and one of them is virtual IBAN (international bank account number), which allow customers to settle international payments locally, quicker and at minimal cost. It’s one of the services that Banking Circle offers its B2B users. For its recent white paper, Better Business Banking: Collaborating For Success, it canvassed 300 European C-suite banking executives for views on what was stopping them from delivering better services to corporate customers, including crossborder payments. It discovered cost and internal infrastructures are major blockers, even though 70 per cent of those surveyed considered crossborder payment provision to be a core banking service. Many saw partnerships as key way to resolve such issues. The report found half already have partnerships or plan to work with an external provider imminently, while another third had partnerships on the agenda for the next 12 months. “Collaboration is no longer a novelty,” it said. “The new wave of specialist partners… can play a significant role in helping banks to exceed the expectations www.fintechf.com

of their corporate customers which, in turn, will help them gain market share.” But there is no room for complacency. It added: “As global trade begins to return to pre-COVID levels, banks must be ready to support businesses in their bounce-back.” That means offering accessible banking solutions that remove friction from local and international trade, allowing them to expand to other markets, unhindered by costly crossborder payments. In that way, the crossborder payments system can help small businesses and startups to thrive, post-COVID, and bolster international economies at a time when they are in greatest need. The report also highlights examples of what such partnerships can achieve, including international money transfer app TransferWise’s collaboration with France’s second-largest bank, BPCE, enabling the group’s 15 million customers to send money outside the eurozone at TransferWise’s standard fees via the bank’s API-enabled app. Yet Bækkel says willingness to adapt varies among banks, and rationalisation among bigger players is further squeezing mid-tier institutions’ ability to serve SMEs in particular.. “Small retail banks are being de-risked, or losing, via their global partners, more and more international capacity,” he says. “The large international banks are focussed on trimming their global networks and revamping themselves, establishing profitability and coming back into the market able to develop and deliver. Increasing profitability means losing costs, and costs only come off by losing customers. “In the last 10 years, the global banks’ thresholds have been going up and up, in terms of how much a client relationship should return, and they’re even greater when they’re high-risk sectors like bank-to-bank or correspondent banking. So, those that are supposed to drive the train are actually trying to cut off the wagons at the end to make it lighter, and smaller banks realise they have to connect with a different organisation, and start talking to us about solutions where they no longer need global banks. “Some banks are trying to address this, but a significant segment simply haven’t accepted what’s happening. It’s a major battle for all parties, especially those with legacy IT. Roughly 80 per cent of retail banks and 74 per cent of wholesale banks www.fintechf.com

are dealing with the classic correspondent banking framework, but more and more wish to work with other parties like us.” Banking Circle is an enabler to those that want it. Bækkel adds: “It’s very clear what the market wants: instant payments, quick resolution and effectiveness, while reflecting regulations and governance. “Payments represent a big burden for SMEs and mid-market companies in particular, but really all the different verticals, and our experience of building quick solutions enables us to develop tailormade options for them. “The big question banks need to ask themselves is ‘do we want to take the burden upon ourselves to change?’. Because, to meet ongoing requirements, they need flexible systems and to be as quick to market as new fintech players. “That’s why a partnership between classic banks, with classic correspondent banking, and a new, smarter way of getting things done, is a must for the future.” The commercial risks of not embracing this, are considerable, he says.

Roughly 80 per cent of retail banks and 74 per cent of wholesale banks are dealing with the classic correspondent banking framework, but more and more wish to work with other parties like us “Many banks have started offering digital solutions for their customers to pay domestically via smartphone apps. But SMEs are using more and more currencies and have wider international needs. Eighty-five per cent of European SMEs find the solutions banks are delivering unsatisfactorily and 43 per cent are not committed to using banks, and increasingly choosing alternative solutions. “This is where I see the development coming – from the roots, from consumers and SMEs, and slowly evolving up through the chain until, eventually, the big corporates will start using these kinds of solutions. If banks cannot deliver the quality of service customers are looking for, they will find them elsewhere and fintechs

will take over that market. Sixty per cent of banks in the UK, Benelux, and DACH areas are already considering working with other providers. That is a strong message.” But, as he says, correspondent banking has road left to run, albeit an evolved version with workarounds like those Banking Circle is pioneering. “We won’t see correspondent banking disappear; it just requires re-engineering and we need to find new ways of working together,” adds Bækkel. “But banks need to understand that taking five days for a payment that costs customers $30 is not acceptable anymore. They want it brought down to an instant, next-to-nothing level” What, then, does the future hold? “Correspondent banking will be forced by consumers, SMEs and mid-market clients to modernise. Big banks will start to work with parties like us and, by combining our new, smart, virtual solutions, we will achieve ways of getting international access, based on local conditions,” says Bækkel. “Our virtual solution uses a very old-fashioned, classic SWIFT network, providing access to local payments without being there locally. Payments are just data, and once we have packaged them up in a good, smooth way, and have the access to local clearing in whatever country, it gives a client sitting in one country access to payments locally in another. So, payments go from being crossborder, worst-case scenario five-day transactions, to, suddenly, a five-second settlement on the local clearing system, very cheaply. We will also see the ratio of crossborder currency payments go down, because more transactions can be settled domestically,” he adds. “That’s what the banks and SWIFT really need to understand, and is the biggest differentiator in what we are doing today, compared to a classic correspondent banking solution. That is how banks and fintechs can work closely together, but it means banks teaming up around SWIFT, as the tool. “The winners of this game will be those willing to listen to customers and change; listen to what is happening down at the grassroots, among SME clients and consumers. If we can make solutions available for those, it’s easier to also develop bespoke options for the higher verticals or sectors of banking. "We can win this together: the clients, the banks and, ultimately, the economy.” Issue 8 | ThePaytechMagazine

