Fintech Finance presents: The Paytech Magazine Issue 09 by Fintech Finance

ISSUE 9

THE Joined-up thinking

Is the EPI Europe's best cross-border bet yet?

Direct action

Token on the rise and rise of A2A

Tales from the cryps

CoinCorner on goats, memes and satoshi accounting!

ORCHESTRATING TRANSACTIONS WITH G+D’s GABRIELLE BUGAT WILL THE WORLD EVER PAY IN PERFECT HARMONY?

Marketplace mindsets

Shop to drop with Banking Circle, TSB and Huawei

INSIGHTS FROM Deutsche Bank ● ACI ● Doconomy ● Railsbank ● Woorton ● Finastra ● Icon

Currencycloud ● OPI Bank ● Netcetera ● Adyen ● SmartStream ● Monument Bank ● Mendix

meniga meniga

FINTECH FOCUS 6

Racing towards the new normal The Fintech Finance team was glad to be back and on the ground – running, as usual! – at Money2020. Here are our observations and highlights from what was the comeback of the year!

30 An open road Finastra’s latest State Of The Nation report shows that the financial services industry is well and truly on the bus when it comes to open banking. So, what’s the next stop?

40 Striking a balance Legacy relationships and innovative technology, infrastructure and front-end services, uni and multi-banking... Deutsche Bank and ProgressSoft weigh up all these and more for incumbents

55 Here’s the low down… How low-code platform Mendix can make life a lot simpler for financial services in a changing world

59 ‘Real’ lessons in payment choice Ron Delnevo asks why the UK Access To Cash Review looked to Sweden and not Brazil as a model for inclusion

69 Lessons learned from the edge of the world Railsbank’s Victoria Nicholson tells fellow fintech adventurers what she’s learned from leading high-risk, complex, expeditions

82 Who will join the banking lite race? Currencycloud’s Co-founder Steve Lemon doesn’t pull any punches when he says the traditional banking model is ‘dead’ and extreme embedded finance will likely bury it

THEPAYTECHVIEW CONTENTS

ISSUE#9

Exactly a week after Amazon tycoon and Bitcoin investor Jeff Bezos shot Star Trek’s original Captain James T Kirk into space, the cryptocurrency market rocketed to another all-time high. Everyone, it seems, as Jack Dorsey’s single emoji tweet that day implied, is ‘going to the moon’. Actor William Shatner’s whistle-stop sub-orbital trip was a strange collision of fiction and reality: the same could be said of cryptocurrency... an asset with no tangible underlying value frequently propelled to stratospheric heights by powerful amounts of hot air. But are the altcoins that Amazon is reportedly preparing to accept, now crossing their own final frontier? Charlie Meraud of altfi market maker Woorton (page 49) is sceptical that we’ll be buying flat whites with crypto any time soon. Danny Scott of one-stop crypto exchange CoinCorner (page 43), on the other hand, is pretty certain that

INFRASTRUCTURE 8 Up, up and away? The adoption of Cloud technology was accelerated during the pandemic, but some institutions are still cautious about further implementation. SmartStream’s Jason Ang addresses their concerns head on

13 Hungary for change OTP Bank and ACI Worldwide explore the possibilities presented by Hungary’s domestic real-time payments scheme

the Lightning Network – which is just at the start of what could be a massive upheaval in the online streaming payments space – and other altfi-driven solutions to retail payments will, eventually, take us where no currency has gone before. Crypto, stable coins and central bank digital currencies topped much of the agenda at this month’s very-much-real Money20/20 Europe (page 6) – and rightly so. The paytech industry has a mission, a duty even, to explore these Sue Scott, Editor strange new worlds.

16 Easing the load on CIOs and CTOs Executives in these roles have had more than enough to cope with recently. Banking Circle wanted to know what it is about ‘the next normal’ that’s now keeping them up at night

20 Joining the European payment dots The EPI’s Martina Weimert and Craig Ramsey of ACI Worldwide on integration dreams and reality

24 COVER STORY: Paying in perfect harmony As we hover on the brink of the latest attempt to bring real-time settlement synergy to the Eurozone, we asked two leading industry players if they think it really is possible to unite the world’s payment systems (amongst other burning issues!)

59 24 www.fintechf.com

Issue 9 | ThePaytechMagazine

Change is our superpower. Change Change can can feel feel absolute, absolute, daunting daunting and and dramatic. dramatic. The The end end destination destination is is great. great. However, However, no-one no-one likes likes the the journey journey to to get get there. there. Except Except Mambu. Mambu. We We love love it. it. Mambu’s SaaS and cloud-native banking and financial services platform Mambu’s SaaS and cloud-native banking and financial services platform is for those that are just starting out, and those that are global powerhouses. is for those that are just starting out, and those that are global powerhouses. Sure, we do core – and much more. Mambu can fast-track the design and Sure, we do core – and much more. Mambu can fast-track the design and build of nearly any type of financial product for banks, lenders, fintechs, build of nearly any type of financial product for banks, lenders, fintechs, retailers, telcos and others. And our unique composable approach means retailers, telcos and others. And our unique composable approach means that independent components and connectors can be assembled and that independent components and connectors can be assembled and reassembled in any configuration to meet the ever-evolving needs of your reassembled in any configuration to meet the ever-evolving needs of your business – and your customers. Let’s make change your superpower too. business – and your customers. Let’s make change your superpower too.

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28 36

28 Riding the rails

Interoperability might come from adopting a common payments messaging standard, but it’s the future business models it could unlock that really interest Cyrus Bhathawalla at JPMorgan Chase and Bottomline’s Edward Ireland

DATA 33 Compliance will be rewarded. Are you ready to comply...? Payments super app Expensify, data custodian Very Good Security and expense management platform Eedenbull on the burden and competitive opportunity of compliant payments data handling

36 Doh… it’s the data, stupid! Celent’s new report on what corporate clients really want from their banking relationship, throws a spotlight on an asset that ISO 20022 will make increasingly valuable

Danny Scott of UK exchange CoinCorner, on the reality behind the headlines, the power of community and those darn goats

46 Tokens of merit

Myles Dawson of Adyen considers how tokenisation improves the UX in the face of rising contactless limits and tighter security

49 Quenching the thirst for crypto Charlie Méraud of Paris-based altfi market-maker Woorton, wants to see digital assets go mainstream… but he’s not convinced he’ll be paying for café au lait with Bitcoin any time soon

52 The simple logic of A2A Token’s Todd Clyde says it’s no longer a matter of if, but when, account-to-account payments move into the mainstream – where they will reshape the payments landscape

NEOBANKS 63 A landmark moment Monument estimates there are more than three million professional people in the UK with £200billion on deposit, many underwhelmed by the service they receive from mainstream banks. We look at how the neo kept calm and carried on building during a crisis and how it’s about to turn their fortunes around

WAYS TO PAY 43 Cornering the crypto market

66 Do-ing the right thing The ‘Greta effect’ forced governments to listen up on climate change. Another Swedish activist, fintech Doconomy, is having a similar impact on the financial system with help from G+D

MARKETPLACES 73 Squaring the PSP circle The ‘super correspondent bank for the new economy’ has been signing up PSPs so fast that it’s now settling six per cent of all Europe’s B2C e-commerce transactions. We asked Banking Circle’s Michel André what’s attracting them

76 TSB lays out its stall The first of the UK’s high street banks to launch an API-driven marketplace for customers, TSB is leveraging its Cloud-based platform to reap the rewards of open banking

79 Playing to the Gallery Fintech developers might come to see Huawei’s recent geopolitical challenges as a blessing in disguise. Siri Børsum certainly hopes to keep them busy as she sets about building an appstore to rival Google’s

LAST WORDS 86 Strike up the brand! Good things happen when you combine customer-centricity, art and science with company purpose, says Eric Fulwiler at 11:FS

THEPAYTECHMAGAZINE2021 EXECUTIVE EDITOR Ali Paterson

GENERAL MANAGER Chloe Butler

PHOTOGRAPHER Jordan “Dusty” Drew

EDITOR Sue Scott

US CORRESPONDENT Jacob Bouer

ART DIRECTOR Chris Swales

ONLINE EDITOR Eleanor Hazelton Lauren Towner

SALES TEAM Tom Dickinson Karen Estcourt Serena Khemaney Shaun Routledge

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

CONTENTS

FEATURE WRITERS David Firth ● Tracy Fletcher Rachael Harrison Martin Heminway ● Alex King Natalie Marchant ● Sean Martin Martin Morris ● John Reynolds Sue Scott ● James Tall Frank Tennyson

ISSUE #9 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.

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Issue 9 | ThePaytechMagazine

FINTECH FOCUS: M20/20 Quick off the mark: A McLaren F1 car at Railsbank's Money 20/20 exhibition stand

Good to be back: The Finte ch Finance te am

RACING TOWARDS THE NEW NORMAL After a pandemic-enforced move to online last year, Money20/20’s long run of successful crowd-pulling shows made a triumphal return to Amsterdam in September, to facilitate fintech industry’s connections, conversations, innovations and deals. The Fintech Finance team was glad to be back and on the ground – running, as usual! Here, James Tall records some of our observations and favourite moments from what was the comeback of the year! Last month’s Money20/20 Europe e vent in Amsterdam was the first large-scale industry conference to be held in-person following the COVID-19 pandemic. There was a palpable buzz around the lively Dutch capital as more than 4,000 attendees and 1,500 companies from 76 countries arrived in the city to reconnect. And people were keen to make up for lost time, with more than 7,000 1-2-1 meetings booked in. As Money20/20’s

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president, Tracey Davies, exclaimed: “We love digital, but you cannot beat real life!”

A REFRESHED FORMAT Following a forced but fruitful transition to the virtual, interactive MoneyFest platform last year, Money20/20’s strategy and growth officer Scarlett Sieber lauded the ‘brilliant minds of the European content team’ for taking a radical new approach for 2021. The conference set-up moved away from keynotes and towards a much more inclusive forum, with attendees encouraged to join in – and even lead – sessions. It was an impressive sight, with stages primed for open conversation and a more interactive feel. The floor plan was designed with sweeping walkways and large spaces to make sure things were COVID-secure, yet collaborative. “Normally, what’s disruptive about Money20/20 is the fact we’re talking about electronification, about digital,” said Sanjib Kalita, editor-in-chief, Money20/20. The most disruptive thing this year was that we were live and in-person; just the fact we were in a room felt crazy! But it’s good to hear the crowd react to things, which guides you in more ways than you would expect.” The new set-up still managed to deliver its usual stellar line-up of brands and industry leaders, covering the hottest topics reshaping financial services.

Speakers talked attendees through a host of visual sessions that explored the fundamental market shifts and trends that are now characterising financial services, whether COVID-induced, existing or new.

DIGITAL ASSETS MARCH ON At times, it felt like cryptocurrencies and central bank digital currencies (CBDCs) dominated the dialogue. But then, whether it’s Bitcoin’s record price highs or the adoption of it as legal tender in El Salvador, these digital assets have been making headlines. Coinbase’s Marcus Hughes was quick to emphasise crypto’s role in driving financial inclusion, pointing out there’s a place for many different types of products and services in the ecosystem. “Crypto can empower access to financial services for people who would otherwise never have the possibility to get a bank account,” he said, “through simply downloading an app onto their smartphone, to be able to buy and sell.” Marion Laboure, of Deutsche Bank, accepted the truth in this, but pressed the role of regulation in ensuring the currency and operators’ accountability. “We definitely need regulation in places where we are seeing more and more people investing in risky assets such as www.fintechf.com

cryptocurrency; we need to make sure people know what they are doing, and there is a robust framework available to protect investment.” While a lot of the discussion considered crypto’s potential to help people take back their financial sovereignty, perhaps the most pressing question moving forward is how central banks and governments around the world will now react. One of the most engaging sessions on ‘The Core’ stage saw panellists explore ‘How should CBDCs be designed and what function should they perform to become a trusted medium for payments?’. De Nederlandsche Bank’s Inge van Dijk was generally bullish about the potential of CBDCs, with the Dutch central bank currently working on a retail CBDC to support the population’s increasingly cashless behaviour. While the shift to digital is certainly advanced, she did note the emergence of CBDCs means we’re all on the brink of something new, and we need to know how to stay in control. Banque de France’s Anne-Catherine Bohnert broadly agreed, highlighting the potential that CBDCs have to drive better financial inclusion. “As citizens are now using cashless, central banks need to provide an alternative to central bank money and, as demand is increasing for digital payments, it’s important to provide this alternative,” she said. Attendees also talked through the potential for improving interbank and cross-border payments through blockchain technology, particularly when it comes to cost reduction and the speeding up of settlement times. Seeing the focus both private and public sectors have on digital assets, it becomes clear that their march into the mainstream will only gather pace.

Capgemini Invent’s Colin Payne said this kind of unexpected element can lead to the best partnerships, as different perspectives and diverse experiences collide. Arunan Tharmarajah from Wise agreed, pointing out that organisations need to start with the basic question of ‘why partner?’ to confirm a shared vision that will work. Sendi Young, of Ripple, added that the way in which big tech entered financial services speaks volumes. Big tech found massive value in partnering and bringing in new players, with ‘strength in both camps’ meaning that both can come to the table and build something better. And partnerships can take multiple forms. In one of the event’s headline sessions, Julia Hoggett, CEO, London Stock Exchange (LSE), had a chat with Olga Zoutendijk, Director, Julius Baer Group, about how traditional institutions are partnering with fintechs and other new entrants.

The most disruptive thing this year was that we were live and in-person; just the fact we were in a room felt crazy! Sanjib Kalita, Editor-in-Chief, Money20/20

Since 2014, the UK has produced twice as many unicorns as any other European country, and the LSE has played a major role in these companies scaling through listings. Hoggett had some good advice for ambitious founders who wish to list. “It’s your process, own it,” she said. “The listing is how you function as a company for a long time to come. Do it your way – work with regulators and other companies, but find your own best way to market.”

UNUSUAL PARTNERSHIPS

RISE OF EMBEDDED FINANCE

In the post-pandemic world, it’s accepted that partnerships and collaboration are more crucial than ever, and organisations from different sectors can come together to produce better financial services for a more demanding consumer. This concept was put under the spotlight in the session ‘How can we discover unexpected partnerships?’ Panellists name-checked Apple and Goldman Sachs’ tie-up, the SBI and Ripple partnership in the crypto space, and (of course!) George Clooney’s partnership with DNB Bank.

One of the more eye-catching new partnerships announced at Money20/20 was between QNTMPAY, the digital banking partner of the McLaren F1 team, and embedded finance platform Railsbank. You couldn’t really miss the F1 car pulling into Railsbank’s exhibition stand for a pitstop. In a move that illustrates the growth in embedded finance, Railsbank will support QNTMPAY’s launch in the UK, where it plans to tap into the ‘fan economy’ worth around £8.5billion annually. Designed to enhance the F1 fan experience, QNTMPAY will offer

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rewards and experiences to fans to really drive loyalty, with McLaren Mastercardbranded debit cards on the horizon. “Consumer brands are under pressure to keep hold of the digital grip of their customers or fans,” said Nigel Verdon, CEO and co-founder of Railsbank. “Brands must unlock untapped opportunities that can deliver relevant experiences to enhance their brand value. Embedding finance experiences into existing offerings is an attractive path for brands looking to increase regular engagement and revenues.” Away from the exhibition space, one of the most well-attended breakout sessions covered partnerships between the platform giants, with a panel that included Netflix, Checkout.com and Spotify. The session highlighted embedded finance’s crucial role as a path for growth. Checkout.com’s Yael Barak explained that the platform’s success isn’t solely from products and services, but also from how they are embedded in users’ daily lives. She pointed out that this is a key learning for financial incumbents, hose products are quite often still largely distributed using their own, long-established and sometimes creaking channels.

MAINTAINING CONSUMER TRUST Given the growth in open banking, and the plethora of new financial products and services available, a common thread was the importance of providing protection and education to the world’s consumers. Moderating a panel focussed on consumer trust and consent, Money20/20’s Kalita led a thought-provoking discussion about how today’s companies can build that trust with their customer base. “We must be very respectful with personal data, and careful with showing what’s being done with it,” said Elena Alfaro from BBVA. “And we need to create services based on this data that are both meaningful and valuable to consumers.” TransUnion’s Shail Deep agreed that data security is a major concern for consumers: “There needs to be transparency with consumers. They must be in control, and assured that the data is secure. Once these three elements are in place, we develop and establish trust.” It’s reassuring to see the industry taking these issues seriously. After all, for all the talk of crypto and CBDCs at this year’s show, consumer trust remains the most valuable currency of all. Issue 9 | ThePaytechMagazine

INFRASTRUCTURE: THE CLOUD

Up, up and away?

The adoption of Cloud technology was accelerated during the pandemic, but some institutions are still cautious about further implementation. Jason Ang, SmartStream’s Product Manager for Transaction Lifecycle Management Collateral Management, addresses their concerns head on The Sibos 2021 virtual conference takes an in-depth look at how the industry can emerge from the disruption of the past year stronger than ever by exploring four connected themes: digital acceleration, managing risk, transformative technology and banking on change. And if there is one technology that speaks to all of those, it’s Cloud.

Adoption of Cloud technology rocketed during the pandemic. Microsoft CEO Satya Nadella is reported as saying the company saw two years of digital transformation in two months as its customers moved to Cloud-hosted solutions. The catalyst in financial services was the need to preserve critical functions amidst a dramatic shift to homeworking during successive lockdowns. Cloud went from being a potential future option that many institutions remained sceptical of, to an absolute necessity for preserving competitiveness in an increasingly challenging marketplace. A number of major players were bellwethers of the sudden sea change, including HSBC, which reached a strategic Cloud agreement with Amazon

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Web Services (AWS), Deutsche Bank with its announcement of a 10-year partnership with Google Cloud, and Santander’s decision to migrate more than 200 of its servers into the Cloud on a daily basis this year as part of a transformation it plans to complete by 2023. Cloud solutions provide the flexibility required to support the blended home and office working – and international collaboration across workforces – that became a feature for many firms in the immediate aftermath of the pandemic, and which now look set to stay. According to PwC, 40 per cent of financial services companies have 60 per cent or more of their employees now operating from home at least once per week, compared to 29 per cent immediately prior to COVID-19. Cloud enables such anywhere, any-time continuity, ensuring services are maintained, no matter what. It took a crisis for the technology to be trusted to deliver on that promise, though: an Association for Financial Markets in Europe and PwC survey discovered that 2020 saw a 30 per cent rise in Cloud adoption compared to 2018, with

Gartner predicting an 18 per cent rise in companies’ spend on Cloud solutions in 2021 alone. Now they’ve made the leap, organisations are turning their attention to optimising the potential of the Cloud, while keeping a close eye on their security and regulatory compliance. One organisation at the heart of that journey is transaction management technology specialist and Sibos sponsor, SmartStream, whose customers include more than 70 of the world’s top 100 banks. It made its own commitment to the Cloud two years ago and has mentored many of its clients through the process of transition. We spoke to Jason Ang, SmartStream product manager for transaction lifecycle management (TLM) collateral management, about the opportunities www.fintechf.com

The wisdom of the Cloud: A crisis accelerated adoption, but the case had already been made

The idea of handing over control to an outside provider is sometimes scary for a financial institution. Forced upgrades are a particular concern when those institutions are stringently regulated www.fintechf.com

that lie ahead in the Cloud, why some institutions remain unconvinced despite the unprecedented wave of adoption, and how those that do adopt a Cloud-based strategy can ensure they do it right. A former senior executive with Deutsche Bank, Ang has been on the inside of some of those decision-making processes and understands institutions’ concerns. As he tells us here, he’s now also convinced of the advantages of Cloud-based services. “SmartStream created Cloud-based, on-demand services because we know there are some key value propositions that are attractive to our clients.

“In terms of cost, it enables a mutualisation of personnel and hardware, which means that instead of each organisation having staff assigned to a particular hardware or software, we maintain it for them. This controls the cost and allows us to provide a very compelling use case. Internal hardware can also be very expensive for firms to maintain themselves, given current datacentre structures. “Then there is the question of expertise. Rather than having one or two people within an organisation understanding our software, we have a full team that knows how best to run and develop it, so our clients can rely on us to take care of that for them. Issue 9 | ThePaytechMagazine

INFRASTRUCTURE: THE CLOUD “The third benefit is scalability. Organisations can increase or decrease their capacity as needed, without having to physically add more machines, and only pay for what they use. “While scalability is a (much-talkedabout) key performance indicator (KPI), I wouldn’t say it’s always the principle one. It depends on the organisation. For some, it absolutely is, others may not be looking to scale dramatically but just want a turnkey solution so they can focus on their business rather than having a team that’s trying to maintain this kind of software. Whether an organisation is looking to scale or not, though, it still needs expertise, quality and stability within its Cloud systems while controlling the costs.”

A SAFE CLOUD PATHWAY So, given the upsides, what’s still holding some businesses back from going further with Cloud adoption? There are several, understandable reasons why financial organisations might be wary of stepping into a Cloud-based environment, says Ang. And he understands their concerns. “Security is paramount in people’s minds, especially the risk of penetration by hackers or other unscrupulous players. That’s why SmartStream chooses the best partners to work with: the likes of AWS and Azure spend billions on making sure their environments are secure – way more than any one client’s individual security budget. “The other aspect of security that might concern them is the comingling of data. A lot of Cloud services organisations pool all their clients’ data into one single system and the fear there, especially among larger organisations, is of data breaches or leaks. Where data is comingled but logically separated, a simple error in coding, for example, could result in a data breach. This is why SmartStream uses single-tenant, virtual private Clouds for each client. “Then we come to the issue of control. The idea of handing over control to an outside provider is sometimes scary for a financial institution. Forced upgrades are a particular concern when those institutions are stringently regulated. If a Cloud-hosted application forces them to upgrade, they may not have enough time to do all the connectivity and integration tests they wish to, and that’s too much risk for some institutions to be comfortable with. If they don’t have enough time to test,

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that has an impact on quality, too. So, SmartStream doesn’t force clients to upgrade. Instead, it works with its partners to their schedules. “Another risk is in not knowing the financial wellbeing and skills resource of their technology partner, and the related fear among financial institutions is of downtime that’s out of their control.” On that score, SmartStream’s 40-plus years of experience in providing uninterrupted services for critical processes, in the most testing conditions, for blue-chip clients, coupled with a trophy case of awards, inspires confidence.

Cloud providers like AWS and Azure have teams upon teams of experts and SmartStream’s use cases are created with them as trusted partners because we want to build a better environment, with the best people, for our clients

“Those are some of the reasons why businesses are wary about moving operations to the Cloud,” says Ang. “But, as you see, SmartStream mitigates those risks and many, many clients are moving to our on-demand service as a result.” Having helped organisations cope with the strains caused by the pandemic, does Ang believe Cloud technology will make the industry more resilient against future shocks?

“That depends on how the Cloud technology is administered. It’s true that a lot of benefits were realised during the pandemic because the people who have been administrating and running Cloud-based systems are used to what the crisis forced traditional organisations to do, which is to basically run their businesses remotely. On top of that, volumes skyrocketed in some cases, which is where people began to see the advantage of scalability in the Cloud, and being able to add capacity without any issues arising from that. There’s no doubt that really helped some of SmartStream’s clients to manage the pandemic better. “In terms of the future, that depends on the execution and risk tolerance of the organisation involved. Cloud providers like AWS and Azure have teams upon teams of experts in their organisations and SmartStream’s use cases are created with them as trusted partners because we want to build a better environment, with the best people, for our clients. “Each organisation has unique needs, and we make sure we drive our solutions to help them. To do that, we bring a lot of collective expertise and experience to the table, not just in terms of technology, but also in being able to collaborate with, and have good relationships with, clients. In collateral management, we’ve decadeslong partnerships with some clients, and so we’ve established a deep level of trust. And, because we have such a large set of clients, we can implement best of breed. So, all our clients benefit from this collaboration. “I’m currently looking at data holistically, across organisations, for instance. What do people use our data for and how can we use data to help enhance our own processes and those of our clients? There are questions around liquidity and the best use of assets across an organisation, providing data through APIs to downstream and upstream systems to determine pre-trade or post-trade optimisation. And then looking to surface these insights by having the data in a location where organisations can then use Cloud capabilities to scale up AI, giving them insights into cross-organisational data. “Because SmartStream has a very powerful innovations lab that is driving AI through our solutions, the latter is one of the things we’re really looking forward to working on.” www.fintechf.com

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INFRASTRUCTURE: REAL-TIME RAILS Fast mover: Banks and PSPs were compelled to adopt real-time payments

Hungary for change

OTP Bank’s Gabor Bujaki and Dean Wallace from ACI Worldwide explore the possibilities presented by the AFR – a domestic real-time payments scheme that has supercharged banks’ digital transformation

The race to real time is hotting up in markets across the world, and Hungary is a particularly interesting case study. The country is unusual in that, since last Spring, it has mandated that domestic credit transfer services must be real-time (settled within five seconds, in fact) for all individual and bulk retail transactions and individual corporate transactions. The system, involving the clearing house, GIRO Zrt, and 35 payment service providers (PSPs), working in tandem with the country’s banks, is known as AFR. This is part of Hungary’s longer-term ambition to clean up the shadow economy – said to be worth 11.18 per cent of Hungary’s GDP – by moving away from the cash that has accounted for 80 per cent of retail payments. Based on Europe’s SEPA Instant Credit Transfer Scheme (SEPA Inst), AFR is the brainchild of the Central Bank of Hungary (MNB) and, according to the scheme’s detailed rules, a transfer must now be made available to the beneficiary within five seconds; the amount credited must be irrevocable and immediately at the disposal of the account owner; and, if the transaction is rejected, a message must be automatically generated to the payer. The AFR promises a host of benefits for both merchants and their customers. www.fintechf.com

For example, it will likely fuel the adoption of QR codes at cash desks, with the five-second execution time very efficient when it comes to queues. It also allows consumers to make one-off transactions, including significant purchases such as buying a car, which, like the rest of us, most Hungarians make at the weekend, outside of a PSP’s normal working hours. Another forward-looking feature is that secondary identifiers can be connected to the accounts – including email address, mobile number, business tax number and consumer tax ID number – besides the traditional IBAN (international bank account number). The scheme also supports request to pay (RTP). In the first year of operation, more than 114 million transactions were executed through AFR, with a total value of HUF 17,400billion. Ninety-six per cent of them were processed within two seconds. The stability of the system is no mean feat, considering the changes banks were required to make in fairly short order to align with it. As András Linczmayer, of project management consultants Mindspire, which helped several through the transition, wrote in a recent blog: “The biggest challenge of the implementations was that most of the legacy financial back-end systems are not designed for

99.9 per cent availability; banks had to make large-scale developments and introduce new shadow systems to be able to fully comply with the regulations within the given deadline.” Hungarian OTP Bank Group, one of the largest independent financial service providers in Central and Eastern Europe, which was named Hungary’s best digital bank this year, was well ahead of that curve. It’s enjoying the opportunities opened up by the AFR, and is working on the technology to support its long-term success and possible expansion. “We’re innovating heavily in terms of payment methods,” says Gabor Bujaki, a senior consultant at OTP Bank who focusses on merchant acquisition. “Our team is collaborating with universities and those creating future technologies in order to find out which fits Hungary’s real-time banking strategy the best. “Our aim is to meet all the electronic payments solutions that merchants are interested in – if they want to have QR code scanning solutions, for example. Ultimately, electronic and contactless payments need to see significant IT development. I think that cooperation between banks, acquirers, and other ecosystem players will be pivotal to restructuring the future payments landscape.” Issue 9 | ThePaytechMagazine

INFRASTRUCTURE: REAL-TIME RAILS ACI Worldwide, a well-known software and solutions provider, is a major feature of that landscape. In fact, 75 per cent of Hungary’s AFR solutions are processed through ACI’s Low Value Real-Time Payments solution. It supports banks and their intermediaries as they embark on the road to real-time and it has global experience of the challenges and opportunities presented by a wide range of domestic systems: in fact, it works with 18 of them around the world, including Malaysia’s Real-Time Retail Payments Platform (RPP), Singapore’s FAST and the Australian New Payments Platform (NPP).

Cooperation between banks, acquirers, and other ecosystem players will be pivotal to restructuring the future payments landscape Gabor Bujaki, OTP Bank

ACI’s director of product management, Dean Wallace says the enforced move to real-time payments has helped accelerate the adoption of open banking. “Banks had to open up access to accounts through APIs,” he says. “They had request-to-pay capabilities early on. So, the Hungarian market moved straight to real-time and digital modernised infrastructure rapidly, making the banks move along in tandem and develop new capabilities that will stand them in good stead.” Having got to grips with a domestic real-time payments system, OTP is keen to see the capability extended across borders, too. With a foothold in much of Eastern Europe – including Serbia, Ukraine, Bulgaria, Albania, Montenegro and Slovenia, where it is now the country’s biggest bank – it’s easy to see why cross-border integration is important to it.

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In the Nordic region, banks are about to launch P27, an integrated multi-country real-time payments system, operable in four currencies; the European Payments Initiative, meanwhile, is another industry-led scheme that hopes to overcome cross-border settlement challenges – albeit in a common currency – between SEPA states next year. OTP Bank’s progressive strategy for developing and promoting digital services, the growth in the number of customers using digital channels, the steps the bank has taken to develop attractive offers and its geographic footprint, operating both inside and alongside EU payment systems, positions it to drive similar cross-border harmonisation in Eastern Europe and the Balkan states. Already the largest bank in Hungary by some margin and the most digitally advanced, Bujaki says: “Our most important goal now is to secure a bigger market share on the international stage, through cross-border payments. We have a really big step in front of us in terms of developing a suitable cross-border structure, and then becoming recognised as an international cross-border bank with a Hungarian/Eastern European centre.” Among Hungary’s non-EU neighbours, Ukraine in particular is keen to align itself closer to European economies as it distances itself from Russia. Building a successful real-time domestic scheme is one thing; taking it across regional borders quite another. “Real-time payments schemes are typically set up domestically. Independently. It’s only now they’re starting to connect up, so as an industry we’re looking at another few years to really see true global interconnectivity,” says Wallace. “On the periphery, it looks straightforward – ‘I’m going to set up a new system, and people are going to plug in.’ But it’s so much more than that; there are different transaction types, testing, certification. There’s a lot of risk.

“All of the global schemes I’ve talked to over the last few years know the challenge they’re biting into. But it will happen sooner in some markets, certainly where trade borders are already lower.”

The Hungarian market moved straight to real-time and digital modernised infrastructure rapidly Dean Wallace, ACI Worldwide

Well-structured, rich data undoubtedly works in their favour – particularly that unleased by the widespread adoption of ISO 20022 payments messaging “ISO 20022 enables the sharing of richer data, which can be used to understand your customers and your processes a lot better than you could previously,” says Wallace. “If that data is standardised, it also leads to a lower cost of processing transactions. And that’s where we’ll see more interoperability.” The architects of the AFR aspire to it ultimately replacing the platforms of other retail clearing services in the future – and they built it with an eye to Hungary finally adopting the euro, too. The system would be able to manage euro transactions via a simple change of the currency code. Ultimately, what drives AFR and what it is demonstrably already delivering, is better payment experience for customers, with the opportunity for banks and PSPs to build additional added-value services, such as request to pay – now offered by six banks in Hungary – on top. Good user experience is something OTP is focussed on and something Wallace believes is paramount, particularly in the online space. As he says: “Experience trumps anything.”

www.fintechf.com

INFRASTRUCTURE: PLATFORM SERVICES

Easing the load on CIOs and CTOs Executives in these roles have had more than enough to cope with over the last 18 months. But, having come through the fire, Banking Circle wanted to know what it is about ‘the next normal’ that still keeps them awake at night. Its CEO, Anders la Cour (right), suggests how a financial infrastructure platform can help lighten the load “Technology leaders are being called upon to serve as kinetic leaders – a super-charged change instigator, pursuing transformation while ensuring resilience.” That rallying call to chief technology (CT) and chief information (CI) officers came from Deloitte’s 2020 Global Technology Leadership Study, based on results gathered just as the world shifted under the feet of financial services, the pandemic catapulting them faster than anyone ever thought possible into a digital-first future. Eighteen gruelling months later and Banking Circle decided it was time to ask what, of their many ‘super-charged’

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responsibilities, was keeping CTOs and CIOs awake at night. It turns out that the answer largely depends on whether they’re instigating change for a fintech or inside a bank. Of the 600 office holders that Banking Circle interviewed across the UK, Benelux and DACH regions, those employed by the former, including challenger banks and payment service providers (PSPs), mostly fretted into the wee hours about potential tech outages, whereas those employed by the latter couldn’t sleep for intrusive thoughts about their digital transformation projects. A good solution, the researchers suggested, was to find a new partner – not to share their bed with, but rather their technology troubles. “Working in partnership with external providers will ease the burden on CIOs and CTOs, by spreading the load,” says Anders la Cour, CEO of Banking Circle, the Luxembourg-based ‘super-correspondent bank’, which aims to relieve them of at least one of the stresses of the job… that of ensuring clients’ cross-border payments are settled securely in minutes, rather than days, for a fraction of the standard cost incurred in the traditional correspondent banking chain. It’s the long-winded process, with potentially multiple regulatory checkpoints at which a payment could be detained or rejected (often erroneously) that makes transfers – of smaller amounts, in particular – uneconomical for all concerned,

disappointing customers and choking off international trade for small businesses. A fully-licensed bank, working solely for financial institutions and payment processors, Banking Circle’s aim is to reduce the number of stages in any transaction by providing payment rails through a combination of direct clearing with central banks and a strong correspondent banking network.

squaring the additional demand for digital payment services accelerated by a pandemic, with budgets that, while increasing, were not enough for a complete overhaul of the infrastructure required, many saw partnering with external providers as a way to futureproof their organisations. Overall, two-thirds of those surveyed in both banks, fintechs and payment service providers said partnerships featured in their future plans. “The CIOs and CTOs we surveyed MEETING THE CHALLENGE are facing some significant internal In 2020, it processed a record six per challenges that are hampering their cent of Europe’s business-to-consumer ability to meet business objectives in (B2C) e-commerce flow, a total of some areas,” says la Cour. “The biggest €155billion in payments on behalf of challenge was the lack of integration financial institutions. The uplift in volume with customer-facing departments, was a reflection of its fast-growing client that was true for around half of all base – including the onboarding of respondents, and only slightly fewer, significant global payment players around 45 per cent, highlighted a lack Stripe, Alibaba and Paysafe – which saw of data consistency between internal it double the number of companies it systems, and a lack of consistency across worked with during the year. country operations. So, clearly, data Banking Circle’s latest white consistency and system integrations paper, Futureproofing Payments are areas that need to change, and Tech: The Challenges Keeping CIOs partnership with And CTOs Awake At external providers Night, indicated that, could help solve having successfully the issues without a adapted to the intense significant investment demands of 2020, of internal time they were fairly and money.” confident in the ability When it came to of their organisations external challenges, to investigate and inconsistent regulations procure new payment across geographies and related IT systems, Anders la Cour, ranked equally to cope with not just CEO, Banking Circle with the threat of the new normal but money laundering – the latter weighing also the next normal (whatever that particularly on the minds of CIOs might be). That said, they weren’t as convinced of their businesses’ resilience in concerned about the consequences other areas that they were responsible for, for the whole enterprise. Two-thirds of all respondents planned including artificial intelligence and to build the necessary payment tech machine learning, data security, systems in-house, while the same number said migration and training, to name a few. they’d buy it off the shelf and 65 per cent Although 63 per cent of office holders would outsource or utilise partnerships, at fintechs, and 56 per cent of those at which indicates that many firms will make banks, expected to see their payments IT the decision to build, buy or partner on a resource increase in the next 12 months, case-by-case basis. As the white paper many, it appeared, were still wrestling points out, a payments infrastructure with boards that underestimated the provider with compliance systems already technical challenge and financial resource in place across multiple jurisdictions, needed to deliver what they were and sophisticated fraud detection, expected to deliver over the next few is a compelling proposition. years. Faced with the impossible task of

Working in partnership with external providers will ease the burden on CIOs and CTOs, by spreading the load

Issue 9 | ThePaytechMagazine

INFRASTRUCTURE: PLATFORM SERVICES Fleshing out those findings, la Cour says: “In terms of payment technology, many of our respondents are planning to spread their budgets across a number of platforms, not just utilising one resource. Banks are most likely to buy off-the-shelf, that was around 71 per cent; PSPs and fintechs are most likely to build solutions in-house, that was true for somewhere around 70 per cent.” All respondents agreed that the area that will see the most new funding, compared to pre-COVID levels, is API technology, with 44 per cent planning more investment, which the report’s authors interpreted as ‘a desire for better integration/usability to improve experience’. The good news – if you’re a glass-half-full kind of observer – is that 56 per cent of all respondents said that at least half of their IT and payment systems are already in the Cloud. On closer inspection, Banking Circle found – perhaps to even its surprise – that banks were ahead of fintechs in that regard. Sixty per cent of banks said at least half of their payment systems were Cloud-based, compared to 52 per cent of fintechs. None of the fintechs questioned had a 100 per cent Cloud-based payments system. As la Cour knows only too well, such infrastructure investments are hugely costly and complex, which makes working with a Cloud-based partner that has already done the heavy tech lifting, an efficient way to future-proof the business without weighing down the balance sheet. There is another issue that points to the logic of partnering. “All of the fintech respondents confirmed that they have skills gaps in their organisations,” says la Cour. “The most common was in Cloud skills, which was a problem even for 60 per cent of fintechs, followed by AI and machine learning, at around 53 per cent. Thirty-four per cent of banks lack skills in programming, compared with 27 per cent of fintechs. And when we asked which skills the organisations felt were most crucial, banks and fintechs agreed on data warehousing, followed by technology management and architecture.” As analysts at Gartner pointed out at the beginning of this year: “The culture of digital ‘haves and have-nots’ in finance will deepen if finance leaders don’t address digital finance skill gaps. It will also make it harder to capture returns on digital investments. But even when finance

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leaders are committed to improvements, it can be challenging to identify and install the specific digital finance skills and competencies needed.” Partners, on the other hand, tend to be a cauldron for such talents, with staff exposed to a wider range of experiences across client organisations, bring mutual benefits.

Addressing the skills gap: Both banks and fintechs would benefit from expert external support, says la Cour

For the CTO, the white paper said, the most common driver for investment is ‘offering a superior customer experience’, at 37 per cent, while for CIOs it’s ‘overcoming resource limitations’ at 33 per cent’, which researchers suggested was reflective of CTOs’ typically more outward-looking roles. Interestingly, the second most selected internal challenge by CTOs, after a lack of integration between customer-facing departments, was a lack of C-suite support for the role (46 per cent), ‘revealing that their peers have differing focusses and CTOs have their work cut out to convince them for more backing’. There was another important divergence of opinion when it came to outsourcing, where CTOs were noticeably less willing (58 per cent) than CIOs (71 per cent) to work with a third party, indicating a potentially uncomfortable conflict for anyone caught in the middle. CTOs, the paper observed, would rather build in-house, ‘perhaps in order to build purely bespoke for themselves and customers or keep perceived third-party costs down. CIOs see it differently, understanding the huge time and investment required to get in-house infrastructure built and operational’. There was, however, more agreement when asked what their priorities were for the next year, the most common high priority being improving data quality (43.7 per cent), closely followed by improving the customer experience (43 per cent) and migrating to digital delivery of services (42.2 per cent); CTOs, in particular, seeing ‘keeping customers happy’ as crucial to remaining competitive, the white paper said. Given the demands of the jobs, it’s not surprising that just over half of all CIOs and CTOs admitted to feeling stressed – those employed by organisations with a turnover of between £1million and £50million noticeably more so than those toiling in small companies or £100million-plus corporates. Diamonds are made under incredible pressure, but, given there are payment technology firms that can help, would you rather sparkle… or sleep?

Given the demands of the jobs, it’s not surprising that just over half of CIOs and CTOs admitted to feeling stressed

While, historically, the CTO reports to the CIO, many clearly hold very different opinions to the boss, which was most obvious when it came to the part of the survey that asked about investment and the decision to buy or build – important, perhaps, for a prospective supplier/partner to know.

www.fintechf.com

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INFRASTRUCTURE: EUROPEAN PAYMENTS INITIATIVE

Martina Weimert, CEO of the European Payments Initiative Interim Company, and Craig Ramsey, Head of Real-Time Payments at ACI Worldwide, on why this time the EU’s dream of instant integration could just become reality The idea of unifying European payments is hardly new. There have been several ambitious initiatives over the years, including the short-lived Jean Monnet Project (2008-2011), while the Single Euro Payments Area (SEPA), established in 2008 and now spanning 36 countries, is very much alive. It only partially realised the harmony it set out to achieve, though, particularly in the area of card payments and now a new, industry-led contender is determined to finish the job. The European Payments initiative (EPI) is the latest effort to build a pan-continental system for cross-border payments in the region. There are, however, some notable differences to what has gone before. It is the first to address all types of retail transactions, including card and instant payments, peer-to-peer (P2P) transactions and digital wallets, in physical and online environments. And it’s upfront about taking on the hegemony of American operators Visa and Mastercard. While that was also the European Central Bank’s

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(ECB’s) aspiration for a still-not-realised ‘SEPA card’, the EPI will instead attempt to cover an important part of European card volumes by leveraging the ECB’s TARGET Instant Payment Settlement (TIPS) for transactions via smartphones, PCs and in-store point-of-sale. Europe’s seven local schemes account for around half of domestic payments using cards, but where the US operators dominate is in transactions across borders in the EU. While the EPI has no direct contact with the schemes, it does onboard banks and acquirers who can be shareholders in them. The EPI also sets out to address the rising influence on European payments of Asia’s super-app financial platforms WeChat Pay and Alipay, as well as any other, non-EU super-apps yet to emerge. So, with more than 30 banks and seven countries so far on board, and just a few months from launch, will the EPI align the payment planets this time? The political prospects for success seem good, but it’s still a big step to unite Europe’s fragmented payment systems and ensure

ongoing cooperation among the EPI’s stakeholders – banks, credit institutions and other payment interests. As CEO of the EPI Interim Company, Martina Weimert is driving the new solution, and she believes it’s learned from past European payments projects’ successes and their mis-steps. “The idea is to create a fully-fledged European ecosystem, on both the issuing and the acquiring sides,” she says. “We know that if you just serve one side, you’ll never be successful. We’ll involve other players and build up our technology platform so that we can offer connectivity to all these players.” Real-time connectivity and Interoperability are key challenges for payments, which is something Craig Ramsey knows all about from heading real-time payments at ACI Worldwide, a specialist software provider offering end-to-end payment processing solutions. Supporting many of the world’s payment systems, ACI takes an independent view. Having watched many of them evolve across the world, though, Ramsey sees the www.fintechf.com

EPI as the start of a long-overdue journey towards harmonising European payments infrastructure and creating an enabling environment for much-needed new products and services in the region, thus validating the EPI’s business case. Instead of reinventing the wheel, it’s using Europe’s existing payment infrastructure. “The EPI is a great example of an overlay service,” says Ramsey, “because it sits on real-time rails. Many countries have deployed real-time rails to enable account-to-account transactions, but that wasn’t the end game here. The goal is to have overlay services driving the need for those real-time rails, bringing new ways to pay and be paid, increasing liquidity and speeding up reconciliations while lowering the cost of transactions.” Weimert, in fact, describes the EPI as a ‘fully-fledged front-end solution’ that draws strength and meaning from back-end, rules-based structures like SEPA and TARGET. “Infrastructure should create additional value,” she says. “So that’s our challenge and, I agree, it’s a long journey, because we’re not starting with a greenfield situation. We have to migrate a lot of things and build a new solution while not losing the clients, value and trust that have been built up over years.” A universal payment solution that embraces all payment options and is also pan-European would, undoubtedly, simplify things at the point of payment for consumers and, ideally, reduce processing costs for banks/payment services providers.