SMEs: FINANCING

Plugging the invoice gap Small business finance platform Iwoca saw an opportunity during the pandemic to address a persistent problem for SMEs – getting paid on time. Lara Gilman believes it could be the start of something big Not all heroes wear capes and those coming to the rescue of UK SMEs don’t have to be big, either. They just need to be clever. The COVID-19 pandemic has seen SMEs in dire need of support. A recent survey of small business owners by digital business financing specialist Iwoca showed that well over half (59 per cent) had used their own cash to keep their businesses afloat last year. Furthermore, 38 per cent of SMEs were concerned they would have to close their doors in 2021, such has been the economic impact of two very damaging lockdowns. That isn’t just down to revenue drying up, though. In many cases, businesses made sales, but they couldn’t collect the payments. That was brought home to Iwoca in the middle of the crisis. Since 2012, it has focussed on extending credit to SMEs based on revenue flow. During the last year or so it’s been busy distributing well over £200million of much-need government-backed support under the Coronavirus Business Interruption Loan Scheme (CBILS), too. But it’s now targeting a key area that blighted so many small businesses before the pandemic and became even more critical during it – invoicing. Its own research found that, during the first national

ThePaytechMagazine | Issue 8

lockdown, 40 per cent of SMEs had more than £10,000 in outstanding invoices, which clearly impeded their ability to survive, let alone prosper. So, it launched IwocaPay, which blends payments and finance to deliver the UK's first invoice checkout solution built for SMEs. Offering a pay now or pay later option on every invoice, it makes it easier for them to pay on their terms. Lara Gilman, co-lead at Iwoca, explains its genesis: “One of our services is the Flexi-Loan, which allows people to access cash flow instantly and easily. But this led to the learnings about why smaller businesses actually needed this facility – and the answer was their uncertainty around invoices. They either needed money to pay invoices, or to cover the gap for when they themselves needed their own invoices paid. We saw that we could make financing more accessible at the point where it was genuinely needed.” One side of the solution addresses how an SME might pay a supplier. Iwoca customers are offered a 90-day flexible option that allows them to spread the cost of bills, while their supplier still gets paid on presentation of the invoice – in effect, a pay-later function. This BNPL tool is part of the trend already established in consumer retail and now beginning to gain momentum in the B2B sphere. The second offering also leverages BNPL, but this time it addresses the eternal issue that SMEs face, which is getting paid in good time. IwocaPay gives its customers the facility to offer their clients an option to pay now or spread the invoice over three instalments for a fee. Either way, the SME gets paid the full amount on time, every time. There’s another issue it sets out to address, which goes to the heart of the payments revolution. “Right now, 80 per cent of B2B

businesses rely on bank transfers to get invoices paid,” says Gilman. “And the problem with bank transfers is they’re not that easy for your buyer; it’s one more reason that an invoice doesn’t get paid. In fact, we know that your invoice will get paid twice as fast if it has an online payment option. So, we also have a Pay Now solution. Together, these tools bring the best of payments and financing into the invoice checkout experience, which means we can help businesses get their invoices paid faster. “We believe this will have a huge impact on the economy,” she adds, “because unpaid invoices lead to bigger problems around late payments, around time lost, around inefficiency. Bringing a better payment solution to the invoice also helps to de-risk some of the cashflow issues around getting paid. We think we can have a meaningful impact on both small businesses directly and the economy as a whole.”

FREEING UP PAYMENTS IwocaPay is contributing to a much-needed revolution in invoice payments. Historically, the only option, other than bank transfer, was to use cards, which has significant, well-established drawbacks – mainly cost. With invoices of between £10,000 and £15,000, SMEs will typically be charged somewhere in the region of one to three per cent just to be paid. But open banking allows IwocaPay to provide a two-click solution that lets customers pay instantly, without sellers having to foot big card fees. Gilman says: “Cards were an incredible invention 40 years ago, but their business models were built off a much higher cost. “We don’t think you should have to pay just to move www.fintechf.com

money. We live in a world where you don’t pay for every email or text message you send. Money should move freely in the system, too. With the UK’s Faster Payments, with open banking, we don’t see this as something we should be charging for.” By the very nature of invoice payment terms, SMEs are basically taking on the credit risk; if a customer runs into liquidity problems, it has a knock-on effect for the seller. IwocaPay is their cash cushion. “One of the things Iwoca is really great at is understanding small businesses,” says Gilman. “The value we bring to IwocaPay is really around taking on the credit risk, taking on the collections risk, allowing SME customers to have an option to spread the cost of their invoices. That’s our value, and so that’s where a seller will pay a fee, to be able to use that pay-later product.” Last month, Oliver Prill, CEO of UK business financial platform Tide, railed against the ‘slow uptake of open banking’, which facilitates innovations like IwocaPay. This followed a report from the outgoing Open Banking Implementation Entity

(OBIE), which showed that only three million UK customers and businesses were using open banking-enabled products at the start of 2021. Prill said that meant missed opportunities for both customers and companies that might have created more new products and services had financial institutions not ‘dragged their feet’ over giving challengers more access to data. Meanwhile, the Financial Conduct Authority has made efforts to support

The events of the past year can and should trigger a step-change for small businesses to become more resilient fintechs experimenting with everything from business models to user experience. Gilman remains optimistic. “We have a whole new toolkit for how fintech and payments might evolve over the next 10-20 years,” she says. “A lot of the groundwork for that has already been laid – exciting transformations are set to happen. I think we will become much more of a digital society overall, payments being a core part of that.