The idea is to create a fully-fledged European ecosystem, on both the issuing and the acquiring sides Martina Weimert, the EPI

However, the two biggest hurdles are likely to be a reluctance among customers, who are already familiar with and trust their existing payment options, to adopt the EPI, and, as Ramsey points out, the fact that ‘one of the things the payments industry is very bad at is shutting down old schemes’. As the head of the European Payments Council (EPC) has said many times, businesses will respond to demand. And, unless there is a strong business case, why www.fintechf.com

would a bank make significant investment in the technology and process needed to accommodate another payment system? The EPC’s SEPA Inst is a case in point. It was introduced in 2017 as a voluntary alternative to banks, for making pan-European transfers of up to €100,000 in seconds. It currently still only accounts for 10 per cent of all SEPA Credit Transfers (which take the standard amount of time) and only 56 per cent of all payment service providers (PSPs) are signed up to it, although the EU may well compel the others to join at some point. Weimert, perhaps keenly aware of past promises, resists the urge to herald the EPI as a new age of instant payments. “I think it’s a hope but definitely not the new normal yet,” she says. “We’re only at the start, having figured out the clearing and settlement layer and, hopefully, the API-based middle layers, as well as all the required rules, especially for commerce around such things as chargebacks and refunds. Then we can innovate on top of this. Through instant payments, we can offer far more use cases than with cards, for example There are many more situations, such as unattended commerce, which are easier to provide with instant payments. The industry must offer this kind of choice to the consumer, but it’s not there at the moment.” Despite SWIFT’s Global Payments Initiative (SWIFTgpi), and the pioneering role played by the likes of Paypal, she adds: “I ask you, who is, today, providing the infrastructure to allow international instant transactions? Nobody allows this, so far. It’s definitely not on the same level as cards, which are available everywhere, and which function cross-border as well as domestically. There’s a long way to go still.” According to Ramsey, a big part of the challenge in getting there is figuring out how to escape the limitations of inflexible legacy systems. But he agrees that: “For consumers, It’s all about instant gratification. The Amazon mindset is shaping payments today and the biggest use case for instant payments is P2P.” Among the most compelling circumstances in which that can be used is putting earnings in people’s pockets fast. Earned wage access (EWA) providers that facilitate payments outside of the usual monthly batch run, are increasingly prevalent in the gig economy. Ramsey also cites Request To Pay (RTP) as

an example of an overlay service that will give consumers reasons to use and confidence in the EPI infrastructure – because they’ll only need their phone and existing banking app and won’t have to share account details with anyone else. For billers, the attraction is that payments won’t be rejected. It also means faster and more efficient reconciliation, with useful data accompanying the payment. Weimert highlights the advantage to banks and PSPs of a single digital interface with the EPI, to embrace the full range of payment options, such as P2P, in-store, online, mobile commerce and cash withdrawals, complemented by a wide range of value-added services. “Instant financing is the first of those,” reveals Weimert. “It’s a kind of buy now, pay later solution, available with just one click.”

The EPI is a great example of an overlay service because it sits on real-time rails

Craig Ramsey, ACI Worldwide

Like her, Ramsey looks forward to a new age of user choice and diverse services, but doesn’t underplay the challenges involved in introducing a cross-border payments ecosystem in the EU. That said, he believes ISO 20022, the international standard for exchanging electronic messages between financial institutions, is a good basis for collaboration and innovation around real-time payments. The standard has been hailed as a major step towards harmonisation, although, as Weimert points out, there’s no guarantee cross-border instant transactions will be any more simple to achieve, even if all parties use the same currency! “Even if we’re all on ISO 20022, we might need additional conversion features to allow various solutions to work,” she says. “Take QR code solutions as an example. In one country, a QR code could be set up to work as a push payment, and in the other as a pull payment, and that won’t allow a transaction to go through. So, I think it takes much more than simply having a common standard somewhere at the back.” No one said joining the European payments dots was going to be easy, but at least the EPI knows the picture it ultimately wants to create. Issue 9 | ThePaytechMagazine

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INFRASTRUCTURE: HARMONISATION

Pa¥ ing in p€rf€ct harmon¥ As we hover on the brink of the latest attempt to bring real-time settlement synergy to the Eurozone, we asked two leading industry players – Gabrielle Bugat, who heads up G+D’s Card & Digital Payment business, and Andrej Vckovski, CEO and Co-founder of Netcetera – if it’s really possible to unite the world’s payment systems (among other burning issues!)

“I don’t see convergence coming any time soon,” says Gabrielle Bugat, who heads up G+D’s Card & Digital Payment business. Well, you can’t put it plainer than that. She is referring to the likelihood of the world’s payments systems agreeing on a fully harmonious solution for real-time, cross-border transactions. And she’s sceptical, not because the technology isn’t capable of delivering it. But because, as she puts it, ‘we’re so different’. “I was once in the same room as someone from Finland and someone from the US and, even though they were both speaking English, they were not speaking about the same thing when it comes to payments, because one country is credit intensive and, in the other, they say ‘we can’t spend what we don’t have’. Just with this sentence, you understand that convergence will not happen.” Her comments come as the EU

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– on the face of it, one of the most homogenous payments regions in the world, ‘united’ by a common currency – is on the cusp of trying to achieve what the Single European Payments Area Instant Transfer (SEPA Inst), the Jean Monnet Project and numerous other payment alignment schemes have tried and failed to do in the past, albeit in a different way. The European Payments Initiative (EPI), due to go live next year, is just the latest attempt to create a one-for-all settlement network, compatible with all current and future transaction methods in every member state. More than the well-known challenges – marrying up diverse systems, platforms and regulation – the fundamental barrier to harmonisation is culture, believes Bugat: the simple fact that the human beings who are the end-users of payment networks have very different needs, and deeply embedded views of what good looks like when it comes to meeting them. That doesn’t mean we should all give up and go home. Rather, her vision is for global payment flows that, for want of a better phrase, talk the same digital language, while allowing for different accents. “The challenge is to develop common platforms on which we can have local customisations, so that every country can keep its cultural specificities, while at the same time benefitting from the latest and greatest technology – particularly technology that protects against fraud because fraudsters will always be innovative in attacking systems,” says Bugat. For her, payments are not just about the mechanics of a transaction; they have a more emblematic role – reflecting the

nuances between geographical populations while enabling them to interact and collaborate. That is where the true innovation comes in, she believes. “In the payment technology business, the world is our sandbox. This is what excites me, because every country is different and can bring a new set of challenges; it’s technology meeting culture and habits,” says Bugat. “You have countries that have leapfrogged from no infrastructure to a really advanced one, countries where the challenge is dealing with very old legacy, some might rely more on credit, others on debit. “With G+D being international, I’ve worked on different continents, and seen the diversity of how people pay. It’s great getting everybody to rethink and transform the technology, bring new innovation to the field – sometimes, even, presenting an innovation that was thought of in one country to another, say the Philippines to Canada. This kind of collective payments intelligence is what really inspires me.” www.fintechf.com

Payments high note: Can European countries hit it together?

The challenge is to develop common platforms on which we can have local customisations, so that every country can keep its cultural specificities, while at the same time benefitting from the latest technology Gabrielle Bugat, G+D

So, how might a balance be struck between the uniformity needed to smooth transaction flows and the cultural differences we cherish? Andrej Vckovski, chief executive and co-founder of Netcetera, is more optimistic that we will see convergence of global payment schemes – but he agrees with Bugat that, instead of vanilla offerings, they will be more neopolitan. www.fintechf.com

“Countries want to be global players but then continue to have specialities and divergence locally, which is what makes our life interesting,” says Vckovski. Their two companies entered a strategic partnership last Autumn, with G+D becoming an investing shareholder in Netcetera. It will provide funds to fuel Netcetera’s global expansion while building on G+D’s own capabilities within its four core areas of payment, connectivity, identities and digital infrastructures, leveraging on joint offerings with Netcetera and its transaction security software tools. Bugat oversees e-payments business and initiatives for G+D, a leading payments security provider. Her responsibilities include issuance of payment cards and digital credentials for digital payments, and technologies like authentication or

identification, designed to ensure diverse payments requirements are delivered seamlessly and securely. “G+D has been in this business of securing assets for over 160 years now. It started with securing bank notes, then extended to communication assets, cards and payments, and will eventually include the digital euro that we will have one day,” she says. “We want to be a one-stop shop for payments and are ready to expand our offering, partnering with technology companies like Netcetera.” The software specialist was founded in Switzerland and is still headquartered in Zurich. It now employs 700 worldwide, providing B2B2C software to companies that then use it to interact with their customers in segments as diverse as banking, publishing and payments, the latter being a particular specialism. Issue 9 | ThePaytechMagazine

INFRASTRUCTURE: HARMONISATION Vckovski gives his take on the defining changes to the payments industry in recent years that are providing both companies with an opportunity for collaborative growth: “The obvious one is the growth in payments happening online,” he says. “Cryptocurrency is another. But, for me, the key thing is the introduction of tokenisation, because it takes the card number away from the payment process, which has been tedious, for decades, for everyone providing online security.” Bugat agrees that tokenisation has dramatically improved the payment journey, while maintaining a high level of security that doesn’t frustrate the customer experience.

SIMPLE IS BEAUTIFUL G+D offers a number of unique tokenisation solutions in combination with solutions for Secure Customer Authentication (SCA) legislation under the revised Payment Services Directive (PSD2). Its joint offerings with Netcetera also enable them to implement 3D Secure (3DS) or its latest iteration, 3D Secure 2 (3DS2), for payments, by allowing users to provide two out of a possible three authentication requirements: something they are, like a biometrically collected fingerprint; something they have, such as a mobile phone; or something they know, such as a password. With tokenisation, consumers can have as many surrogate, or tokenised, cards as they want, store them in digital wallets, or with merchants, and manage them dynamically, with the ability to turn them on and off at will. One solution enabling this is G+D’s recent innovation, Token Cockpit, which puts customers in overall control of their payments by giving them a single line of sight on all the disparate payment tokens they have stored with providers of retail goods, entertainment and services. “The priority was to make transactions easy and smooth, safeguarding the customers’ payment credentials and also allowing them to authenticate themselves in secure, convenient ways when authorising payments,” says Bugat. Tokenisation demonstrates that the most beneficial changes aren’t always the most dramatic, observes Vckovski. “People say ‘disruption is the key, that’s where the big money is’, but tokenisation disproves the case,” he says.

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“It leverages a lot of pre-existing concepts and technology under the hood, which means it can go out to the mass market because there’s no need to roll out an entire new system to all merchants. “Extending what’s already there with good, new ideas, is a path to success. That means not reinventing all the wheels within the machine, only those that differentiate. That’s what I really like about the new European Payments Initiative. It said ‘OK, the settlement and the clearing part of the transaction consists of a lot of steps. So, we’ll try to make things afresh that make a difference, but keep the legacy and tradition, to achieve a good mix.” Bugat adds: “While it might be every payment technologist’s dream to create infrastructure from scratch, the truth is it would be way too expensive and people may not be ready to change habits overnight. It’s about building layers, adjusting, adapting on top of existing infrastructure – and, I agree, the EPI is a very good example of that thinking. It said ‘what are the habits of the infrastructure that’s already in place? We have point-of-sale, we have people used to having something in their hands, or a

People say ‘disruption is the key, that’s where the big money is’, but tokenisation disproves that. It leverages a lot of pre-existing concepts and technology Andrej Vckovski, Netcetera

mobile in their pocket, so how can we leverage on that infrastructure by adding more software and design that can bring new use cases?’.” She describes such a strategy as ‘disruption within evolution’. And, for her part, there is only value in an innovation if it gets used. “At G+D, We’ve seen a lot of innovation, a lot of good ideas, but not that many that went mass market. It comes down to how customers use whatever we design. Sometimes, you might introduce innovations that don’t work, or which aren’t adopted, so it is a constant adaptation. The key, for a trust industry like banking, is to

be sufficiently agile. Over the years, we have had to anticipate and stay ahead of customer habits, but, when it comes to payments, there are a few things that will never change. Yes, we want to make them easier, but we want to keep them secure. And at G+D we’ve been able to evolve, making the technology less visible, while maintaining security.” As well as tokenisation, she points to biometrics for mobile and card payments achieving the same aim. “The best kind of innovation is that which people don’t see, which fits their needs and keeps their money safe while they sleep at night.”

BREAKING DOWN BORDERS? Beyond the EPI, there is a more fundamental shift in payments infrastructure on the horizon – the possibility of a central bank digital currency being introduced in Europe – the so-call e-euro, one of many CBDCs being discussed. The first has already been given the green light in China. “I’m sure we will see central bank digital currencies around the globe, because paper as security for your assets has to be replaced, or complemented by digital means,” says Vckovski. “But it won’t happen in a disruptive way. It will be part of the global payments ecosystem.” Circling back to the cross-border issue, could this, finally, be a way to resolve it? Could CBDCs perhaps break down barriers if customers choose to transact in a currency not issued by their own central bank? That’s unlikely, says Vckovski: “It’s important for a country to maintain its own currency as part of any political system, because controlling the amount of money in the market is a tool that national banks currently use to control inflation, or at least try to steer it. I think there is sufficient national interest within central banks to control their currency, and therefore also provide a digital alternative to it.” While she agrees payment sovereignty – be that regional or national – will remain important, it will be up to the global payments ecosystem to work out a way to transact in CBDCs, says Bugat. “The ecosystem has to find a way to make the transfer of digital money work, slowly adjusting, with new roles for everyone – but working together, because it’s all connected." 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

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INFRASTRUCTURE: INTEROPERABILITY Smooth passage: ISO 20022 will unlock greater choice of payment system

Ridingtherails Interoperability between payment systems might be the defacto outcome of them adopting a common messaging standard, but it’s the future business models that ISO 20022 could unlock that really interest Cyrus Bhathawalla at JPMorgan Chase and Bottomline’s Edward Ireland “People don’t generally do things for free; they do it to make a profit, they do it to make money. And that means payments exist everywhere we look, in almost every corner of an organisation.” Thus Cyrus Bhathawalla, global head of real-time payments at JPMorgan Chase, a bank that every year handles 27 billion transactions to a value of US$1.4trillion on behalf of its clients, sums up the challenge and the opportunity that exists if you’re in the business of transactions. You don’t have to tell him that the world is in the midst of a payments revolution, as digital rapidly replaces cash or cheque. “The whole mantra of our leadership is ‘any payment, anywhere, anytime’,” Bhathawalla says. And JPMorgan Chase is moving rapidly to achieve it. By 2024, global digital payment volume is expected to grow by 64 per cent to 1.1 trillion transactions across consumer segments, borders and currencies. And, as the leading payment provider in the US for the seventh consecutive year,

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according to the 2021 Nilson Report, JPMorgan Chase is keen to secure an even more significant slice of that pie, skidding transactions ever faster across whatever rails are most suitable for a particular user and circumstance. “Real-time payments is one of the higher priorities in our wholesale payments business, it’s probably one of three top things that hit Jamie’s [Jamie Dimon, CEO] desk on a frequent basis,” says Bhathawalla. “We are expanding rapidly, growing our product set quite aggressively and applying real-time payments, in the correct use cases, across our treasury services product suite.” Among a dizzying range of digital payment options for its corporate and smaller business clients, the bank recently launched a pilot for a real-time payments tool called Request For Pay, which lets corporates send payment requests to the bank’s approximately 57 million retail customers who use its app or website, cutting the cost and time it takes for those companies to get paid. And its

QuickAccept service, introduced in 2020, lets businesses take card payments, either through a mobile app or a contactless card reader, and merchants see sales hit their accounts on the same day. But that’s just scratching the surface of what might be possible, following the universal adoption of payments messaging standard ISO 20022, a data-rich format that is being embedded in global financial markets with the aim of improving not just speed, but also transparency, efficiency and – what’s often thought of as the holy grail of money movement – interoperability between both domestic and international payments systems. It will, says Edward Ireland, ISO 20022 programme lead for payments technology firm Bottomline, create opportunities, both known and as-yet unknown, for financial services companies like JPMorgan Chase – for them to even, ultimately, remodel their payments businesses. “The key thing is what new business ideas are going to come from ISO 20022,” says Ireland. “We have some ideas… we www.fintechf.com

can see benefits around fraud monitoring and sanctions screening. We can get better visibility around foreign exchange; we can link through to trade documentation; we can see advantages in being able to offer credit off the back o f transactions. But I don’t think we necessarily know all the benefits that are going to accrue from ISO 20022. “What we do know is that if you put in place analytics to review the information that comes with those messages, then the business ideas will flow. What we do know is that, if you don’t do that and try to do some sort of mapping exercise instead to reduce what you have to process using ISO 20022, then you won’t see that information. And, if you don’t see it, then you won’t know what more you can do with it, and you’ll miss out on the opportunities that exist.” “That’s the most honest response anyone can give,” agrees Bhathawalla. “The reality is that this is not a traditional return on investment for an institution; it is not easy to see the long-term benefits from a dollar perspective.

Interoperability no longer becomes just a question of connecting systems together

Cyrus Bhathawalla, JPMorgan Chase

“I agree that there will be benefits in reconciliation, automation and reducing manual operations inefficiencies, where you have people ticking and flicking registers. What’s more exciting, though, is in the areas of data analytics, forecasting and modelling, because you’re consuming, in some cases, a hundred times more data than you would in a traditional, batch, automated clearing house-style payment, where you’re limited to, in the US, somewhere between 16 and 18 characters in the payment message.” That will unlock, he believes, a whole new revenue-generating opportunity for banks like his. If it knows the precise reason for a payment, it can offer a customer relevant, related financial products – for instance, insurance or warranties on the back of a car purchase. www.fintechf.com

“When you remove the friction in payments, all of a sudden they become an enabler of value-added services that banks, fintechs, other third parties and retailers can offer,” he explains. “And, as soon as that becomes the case, it will open up the market to a significant amount of change and evolution.” Digital-first organisations are primed to capitalise on that; established financial players will have to work through a significant infrastructure upheaval first, observes Ireland. “This is forcing a real root-and-branch upgrade, which is a good thing because what we’ll get out of this is solid foundations for payment solutions of the future,” he says. “Then, it won’t be payment processing that’s talked about, but transaction processing – the payment will simply be part of it. Today, in a BACS payment in the UK, for example, all we get is a line of somebody’s name and how much money is being paid to them – that’s it. What we’ll see in the future is the underlying transaction, the terms, when it’s going to be paid, what it has to be paid against, the foreign exchange that might go with it, and so on.” According to Bhathawalla, this will be the real transformation. “Interoperability no longer becomes just a question of connecting systems together,” he says. “While that may very well be the long-term outcome we achieve, I think we will see players who participate in more than one network becoming the pivot points for interoperability. “JPMorgan is part of Zelle, we are part of The Clearing House’s RTP network, and we will be part of the Fed’s FedNow network in 2023, the Federal Reserve’s new real-time payment environment – we’re part of their pilot right now. And, as a result, we become this pivot point – the top of the pyramid, if you will – where transactions can flow to us, from our clients, and we can then help serve them across multiple rails. “We shouldn’t be selling rails to clients; we should be selling a payment product that’s fast, that carries a certain amount of data, that meets their specific requirements, and then we determine, on the basis of account

reach, cost, and functionality, which is the correct payment rail to use. “So, interoperability is actually more about how we service our customers, reaching the correct endpoints with the right functionality.” Ireland is already seeing that shift from ‘which rail and product?’ to ‘what’s the customer criteria for this payment?’, outside of the US. “We’re seeing customers moving away from telling people ‘this is a CHAPS payment’ [in the UK] or this is a SWIFT payment’. They’re just saying ‘this is a fast payment’ or ‘this is a cheap payment’, then helping them to decide which rail is most appropriate in the background.” But it’s nevertheless true that the standardisation offered by ISO 20022 over the next couple of years is going to make it far easier to manage that process. In that way, he agrees with Bhathawalla that it will be the banks and other payment service providers triaging transactions and selecting the most appropriate route, rather than market infrastructures moving significantly closer, which will ease the passage of a transaction, both domestically and across borders.