In terms of SMEs, that’s going to be really helpful, because they are, historically, a little bit slower than consumers, in terms of digitisation, especially with other enabling technologies in this space, such as the accounting platform, Xero. Most of the UK’s 5.5 million small business owners spend more time than they need to ticking boxes and filling out forms. We want small business owners to spend less time on paperwork and more time running their businesses.” Xero’s integration of IwocaPay into its platform could transform the way many SMEs now operate, and is emblematic of how nimble tech providers can be. “We are the first pay-later payment proposition in Xero’s ecosystem,” says Gilman. “Xero really looks at the world in a similar way to us. We both ask ourselves ‘how can we make these services more available and easier to use for small businesses, so that they can spend more time on their businesses?’ That ethos has really laid a great foundation, which we will continue to develop. I’m enthusiastic about identifying more products and services where we can work together.” Events of the past year can and should trigger a step-change for small businesses to become more efficient, productive and resilient, says Gilman. “The most obvious of those changes is making payment terms fairer between suppliers and their customers. UK small businesses need a level ‘paying’ field and we’re here to help them get it.”

Much-needed solution: Delays in getting paid have been putting SMEs in jeopardy

www.fintechf.com

Issue 8 | ThePaytechMagazine

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

more and more on-line features. Intuitive user experiences are no longer optional, surprise and delight your customers to stay on top of the game.

WANT TO MOVE FROM A TRANSACTIONAL RELATIONSHIP

mobiquity.com

TO ONE BEYOND BANKING? SEE HERE HOW WE DO IT.

Watch video

SMEs: LENDING

From alternative to mainstream The urgent need to pump cash into small businesses over the past year has given lendtechs driven by open banking a chance to shine… but now they need government to fully embrace their potential, say Funding Options’ CEO Simon Cureton and Nucleus Commercial Finance Founder Chirag Shah Turbo-charged change since March 2020, has been a hallmark of the pandemic experience. The switch from bricks and mortar retail to digital, the growth of homeworking, Zoom calls for schools and GP appointments… the list goes on. And to that we can add another – ‘alternative’ lenders have become defiantly ‘mainstream’, according to Chirag Shah. The founder and chief executive of Nucleus Commercial Finance has overseen the lending of around £180million to SMEs via the UK government-backed Coronavirus Business Interruption Loan Scheme (CBILS) and believes the sector holds itself back by clinging to a now-outdated description. “We are mainstream. CBILS, if anything, has clearly proven it,” he says. “Businesses shouldn’t be thinking of us as option two, or option three, having gone to the banks first. That mindset has to change, starting with us, the lenders. Providers are doing themselves an injustice by classifying themselves as alternative.” The CBILS and subsequent Bounce Back Loan Scheme (BBLS) – the former 80-per-cent and the latter 100-per-cent guaranteed, but not capitalised, by the government – brought the fintech sector both

opportunity and also problems. A huge stress point early in the pandemic was a failure by mainstream banks administering CBILS to process applications quickly enough for desperate SMEs. When fintech lenders entered the fray that changed, though the schemes’ distortion of the lending market was unhelpful and, in some cases, disastrous for those lenders that could not take

CBILS was transformational for us... 98 per cent of our applications have been via open banking Chirag Shah, Nucleus Commercial Finance

part and could not compete. There was also the issue of liquidity – or lack of it – in the wholesale lending market, which put smaller and non-institutional lenders at a disadvantage. Shah says that, for 18 months before the pandemic, the industry had been working to convince

businesses that technology-driven lenders using open banking was the way forward. But scepticism remained. “CBILS was transformational for us,” he says. “We have processed more than 10,000 CBILS applications, and 98 per cent of our applications have been via open banking. It’s not that open banking changed. What changed was that businesses were willing to try it, to get quicker decisions, and we were able to provide them with a seamless journey – decisioning 86 per cent of the deals the same day. It was the first time many businesses had been exposed to open banking and they realised it was something they could buy into.” Simon Cureton is chief executive of lending platform Funding Options, which was among those chosen by the government-owned British Business Bank as a designated platform to screen businesses applying for CBILS and present them to a panel of 40 UK lenders. He agrees that the scheme ultimately proved the advantages of open banking. But the gain wasn’t without pain. Funding Options draws funding from around 120 lenders in total, to service SMEs in both the UK and the Netherlands.

Open banking for business: COVID helped convince SMEs to buy into it

www.fintechf.com

Issue 8 | ThePaytechMagazine

SMEs: LENDING Before COVID-19 hit, open banking partnerships were beginning to take off and lending choices for SMEs were ‘better than ever before’, says Cureton. Then lockdown cut off the market. “The bottom fell out,” he says. “For the SME finance sector, and every sector across the economy, nobody had a reference point. Every lender had to take stock and some simply stopped lending. More positively, since May we have been quite successful, as a sector, in finding the new norm. “I wouldn’t say we necessarily have a North Star, because conditions can change, but at Funding Options we’ve put vital new funding into the UK and Dutch economies and we are up at near pre-COVID levels of total lending, which is hugely encouraging.” By the end of 2020, around 70 per cent of lending issued in the UK through Funding Options was through CBILS. It became the ‘new norm’ for the business lending market, and by the time CBILS and BBLS closed in

Just the start: More support is needed to help British SMEs get back in business

Spring 2021, at least £73billion had been borrowed through them via accredited banks and lendtechs.. Now a Recovery Loan Scheme kicks in, offering credit from £25,000 to £10million until the end of the year. Like CBILS, it is 80 per cent guaranteed by government. As businesses begin building back, though, Cureton argues more discussion is needed around the market impact of these kinds of state-backed support programmes, specifically whether non-banks should get access to the Term Funding Scheme allowing lenders to borrow from the Bank of England at close to base rate. “It’s important we have government support,” Cureton says. “Currently, we have a two-level playing field, where non-bank lenders can’t access the kind of funding advantage provided by the Term Funding Scheme. The sector has been throttled by lenders with access to credit lines – viable liquidity that allows them to

ThePaytechMagazine | Issue 8

issue government products or their own. “Despite that, I’ve been incredibly impressed with the fintech sector, given that real disadvantage; that the majority of lenders are still out there innovating, lending, and still bringing vital funding to the UK economy. “Those that are participating in CBILS are right at the front of the pack – the likes of Funding Circle and Iwoca. But I would love to see government fully embrace the sector. We should be pushing the open banking agenda, and the open finance agenda.” Despite the hundreds of billions of pounds of business support pumped into the economy through the crisis, the need for lending will not end soon, adds Shah. He says: “A lot of businesses have survived because of government support – not just the loans, but also the furlough scheme, support from HMRC, support from creditors and rent holidays.

we do, as a marketplace or a platform, if we are to be successful, then without question we absolutely have to be at the forefront of technology and data analytics. So, for us at Funding Options, our key value in the ecosystem is being able to take loan applications at scale from UK businesses, then filter, triage and match them to lender propositions at as close to real time as we can. “If you are a business that’s looking for a loan valued at £50k or above, any lender out there, to underwrite that application, needs to see your bank transaction information, your credit bureau profile, and, invariably, they would need to have access to management accounts. But the pace to embrace technology varies from one lender to another. Some consume everything digitally and give you an instant decision, while others still take their time. They might take the bank transaction information in PDF format, for instance. “Without question, COVID has increased the pace of digitisation; businesses are actually embracing open banking. Our adoption rates, straight from the off, were around 25 per cent and that is only going to increase. The same will be the case with open finance. The lenders’ adoption of

Currently we have a two-level laying field. Despite that, I’ve been incredibly impressed with the fintech sector, given that real disadvantage

“But the repeat lockdowns mean it will take time for businesses to get up to speed again. Simon Cureton, Funding Options Firms that borrowed will have to start making repayments, which will hit pretty much these new technologies, is going to straightaway. If their revenue grows, and increase, too. All of these technologies are the profit margin is good, they’ll be able to enablers to deliver the kinds of outcomes meet their expenses. But for the majority SMEs want, which are speed, surety, and of businesses, revenue will take months, a good experience. They don’t want their if not years, to get back to pre-COVID levels, time being wasted.” with a cost base that is not as flexible. Fortunately, if they’re in the UK, Shah is Additional support schemes being planned convinced that this is increasingly what they by the Government will be critical.” can expect to get. If more fintech lenders can take part He says: “The UK has the most developed in such schemes, then the sector will be ecosystem. It’s miles ahead of a lot of further bolstered. But one things is certain: other countries in terms of how the UK the widespread adoption of open banking courts and the legal system function, means there’s no going back to legacy how the credit bureaus function, what lending processes. Some parts of the access to data we have. industry probably need to wake up to that. “As long as the regulatory support stays Cureton says: “Given the nature of what there, I think the sector will bloom.” www.fintechf.com

Connect People to What ey Want Boomi securely creates a fabric of connectivity across your entire ecosystem, so you can discover and prepare your most important asset – data. Eliminate silos that hinder collaboration. Automate critical processes. Create the Integrated Experiences your customers crave.

Instantly Connect Everyone to Everything boomi.com | boomi.uk.sales@dell.com

SMEs: FINANCE

SME lending platform providers like the pioneering Ezbob will be indispensable to economic regeneration after the pandemic, says Sales Director Julita Lange

ThePaytechMagazine | Issue 8

www.fintechf.com

At the beginning of 2021, Ezbob CEO Tomer Guriel gave his observations on the fundamental changes that the pandemic had forced on the SME lending market – and particularly banks’ attitude to SME lending, which had been lacklustre for years. “Once the government SME lending programmes end, I think we will see renewed lender appetite among the banks,” he told City A.M.. Did it really take a crisis the size of COVID-19 to wake them up to the fact that millions of low-risk small businesses were being denied the liquidity they needed because of an outdated approach to assessing their suitability? Well, yes. But, more importantly, it showed banks how they could service that need profitably and at scale. “Banks who participated in these government-sponsored programmes [were] able to evaluate a new SME customer remotely and very accurately because of open banking data," said Guriel. Now, they needed to foster these ‘unexpected relationships’ through additional product offerings as businesses clawed their way back to normal trading, he added. Julita Lange, sales director at Ezbob, agrees that the pandemic has been a pivotal moment for open banking’s role in SME lending, and, going forward, it'll be vital in getting the economy firing again. “If, as an SME, you’ve been impacted by COVID, you may report in your accounts a significant drop in revenues. But there may be other factors that will still be good markers of your good performance, and, on the basis of which, you could qualify for a loan – but the lender has to be able to take those into account,” she says. “The power of a platform such as Ezbob is the ability to gather more than 3,000 datapoints from more than 40 data sources – from e-commerce, from tax authorities, from accounting services – to really build that 360-degree view of an SME as an applicant. We see this as the future of SME lending: stop the reliance on only traditional data sources, be more encompassing and more comprehensive.” As far back as 2017, Ezbob, which had started life as a pure-play SME digital lender, began working with NatWest spin-off Esme Loans to develop an open banking-driven lending platform to www.fintechf.com

service small businesses, using advanced analytics to streamline the application process and reduce costs. Ezbob helped Esme grow by 300 per cent for two consecutive years in 2018 and 2019 before NatWest closed it to new applications in June 2020. It had not qualified to distribute the state-backed coronavirus support programmes for business and, like many other lenders in the same situation, it ended up a casualty. But, meanwhile, a deal Ezbob struck in early 2020 to provide its lending platform to Metro Bank suddenly took on a new urgency. Metro Bank was accredited to distribute COVID loans and the platform had to be ready in weeks to handle the anticipated demand. Since then, Metro Bank has provided more than 34,000 government-backed loans to businesses, totalling more than £1.4billion. More than 90 per cent of those loan applications were completed in under five minutes, said the bank, with an 86 per cent approval rate compared to the industry average of 79 per cent; 94 per cent of those approvals were fully automated, demonstrating the versatility and resilience of the Ezbob platform.