ISO 20022 is forcing a root and branch upgrade, which is good because what we’ll get out of this is solid foundations for payment solutions of the future

Edward Ireland, Bottomline

“We’re already seeing enormous consolidation in Europe, with the drive towards [the pan-European instant payments schemes] Target Instant Payments (TIPS) and EBA Clearing’s RT1. P27 is another initiative, this time in the Nordics, which is breaking down the barriers between countries and the settlement of different currencies,” he explains. “But when we go beyond those initiatives and look to solve the customers’ pain points, we find it’s the role of the banks and the payment service providers to be the glue between regions. And I don’t see that changing.” Issue 9 | ThePaytechMagazine

FINTECH FOCUS: FINASTRA REPORT

Finastra’s latest State Of The Nation report shows that the financial services industry is well and truly on the bus when it comes to open banking. Eli Rosner, the company’s Chief Product and Technology Officer, looks at the next stop The transformative impact of open banking on financial services globally has been underscored by a major survey. For its State Of The Nation 2021 report, technology powerhouse Finastra polled 785 professionals from financial institutions in the US, the UK, Singapore, France, Germany, Hong Kong and the United Arab Emirates (UAE). Just one per cent said they hadn’t seen any significant effect on their businesses from open banking. That compared to 13 per cent who said they’d seen no change when the same question was asked a year ago. The cause of that accelerated race to embrace? Eli Rosner, Finastra’s chief product and technology officer, is in no doubt that COVID-19 ‘lit a fire under the banks’, causing them to examine their resilience and future strategy as payments, in particular, made a warp-speed advance. “Financial services companies, just like many others, recognised that if they didn’t digitise, if they didn’t move faster, they were on a losing wicket,” says Rosner. “Ninety-five per cent of the organisations we spoke to forecast that they will look to improve or develop technology in the next 12 months. These discussions are happening in boardrooms as we speak.” Other factors not related to the pandemic were also conflating to bring about change. Financial regimes that followed the UK and Europe’s open banking lead, including Australia’s CDR (which could be described as open banking-plus) and Hong Kong’s open banking framework, have either begun or have pretty much rolled out over the past 12 months. The full impact of the

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revised payment services directive (PSD2) in Europe is also now being felt. But what the Finastra survey also revealed was that the industry now has its sights set beyond an open banking horizon. The technologies that Rosner says organisations are focussed on delivering over the next year are principally mobile banking, banking-as-a-service (BaaS) and artificial intelligence. Together, they are moving it towards open finance. That said, those technologies are not impacting at the same speed everywhere, while open banking itself is seen to be delivering different benefits in different regions. Of the financial institutions that had already integrated open banking into their operations, the core benefits were seen to be improved customer service/experience, higher conversion rates for both new and existing customers and delivery of new services. In the UK, attracting new types of customer was seen by a considerable margin as the number one advantage of open banking. In France and Germany, organisations were more focussed on how it improved customer service/experience. The Asian markets (Hong Kong and Singapore) saw open banking’s ability to deliver new services as the key benefit. The US rated customer conversion and the ability to support the delivery of new services equally. There was broad consensus among the UK, the US, Hong Kong, and Germany that the biggest impact will be felt in retail banking, whereas Singapore and France anticipate that payments will see the greatest revolution. The UAE identified trade finance as the number one area that

could be transformed by open banking. Summarising the impact of the open banking revolution so far, Rosner says it has provided a variety of important benefits and has already paved the way for a holistic system of open finance. “Sixty-three per cent of the people we questioned believe that it has enabled them to improve the customer experience, which is now seen as a critical success factor,” says Rosner. “There isn’t a meeting that we’re having with executives where customer experience is not being discussed. “Close to 60 per cent claim that open banking helped them attract new types of customers, and, when they were asked about the future, 84 per cent agreed that open finance is a natural evolution of open banking.”

A COLLABORATIVE FUTURE Given that open banking is predicated on a new data-sharing infrastructure, the questions around attitudes to collaboration – which is needed to enable it – were revealing. When asked if they thought shared data and infrastructure would become the norm across the industry, and a key part of the strategy for the move to open finance, the vast majority appeared to have bought into the idea. That was particularly true of the UK, the UAE and Asia. Once that principle is in place, you have the basis for a much richer range of services and products across not just this industry, but critically, others, too. “Open finance goes beyond open banking and towards financial transparency and inclusion,” says Rosner. www.fintechf.com

The journey has begun: And open banking is just the first mile

“An example would be to give customers the ability to share access to all their financial data online, including mortgages and savings. By enabling others to access that data, participants in the new ecosystem that’s been created will be able to bring to the table more innovative solutions for customers.” How those participants prioritise innovation reflects the techological maturity and cultural nuances of the markets in which they operate. “The UAE, at 44 per cent, and Hong Kong, at 42 per cent, lead the way when it comes to interest in mobile banking,” says Rosner. “Singapore, on the other hand, at 45 per cent, is most likely to improve or deploy BaaS. And, interestingly, the UAE, at 51 per cent, is most likely to improve or deploy AI. “So, you can see diversity across the regions, but all of them are talking about how to leverage mobile, BaaS and AI.” The overwhelming feeling was that BaaS would have a significant impact on business operations. Rosner believes banks have accepted it as a future business model or, at least, as part of a business model that has a regulated entity at its core. “Without it, you can’t really carry out any financial transaction,” he says. “A middle layer [in this new construct] could be a marketplace, it could be a platform that packages services for consumption by whoever needs them, which might well be another bank or any company that wants to embed financial capabilities in its customer journey. “From the bank’s perspective, it essentially changes their distribution channel,” he continues. www.fintechf.com

And, he points out, it allows them to utilise assets more efficiently with the potential to create additional revenue streams. “If I’m a bank that has invested billions of dollars in infrastructure, I have very sophisticated capabilities, but some of them are not being 100 per cent utilised. Just like Uber is using cars that would otherwise be sitting in a parking lot, another organisation can utilise a bank’s capabilities when it’s not. “Banks could essentially turn cost centres into profit centres,” says Rosner. But it’s not all plain sailing to the promised land of collaboration and transparency. Complex regulations,

When we asked about the future, 84 per cent agreed that open finance is a natural evolution of open banking security and the challenge of transforming legacy IT systems are all cited in the survey as major hurdles that have yet to be overcome. Rosner would argue that a platform approach can help address those in a coordinated and cost-effective way for organisations. An example would be Finastra’s partnerships with Salt Edge, announced in August. To deal with one aspect of regulatory controls, software-as-a-service provider Salt Edge will make an API

available on Finastra’s core banking platform to improve the speed of compliance with PSD2 and other emerging open banking standards around the world. “Regulation was identified as a significant barrier by 40 per cent of respondents to the survey,” says Rosner. “It was the top barrier for financial institutions in France, at 47 per cent, in Singapore, at 45 per cent, and in Germany, at 44 per cent – so, close to half of the respondents in all those countries. “Security risk was identified as the top barrier by banks in the US, Hong Kong and the UAE [all 40 per cent]. “And the last barrier, which really stood out for us, was legacy systems and IT – specifically in the UK, at 48 per cent.” The pandemic catalysed not just a technology change, but also a cultural one. Finastra’s survey showed that 86 per cent of those asked, believed their organisations had a duty to support the communities they serve beyond supplying a purely for-profit service. “These companies are increasingly looking for their organisational purpose,” says Rosner. It’s about how they deal with sustainability. How they contribute to the community. “We call this redefining finance for good and it’s maybe one of the key takeaways from the research,” he says. “It’s a positive evolution as financial services and their customers adapt beyond the pandemic.” Issue 9 | ThePaytechMagazine

DATA: DATA HANDLING

Compliance will be rewarded. Are you ready to comply...? We quizzed Anuradha Muralidharan from payments superapp Expensify, data custodian Very Good Security’s Atvmanda Heinemann, and Andrew Veitch of expense management platform Eedenbull on the burden and competitive opportunity of compliant payments data handling

THE PAYTECH MAGAZINE: Is the amount of regulation surrounding use of sensitive data a barrier to fintechs launching and achieving their full potential? ANURADHA MURALIDHARAN (COO, EXPENSIFY): Definitely. It’s a mental and monetary deterrent to businesses. Expensify started as a corporate card. Our founder and CEO David Barrett is a brilliant network engineer, and he’d been able to homegrow an infrastructure for the corporate card with all the encryption and Payment Card Industry Data Security Standard (PCIDSS) and system and organisational controls compliance built in from day one. That’s not easy for everybody to do because you need the right expertise, which is expensive, and you have to go through the cumbersome compliance certification process. Even so, maintaining a corporate card as a startup was so difficult, we ended up pivoting. In fact, we’d originally built the expenses app just to demo the card’s www.fintechf.com

functionality – but it had generated a huge amount of interest. ANDREW VEITCH (COO, EEDENBULL): Having to hire full-time engineers and compliance managers to handle the certifications, before we could even launch, was indeed a challenge. There are so many other things you want to be doing to develop your product, interface and experience. Taking people away from doing those things is an overhead to begin with. So, you have to work with partners that can help you get through it, as easily and as quickly as possible. So, regulation is a block but, that said, having the policies and procedures in place helps businesses – banks and other financial institutions can then work with them because it gives them confidence you know what you’re doing. AMANDA HEINEMANN (BUSINESS DEVELOPMENT & PARTNERSHIPS LEAD, VERY GOOD SECURITY): Very Good Security is all about reducing the

data security and compliance liability for our customers, and taking that on ourselves. We sit on sensitive data for our customers, enabling them to get the full utility from it – without having to house it – to expedite compliance. About 70 per cent of our customer base is in fintech – it’s our sweet spot. The remainder are healthtechs, healthcare and e-comm providers. Maintaining good data security has become a core KPI for fintechs. How they treat sensitive data is very important and, in the worst-case scenario, a data breach can lose them customers. As Andrew says, data security and compliance are also prerequisites for partnering with other ecosystem players. TPM: How can businesses iterate once they have the core compliance features in place, to get new features out to market quickly? AV: Hopefully, they’re savvy enough to understand what additions need to be made, if any, on top of what they already have. Issue 9 | ThePaytechMagazine

DATA: DATA HANDLING It then depends where they’re going – product improvement in the same market or moving to other countries and regions, which have their own requirements. It’s a constant challenge of looking at what they have to do in each market. But, once the core’s there, it’s just about adding on top of it. While we’ve got good processes and policies, and keep data as secure as we can, we use partners that have that skillset to help us do for that particular bit quickly and easily. So, for instance, we started off saying that we, and our processing partners, would never hold full PAN data, it would always be redacted and masked. Now we’ve entered virtual card issuance, where we have to have that, we use a partner like VGS to help us comply. AH: We provide always-on compliance to our customers for handling changes and additions. They’ve outsourced their data to us, so it’s 100 per cent on us to make sure they’re maintaining compliance as things change. They need to have someone in-house who knows what they’re doing, or defer to an expert. AM: Building everything and getting it certified the first time is a lot of work. However, ongoing maintenance, if you’re disciplined in considering your compliance requirements at the design stage when developing new products and features, is not that complicated. We don’t have a dedicated compliance team that only does this. They handle certification renewals and support new developments through the course of a year, but they are also doing other things, so it’s not a specific drag on our financials. We also liberally use industry experts to teach us when we run up against something that we don’t understand, to grow ourselves as a team. Also, with a compliant environment and strict data encryption requirements, you have the capability to handle data that’s within PCI scope, and can encrypt other sensitive information not covered by PCI. For example, you have to encrypt 16-digit primary account numbers (PAN). So, if you have that functionality already, why not also encrypt social security numbers, and so on? We always have that extra layer of protection on sensitive data, to protect against data breach liability, hackers etc. TPM: What else can data insights support and how can you access and analyse them securely?

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AH: We help companies alias data for this purpose, as often they don’t want insights into the underlying, sensitive data, like the PAN. Rather, they want to analyse metadata attached to it or to a social security number. So, with a lending customer, what the company cares about isn’t their actual social security number but the fact it generates a credit score of 780 when we send it to the bureaus. We can let them sit on our alias to represent that social security number with a unique identifier they can tie to the metadata, and run all the analysis they want. This also offloads the liability, because they’re no longer sitting on that raw data; it’s fully outside of their system and doesn’t ever even touch their servers. Our customers retain full remote control over everything pertaining to the sensitive data, though. They can decide where it’s routed and how it’s treated, while we take all the liability off their plate. If they decide not to use us anymore, we give them all their data back.

We’re giving a lot of our merchant customers PCI compliance in their own name in under a month for Level 1… it usually takes a year and a huge sum of money

Amanda Heinemann, VGS

AM: As an expense application, Expensify offers incremental value to our users with travel booking or making restaurant reservations. And we aggregate transaction data to provide insights to help us do that. So, for instance, we offer a service called Concierge Travel with our corporate card, for travel booking. Someone tells us what meeting or conference they’re going to and Concierge takes care of everything. For Concierge to do that, we look at clients’ transaction data, see what times of day they prefer to travel, what level of hotels they stay at, and their company budgets – but nothing that identifies them as a person.

AV: The world is changing and payments aren’t just about cards, so we’re trying to enable companies to use data to provide insights to their end-customers, so that they can choose how to pay, at the best time for them. TPM: What other up and downsides might there be to being PCI-licensed yourself as opposed to outsourcing it? AH: A lot of customers come to VGS for PCI compliance to get smarter about their payments routing. Because they can’t build this in-house, they are locked into one processor. So, we’re giving a lot of our merchant customers PCI compliance, in their own name, in under a month, for Level 1, which is great for an industry where it usually takes a year and a huge sum of money. Then they can get really smart about routing transactions in terms of geography and card type, making sure they actually happen. A lot of customers also want a failover payment service provider (PSP) because, if it’s a good transaction and it’s getting declined, they want to make sure they put it with another processor and realise the transaction, and they come to us for that. AM: Being PCI-compliant means we can build our own approval workflow, which is hyper-fast compared to processors, and that’s really helped us. And we purposefully designed our environment to give us a lot of processing scale. Our processor for cards has the capability to route all approval-versus-decline decisions to companies looking to process at scale, at the point of sale, so long as they have the ability to respond in an insanely-short timespan, in line with network guidelines. This helps us build use cases others can’t, like applying a company’s business rules to card spend at point-of-sale, giving them an element of control that doesn’t take away from the cardholder’s experience by blanket-rejecting on merchant category or dollar spend amount. The only reason we can do that is because we have the scale, and we only have the scale because we built it with compliance in mind. So it certainly is a competitive advantage. If you don’t have it, you can still launch, but you’re going to depend on your processor much more, which inhibits your negotiating power with them, and increases the costs. www.fintechf.com

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DATA: ISO 20022 Cross-border payments have long been hampered by the friction associated with the use of different, incompatible data messaging formats. This explains why standardised data formats, such as ISO 20022 and, increasingly, APIs, are now recommended as banks seek to streamline, improve and automate their processes. In fact, you can’t really talk about payments modernisation – and the potential of payments data monetisation – without first considering ISO 20022, an emerging global and open standard for payments messaging. ISO 20022 creates a common language and model for payments data across the world’s markets; one that provides higher quality data than other standards, which should translate into higher quality payments for all. Sounds good, doesn’t it? Whilst it’s no longer considered a ‘new’ standard as such, its profile has certainly been heightened by the global push for payments innovation and escalating preparations for SWIFT’s ISO 20022 payment message changeover in November 2022. It’s become very clear that banks are at different levels of readiness, though. Some are fully prepared and have ensured they’ll be compliant in time for the transition. The others should want to catch up – because while migration to ISO 20022 is a significant challenge, with big cost and logistical implications for financial institutions and for corporates that need to upgrade their systems to support it, the standard can also bring in a raft of competitive advantages that outweigh the investment.

Doh... it’s the data, stupid! Celent’s new report on what corporate clients really want from their banking relationship throws a spotlight on an asset that ISO 20022 will make increasingly valuable 36

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www.fintechf.com

Through its greatly improved data structure, extensible message set, and ability to interoperate between domestic and international payment systems, ISO 20022 conquers a number of crucial pain points. But, perhaps more importantly, it also gives banks valuable insight into customer behaviour and expectations, and how they’re changing over time. And because the standardised approach to payment messaging that ISO 20022 encapsulates applies to every type of

What’s important about payments data is the value that it creates, and that value is usually intelligence

Krystle Ritchens, J.P. Morgan

payment, from corporate to consumer, cross-border, and everything in between, its potential is virtually limitless in terms of the scope of insights it contains to feed future business development. We recently tackled this topic in a wide-ranging webinar with experts from Celent, Icon Solutions, MongoDB, and J.P. Morgan, which explored how ISO 20022 and other industry developments have created a head of steam and shunted the role of payments data in organisations’ strategic development right to the top of the agenda, raising the data’s worth exponentially. “What’s important about payments data is the value that it creates, and that value is usually intelligence,” said panellist Krystle Ritchens, an executive director at J.P. Morgan who leads the Payments Industry, Regulatory and Network function for EMEA. “From an investment perspective, the focus on payments data is growing because a lot of enablers have been introduced recently, things like ISO 20022, open banking and real-time payments. They’re all here – or soon to be here, in the case of ISO 20022.” “I think, as an industry, we were consumed with the issue of real-time payments, but it’s so much more than that. There’s another enabler as well,” added www.fintechf.com

Kieran Hines, a senior analyst in Celent’s banking team. “It’s stepping back and looking at this from a whole-of-bank perspective. More and more institutions are viewing data as a truly strategic asset, and that also feeds into this conversation about payments data monetisation, because payments data is some of the most valuable data the banks have access to.” It’s no secret that the world’s banks are sitting on more data than any of the new fintech players snapping at their heels, so can they use it to replace their dwindling margins with new, paid services based around partnerships rather than volume product pushing? There’s a school of thought that perhaps data monetisation can provide a life raft for banks that are struggling in the choppy waters of today’s highly competitive marketplace. “It’s recently been announced that Klarna has a valuation that’s bigger than Barclays,” said Toine van Beusekom, director of the Payments Centre of Excellence for Icon Solutions. “Stripe has a valuation that’s bigger than BNP. So what do the banks have left? The data. They need to ask ‘what are the use cases and how can we monetise this?’. That’s why it’s so important to look at it more strategically.” All of the speakers agreed that there’s little value in the data each organisation owns from a transactional perspective, for things like cross-selling, because of the limitations imposed by the wide-ranging jurisdiction of the EU’s General Data Protection Regulation (GDPR). However, it’s a priceless resource when it comes to better understanding customer behaviour in order to anticipate and react to industry trends and steal a march on competitors. “You can’t simply sell somebody’s data,” said Boris Bialek, global head of enterprise modernisation at MongoDB. “That’s illegal. But the derived information you can generate from data drives additional value, whether it’s for credit scoring or better, more personalised customer service. So, there are a lot of reasons to enrich data to ultimately drive monetisation.”

Delivering on data monetisation Earlier this year, Celent was commissioned by Icon Solutions and MongoDB to prepare a new industry report called Expectation Versus Reality For Payments Data Monetisation: Identifying The Data-led Services Corporates Want.

The report is particularly bullish about Bialeck’s last point – how ‘now is the right time to invest in payments data monetisation’ and, specifically, the leveraging of that data to enhance services for corporate clients. It highlights that payments data monetisation is an increasingly key strategic priority for banks, with 38 per cent of those surveyed saying that it’s an objective of technology transformation investments. This is being driven by growing margin pressure and competition, evolving customer expectations and migration to real-time payment infrastructures and ISO 20022. To properly examine the scale of the payments data monetisation opportunity, Celent surveyed a combination of banks and corporate end users. Interviews with treasurers and CFOs at 217 large corporate entities identified common business challenges, demand for new services, and – crucially – a growing willingness to pay for service enhancements. In parallel, a survey of 168 senior bank executives has provided a unique understanding of exactly how banks plan to address these growing customer needs.