Stop the reliance on only traditional data sources; be more encompassing and more comprehensive Lange, who has a background of more than 15 years in combined sales, business development, market strategy, and consulting experience across software products, says the case for mainstream banks to offer slick and quick digital lending channels has now been made. “Very large banking institutions are awakening to the fact that the lending process, especially for SMEs, needs to be done quickly through a digital channel,” she says. And, according to a study published last year by Forrester, The State Of Digital Transformation, which interviewed institutions across the UK, banks agree: 86 per cent saw digital lending and wider digital transformation as a way of staying ahead of competition. “But the quality of that digital channel

really matters,” says Lange. And she doesn’t think they should go it alone in developing those platforms – because the UK economy simply can’t wait. “When large institutions in the past undertook a digital transformation or revisited their lending process, they would typically use their own IT resources, and it would take them a long time. Using an off-the-shelf solution such as Ezbob, which is easily configurable, they can be up and running within a matter of weeks, as we’ve demonstrated,” she says. In choosing a platform or developing their own, banks will be primarily looking at ways to reduce acquisition costs – the principle impediment to them servicing the SME sector, which are estimated to be around £3,000 per loan. Ezbob boss Guriel would argue that the platform’s work with the likes of Metro Bank and Esme Loans has shown that a digital, automated solution significantly reduces that cost and makes SME lending profitable for banks. But, if they don’t move decisively now, they could lose the market to more imaginative offerings, says Lange. Among those is a seismic shift in the way SMEs access capital: ‘embedded finance’. One of the simplest and fastest mechanisms for extending credit to SMEs, many business owners will be familiar with the facility from their personal experience of buy now, pay later at the checkout. PayPal is one of the providers that Ezbob has been working with to allows SMEs to draw down instant funds at a point of sale. “Rather than go to a bank to apply for a loan and use a different institution to facilitate that funding, more and more SMEs expect funding to be available in their natural marketplace,” says Lange. “Through the work we have done with PayPal, we can offer financing for merchants using it within their shop, for instance. It’s a convergence of different points of sale, marketplaces and e-commerce platforms, acting as financing institutions, rather than banks.” Lange believes embedded finance and open banking will be two key trends driving SME lending in the next couple of years. Whichever the market chooses – alternative digital providers or banks – there will be plenty to keep lendtechs like Ezbob busy. Issue 8 | ThePaytechMagazine

SMEs: COVID RECOVERY Chaos theory: Has the worst economic shock since World War Two, finally shown SMEs the value in digital?

Bravenewworlds As small businesses emerge from the black hole of 2020, three observers of the crisis discuss how alternative financial services have been striving to support them Much like the crew of the Star Ship Enterprise, fintech entrepreneurs are compelled to boldly go where (in their case) no financial services have gone before. And that took them on an extraordinary journey last year, when Earth itself began to feel like a strange new world – and a scary one for many small businesses. As countries locked down, tens of thousands of small and micro businesses suffered a repeat of the credit crunch: cash flows froze, some business models became obsolete overnight. But, for others, markets opened up as consumers clamoured for home deliveries and online services from behind closed doors, which created demand for new payment mechanisms and capital to help them adapt and grow. Amid all this chaos, the meagre cash buffers held by SMEs were exposed. A report by Nucleus Commercial Finance revealed that around a quarter of UK SMEs had little or no reserves to fall back on, while the same was true of half of sole traders. Research from business lender MarketFinance painted a frightening

ThePaytechMagazine | Issue 8

picture of a majority of small businesses who predicted that they wouldn’t survive to see 2021. Given fintech lenders’ inherent agility, the crisis should have – and to some extent has – been a fantastic opportunity to step into the gap left by slow-moving incumbent banks to service SMEs. But, in the UK at least, emergency government loan schemes, which were initially interest-free, eclipsed anything alternative lenders could offer due to their incredibly generous terms. Small business lenders found themselves clamouring for attention, when few were initially trusted to be among the institutions distributing those loans. Financial technology trade body Innovate Finance raised fears that fintech customers would leave and may never return, while the Federation of Small Businesses recognised competition was under threat. And yet many did manage to maintain their profile by doing what they were built to do best – approve much-need loans in minutes, rather than the days or weeks incumbent banks had hitherto taken, and moving quickly to adapt their product offer to meet changing needs. Iwoca, for instance, launched IwocaPay, which paid suppliers up front and gave buyers 90 days to clear their balance. Paytech SumUp offered the capacity to accept mobile payments to all of its merchants, alongside an invoice service,

merchant gift cards and a rescue fund for customers on the verge of collapse. Quotevine released a software-as-a-service tool for commercial brokers to support SMEs with credit from asset finance firms. And, beyond the UK, Credijusto in Mexico was just one example of fintechs going at warp speed when it secured $100million of debt funding from Credit Suisse to extend loans to its SME customers. The list of examples goes on. Manu Saadia, American author of the 2016 book Trekonomics, which examines economics from the perspective of the Star Trek film and TV franchise, believes fintech has teleported to another level in response to the changing world order and it is now the engine room for innovation. “Banks have almost outsourced the innovation part of their businesses – the tools provided by fintech are so convenient, consumers want them, so banks are going to buy,” he says. “The banks that survive the disruption of the next few years will be those that forge such alliances. It will be the natural way for innovation to become pedestrian.” Analysis by Santander’s invoice and expenses tracking app, Asto, found that around 80 per cent of SME bosses it spoke to would now use digital tools, such as apps, accounting software and alternative finance (although, ironically, Asto itself will be wound up this year). And as repayment plans on those government loans begin to fall due in www.fintechf.com

2021, Alex Reddish, chief commercial officer at payments processor Tribe, says fintech providers now have the perfect opportunity to support SMEs through the coming painful months and years of economic recovery. He says: “Fintechs have managed to deliver some great use cases for SME businesses and younger businesses. There’s obviously great product opportunity and fintechs are going a long way to enable affordable credit. We have the ability to disburse money quicker, to manage credit lines quicker. “There’s still a very big issue around underbanked businesses, and those that aren’t necessarily able to obtain those services, but you have to say that fintech has been a massive improving metric in how SMEs interact with financial services.”

SMEs have distinct needs but banks neglected those because servicing them was not profitable… open banking has opened people’s minds to what’s possible Mai Yamaguchi, Coconut

Another consequence of the pandemic has been a surge in the number of business startups – especially sole traders, many of whom have been forced into self-employment after being laid off. The Financial Times reported in December that new business registrations were 30 per cent higher in the four weeks to mid-December, compared to the previous year, and similar growth was witnessed in western Europe and the US. These sole traders are potential customers for smart accounting app provider Coconut. Product manager Mai Yamaguchi says fintechs like Coconut are often a better fit for SMEs than incumbent banks and accounting platforms. “SMEs have distinct needs, both as retail customers and corporate clients, but banks have traditionally neglected those needs because servicing them has not been profitable for them,” she says. “When the pandemic hit, we saw a lot of the major banks stop accepting new business customers just at the time many www.fintechf.com

people were starting up a business, either due to job loss or because they’d had the time to decide what they wanted to do. Opportunities coming out of the self-employed market haven’t been picked up, and fintech companies are starting to address this. “At Coconut we’re seeing lots of self-employed people having issues with managing invoices and cashflow. We think the solution to that is to enable more insights, and empower self-employed people to take control of their finances by automating a lot of the manual processes that they face when running a business. For example, we provide automated invoice chasing, which is a pressure point for many people.” Yamaguchi, Reddish and Saadia are all in agreement that open banking, while still yet in its infancy, holds the key for fintechs to drive innovation for SMEs. They also believe that the platform model of the Chinese super apps, such as Alipay and WePay, is an obvious blueprint for how sole traders and SMEs could manage their businesses going forward.

Fintech [in the pandemic] has been a massive improving metric on how SMEs interact with financial services Alex Reddish, Tribe

Versatile, all-encompassing and entirely mobile-based, super apps are now part of consumers’ everyday life in Asia. “Revolut would say that it’s trying to do something similar for business here,” says Reddish, “but I don’t think it’s really been conquered in the B2B world yet. “Starling and Coconut, to some extent, have aggregated additional services, and are therefore providing a centralised interface for me as an SME,” he adds. “I think that will become more and more commonplace, and the innovation will happen around that in terms of the products that feed into it.” Saadia cites accounting software package Intuit QuickBooks as a product that already offers a one-stop shop for businesses – a B2B super app in waiting. “They have a lock on the tax filing market,” he says. “They manage payroll,

they manage taxes, they manage pretty much all aspects of your financial life, if you let them. They even offer short-term loans. So it's a super app of a kind. “It’s not very glamorous but it’s what every small business in the US uses. I'm just a writer, but even I use it to invoice, to record my expenses, to do my taxes. Everything is in one place, and it’s connected to all my other accounts, so I don’t have to download 20 different apps. Intuit offers a model for others to come into that space.” Increasingly, these providers will be using AI to interrogate data and inform decisions, says Reddish: “Machine learning and AI will become a proper reality, not a tagline on an investor deck.” In fact, Tribe is already signed up to a Microsoft programme that’s exploring, among other things, GPT-3, an autoregressive language model that uses deep learning to produce human-like text. “Things like that will become much more interesting,” says Reddish. “Distributed ledger technology, blockchain… you can see a roadmap to applicability.” Yamaguchi agrees. “I think open banking has opened people’s minds to what’s possible with the infrastructure in place. We’re still getting the traditional banks on board [with open banking] and executing it in the way that it was intended. But, like machine learning and data, it’s been talked about for a long time, until

The way technology tends to work is that it creates new needs Manu Saadia, author

people’s mindsets kind of caught up and they were ready to utilise the real value of it. We’re still going through the learning curve and, by the end of the decade, I think that we’ll see more ways of using it than we can even imagine now.” As one experienced in the future, Saadia is wary of making any such prediction. “We’ve been wrong so many times in the past,” he says. “The way technology tends to work is that it creates new needs. So with new tools, new needs for services arise.” Whatever technology wins out, the ‘little guys’ in business stand likely to benefit. As Star Trek’s venerable Vulcan Dr Spock would say, may they ‘live long and prosper’. Issue 8 | ThePaytechMagazine

COMMENTARY: INDIA

The lendtechs oiling India’s SME-conomy

The Paytech Magazine’s Swati Sanyal Tarafdar explores how India’s New Age lenders are extending alternative finance to small and micro businesses For a long time, Uma Maheswari wanted to start her own business. Instead, she worked at a beauty salon where she built up a book of loyal clients. When the COVID-19 pandemic hit, the salon was shut, and Maheswari found herself jobless.