Klarna has a valuation that’s bigger than Barclays. Stripe has a valuation that’s bigger than BNP. So, what do the banks have left? The data

Toine van Beusekom, Icon Solutions

“What we’ve done with this report was to look at what banks are doing, but also how this maps back to the needs of corporate customers,” explained Hines. “So we spoke with corporate treasurers and CFOs, and found that what they want is all about automation – getting data faster, taking out manual workarounds and manual processes in workflows. That’s where the opportunity is for the banks – to provide enhancements that deliver on those needs. We then went back to the banks to say ‘well, what do you think about this – and what are you doing about it?’. Issue 9 | ThePaytechMagazine

DATA: ISO 20022 “We found out a lot of very interesting things about what it is that corporate clients really want from their banking relationships, and the role that data can play in that. There are some extremely important messages that have come through this work.” There are two findings in particular from the research that Hines is keen to highlight. The first is that inaction on the part of banks is no longer a viable option. While corporate clients are prepared to pay for many value-adding service enhancements – like enhanced security and fraud prevention and a single, real-time balance dashboard across multiple bank partners

Clients are no longer willing to pay for what they deem to be base services. It’s what I call the ‘Googleisation’ of banking. This is why financial institutions need to be more clever about what they can do with the data afterwards

Boris Bialek, MongoDB

– there are several additional areas that are becoming expected hygiene factors, such as virtual accounts, improved onboarding, and ISO 20022 compliance support. Corporates expect these free of charge and a failure to deliver them will simply see clients moving their business to new partners that can. So, while there’s a strong case for investing to support revenue growth, there’s an equally strong case for investing to protect existing business because corporates are more demanding than ever. “Clients are no longer willing to pay for what they deem to be base services,” said Bialek. “It’s what I call the ‘Googleisation’ of banking. People want to have base payments for free, and this is why financial institutions need to be more clever about what they can do with the data afterwards, to fulfil that monetisation angle.” “It’s all about the basics,” added van Beusekom, by which he specifically means faster processing. “As the report shows, banking doesn’t need to change as such. Corporates still want their cash balances, but

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now want them in real time. They want to do their payments and access their data, in real time, around the clock and on a Sunday.That’s the biggest challenge. “The biggest surprise for me, around monetisation, is that it’s more about customer churn. That goes back to the commodity cycle nature of it all. You will walk away from your electricity supplier if your power is always down, or your utilities provider if your water turns brown. There’s no magic touch required, no screaming from corporate clients for things to be completely new, or a massive team of data scientists to develop algorithms on top. That’s all very cool stuff but, first and foremost, corporates just want their data in real time.” The report’s second key finding is that data monetisation is not a product, it’s a product strategy and needs to be treated as such. Banks that view data monetisation through the lens of one-off initiatives and tactical product enhancements will struggle to achieve return on their investment and miss the much larger competitive opportunity that data presents.. “Banks need to see data as a strategic asset,” explained Hines. “You can’t think of this like traditional product development – you know, ‘we’ll improve this piece here this year, then maybe next year we’ll do this piece and then this piece’. This is about creating an approach towards data use that can support enhancements in the long term, and this will be one of the big differentiators in the market over the next three to four years – the banks that get this right will be the ones that succeed.” The real opportunity is about much more than revenue - it’s about moving the relationship with corporate clients away from the consumption of banking products and towards acting as true partners for customers; providers that can deliver a wider suite of services, rooted in the power of data. “Gone are the days of a traditional product manager, who’s managing a single set of rails,” said Ritchens. “It’s now more about a client experience manager with a wider remit. A client, for example, may want your instant and standard SEPA rails, but is also searching for value-added service, like wallet products or other alternative payment methods.”

Expectation versus reality We rounded off the webinar by asking the panellists their views on expectations

against current payments data reality, with some interesting results. For example, while banks are busy creating API interfaces for clients and – thanks to open banking – trying to create interfaces around data, there are differing expectations around the pace of change. “The expectation is that data is readily available and real-time today,” said Ritchens. “But while, in some instances, this is the case, the wider reality is that there’s still a lot of work to be done as an industry – from scheme rules to legacy applications and industry practices – to get there.” “Banks’ expectation that there’s a lot of money to be made through data is there,” added van Beusekom. “But the reality is that clients will take a lot of it as ‘table stakes’ and won’t be willing to pay for it. And if you’re not offering it, you can be certain one of your competitors will – and your clients will willingly walk to them. “The monetisation will happen on the front-end cycle, not the commodity cycle. That realisation really needs to sink in at banks, and they will need to lower costs and transform while thinking carefully about where they want to, and can, compete.”

Banks need to be thinking about data as a strategic asset [not] through the prism of traditional product development. This is going to be one of the big differentiators in the market – banks that get this right will be the ones that succeed

Kieran Hines, Celent

While there are challenges to overcome, Bialek is in no doubt where the future of payments lies. “Data will become the centre of payments more and more,” he explained. “What was once an afterthought will become the new centre of how people understand the value of a payment.” ISO 20022 is primed to unlock the full potential of payments data monetisation. But promise will only turn into reality through real strategic thinking. www.fintechf.com

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FINTECH FOCUS: LEGACY & PARTNERSHIP

Striking a balance Striking Legacy relationships and innovative technology, infrastructure and front-end services, uni- and multi-banking... incumbent institutions must weigh up all these and more, as Dennis de Weerdt and Kerstin Montiegel from Deutsche Bank discuss with ProgressSoft’s Carole Elias For decades, incumbent banks have provided a regulated, safe environment for a business to operate in. And, as the complexity and geographic reach of a business increased, it often resulted in the corporate treasury managing not just a single but several banking relationships.

Each aware that there was more than one partner in this marriage, institutions hunkered down on getting ever closer and more dependable. But, while critically important, that steadfastness will not, in itself, be enough in future, according to Dennis de Weerdt, Deutsche Bank’s global of client service, implementations and client connectivity products. In his view, institutions like his own must offer clients value-added digital services (with real-time

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as standard) that are multi-bank by design. That doesn’t just help solve a headache for the client, but, particularly in the area of payment fraud, it is also very much in the interest of the financial institution offering the technology. In March this year, Deutsche Bank entered a strategic partnership with Treasury Intelligence Solutions (TIS) to develop and distribute multi-bank services for corporate treasury and finance. Their first focus is on providing an innovative payment fraud prevention plug-in, using TIS’ Cloud platform and leveraging the bank’s long-established expertise in keeping client money safe. With payment fraud becoming a major issue for CFOs and finance departments, the software service will extend beyond the payment data of individual customers to

mutualise the knowledge of all corporates using the service, while the shared data remains anonymised. The regtech solution will help improve the detection of potential fraud, before the payment instruction even leaves a client’s system – thereby ticking de Weerdt’s two essential requirements for corporate banking solutions of the future: that they add value to the client’s business by embracing the idea of multiple, concurrent banking partnerships. “Multi-bank solutions are the key things that corporates are looking for,” he explains, adding that it doesn’t mean CFOs value the personal relationship they have with any one bank less. “They would still like to have core advisory and value-add conversations on a person-by-person basis. That’s something that will continue to exist, in my view,” says de Weerdt. www.fintechf.com

It’s one of the many ‘balancing acts’ that banks must perform, he adds – in this case between providing best-in-class digital as well as personal relationships, because these institutions are still seen as ‘a trustworthy environment for safe conversation, safe instruction, and where payments are executed in a safe way’. “We are turning the corner in achieving that balance with the right multi-bank solutions, working with partners to make it happen,” says de Weerdt. “It’s in that mix that the future of client differentiation and client satisfaction will exist.” Crucial to achieving that is what he describes as a ‘multi-purpose middle layer’ where normal electronic banking channels, sit comfortably next to two-way API integrations with third party providers, and direct connections between the bank and a client’s enterprise resource planning (ERP) and treasury management systems (TMS).

Multibank solutions are the key things that corporates and clients are looking for

Dennis de Weerdt, Deutsche Bank

“You can see that the middle layer is where the real difficulty sits, on the one hand, but also the opportunity if you handle it really well,” says de Weerdt. “Banks should focus on going beyond traditional banking services,” agrees Carole Elias, business development and strategy officer at payment solutions provider ProgressSoft. It has just launched a digital banking platform over which banks can offer both corporate and retail clients the ability to manage a range of treasury and payment functions, wherever their accounts reside. “Because the more banks are in touch with their customers, the more likely they are able to retain those customers or attract new ones,” Elias explains. She urges banks to be ‘very meticulous and careful, and focus on the flexibility and resilience of the infrastructure they choose – by utilising smart, modular solutions, built on microservices architecture, for example, for the middleware’. “These are the engines connecting the front-end channels of the banks with the bank end, and you need to be able www.fintechf.com

to upgrade them to ensure that whatever will be needed in the future can be seamlessly and easily implemented.” Kerstin Montiegel is head of digital client access channels at Deutsche Bank, and says that when it comes to payments, just looking at the number of touchpoints clients have with banks, means it’s critically important that they get this part of the relationship right. “Client access channels are really the most tangible, day-to-day insight for us into what they need – our cash portal alone transacts €600billion of transactions every month. And what we see is that clients really want us to strike the balance between the old and the new. “Clients want business continuity with a connectivity backup solution – which has obviously been very important during the pandemic. They want us to continue to ensure that they can handle large volumes, that we are there 24/7, and that we can help them also in the conversion services. When it comes to the new, they really want easy ways to access and consume our products – at any time and anywhere.”

Our aim is to help clients on their own digitisation journey, when it comes to driving their own efficiencies: reducing their manual work and improving integration with banks

Kerstin Montiegel, Deutsche Bank

One such tool to help them do that is digital signatures, which Deutsche Bank originally introduced in 2018 to make it easier for corporate clients to do business with the bank by eliminating a lot of the time and complexity involved in document and contract signing, especially in areas where the bank did not have a physical presence. Having piloted the service in the Benelux region, digital signatures using DocuSign technology were extended to countries across much of Europe, the US and Asia Pacific where Unilever began using the solution for its global cash management activities with the bank. Daimler soon followed. Deutsche Bank has since said it's keen to extend electronic

signing in other areas of its corporate clients’ businesses. “Our aim is to help clients on their own digitisation journey, when it comes to driving their own efficiencies, reducing their manual work, improving integration with banks,” says Montiegel. When it comes to payments, though, she believes that innovation is best achieved at a network level. “Banks already co-operate over payments, just look at SWIFT,” says Montiegel. “With more standardisation and more joint innovation, payment processes will be driven very efficiently – which has benefit for the client because when banks co-create, they can spend the money they’ve saved on other new solutions.” Elias suggests that while, on the face of it, digital challengers are better equipped to respond to client needs, with the right technology choices incumbents are in an even stronger place. “From our perspective, neobanks benefit from the digital framework that they have built to cater for these new market needs,” she says. “Traditional banks would require transformational efforts to be able to achieve the same, but solutions such as ProgressSoft’s Payments Hub exist that are able to achieve it with a seamless shift to legacy systems and minimal disruption to their existing infrastructure.”

Banks need to be very meticulous and careful, and focus on the flexibility and resilience of the infrastructure they choose

Carole Elias, ProgressSoft

In fact, being the white beards of banking when it comes to regulatory experience – dealing with clearings at a local level in particular – means challengers, even if they have the tech, increasingly defer to them for advice, says de Weerdt. “Often they seek our cooperation. Five years ago, we would maybe have seen that as a threat, but those partnerships are growing. That’s also why I believe multi-bank solutions, the front end and the infrastructure, and the regulatory and security components, all need to go hand in hand. It comes back to that balancing act.” Issue 9 | ThePaytechMagazine

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WAYS TO PAY: CRYPTOCURRENCY

Cornering the market Danny Scott, Co-founder and CEO of UK-focussed exchange CoinCorner, on the reality behind the headlines, the power of community and those darn goats

THE PAYTECH MAGAZINE: Danny, you and a couple of the CoinCorner founders were mining Bitcoin back in 2013… what drove you to launch an exchange? DANNY SCOTT: Mining Bitcoin wasn’t really working for us as a business model, but we knew Bitcoin was a groundbreaking technology and wanted to stay in the industry and help drive it. If you think back to 2012/2013, to the Mt. Gox days, it was difficult to buy Bitcoin and we had the skillsets to launch a kind of exchange, but one that was an easy on-ramp for people to buy, store, send and receive Bitcoin using a mobile app. We were one of the first to introduce credit card deposits, and we’ve added various products since, like cashback and Lightning Network integration, so we’re almost a one-stop for Bitcoin services. TPM: The community and, in particular, the social media around cryptocurrencies www.fintechf.com

is just incredible. Dogecoin is literally built on memes. Take all the technology off the table and the cultural impact has been immense, hasn’t it? DS: Yeah, the Dogecoin thing has been absolutely nuts, obviously heavily driven by Elon Musk. People within the industry kind of know Dogecoin was created as a joke coin. Development-wise, it’s sat there as this idle coin, over the years, that no one’s really bothered too much with. The impact of social media, and how things can go viral these days, is effectively what has happened with that; TikTok and the rest have driven it. Scary to see, but interesting, nonetheless.

One of the things we have tried to do, from day zero, is educate people on what Bitcoin is. That gets very hard during these periods when there’s so much noise The community is so powerful in this industry. We saw that, back in 2017, with the user-activated soft forks [blocking unilateral upgrade decisions by developers and the bigger mining pools]. Even the big global guys were not able to budge the community. That showed the

real power behind Bitcoin, which comes across these days in the memes and social media impact. It’s getting more powerful with the likes of Musk and Michael Saylor getting involved, tweeting about it daily, and it’s incredible to watch. As Molly Spiers, our head of marketing, says, Bitcoin drives this industry… companies do not drive Bitcoin. It does its own thing. TPM: So, has this changed your customer base and how you handle them? DS: It changes our responsiveness because things happen so quickly. Mark Zuckerberg posting that he’s naming his goats Max and Bitcoin, for instance. Obviously, then, people are speculating ‘does that mean he is a Bitcoiner?’. Goat, in a sporting context, means ‘greatest of all time’, too, and people jumped all over that. Obviously, that attracts mainstream attention and brings new people through the door, which is great, but one of the things we have tried to so, from day zero, is educate people on what Bitcoin is, and how it can be used to benefit them and change the world. That gets very hard in periods when there is so much noise, so much going on and we’re having to put something out to help decipher headlines around Mark Zuckerberg and his goats. It’s tiring is the best way to put it. Issue 9 | ThePaytechMagazine

WAYS TO PAY: CRYPTOCURRENCY As an industry, we have to take the bear markets, the slower trading periods, as an opportunity to build products, solidify our teams and grow the foundations of our organisations. But, during the bull markets, like we’re experiencing now, it becomes very much – yeah, conversations around goats! TPM: CoinCorner is based on the Isle of Man, a real UK blockchain centre, with both government and university supportive of the industry. What’s the fintech scene there like? DS: The banking sector has always been particularly strong on the Isle of Man, and, more recently, the e-gaming sector, which is also heavily tech-driven, has grown to be quite big. So, there’s a good crossover of skillsets and companies. Two UK Bitcoin exchanges have just relocated here and another two that are looking to start up. So, I’m looking forward to seeing how much more of a hub we can create. There’s already a decent cryptocurrency following on the island. Considering it’s such a small place, there are a lot of people involved – four per cent of our customers are based here. TPM: Before the pandemic happened, you asked customers if they wanted a CoinCorner card. In the meantime, Gemini and Wirex have both launched crypto-enabled cards. Given payment habits changed so much during lockdown, is that still in your pipeline? DS: We did start processing applications for a CoinCorner card, but then Visa ended is relationship with the card issuer that a lot of us were using at the time, WaveCrest, and that disrupted everything. We’ve been after a particular style of product. Gemini’s is credit-card based, Coinbase’s is more like a top-up, which can be expensive to use. We are currently developing a debit card, attached to a bank account that will hold crypto and non-cryptocurrency balances alongside each other. We’re also working on ‘cryptoback’ rewards, similar to what some of the US guys are doing. We already operate a cashback scheme. Shoppers using our website, which has more than 1,000 merchant partners, including big high street names like Currys PC World, B&Q and Boots, get cashback, which we flip to Bitcoin for them. We also have a browser extension which users can install, so they don’t need to come through the CoinCorner site; they can

ThePaytechMagazine | Issue 9

just shop around the internet and, if they land on one of our cashback partners’ sites, a little popup in the corner invites them to activate it to automatically get Bitcoin back. It’s a cool product, a nice way to introduce people to Bitcoin and an opportunity for them to slowly build up a portfolio in the background, just by shopping. We did the stats recently on the Bitcoin the team here had got back from shopping, and it had gone up by as much as 350 per cent. We’ve only been live with that feature for about 10 months, but, with the Bitcoin price increase in that time, I think I’m nearly at the point where the products I bought are almost free.

As an industry, we have to take the bear markets, the slower trading periods, as an opportunity to build products, solidify our teams, and grow the foundations of our organisations TPM: NatWest has announced that it has no appetite for dealing with business customers that accept Bitcoin. Is this going against the zeitgeist? Why is there still that resistance to Bitcoin? DS: HSBC and a couple of others have also been negative towards it. NatWest actually replied to one of our tweets, trying to clarify what had been reported. As long as companies meet certain criteria, it will bank them. It’s not a blanket ban and was more, I think, hinting that a Bitcoin exchange, like ourselves, wouldn’t be allowed to bank there. If you’re a company in the UK that wants to accept Bitcoin and does so via, for instance, CoinCorner, the Bitcoin comes through our checkout service and, when it lands in the business account, it is automatically converted into GBP. NatWest, as far as we are aware, wouldn’t class cryptocurrency as that merchant’s primary operation. So, it’s probably a headline that’s been blown out of proportion. We have spoken to merchants recently though, that unfortunately saw that headline and decided not to accept Bitcoin as a payment method, so it does have an impact and it’s frustrating, from our side. It comes back to education. We have to explain to merchants, tell them to talk to

NatWest themselves and see what the risk appetites are. It’s about having that conversation and, if you do, a lot of the time, things will be OK. TPM: So, how do you educate? How do we expand this across the entire population or will it happen naturally over time? DS: You’re right that it’s generational. Kids like gaming. Games like Lightnite are developed around using Bitcoin Lightning payments for buying things. That’ll attract more of the younger crowd and make it natural for them to use it. TPM: When do you think the likes of Sage and Xero will be able to handle cryptocurrencies, in terms of small business accounting? DS: We’ve been having this conversation recently. A lot of these accounting softwares don’t provide up to eight decimal places, so our own accountant is trialling accounting in satoshis, rather than Bitcoin, which means there’s no decimal places to go to. Theoretically, it should work for pretty much any accounting software. It’s just a little bit of a workaround. TPM: Do you think Bitcoin will ever be recognised as a currency by central banks and nations? DS: It’s kind of recognised already, in that they appreciate it’s not going away. The central banks are looking at central bank digital currencies (CBDCs) and there’s no reason they can’t work parallel with each other. I know we’ve seen comments from the Bank of England, recently, about investing in cryptocurrencies and it telling people to be prepared to lose all their money but, quite honestly, that should go for any investment. TPM: Are we ever going to know who Satoshi Nakamoto is? DS: I don’t want to know. People say ‘what happens if Satoshi comes back and sells all his Bitcoin?’. I think Coinbase actually listed that in their IPO documents as a risk factor. Satoshi probably has more than enough Bitcoin to live the rest of his life quite comfortably, without needing to go back and touch those original Bitcoin, which would obviously reveal his identity. Knowing how clever Satoshi is, to be able to create Bitcoin, it's unlikely that his identity will ever be revealed. www.fintechf.com

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WAYS TO PAY: TOKENS Safe and seamless: Three key payment trends benefit hugely from tokenisation, says Dawson

Tokensofmerit Myles Dawson, UK MD of payments platform Adyen, considers how tokenisation improves the customer experience in the face of rising contactless limits and tighter security

UK contactless card payments went 'ton-up' in October – banks lifting the payment ceiling for the second time in two years. The ton was a term coined by bikers after the Second World War for machines that could hit 100mph, and there's no doubt contactless payments have gone

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full-throttle, too, having been heavily promoted during the pandemic as a way to reduce infection risk. Figures from industry group UK Finance show the volume of contactless debit card transactions made in the UK in June was 75 per cent higher than two years earlier, while Barclaycard said 88.6 per cent of all UK card payments in 2020 were contactless. The switch from a £30 limit to £45 in April 2020 prompted widespread discussion about security; there’s been comparatively little controversy over the latest limit increase to £100, although a Sunday Times poll recently suggested that most consumers were nervous of accelerating quite so fast. Some banks, in fact – Lloyds and Starling among them – perhaps conscious of their rising liability

and potential pain to consumers should they be victim of fraud, have given customers the ability to place their own spending controls on cards for the first time, reverting back to £30 if they wish. Whatever headroom individual consumers are comfortable with, the apparently irreversible growth of contactless is further evidence of the trend towards low/no-friction payments. However, loved as they are by consumers and demanded by online retailers keen not to see shoppers abandon their carts in an impatient strop, there is an inevitable tension between fast and frictionless payments and security. Some in the industry viewed strong customer authentication (SCA), which introduces additional secure steps in the

www.fintechf.com

payment process as part of the revised Payments Services Directive (PSD2), with alarm, concerned that it would undo much of the progress made in fuss-free transactions. Can that be ameliorated? To an extent, yes, says Myles Dawson, UK managing director of payments platform giant Adyen, if you employ tokenisation. He points out that, under SCA, if a merchant is operating an online top-up or subscription-based business model – hugely popular examples being Uber or Netflix – tokenisation allows you to keep calm and carry on collecting the money. For other transactions, he believes SCA will be much less of a challenge with tokenisation in place than it would have been without it. That’s partly to do with the post-pandemic consumer mindset. “Before the pandemic, people were less likely to save their card details with an online store but that's moved on now,” says Dawson. “People have seen the benefits of buying things from Amazon with one click, and they'll save their details now for a slick journey that avoids having to keep rushing into another room to find their payment card.” While tokenisation won’t entirely do away with the need for strong customer authentication in many instances, it will definitely help improve the repeat customer experience, allowing merchants servicing those customers to offer a ‘one-click’ experience.

SHIFTING THE RISK The process of replacing sensitive data with non-sensitive data – a unique string of numbers that are of no use to a fraudster – safeguards the primary account number (PAN) carried on a card. Merchants using Adyen's point-of-sale terminals and online shopping platform have the choice of switching between tokens created by Adyen or a network token created by the card provider. In both cases, the customer enjoys a smoother payment experience, security is improved since each transaction is protected by a one-time-use cryptogram, and the merchant can relax because they’ve effectively transferred risk to the payments platform or card issuer that undertakes to store the sensitive data behind the token. Dawson says: “Tokenisation removes a lot of the burden of managing Payment Card Industry (PCI) compliance from the merchant and hands it to the payment company. It’s www.fintechf.com

a really secure way to enable smaller retailers and different kinds of business model, to seamlessly create a payment flow. “That's vital for them, because over the last five years, companies like Uber have changed consumer thinking on what payments should be like, as have subscription businesses where the payment is almost hidden – you pay once, you subscribe, and money keeps coming off your card.” That said, Adyen has witnessed differing acceptance of tokenisation among issuing banks, which is why it offers merchants the choice of using an Adyen-generated token and a network token. “The schemes have created their own network vault, effectively, where they store all the tokens and we reach out to them for the latest card data every time,” says Dawson. “That has obviously removed some friction from the process and, longer term, that could develop into something really interesting. Meanwhile, banks have had to augment their technology to accept these network tokens, and we’ve seen different acceptance levels within different issuing banks. So, we could send a network token to one bank, and it’s far more likely to get accepted than a token generated by us, whereas with another, it will be the opposite because of the way they’ve adopted that technology. “While we’re constantly talking to the banks to try to level that playing field, meanwhile our AI is learning which token to use and how to send the payment request so that merchant is more likely to receive authorisation for the payment.” As regards the arrival of multi-factor or strong customer authentication, Dawson is confident teething problems will ease over time, since its importance for the secure use of cards is not in doubt. While Apple Pay and Google Pay can run without an upper limit since the cards within the virtual wallet sit behind the phone's security, plastic is all too easy to scam. But, In the same way that some banks are now offering customers the chance to set their own, contactless card spending limit, merchants can customise the Adyen system to suit their own risk profile by specifying additional

checks or even reducing the £100 contactless limit at their checkout. Dawson stresses that SCA undoubtedly provides a more secure environment and gives merchants more control over how transactions are approved. “Everyone will get used to it over time,” he says. But, beyond that, he expects to see payment flows speed up as banks’ own AI begins to learn individual customer habits, increasing the likelihood of a fraudulent transaction being blocked and a genuine shopper being waved through an online checkout without additional steps. “Depending on the perceived risk with a transaction, the issuer may not even bother asking for additional authentication, perhaps because they know it’s you, on your device or on a website you’ve used a lot,” he says. Dawson sees tokenisation playing a central role in reducing the friction in three big payments trends in particular: pay and collect, buy now, pay later (BNPL), and the marketplace model where multiple merchant payments are funnelled through one platform. Worldpay said BNPL was the fastest-growing online payment method in Britain in 2020 and predicted it will account for 10 per cent of UK e-commerce spending by 2024. Meanwhile, the 2020 McKinsey Global Payments Report outlined that marketplaces such as Amazon, eBay, Etsy and Shopify had seen seller sign-ups soar between 70 and 150 per cent during the pandemic. Adyen has seen the popularity of click and collect expand exponentially among its own clients. Dawson cites just one example: “A company we work with had to close its cafés in the pandemic – they were building a loyalty scheme app and realised it could be used for transactions, too, so it was developed for customers to order and pay for a drink that was waiting for them on a table outside when they arrived. That was a great shopper journey for them. “We've also really seen buy now, pay later take off and a lot of retailers are creating marketplaces within their own web shop. In all these cases, it points back to the need to make payments flow swiftly and securely through tokenisation.”

It’s a really secure way to enable smaller retailers, and different kinds of business models, to seamlessly create a payment flow

Issue 9 | ThePaytechMagazine

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WAYS TO PAY: CRYPTOCURRENCY

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Lowest possible cost at the fastest possible speed: those twin objectives have been at the heart of payments modernisation for the past decade. There are obstacles to both in the cross-border context, but, by and large – be it splitting a bill with friends over WhatsApp, making an account-to-account payment for goods and services or a one-click purchase on Amazon – the aspiration has been reflected in consumer experience.

All these innovations and more have, of course, been built on top of a unit of exchange that’s remained stubbornly unchanged for hundreds of years: fiat currency. It’s odd, then, that the pretender to that throne – cryptocurrency – fails so spectacularly when judged on the same www.fintechf.com

Charlie Meraud, Co-founder and CEO of Paris-based altfi market-maker Woorton, wants to see digital assets go mainstream… but he’s not convinced he’ll be paying for café au lait with Bitcoin any time soon

metrics. Not only are transaction costs often prohibitively expensive, especially for small purchases, but it’s also incredibly slow at processing. Bitcoin’s maximum processing capacity is seven transactions per second. Visa’s average is 1,700. It’s partly why Charlie Meraud, co-founder and CEO of Paris-based

Woorton – a market-maker in the digital asset industry, dealing with 300 counterparties across the world, including institutional investors, asset managers, exchanges, brokers, OTC desks, payment providers, blockchain foundations and crypto startups – believes ‘no one is ever going to pay for a cup of coffee with Bitcoin’. “That might have been the idea when it was created, but I think we can be sure it’s never going to be a currency in that sense,” he says. That will no doubt disappoint Starbucks, which recently announced that its customers could use Bakkt, a digital asset platform, to convert Bitcoin to USD to load onto their Starbucks accounts. But it will please investors in companies that have grown spectacularly on the back of crypto trading. Issue 9 | ThePaytechMagazine

WAYS TO PAY: CRYPTOCURRENCY Coinbase, the first cryptocurrency exchange to be listed on a US stock market in April 2021, saw its valuation climb to $85.7billion on its first day as a public company. Six months later, those shares were still changing hands at almost 18-times their projected earnings for the year. Its initial public offering (IPO) was described by one commentator as crypto‘s ’coming out party’ and Meraud agrees that it sent an important message. “It’s quite an achievement when you have a company like that with an IPO with such numbers,” says Meraud. “It’s great to finally see it being accepted by the traditional world of finance. It’s like they gave up fighting it. Actually, they gave up mid-2020, when they all started buying Bitcoin,” he laughs. “It’s important to finally have an asset that anyone can buy, anyone can be exposed to, and that is reflecting the success (or not) of our industry.” There is some irony in the fact that the Coinbase listing gives everyone the opportunity to own a piece of a Securities and Exchange Commission-approved business that has made its fortune on the back of an unregulated financial market. Meraud himself describes the industry that Woorton is dedicated to expanding as ‘exotic’ and, given the ‘madness’ of the market over the past two years, one that it’s hard, even for those on the inside, to get a true perspective on. “I think there are two periods that stand out for me. The first was the end of 2019, when the retail flow of small orders on the exchanges grew with no real explanation. I personally think it was down to the industry launching so many great products. You had great exchanges, a super way of storing your crypto, mobile apps where you could follow the price and buy/sell really easily. “The other moment was in mid-2020, when huge institutions began buying. At one point, I remember Grayscale, which is a Bitcoin index, buying more Bitcoin in a week than the number of Bitcoin created, so you had literally more demand than offer. At the same time, PayPal announced it was active in crypto. Half of the Bitcoin created was needed just for those two – and that doesn’t take into account Binance, Coinbase, and all the other exchanges. “You don’t know if we are already in the mainstream adoption phase or if it’s just

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because everyone is talking about it, waiting for it to be mainstream,” Meraud adds. “You can’t disagree with people when they say it’s a bubble. Yes, it is still kind of a bubble, but this bubble has exploded many times and every time it has reformed. So there must be a reason for that. “The question is, will there be more moments like this, where we ask ‘is it still pure madness?’ and what do we need to happen for that moment to be real? Does Game on: Gaming, video and audio streaming services may boost crypto take-up

retail payment environments in which it predicts Lightning could take sizeable volumes away from traditional payment processors between now and 2030 –namely, gaming, video and audio streaming services. Arcane estimates that Lightning could end up handling one trillion such micro-transactions per day. While Lightning addresses the issues of speed and cost, there is no getting away from the fact that, at the moment, digital assets like Bitcoin still float, untethered to value in the real economy, unlike stable coins that are pegged to a national currency. “Some of those are super-liquid, so you could imagine using one to buy your coffee – it would be cheap, it would be fast, it would actually be as good as USD. But the thing is, people are just using it to trade Bitcoin,” Meraud says. “And that’s where the crypto ecosystem is very singular.” Meraud doesn’t deny that the industry attracts thrill-seekers – working on the trading floor of a French bank (where he met his fellow Woorton founders) didn’t compare with the excitement of his shadow life in crypto at the time. “I wanted to do the same job, but in a different environment, and crypto was the perfect product – it was virtual, more innovative,” he says. “There were a lot of opportunities I couldn’t find in the traditional space… it’s a bit irrational, but I was just having fun when I was working in the crypto scene, and I wasn’t having fun when I was working elsewhere. So that’s why I decided ‘OK, I need to do this every day, actually; not just during the night when I can’t sleep’.” That same excitement drives him to help Woorton move cryptocurrency closer to the heart of the economy as an asset in its own right, standing on its own merit. “Decentralised finance is attacking a strong industry,” Meraud says. “But, in the US, you’ve now got institutions buying into crypto. In France, that’s not happening yet, and I want this to change, so that they finally say ’instead of having one per cent in gold, let’s have 0.5 per cent in gold and 0.5 per cent in Bitcoin’. Then, I think, we will achieve our goal.”

You can’t disagree with people when they say it’s a bubble. But this bubble has exploded many times and every time it has reformed. There must be a reason for that

having Coinbase listed now on Nasdaq mean a lot of people are going to create accounts? Or do we need tokens that allow people to buy a cup of coffee? I’m not sure.” In fact, there is a concerted effort to put digital coins on a level playing field with fiat currency. It’s called the Lightning Network and it aims to facilitate low-value, high-volume, lightning-fast blockchain payments at exceptionally low fees. It works by creating a dedicated transaction layer on top of the blockchain, but anchored to it so that, ultimately, all value exchanges appear as an immutable record. A recent study by crypto intelligence platform, Arcane Research, identifies three

www.fintechf.com

WAYS TO PAY: ACCOUNT-TO-ACCOUNT Unshakable momentum: A2A payments are fast moving from ‘alternative’ to mainstream

The simple logic of A2A CEO of Token, Todd Clyde, says it’s no longer a matter of if, but when, account-to-account payments move into the mainstream. And, once there, they will reshape the payments landscape The noise around account-to-account (A2A) payments is starting to increase as people pick up on the benefits. FIS’ Global Payments Report 2020 predicted that A2A payments will support 20 per cent of all e-commerce transactions, surpassing both credit and debit cards, by 2023. But are we ready? An A2A payment is one where money moves directly from the payer’s bank to a merchant or service provider’s. They’ve been around for years, traditionally used by consumers to schedule regular bill payments such as direct debits. But,

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thanks to the maturing open banking movement, A2A payments look set to shift from an ‘alternative’ payment method to a mainstream one. And, if you look at the wider payments industry, there’s a clear gap for them to fill. Cards and wallets, for example, are both intermediaries. They’ve become dominant forms of payment because they have the largest reach and provide the best conversion rates, but the downside is that they’re relatively expensive – and are based on a percentage model that further penalises large transactions.

A2A payments, which travel over national clearing systems like the UK’s Faster Payments, eliminate the need for intermediaries and therefore have huge potential to reduce friction, boost efficiency and deliver payments at a much lower cost. The issue, at present, is that the world’s clearing systems weren’t designed for consumer-to-business commerce, let alone e-commerce, and so accessing these rails in order to settle over these systems can be difficult. This means that A2A payments, to date, have had a more limited reach. Deciding www.fintechf.com

OPEN BANKING WILL FUEL A2A But the APIs that have come into play alongside open banking are game-changers. They’ve removed the barriers put up by fragmented banking rails, making it much easier to consistently access bank clearing systems and embed an A2A payment at the point of purchase. So, open banking-enabled A2A payments can, in theory, be used by anyone with a bank account. There’s no need to sign up for anything. And, because people will be

whether to accept cards, wallets or A2A payments has therefore resulted in merchants making a trade-off between reach, conversion and cost. They have been willing to pay the higher costs associated with cards and wallets because of the unmatched reach and conversions they provide. While A2A payments have the potential to lower costs, they haven’t had sufficient availability, or a high enough conversion rate, to become more than a niche payment method. Up to now, there has been no easy way to execute A2A payments for a purchase. You can go down the route of a ‘disconnected’ bank transfer, but this is separate from the purchase flow and difficult to reconcile. Or, there are online banking electronic payments, which involve a single country’s national scheme integrating deeply with its clearing system – like iDEAL in the Netherlands. The problem here is that they’ll never be able to expand beyond national borders. www.fintechf.com

authenticating in a banking app that they likely use every day, it’s extremely intuitive and familiar for consumers to use. While expectations are high, and the potential growth in adoption is huge, there’s also healthy scepticism. Some believe that open banking is held back by a lack of fully-functioning APIs. While it’s true that, if the foundations of the APIs aren’t stable, this won’t work, it’s also true that, thanks to the work of the Open Banking Implementation Entity (OBIE) in the UK, the APIs and user experience (UX) in the UK are robust and ready.

At Token, A2A payments doubled every month between March and December last year, and transaction volumes this year are growing by 30 per cent month-on-month We’re seeing an increase in use cases for A2A payments, as open banking takes a firmer hold. There include e-commerce purchases and paying bills, but the fastest-growing use case is debt repayments. In the UK, one-in-four credit cards can now be paid off using an A2A payment.

At Token, A2A payments doubled every month between March and December last year, and transaction volumes this year are growing by 30 per cent month-on-month. Interestingly, the average transaction size is more than €500, which suggests that early adopters include merchants selling high-end products, drawn in by the compelling cost savings on offer. In terms of conversion rates, after selecting ‘pay by bank’, 85-95 per cent of consumers are moving forward with their payment selection. The drop-out rate has reduced over the last six months as consumers become more comfortable with A2A payments as a choice. Moreover, success rates are in excess of 98 per cent for those that proceed with the payment type. A2A payments will continue to grow, simply because they’re better. They eliminate the need for trade-offs around priorities, meaning merchants can have it all – great reach (anyone with a bank account), great conversion rates (exceptional UX with no data entry), and lower costs (no intermediaries). Another advantage is that merchants can now combine the power of data with the payment; they can harness open banking data to assess a customer’s creditworthiness, get insights and track their loyalty. Merchants have to adopt en masse, of course, but, in the UK, we’re already moving beyond the early adopters, and once A2A payments are available from all gateways and payment service providers (PSPs), there will be a huge boost in numbers. In terms of consumers, we’re still at the very early adoption stage, but I believe that, similar to how Transport for London prompted the rise in contactless payments, the fintech explosion will encourage the use of A2A payments as people look to load their accounts at challenger banks, or trade stocks and cryptocurrencies. The question is, when will A2A payments drop the term ‘alternative’? I was involved in internet banking in 2000 and mobile banking in 2010, and it took us 10 years to stop referring to these channels as alternative. I believe with A2A payments it will take half the time, and in five years there’ll no longer be an alternative payment method – just a form of digital payment. Issue 9 | ThePaytechMagazine

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.

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FINTECH FOCUS: LOW CODE

Here’s the low down... Ron Wellman, Head of Industry Clouds at low-code platform Mendix looks at how it can make life a lot simpler for financial services in a changing world The finance industry is undergoing a radical shift, driven by new competition from fintechs, changing business models, mounting regulation and compliance pressures. And yet the industry is significantly ahead of many others when it comes to technology. Finance teams are able to collaborate from anywhere in the world, keep up with innovations – such as customers paying from their watches, checking their real-time balance on their phone at any time of the day or night, even executing trades 24/7 – and are able to operate faster than ever before. But how can it ensure that it stays ahead in the post-pandemic world?

INCREASING CHALLENGES While the world embraces innovation, it's easy to forget that the sector’s reality is incredibly complex. The radical changes caused by COVID-19 have highlighted how challenging maintaining its innovation is. On top of this, financial services is one of the sectors most affected by Brexit. As highlighted by Mendix’s Navigating The UK Landscape research, financial services businesses have severe concerns about the impact of Brexit on their industry. Many believe that it has damaged the reputation of the UK as a centre of finance (67 per cent) and created functional challenges for businesses in the country. When it comes to IT teams within the sector, it would be fair to say that the mission of financial IT leaders is often under-appreciated. They deal with antiquated systems dating back decades, www.fintechf.com

inefficient data management processes, and mounting security and compliance considerations every day to keep the business running efficiently and safely. Add to this the need to get additional staff to work remotely and keep remaining staff safe during lockdown, and the already time-poor IT leaders are now entirely swamped. With all of this happening within the sector, it is no surprise to see many organisations turn to low-code technology. Low-code is a powerful enterprise-grade, model-driven visual development approach to empowering citizen and

58 per cent of leaders in financial services say that low-code has enabled the development of new applications to support their companies post-Brexit professional developers to make Cloud-native applications more than 10 times faster for web and mobile. It uses drag-and-drop components and easy-to-configure workflows – all through an intuitive graphical user interface.

THE BENEFITS OF LOW CODE As the financial services sector embarks on the next phase of its digital journey, IT leaders need to look beyond their immediate staff to create more efficient internal processes, revenue-generating services that genuinely answer the clients’

needs and empower developers with the right tools. This requires further collaboration between IT and business line staff to design services that suit the customer base while reducing the pressure of an already-stretched IT department. Enter low-code: 58 per cent of leaders across financial services already say that low-code has enabled the development of new applications to support their companies post-Brexit. And, of all the financial and non-financial industries surveyed in the report, insurance leaders are making the greatest use of it. Seven in 10 insurance providers say this developmental approach has allowed them to implement new applications post-Brexit – which will be a valuable asset for both the IT and other business departments. Low-code software development provides a simple solution to address the constraints and challenges facing financial services. Besides which, this approach allows for reskilling resources possibly at risk from digitisation as well as flexible, iterative app development for many use cases in the financial services sector. That includes legacy application upgrades to comply with new regulations, apps supporting innovative banking or portfolio management, and mortgage application management. With low-code, the financial services industry has the right tools to untangle its complex processes, supercharge its digital transformation and focus on its core mission, which is serving clients and the wider financial industry. Low-code will be the top priority to invest in, over the coming years. Issue 9 | ThePaytechMagazine

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FINTECH FOCUS: CASH

‘Real’ lessons in payment choice Ron Delnevo, Chair of Cash and Card Consultants, asks why the UK Access To Cash Review looked to Sweden and not Brazil as a model for inclusion I remember meeting Natalie Ceeney, chair of the UK’s Access To Cash Review, back in early 2018, before her review group started its work. We went for afternoon tea in the rather splendid surroundings of the Royal Exchange, just across the road from the Bank of England. My discussions with Natalie included how the Access To Cash Review would be conducted. I discovered a key element of the work would be a fact-finding visit to Sweden, the poster-child of those promoting a ‘cashless’ future for our planet. I immediately suggested to Natalie that, instead of focussing on Sweden, where the banks have been trying to force through their cashless agenda for decades, the Review should look to www.fintechf.com

learn lessons from a far larger and more cash-positive market – Brazil. There are several reasons why Brazil is a far more important market to consider than Sweden. Firstly, size. Sweden is tiny, a nation of only 10 million people. Brazil, on the other hand, has 211 million citizens. It’s around 20 times the size by population, while Sweden’s land area is only six per cent of the South American giant. Secondly, Brazil has extensive long-term experience of running an ATM-pooling organisation. In Sweden, the banks created the pooling organisation, Bankomat, in 2010. TecBan, the Brazilian ATM-pooling organisation, was founded nearly 30 years earlier, in 1982. So TecBan has almost three decades of extra experience and learnings to share with anyone who wants to listen. And TecBan has used its time well: to become a world-leading independent ATM network by developing technological and innovative solutions that integrate the physical and the digital in Brazil. Thirdly, the South American nation has a far more positive – and financially inclusive – approach to cash than Sweden. And, since 75 per cent of UK adults continue to use

cash, Brazil is surely the country to copy, rather than a Scandinavian market where the majority of the public seems to have been lured away from using the currency by decades of anti-cash propaganda. Sadly, Natalie and her group never made it to Brazil. So, let’s redress the omissions from the Access to Cash Review and find out exactly what Brazil can teach the UK – and, indeed, the rest of the world. The enduring popularity of cash in Brazil is the first aspect worthy of note. Today, 96 per cent of Brazilians continue to use cash to make retail purchases and other payments. However, Brazil is a sophisticated payments market, with extensive choice. In this context, it is interesting that recent research by its Instituto Locomotiva found that, among the A/B socio-economic groups, only 15 per cent of respondents reported that cash was their most-used method of payment. When TecBan was created in 1982, there were not so many payment methods from which to choose. The group of banks that founded TecBan realised they had to do more to improve access to cash for all. Issue 9 | ThePaytechMagazine

FINTECH FOCUS: CASH TecBan was tasked with being the pooling organisation for off-branch ATMs, to cost-effectively increase the number of such machines available to the Brazilian public. TecBan therefore does not locate ATMs in tourist areas, where quick dynamic currency conversion profits would be the objective, or in areas where Brazilians may be willing and able to pay surcharges. No, the TecBan machines are located to meet the needs of the vast majority of the resident population, who want free access to the cash they use to live their lives, each and every day. TecBan started in quite a small way. Even in 2006, its network was only 3,200 machines. However, organic growth since then has been truly phenomenal. Today, TecBan is proud to operate more than 23,700 ATMs – and the number is growing every year.