So, in September 2020, while COVID was still raging and customers weren’t willing to venture outside, Maheswari summoned her courage and started her own ‘salon-in-your-home’ service. “I needed a lot of supplies and personal protective equipment. My clients knew that I do my work well. Now I had to convince them that it was safe for them,” she says. But for that she needed a minimum of Rs 10,000 (around US$136) – not a fortune, but still too much to ask of friends and family when they were already struggling in lockdown. “My sister recommended a lending app that I downloaded from Google Play Store. I spent some time understanding it. They

ThePaytechMagazine | Issue 8

needed me to register on their platform and upload a few documents for verification. When I had made up my mind, the digital application process took me five minutes, and the money was in my bank the next day. It came like a blessing from above. I used the money to get what I needed. I have already repaid the amount, and have taken another loan now to expand my business. I have started selling wellness products,” she smiles. Everyday entrepreneurs like Maheswari knew it was a waste of time approaching incumbent banks for support – they didn’t look favourably on loan applications for micro, small and medium-sized businesses (MSMEs), and, in any case, they were clumsy to use. Yet it took a pandemic – one that threatened to put many small Indian traders out of business – to persuade them to explore the emerging fintech market. Nimisha Khan, Gurugram-based fashion designer and licensed e-commerce player, was another of them.

When she wanted to expand her online business to start delivering to the rest of the country, she started looking at alternative credit sources. “This was no time for expansion but I have worked hard in building up my brand and business. I didn’t want a pandemic to force me into throwing everything away. Nobody needed new suits anymore but I marketed aggressively. I needed to keep the team motivated, find work, and keep their hearths warm. I needed financial support,” she explains. Khan had seen commercials on the television for alternative lenders and started researching them. “I understood that third-party entities, probably technology owners, are outsourcing banking roles to established financial organisations that have the required banking licences. I saw nothing wrong with it; they seemed valid, secure, and extremely easy – no physical paperwork was involved,” says Khan. www.fintechf.com

Back in 2018, most of the estimated US$600billion credit demand from Indian MSMEs like Maheswari’s and Khan’s was being met through informal sources, according to the authors of a joint study by Omidyar Network and Boston Consulting Group. That created a massive opportunity for new-generation lending platforms like Mintifi, which provides uncollateralised working capital credit to MSMEs. It reckons existing finance channels haven’t been able to solve more than one per cent of the total demand. Not only is it a huge, untapped opportunity – but it’s a critical one, too. This sector employs around 124 million people and their activities generate at least 30 per cent, and as much as 38 per cent, of GDP, according to the government’s own figures and those of industry group SME Chamber of India, respectively. The pandemic has hit their cashflow hard just as digital transactions and SME services have come to the fore. Home-grown lending apps that can be downloaded from the Google Store, such as Mintifi, MobiKwik, SmartCoins, MoneyTaps and a dozen others, have enabled users to avail themselves of instant, interest-free loans ranging from as little as Rs 1,500 (US$21) to Rs 100,000 (US$1,362), delivered directly into their wallets or bank accounts. These are mainly short-term loans, ranging from one to six months, and what is reassuring for an SME user is the fact that, on successful repayment, they can take out advances for higher amounts and for longer periods. The application process for these takes a matter of minutes because the platform is pre-populated with their customer identification and credit record. The lendtech sector in India has been growing since the first providers emerged around 2015-16 but, like every other tech vertical, it’s been catalysed by the pandemic, especially for those serving the country’s resourceful MSMEs. Those businesses that succeeded in reinventing themselves or diversified in the face of changing customer demand during the crisis survived and even thrived. There were numerous instances of mobile phone stores converting into manufacturing units for sanitizing and wellness products. They all needed small to medium-sized loans, usually for short durations of time. In May 2020, the Government of India attempted to energise this community of www.fintechf.com

MSMEs by injecting additional resources and credits through various welfare and subsidy schemes. A US$55billion spending scheme was announced, with a bucket of US$40billion collateral-free automatic loans. It sounds substantial, but in a country the size of India, as Ketki Bhagwati, senior advisor at Atlantic Council’s South Asia Center, observed: “A relief package of US$55billion for the country’s biggest employer, which is less than half the size of the balance sheet of a large Indian bank, appears little more than symbolic.” And there was another issue: although the government updated its definition of MSMEs to broaden the number of businesses that qualify for official support, many were still too small to be included in the official classification and have missed out on support entirely. According to the Government of India’s Ministry of Micro, Small and Medium Enterprises’ latest annual report, published in March, MSMEs are still nevertheless managing to contribute significantly to the country’s economic expansion by meeting demand from both domestic and global markets. The growth has to be fuelled from somewhere and lendtechs save them from having to rely on informal and often unregulated means of raising funds. So how are lendtechs using technology to meet their needs? According to Market Insights, the entire fintech market in India was valued at around US$26billion in 2019 and is expected to reach around US$85billion by 2025 – that’s a compound annual growth rate of nearly 23 per cent. A big chunk of that is being driven by payments – digital transactions in India over the last year have grown by around 42 per cent. And that works very much in favour of small businesses and the companies looking to finance them. Mintifi, for instance, which focusses on supply chain finance, uses underlying transaction data to unlock unsecured loans, its quick, hassle-free, flexible options marketed as way of turning business dreams into reality.

these new digital lenders. However, it is gradually opening up to the potential of challengers and has set off discussions around open banking. It has also now started allowing fintechs to test their innovations in a restricted ecosystem. Meanwhile, those neobanks that have emerged, while challenging traditional banks on one hand, are also offering lower-cost models and customised, customer-centric services to businesses through strategic partnerships with entities that own banking licences in India. Although the RBI remains implacable that banks should have a physical presence in the country and virtual banking licences cannot be granted otherwise – it believes bricks-and-mortar bank branches are necessary to serve customers and redress their disputes and grievances in person –there are instances of foreign national banks offering digital-only products through their Indian subsidiaries. In the past six months, several lendtechs have also raised angel funds to expand their operations there. Lendingkart, for example, an Ahmedabad-based fintech which lends to MSMEs across India, raised $42.1million as part of an ongoing Series D funding round last May at the height of the pandemic. In November, Delhi-based LivFin, one of the early entrants to the digital business loans market in 2017, raised US$24million of fresh capital to strengthen the supply chain finance segment as well as expand its reach to unbanked and underbanked areas of the SME ecosystem. That comes on top of a decade of strong investment in India’s fintech landscape. According to a report published in March by Credit Suisse, the country’s fintech sector has been the second-largest recipient of private equity/venture capital funding over the past decade. Payments were the leading sub-segment, attracting US$4.2billion followed by digital lenders, who raised US$2.5 billion. Between them, digital lenders have grown a US$10billion industry across retail and commercial credit. And all the forecasts are that is likely to carry on growing. Which is good news for the hundreds of thousands of India’s hardworking entrepreneurs – especially now.

Mintifi uses underlying transaction data to unlock unsecured loans

CHANGING ATTITUDES The Reserve Bank of India (RBI), which is the central banking regulatory authority in the country, is still somewhat skeptical about

Issue 8 | ThePaytechMagazine

LAST WORDS: BOOK REVIEW

Comic geniius

Jim McKelvey’s graphic account of his approach to innovation when founding Square got Ali Paterson (right) putting problems into a new perspective

There are a lot of books on entrepreneurship. There are a lot of books on banking. There are a lot of books on fintech. You know what there are not a lot of? Comic books on banking.

ThePaytechMagazine | Issue 8

True entrepreneurs, according to McKelvey, are incredibly hard to come by

The Innovation Stack by Jim McKelvey is published by Portfolio in hardback, audiobook and Kindle editions.

The Birth Of Banking is available to download free from www.jimmckelvey.com Great for: Anyone stuck in a problem-solving rut Best read: Before you become one of McKelvey’s mentors! Good read rating: ★★★★★ not on the ground’, so he figured out ways to keep them up there for as long as possible. At the time, it was normal for airlines to have a fleet of many different planes, which led to delays waiting for pilots qualified to fly them. Kelleher opted for all the same model, so they didn’t have to wait for crew. The delay then was in cleaning them, so everyone (including pilots) pitched in, accelerating turnaround to 10 minutes. Square is one of only a handful of companies to have withstood an attack from Amazon, and it’s been successful because, like Bank of Italy and Southwest Airlines, it learned from solving one problem after another and another until eventually it hit the edges – and, voila, it had built an innovation stack. McKelvey’s point is: yours can, too. www.fintech.finance

Illustration: Trevor Goring

That’s been put right with a companion volume to Jim McKelvey’s excellent, The Innovation Stack: Building An Unbeatable Business One Crazy Idea At A Time. Legend has it that McKelvey, co-founder with Jack Dorsey of Square, really wanted The Innovation Stack to be a graphic novel – lucky it wasn’t, because I listened to the audio edition. In it, rather than focus on a stage-by-stage retelling of how Square brought paying by card to the masses in the USA, McKelvey looks at what innovation and entrepreneurship are – ‘a series of real-world problems solved in brand-new ways. And true entrepreneurs are those who can stack those ideas and create something no one has ever done – and something no one else can copy’. And he also introduces us to the fellow entrepreneurs he chose to mentor and inspire him along the way. True entrepreneurs, according to McKelvey, are incredibly hard to come by. Those that are still alive shouldn't have time to mentor, he argues. And so, QED, most of his are dead. His fully fledged comic book, The Birth Of Banking, fabulously illustrated by Trevor Goring, concentrates on arguably the most influential in American financial history: AP Giannini, the man who founded what became Bank of America. His was, frankly, a comic book origin story.

And the drama played out right through to his humble retirement. Someone please make this man’s life into a movie! Despite McKelvey being born more than a decade after his death, the influence that Giannini had on his business ethos when building Square is undeniable. At a time when large organisations dominated the American landscape, Giannini saw the problem that ‘the little guy’ had when trying to use banking ‘tools’ way back in 1906. So he developed alternatives. The Bank of Italy, as it was then, built an innovation stack through revolutionary problem-solving. It introduced low interest rates, a direct sales force, advertising, extended business hours (including weekends) – and it turned equality and financial inclusion into a commercial imperative, opening the first accounts for women at a bank within a bank, which was entirely run by women. Another of McKelvey’s mentors – who hasn’t made it into a comic book yet – is the late Herb Kelleher of Southwest Airlines, which wasn’t competing with other airlines, but with Greyhound and local buses. As Kelleher was fond of saying, ‘planes make money in the air,

Cloud-Ready Payments. 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-ready 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-ready solutions from ACI deliver faster time to market at lower total cost of ownership, visit www.aciworldwide.com/cloud.

Emerge Better

S A FE . INNOVATIVE. AGILE. C O NNECTED.

We can help support your strategy. Let’s talk. bottomline.com/ paymentsmodernization

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.

Fintech Finance presents: The Paytech Magazine Issue 08

Articles inside

Comic genius

The lendtechs oiling India’s SME-conomy

Brave new worlds

The lending sweetspot

Plugging the invoice gap

From alternative to mainstream

Act global, think local

The next frontier

For the people, by the Pyypl

Paying forward

Saving the day

Now is the time to act on pay later

Opaque or opportunity

AIR apparent

At your service

Bring it on

Shuffling the payments pack

Thinking big

How UK fintech can embrace the world

Mission critical moves

Joining the dots

The show must go on

FXing problems

Unravelling the payments story

Leaving no one behind

Continental shift

All aboard for contactless payments

A platform for change

A rapid response

Inclusive by design

Ahead of the Q