With 2.1 billion transactions carried out annually, Banco24Horas is the planet’s largest independent self-service network in terms of withdrawal volume Ron Delnevo, C&CC

The main business of TecBan is Banco24Horas, which is present in the lives of 145 million Brazilians. Through its financial services solutions, Banco24Horas facilitates financial inclusion for customers of more than 150 institutions. With 2.1 billion transactions carried out annually, Banco24Horas is the planet’s largest independent self-service network in terms of withdrawal volume. The relevance of TecBan ATMs to the daily life and economic prosperity of Brazil is evident from the statistic that the organisation operates more than 50 per cent of all off-branch ATMs in Brazil. The cash dispensed annually by those ATMs accounts for more than five per cent of Brazil’s GDP. How has this success been achieved? To find out, I caught up with Jaques Rosenzvaig, the charismatic CEO who has led TecBan throughout this period of exceptional growth. I asked him how TecBan had managed such exceptional growth. “TecBan was set up all those years ago to ensure cash was conveniently available to everyone who relies on it to live their daily

ThePaytechMagazine | Issue 9

lives. We have never wavered from that objective. Everyone who works for TecBan – thousands of really motivated people – buys into what we are trying to achieve and strives to deliver success,” he says. So, how does TecBan differ from the European model for operating a pooled ATM network? “I believe the crucial difference is that TecBan, unlike some European pooled ATM organisations, is permitted to make profits to reinvest in improving the service provided to our 150 million customers,” says Rosenzvaig. “In the last decade alone, we have invested the equivalent of more than $750million – funds used to bring about continuous improvements, constantly enhancing the customer experience.” He explained that the 150 financial services institutions with which TecBan is partnered, pay based on the package of services they wish to offer their customers. “Some require only a small number of basic transactions; others want to take advantage of the entire suite of transactions we offer,” says Rosenzvaig. “Either way, all our partners enjoy the best pricing they can ever hope to achieve, brought about by our industry-leading operational efficiencies, coupled with the huge volumes of transactions we process. Our unit cost per transaction is very low. “Innovation is absolutely the key to the success of our business. Our ATMs now allow customers to withdraw cash, with or without cards, via QR code or using biometrics. We are also leading the way in Brazil, by introducing deposit/recycling ATMs, which are barely seen in markets such as the UK and Sweden. Nobody using our ATMs thinks of them as being old-fashioned! These are trend-setting machines in a forward-looking business. “We have also innovated in relation to the vertical integration of our business. TBNet is our in-house communications network and TBForte our own cash-in-transit operation. If we can do something to a higher standard and more cost-effectively in-house, that’s exactly what we do.” But the future for TecBan is not simply about ATMs and cash. It’s leading and participating in many initiatives. Open Finance TecBan is a solution developed in partnership with Ozone, a company whose directors were heavily involved in the introduction of open banking in the UK. Its latest new products

and services include ATManager and Integrated Services, to provide self-service management and maintenance solutions for the financial services and other markets. The company has become involved in new platforms – an example being TecBan’s Cash Out In Commerce solution, aimed at increasing access to financial services in nearly 500 communities in which the company did not previously operate. And it’s targeting new business segments, such as with HubDigital, which includes services such as digital withdrawals and online deposits, connecting fintechs, social banks, digital wallets and retailers. “We never stand still, never allow inertia to creep-in,” says Rosenzvaig. “Our history is one of growth, development and innovation, all focussed on delivering the financial inclusion all Brazilian citizens require and deserve.” So, Jaques Rosenzvaig is very positive about the future And why wouldn’t he be, when TecBan has seen an eight-per-cent growth in the amount of cash withdrawn from its ATMs in 2020, even during a pandemic in which many countries experienced a reduction in ATM withdrawals?

Nobody using our ATMs thinks of them as being old-fashioned! These are trend-setting machines in a forward-looking business

Jaques Rosenzvaig, TecBan

As for payment choice, there is no problem in Brazil. Businesses are compelled by law to accept cash for payments and the Central Bank has close oversight of all aspects of cash supply. No vested interests can hope to force cash out of the Brazilian economy. Of course, the work done by TecBan is not the only innovation seen in relation to access to cash in Brazil. The public can also now get the cash they want at thousands of National Lottery locations around the country. So, it looks like cash is here to stay in Brazil, which is surely in part because of the leadership of people like Jaques Rosenzvaig, someone determined to further the cause of financial inclusion. Where is that leadership in Sweden – or, indeed, the UK? Sadly, lacking. www.fintechf.com

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NEOBANKS: NICHE BANKING A new order: Monument takes its name from the City of London landmark

Alandmark landmarkmoment moment Monument estimates there are more than three million professional people in the UK with £200billion on deposit, many underwhelmed by the service they receive from mainstream banks. Rhea Chatterjee, Head of People, looks at how the neo kept calm and carried on building during a crisis and how it’s about to turn their fortunes around

Who builds a new bank in the midst of a global pandemic? To be fair, it wasn’t part of the plan for Monument Bank. But, given the neo takes its name from a City of London landmark that bears witness to a destructive event (the Great Fire of London) from which a new order emerged, the timing was apt. The concept of a niche neo for a cash-rich, professional class that has somehow got lost in the cracks between wealth management for the fabulously well-endowed and mainstream banking for the averagely well-off, had appealed to investors when it was pitched ahead of the recent crisis. A £28million funding round in February 2020 was backed by VCs and angels including Ian Axe, former CEO at Panmure Gordon, Eric Zinterhofer, a founding partner of private equity firm www.fintechf.com

Searchlight Capital, Rakesh Loonkar, a cybersecurity entrepreneur, and high-profile property developer Harry Handelsman. They all saw sense in offering the UK’s three-and-a-half million or so doctors, lawyers, accountants, entrepreneurs and investors – with whom many of them, no doubt, mixed – a bespoke way to make the most of their liquid assets. Monument’s idea was to offer higher-than-average interest-bearing accounts that could be leveraged by the bank to fund loans specifically for those who wanted to build property portfolios. Many of its potential clients, whom it estimates have £200billion on deposit, are likely already active in the residential buy-to-let market – one that Savills says was worth $1.338trillion by the summer of 2021. Rents, yields, property values and

buy-to-let lending all rose in the first seven months of the year, making bricks and mortar as attractive as they’ve ever been. The concept of a using deposits to power lending might be a traditional banking model, but Monument’s execution is most definitely post-modern. It combines a native Cloud-based digital core, mobile user interface and direct access to real relationship managers, to deliver skilled investment support. Mambu, Salesforce, Amazon Web Services, Persistent Systems and Accenture were brought in for the build in 2020 – a particular challenge, since the teams were rarely physically in the same place due to COVID restrictions. Many of the bank’s target demographic also, of course, found themselves forced into unfamiliar ways of working during the pandemic – cut off from normal interaction with clients, patients, and colleagues. Issue 9 | ThePaytechMagazine

NEOBANKS: NICHE BANKING For Monument, being remote from the get-go was a litmus test for its digital concept, according to Rhea Chatterjee, Head of People at Monument. She describes the bank’s niche customers as people ‘who work hard for what they have, and what they’ve achieved, but are time poor, largely due to the jobs they do’. “At Monument we're building a bank around them and their needs." The COVID-19 pandemic, and the way the bank navigated some of the business challenges it presented, only strengthened that resolve. Chatterjee contends that while company culture didn’t change, the way it has been built, grown and maintained has.

New financial landscape: Monument is one of a growing number of very niche neos

“We have a clear vision about what we’re trying to achieve, who our clients are, how we want to interact with them, what our values are as an organisation and how we’re going to build our behaviours and aspirations. We’ve always been clear on that and our culture is something we've spent a long time deliberating." From the perspective of customers, it means being bold and innovative about how the bank interacts with them. Not surprisingly, a major takeaway for Rhea Chatterjee when it comes to developing a bank during a pandemic has been the need to adapt to people working from home. “I think this last 18 months has shown that anything is possible,” she says. “We’ve had to be flexible, our people have had to be flexible. We’re all getting used to a new way of being (in and out of lockdowns)," she says, noting that the external environment is changing every day and that the bank has had to roll with the times. “Flexibility and understanding has been really critical to creating that strong culture and ways of working at Monument. And building on that, it’s about ensuring that we really listen." For Chatterjee, it comes down to striking the right balance and to match flexibility in working patterns with adequate

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relationship-building contact among employees. That ensures those valuable clients Monument is targeting, receive the discreet service they require. Chatterjee believes that as fintechs adapt to the hybrid way of working, the importance of having a rich positive culture will be felt more than ever. It is critical that everyone in an organisation has a view/input on what that should look like and feel empowered to share this view to contribute to the overall success. “We believe the key to our success is to keep testing our approach. We do it with our technology, we test it continuously to ensure it continues to deliver and to

in Chase’s headlights – but JP Morgan Chase’s recent purchase of robo-advisor Nutmeg suggests there could be tanks on Monument’s lawn down the line. For now, the latter has first-mover advantage and a clear target. By offering direct access to real relationship managers through its app, secure savings at high return, and the provision of property investment loans (buy to let and bridging with a maximum ticket of £3million) at the touch of a button and resolution within minutes, it believes it stands a good chance of converting millions of customers and turning a profit within around two years. As Rhea Chatterjee notes: "We work very closely with our community to understand what their pain points are and what they don’t get from the current banks that serve them at the moment. “These are very much people we all rely on in life,” she adds, “whether it’s the accountants we use for our personal finances, whether it’s entrepreneurs building businesses and creating jobs, or the doctors who've been

These are people we rely on in life – accountants, entrepreneurs, doctors… They deserve better than their current financial services experience improve what it can do, and that is key to how we approach our future plans for our people and ways of working, too. "We have all heard the term ‘hybrid’ a lot over recent months and that flexible approach is critical. (It's) also an approach allowing for change and reinvention when needed. Monument is committed to creating a bank that works for our clients and a workplace that works for our people. We know this will be an evolution."

Owning the space The bank is one of a growing cohort of super-niche neos, focussed on a very specific segment. The only startup that might come close to what it is trying to achieve is Chase, the just-launched digital-only UK bank from US giant JPMorgan Chase. It’s similarly promising clients a decent return on savings (up to five per cent) and a different way of doing things. And it includes an app-based current account with attractive incentives, while Monument will offer other types of savings products. It’s not an immediate rival to Monument – mass market, digital-only challengers such as Monzo and Starling are

even more busy over recent months. They deserve far better than what they’re currently getting out of their financial services experience.” Monument co-founder Mintoo Bhandari and JP Morgan Chase CEO Jamie Dimon, who has famously said remote working has ‘serious weaknesses’, may part company on views over a flexible culture; but they're agreed on one thing, namely the utility of digital to banking. As Bhandari has pointed out, prior to the pandemic the conventional wisdom was that 90 per cent of transactions would be digital, 10 per cent face-to-face. Now the expectation is for 98 to 99 per cent to be digital. Busy professional people need just such simple solutions. Yet, nestling as they do between ultra-high net worth individuals – who will typically outsource their finances to money managers – and the so-called DIY retail arena, high street banks can’t get their cost-to-income ratio numbers to work in terms of being able to deliver the hybrid service level they demand and expect. “They want a bank that knows what they need,” says Chatterjee. “That’s the gap we’re going to fill," www.fintechf.com

NEOBANKS: ENVIRONMENT

DO-ing the right th thing

The ‘Greta effect’ forced governments to listen up on climate change. Another Swedish activist is having the same impact on the financial system. Mathias Wikström, CEO and Co-founder of Doconomy, and Ruediger Vogt G+D’s Head of Payment 4.0, explain “If nature were a bank, they would have already rescued it” is a phrase coined by one of the great radical writers of Latin America, Eduardo Galeano and later appropriated (albeit slightly altered) by US politician Bernie Sanders.

Mathias Wikström, CEO and co-founder of Swedish B2B Doconomy, reaches for it now to illustrate the pressing need for action to tackle climate change, drawing a parallel between the urgent measures brought in by governments to rescue the financial system in 2008, and the comparable inertia in dealing with the environmental catastrophe that is on our

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collective doorsteps today. That means it falls to each of us, on an individual level, he believes, to effect change. Fully launched in 2019 – the same year that the best-known climate activist of modern times, a then 15-year-old Greta Thunberg, addressed the United Nations Climate Change Conference – Doconomy set out to help her fellow Swedes be the change she wanted to see by reducing and/or offsetting their carbon footprint through the spending choices they make. A ‘tool, an ecosystem and a constantly evolving platform’, Doconomy has since influenced millions of people across the world through the vector of banks and other institutions as it attempts to bring

about structural change to the financial system, as Wikström explains. “Our ambition is to enable a sustainable lifestyle for all, because we think, at the core, most people want to do good, but there just aren’t sufficient tools to assist them in driving the change of behaviour that we see is needed. Our job is to provide those tools. We have two core services; one that calculates the environmental footprint of every transaction, and one that calculates the cradle-to-gate footprint of a product.” Doconomy’s mission is to take people and banks outside of their comfort zone, and challenge the way things have always been done. “It’s important that is done in a credible and a trustworthy fashion,” adds Wikström.

www.fintechf.com

So, fundamental to the Doconomy offering is the Åland Index – a joint venture with Ålandsbanken which, through partnerships with other banks and payment providers, now touches 360 million users in 18 countries. The Index measures the carbon impact of financial transactions. “Sixty per cent of an individual’s carbon footprint is linked to the choices they make in daily consumption. The Åland Index has the ability to calculate the CO2 footprint of each and every transaction, using the data available to us,” says Wikström.

We can shape a new kind of brand preference, a new kind of loyalty, driven not by incentivising more consumption, but by incentivising greater responsibility

Mathias Wikström, Doconomy

“The Index puts together a sort of scorecard of CO2 emissions per merchant category, so you get your individual spending’s representation in that industry’s total carbon footprint. Then we convert that back from CO2 equivalent emissions measured in kilos,to the local currency, using the societal cost of carbon at approximately US$130 US. “So, every purchase gets two metrics: damage done to your wallet and the impact that your consumption has had on the resources of the planet.” Using payments to effect change, gives Doconomy maximum leverage, as Wikström goes on to explain. “You have a buyer and you have a seller, and at the very core of that transaction is the payment. We want to address the issue and educate people at that moment, so that it’s manifested as an opportunity for both the seller and the buyer to take greater responsibility. “That’s where we can also work to shape a new kind of brand preference, a new kind of loyalty, driven not by incentivising more consumption, but by incentivising a greater sense of responsibility.” In Sweden, the DO mobile banking app is connected to a credit card that enables the www.fintechf.com

cardholder to track and measure the carbon footprint for every purchase. It also allows for the consumer to save and invest in UN-certified environmental projects worldwide to compensate for their carbon impact. In what it claims is a world first, Doconomy launched DO Black, a premium credit card with a pre-set ‘carbon spending’ limit beyond which the card will be declined. It was an innovation that so impressed Mastercard that it subsequently made an equity investment in the startup and rolled out a carbon calculator that its issuers can integrate into their apps. It’s not only a practical instrument to mitigate climate impact, but it also provides banks with a product to attract potential customers who are keen to do their bit for the environment. A recurrent theme across so many climate change projects is that individual responsibility is, of course, important but collaboration between big institutions to tackle a massive global problem is an imperative. Any bank can use the Åland Index via an API and Doconomy has partnered with many entities apart from Mastercard, including Standard Chartered, S&P Global, Klarna and DirectID. A recent partnership with payments specialist Giesecke+Devrient (G+D) continues this trend. G+D's intention is to find opportunities to provide more sustainable payment solutions, also impacting the card lifecycle itself. Whether in production and choice of material, such as recycled PVC or ocean plastic, to fulfilment or recycling stages, its efforts to become even more eco-friendly is an indispensable journey. With Juniper Research in 2019 saying that, despite virtual cards processing more than $1billion by 2025, less than 20 per cent of people making purchases will use them, such a significant move to make production of traditional cards ‘cleaner’ can only be welcomed. But G+D head of payment 4.0 Ruediger Vogt says that the partnership with Doconomy is about more than just providing cards that are climate-kind. “About two years ago, two of my colleagues were looking into how we can create an offering that combines eco-friendly payment cards with a tool for the client to manage and improve their CO2 footprint,” he says. “That’s when we first came across Doconomy and the great work it’s doing in the field of everyday

climate action. And now, by jointly offering to track consumers’ carbon footprints, G+D and Doconomy will address the needs of banks and fintechs that have ambitious environmental goals, and a strong focus on innovation. The joint offering of the two companies will enable banks to build a strong brand loyalty, through sustainable solutions, and a have visible commitment to climate protection.” The Åland Index gives that credibility. “The Index is a great way of not only creating awareness of how what you’re doing as a consumer in your everyday life is influencing your CO2 footprint, but it also gives you a tool in order to act. And that’s important because consumers really want to take the next step and change for the better. Studies show they are really willing to pay more for environmentallyfriendly products and they are willing to contribute to making a positive impact. Customers really are asking for change.” Banks need to be in tune with that, believes Vogt.

Environmental issues have really shifted general attitudes, so it’s really now a key value proposition that banks can and are driving

Ruediger Vogt, G+D

“Environmental issues have really shifted general attitudes, so it’s really now a key value proposition that banks can and are driving. In the World Economic Forum’s 2020 Global Risk Report, for example, the top three risks identified are all climate related, and the report strongly requests that financial institutions work to improve these risks, so that shows you how important this is for the financial sector, too.” “I think a lot of the challenges that we are facing today as a species on this planet needs a new narrative,” adds Wikström. “It needs a new story to be told, it needs hope, it needs tech, it needs data, and it needs commitment. All of those factors we’ve found in G+D, and that’s why we think this has the potential to be a very fruitful partnership for us, but also for the world.” Issue 9 | ThePaytechMagazine

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FINTECH FOCUS: RISKS AND REWARD

Lessons learned from the edge of the world High-risk, complex and high-profile expeditions. That could describe any number of fintech startups! In fact, they’re what Victoria Nicholson, New Countries Setup Specialist at banking-as-a-service platform Railsbank, has led for many years in some of the world’s most hostile environments. Her experiences, while extreme, have helped her to navigate equally testing conditions back home. Here, she shares what she’s learned with fellow fintech adventurers As Founder of Chase Expeditions, I’m proud to have spent the last 12 years supporting the world’s most intrepid adventurers in pursuit of ambitious goals, often in largely uncharted territory and extreme climates. In addition to co-ordinating these challenges, I’ve taken part myself, completing the notoriously-gruelling Marathon des Sables, which is six ultra-marathons in six days in the Saharan desert, as well as major expeditions on every continent. I joined the Railsbank team because they saw how transferable my adventuring skills are to fintech – and the challenges associated with dynamic, fast-growth businesses. I must say, the adversity and isolation we’ve faced in the last 18 months as we adjusted to COVID-19 is as unnerving as any other unfamiliar landscape that I’ve faced. But there are some things I’ve learned in navigating the natural world that feel particularly relevant to that of fintech.

Share your vulnerabilities I’ve frequently been the ultimate remote worker – tapping away on a laptop in a flapping tent in blizzard conditions on an icecap, or at a remote mountainous base camp, clinging to the wavering satellite signal to try to get news home. I’ve also often been in the relative comfort of my home, in charge of those undertaking remote expeditions themselves. They’re usually alone and worlds apart from their support team, any possible search-and-rescue capabilities and

their families. They might be rowing an ocean, climbing K2 or dragging a sledge across the bitter Arctic tundra. In order to stay alive, they must be willing to be ‘connected’ and to be vulnerable. They must show their vulnerabilities, exposing how they’re really feeling. This connection requires blistering honesty – asking for help or admitting that you’re struggling is hard for anyone. In the male-dominated expedition world – and within the fast-paced fintech sector – this takes particular practice and bravery.

Peak performance: But success isn’t all about reaching the top

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Issue 9 | ThePaytechMagazine

FINTECH FOCUS: RISKS AND REWARD

I’ve frequently been the ultimate remote worker – tapping away on a laptop in a flapping tent in blizzard conditions on an icecap

In any walk of life, I’ve learned that sharing vulnerability is hugely empowering. I’d recommend checking out the author and speaker Brené Brown, who addresses why human interactions trump social media and how leaders can create more intimacy with their employees.

Look after your people As with any rapidly-developing business environment, the fintech sector is populated with idea-rich, time-poor, highly driven entrepreneurs. In turn, this environment attracts a similarly-driven workforce. These people are often risk-takers and boundary-pushers, hellbent on achieving their goal. But this can often be to the detriment of those around them. There’s a clear parallel with the people I have worked with in my extreme expedition career. Focussed on audacious challenges and striving towards their goal is what enables them to battle against adversity when the chips are down. But it’s a fine line to tread – remaining focussed on the finish line must not come at a cost to the health of the company and its team. In the expedition world, throwing everything at your dream with unwavering determination but disregarding required process, due diligence and the implications of risk, can be fatal. Known as ‘Summit Fever’, this term was originally coined to refer to climbers wishing to ‘bag’ their

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summit for their hero shot, but with disregard for the detail – often resulting in the individual or the team passing the point of no return with fatal consequences. It’s no different in our corporate sphere. Turning back before the summit, recognising that there’s not adequate time to reach it and to make it back to base camp safely, is the mature decision. But this is one often beyond the grasp of participants. The summit will be there for another day. The team members who push too hard and ignore the warning signs might not be. Fintech companies need to realise the potential hazards of acting in this way, and avoid constantly putting the success of the venture above the health and wellbeing of their employees.

Find a release One thing that’s become glaringly apparent is that, with more time at home, people are working more. Rather than spending three hours commuting, people are at their desks for longer. Desperately trying to make up for the time spent taking care of their children’s homework, employees are starting in the early hours of the morning, ahead of wake-up time, or

working late into the night to catch up. This may be fantastic for productivity, but the balance will need to be redressed. I hope people are taking charge of their own balance and are introducing boundaries. Do what you can – but Top of the world recognise that you can’t : Victoria Nichols always do it all. on To maintain a positive outlook and my mental health, I run lots. The power of exercise and the links between increased exercise and improved (and maintained) positive mental health are irrefutable. You don’t need to be running marathons – a decent leg stretch in the fresh air, a yoga session at home, or a peloton class in your lunch break, all count. Make time for this in your schedule if you can – no one else will. I hope the industry and its leaders have realised the resilience and drive that is inherent in each one of us. A friend remarked to me recently that ‘if you couldn’t hustle in 2020, you probably never had it in you’. We’ve all hustled in our own way. I think it’s important to remember that, while it can be tempting to think that our neighbour ‘hasn’t had it all that bad’, we might never know what path someone else is walking. www.fintechf.com

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MARKETPLACES: PSPs A compelling offer: Banking Circle settles six per cent of Europe’s B2C e-commerce

Squaring the PSP circle The ‘super correspondent bank for the new economy’ has been signing up PSPs so fast that it’s now settling six per cent of all Europe’s B2C e-commerce transactions. We asked Banking Circle’s CIO, Michel André, what’s attracting them Realising improvements in settlement times, reconciliations and processing is a business imperative for payment service providers (PSPs) facilitating cross-border transactions on behalf of their clients. But delivering it via a network of rails and a shrinking international correspondent banking system where every foreign exchange (FX) conversion and handling charge erodes your margin, www.fintechf.com

is challenging – and diverts resource from more profitable endeavours, such as data insight and enrichment aimed at increasing conversion rates and improving efficiency for clients. Which probably explains why PSPs have been forming a queue to join Banking Circle’s ‘super correspondent bank for the new economy’. Among them are an increasing number that lift and shift payments for e-commerce marketplaces – including muscular outfits such as Alibaba and Shopify and, recently, the Dutch Online Payment Platform (OPP), which currently serves more than 170 such consumer sites across Europe and is looking to expand its geographic reach. Having access to real-time local settlement in 25 currencies, via one bank that has eyes on the ground in terms of compliance in every territory, is a compelling proposition for such businesses. It’s certainly helped to build Banking Circle’s transaction volumes considerably over the past two years.

Now working with more than 150 financial institutions and looking to process $250billion of payments by the end of 2021, it already settles six per cent of Europe’s B2C e-commerce payments on behalf of banks, fintechs and PSPs. Payments has always been a scale business – more so since mobile pay, various contactless payment regulations, a pandemic and a growing trend towards spreading larger transactions over buy now, pay later agreements has considerably increased the number, and lowered the individual value, of transactions. Banking Circle’s CEO Anders la Cour made clear, at a panel discussion hosted by Paris Fintech Forum at the start of this year, that building volume was a priority for businesses like his. And it’s achieving it. As fast as Banking Circle onboards banks and fintechs – it has no direct relationship with individual SMEs and corporates – it is also making technology links with central banks and local settlement schemes to attract more. Issue 9 | ThePaytechMagazine

MARKETPLACES: PSPs In addition to SWIFT, Faster Payments, CHAPS and SEPA, in July 2021, through a partnership with SIAnet, the low-latency fibre optic network provider, the bank launched a new instant payment service, connecting to Europe’s TARGET Instant Payment Settlement (TIPS) service. It means its European customers can execute instant payments in less than 10 seconds, up to a maximum of €100,000 per transaction, 365-days-a-year, 24/7. While TIPS currently only settles transfers in euros, other currencies can be used for settlement if the central bank concerned is connected to the platform and is willing to add its currency. This year, Banking Circle also joined the Nordics’ soon-to-launch cross-border payments network, P27, saying that it saw membership as ‘a crucial piece of the jigsaw to remove the cost and time currently experienced in domestic and cross-border payments to and from the region’. “Banking Circle specialises in this specific segment, building a super-correspondent network, allowing you to connect to local payment rails in a seamless way by easily integrating this into your core payments system,” says Banking Circle CIO Michel André. “It can help banks and PSPs meet their client demands, based on a Cloud-based, decoupled architecture, built for driving low-cost, real-time, cross-border payments. That’s its sole purpose. “Instead of going through the old correspondent banking network, where a cross-border payment might take three days to go from you to the final destination, because it jumps through multiple hoops, if you partner with Banking Circle, it takes one jump and reaches the destination almost immediately, via a single API. And it’s our clients’ clients – the merchants – that are the ultimate beneficiaries of that.” That was certainly front-of-mind for the Netherlands’ OPP. “The marketplaces we support are used by thousands of merchants who make and receive numerous payments in and from several countries, and in different currencies, every day. It is therefore crucial that buyers can withdraw funds to marketplace sellers as quickly as possible, and that traders’ profits are not reduced by fees or FX costs. By working with Banking Circle, we are capitalising on its ‘real-time’ payments proposition, which cuts out cost

and time,” Maurice Jongmans, CEO of Online Payment Platform, commented following the deal. In other words, merchants get their money faster and pay less for the privilege, and, as marketplaces are where many of them congregate, such tie-ups serve Banking Circle’s long-held ambition of empowering the world’s SME economies.

SUPPORTING GLOBAL SMEs Anders la Cour has described his company as being on a mission to improve small business’ access to global financial services, and to give firms the freedom to trade wherever they see opportunity. “We believe it’s our duty to help make this a reality,” he said. “We have built a solution that allows businesses like Online Payment Platform to give their marketplace customers access to transparent local ONE FOR ALL: E-commerce marketplaces are a route to SMEs

It’s our clients’ clients – the merchants – that are the ultimate beneficiaries

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Safenetpay, which provides its customers – mainly UK SMEs – with a single platform that offers multi-currency accounts, FX, card payment processing and merchant accounts; and mobile payments solution provider HIPS Payment Group. All of the above cited the ability to access local clearing through one connection, and improved internal efficiency, as key reasons to partner. And, as they grow, Banking Circle’s Cloud-based architecture will flex with them and respond with bespoke solutions, says André. “Since we have purposely built our payment infrastructure and payment rails in the Cloud, in a decoupled, event-driven manner, we can cater for flexibility, build new services and make those available for our downstream clients. You might hear that a primary driver for building something that’s Cloud based is cost, but

payments and collections across borders, without the need for a physical presence or a relationship with a correspondent bank in that region. And that means increased speed of settlement as well as reduced cost.” Smoother, faster reconciliation is achieved through dedicated multi-currency virtual IBANs in multiple jurisdictions, which the bank promises will improve reconciliation, consolidation, risk management, operational efficiency, transaction processing and liquidity management. Other notable new PSP clients over the past 12 months are PPRO, the UK-based payments infrastructure provider; Paymaster24, the full-service, multi-channel gateway for local e-payment solutions;

I think the most important thing you gain is the flexibility to build things on a higher level than when you start with your own servers and networks. You can focus on building services on top of a secure, state-of-the-art technology base, which you have in a Cloud environment, from the get-go. And, because you start at a higher level, you can move faster and experiment.” With an increasingly competitive – not to say predatory – payments landscape, PSPs need to create the headspace and resources to differentiate themselves with added-value services, putting Banking Circle in a sweet spot. Not even a global pandemic could stop the growing tide of global transactions – total volumes fell nowhere near as far and recovered much quicker than the World Bank predicted. The logic of using one utility to process them all is hard to refute. www.fintechf.com

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LAICEPS AISAAPI 02/s02 YENOM MARKETPLACES:

The first of the UK’s high street banks to launch an API-driven marketplace for customers, TSB is leveraging its Cloud-based platform to reap the rewards of open banking, says Jason Wilkinson Brown Back in 2018, TSB must have thought the sky had fallen in after a move, heralded as the start of a brave new world, ended up nothing short of an IT, customer service and PR disaster. The UK bank’s migration of its five million customers and their 1.3 billion records from a banking platform it was renting from former owner Lloyds Banking Group, to its new state-of-the-art platform developed by its Spanish parent company Sabadell, left nearly two million customers unable to access their accounts. As a result, TSB made a thumping year-onyear loss.

At the time, it said that the ordeal would make it stronger. Fast-forward three years and the evidence very much points to that being the case. TSB is now widely acknowledged as having one of the most technically-advanced (and resilient) platforms of any of the UK’s high street banks. A jewel in its offering is the new TSB marketplace – a conduit for customers to access a number of third party-provided products and services, designed to make personal and business customers feel more confident about their money. TSB was the first of the mainstream banks to launch such a service, but the concept was one that was very familiar to its head of digital propositions, partnerships and open banking, Jason Wilkinson Brown. He’d previously spent time with the UK’s Starling bank, which made the marketplace concept central to its challenger model. “In essence, we have a one-stop shop, where the approved partners we work with can help customers improve their financial wellbeing and have better money confidence, outside of traditional

banking products and services,” explains Wilkinson Brown. Giving customers greater choice and freedoms ‘points to us recognising that the smartest ideas aren’t always inside TSB’, he adds. “By having a marketplace, we can bring best-in-class propositions to our customers, both retail and small business.” TSB had originally introduced a lending marketplace in partnership with Funding Options, just for its small business customers, in 2018. This year, it teamed up with ApTap to help personal customers save money on their bills; Wealthify to help them invest, and Legal & General to offer them life protection, while also giving businesses access through its app to Square card payment services and Enterprise Nation support. The timeliness of TSB’s marketplace can be seen in the context of changing customer needs, prompted by the coronavirus pandemic. That proved to be the ‘rocket fuel’ propelling TSB’s work with partners, according to Wilkinson Brown. ONS figures, released

lays out its stall

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in April, showed that there have been distinct winners and losers in the UK population as a result of the uneven economic impact of the COVID-19 crisis. Many have suffered financially through changes in job circumstance, while others have been able to save money (through reduced spending) and are, on the face of it, better off. The first providers to appear this summer in the personal banking TSB marketplace, says Wilkinson Brown, were selected to address both these changes of circumstance and they are already delivering results for customers. “We’ve seen the pandemic widen the social divide in the UK over the last 18 months. Unfortunately, due to the pandemic, a number of customers had lost their jobs or had been furloughed and were financially finding life tougher. At TSB, we needed to help them find opportunities to save money, and therefore we stood up the subscription management partnership with ApTap, where they could connect their accounts using open banking, get that really quick understanding of their money and where they were spending, and identify opportunities to save. So, those forgotten gym memberships, or Spotify or Netflix subscriptions, could be picked up, but also, crucially, they could compare their broadband, gas and energy providers, and look to save some money there, too. Through that subscription management partnership, we’ve seen, on average, customers save £170 on their bills, and one customer saved as much as £400. “Then you have those customers who were lucky enough not to be put on furlough and carried on working. These people also had changing needs because they were saving more, so our partnership with Wealthify helped them put that extra money into, say, an investment or junior ISA. “And we’ve a partnership with Legal & General around life insurance because it’s important we help customers not just for today, but also for the long term. “We’ve more partnerships in the pipeline in the personal banking space. There’s an exciting number of things we want to do.” For business customers operating in the new economy, post-COVID, Square offers not just secure mobile and contactless payments, online and in-store, with automated admin, but following its acquisition of buy now, pay later leader www.fintechf.com

Afterpay, a way for them to keep pace with customer expectations for greater buying options. Small businesses can also join Enterprise Nation’s community of fellow owners and industry pioneers who share their knowledge and support. The marketplace is a win-win for all concerned, then – customers get added-value services, the providers get top slot on a mainstream banking platform with all the credibility that accrues, and a route to five million potential new customers, while TSB gets to strengthen its relationship with account holders by providing them with a one-stop shop. But for the bank, there are also existential market forces propelling this stage of its evolution. The pandemic served to consolidate the hierarchical position of the UK’s big four banks – latest full-year earnings reported by HSBC, Barclays, Lloyds and NatWest revealed that their domestic customers deposited £221billion of extra cash. That will not be lost on Tier 2 institutions like TSB. Open banking, upon which the marketplace

By having a marketplace, we can bring best-in-class propositions to our customers, both retail and small business concept rests, was driven by regulators precisely to prise market supremacy away from those behemoths. And Wilkinson Brown points to another, broader trend that might also influence strategy – that of non-financial organisations morphing into quasi and even fully-fledged financial services companies. “We all have to be increasingly customer-focussed operations,” he says. “Southeast Asia and the Far East are really good examples of where financial services is heading. Look at Grab – they initially started off as a ride sharing firm and now they have a super app that covers financial services, groceries and taxis. It’s a reflection that you always have to be mindful of how things change, and how customer’s needs are evolving.” TSB’s commitment to change and innovation is evidenced by its willingness to work with partners, large or small, and the fact that it has signed the Fintech Pledge, the government-backed framework

for partnership working between bigger banks and small technology suppliers. Wilkinson Brown is sympathetic to fintechs who’ve had a poor experience of working with much larger companies. “The amount of times we speak to fintechs who have gone into a company really excited, do a pitch, and the company says ‘yeah, that’s great, let’s do something’, but they never hear back. So, they go on this perennial first-dates cycle. We don’t work like that. If we like what we see, then we will take the fintech through our partnership curation framework. If it’s a very young startup, we’ll put it onto our TSB Labs programme and give it access to people inside the organisation, to shape its growth, get insights and give it an idea of what working with a bank is like. We did that with four companies last year and one has progressed to a full customer launch. “In that process, we reduce the risk by doing a staff pilot followed by a small customer pilot – and throughout we stop, measure and learn.” So what more can customers – and indeed fintechs – expect of the marketplace? “The good news is that TSB’s target is to deliver a number of partnerships per quarter, so we can guarantee the marketplace will be growing,” says Wilkinson Brown. “I think it reflects that we’re really pushing forward, as an organisation, to be innovative.” That’s not to say that TSB has forgotten its roots as a community bank. While, in September 2020, it announced it was closing 164 branches, it pledged to increase investment in the remaining 290. “There will be some customers for whom the digital marketplace isn’t appropriate, so it’s important we’re multi-channel,” says Wilkinson Brown. For them, TSB is planning a pilot, using open banking data to trigger money confidence conversations in-branch. Self-serve or assisted, Wilkinson Brown is confident that customer choice will increase rapidly as the marketplace expands. “We’re on a really strong transformation platform. We stood up a Cloud-based data store, we stood up our open banking APIs, which means it’s easy for us now to introduce premium, private and public APIs to integrate with partners. Open banking is the best way to quickly introduce functionality with customers – that’s what it was designed for.” Issue 9 | ThePaytechMagazine

MARKETPLACES: PHONE APPS Harmony out of crisis: A new AppGallery is growing on top of Huawei’s operating system

Fintech developers might come to see Huawei’s recent geopolitical challenges as a blessing in disguise. Siri Børsum certainly hopes to keep them busy as she sets about building an app store to rival Google’s Until recently, Huawei occupied a comfortable seat among the global tech titans. To pluck a phrase from US military planning, the Chinese technology company had carefully established ‘full-spectrum dominance’ in the telecommunications market – from its warren of underground cables and bristling array of 5G towers, through to its well-priced smartphones, which one in every 13 UK consumers has in his/her pocket. Then, in 2019, came the US administration’s decision to place Huawei on the Entity List of companies that were out of favour with America – for reasons that were well-documented and robustly disputed at the time. The important thing is, it prevented Huawei from doing business with US companies and that left the Chinese technology giant with a giant technology problem: its smartphones would no longer be able to use Google’s Android operating system (OS), nor the Google Play app store. Given that consumers spend 88 per cent of their mobile time on apps, the threat www.fintechf.com

to its international retail phone business was a real and present danger. But Huawei wasn’t about to see its super-smart handsets dumbed down, so it quickly pivoted to open-source Android code, while, behind the scenes, it began working furiously to create an operating system, and accompanying app store, to rival those of Apple and Google. Astonishingly, that OS arrived less than two years later. From April 2021, all new Huawei smartphones have been running HarmonyOS (which is somewhat ironically named, given the fraught circumstances in which it was conceived). Even more impressive, HarmonyOS is already established as the third major smartphone operating system, after iOS and Android. And alongside it came AppGallery, Huawei’s new store, which Siri Børsum, Huawei’s global VP of vertical eco-development and partnerships (that’s eco as in ecosystem), was tasked to build from scratch. It was the second time she’d been involved in a ground zero project for a global technology company – the first, funnily enough, was for Google in 2007

when she joined its new Norway office in 2007. She stayed there for 12 years. “Back in 2007, not many people knew what Google was all about,” says Børsum. “It had only just opened an office in Norway and we were a team of four or five. By the time I left, there were about 100 people, from 16 different countries. It was an amazing journey.” She’s diplomatic about the spot Google’s rival now finds itself in. “There’s no doubt that the geopolitical space has been very challenging for Huawei,” says Børsum, with a touch of Nordic understatement, “but it also, I think, put a lot more pressure on us to approach things from a different angle – and that’s often how you come up with new and better ideas.” Chief among them is to provoke a gladiatorial contest between fintech developers. HarmonyOS has already broken the OS duopoly shared by Apple and Google. Now, Huawei wants to present consumers with the best and boldest digital financial management tools, which might actually work better for them than those stores’ most popular downloads. Issue 9 | ThePaytechMagazine

MARKETPLACES: PHONE APPS The strategy is deliberately playful. “Competition brings with it a fear of missing out,” explains Børsum. “You want to be there, too, grabbing the opportunity to get new customers. And you get quite provoked if you see that your competitors are doing things that you hadn’t thought about doing. That’s why we want to bring even the smallest players on board, because they might have solutions that don’t fit me, but they’re perfect for you and your family.” The new focus on building a worldbeating store of personal financial management apps for markets where Google and Apple are dominant, fits into Huawei’s mission to create a global digital financial services ecosystem. A key element of its FinTech Solution business is a platform for financial inclusion that allows mobile money operators and other financial service providers to reach a wider cohort of previously under-served individuals and microbusinesses. Most of its work in that area has been focussed on the African continent where Huawei technology – specifically its mobile money platform – underpins the M-PESA network. In an effort to replace the might of the displaced GooglePay on Huawei handsets, AppGallery is establishing partnerships with an array of regional mobile payment providers in Europe now, too. In March of this year, it announced Switzerland’s Bluecode would soon be providing a mobile payments option to anyone in Europe with a Huawei handset. If Børsum’s FOMO theory is right, others will follow, providing consumers with a luxury of choice and driving developers to compete. The strategy of looking local to encourage competition feels novel and exciting, with AppGallery shaping up to be a new innovation sandbox for fintech firms. “Because we’re on the ground in local markets, it’s easier to understand what financial services firms really want,” says Børsum. “We get up close, so we can help to develop solutions that fit that challenge.”

A TOOL FOR INCLUSION With a community of 2.7 million registered developers, Huawei isn’t short of people who can deliver those solutions to its mobile users. Meanwhile, some existing banking apps will only require a little tinkering to their code to hop on board with AppGallery. Curve and Starling have

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already made the jump, as have first-mover incumbents Santander and DBS. Though most big players remain conspicuous by their absence from AppGallery, Børsum sees their slow uptake – in the short term, at least – as a positive. “It means we actually get the opportunity to show off all the other players that are out there. They’re not yet competing with the big traditional banking apps, because they haven’t onboarded yet.” This very much chimes with the ethos of inclusion that underpinned the creation of the Huawei FinTech Ecosystem in 2020.

Battle of the big techs: Huawei’s AppGallery was built in response to losing access to Google Play

CHALLENGING NUMBERS Encouraging as it is to see a technology giant giving a leg-up to Lilliputian fintechs, there remains the question of how AppGallery will come to match its two main app store rivals in terms of sheer numbers. Google Play is host to 2.7 million apps, while the Apple App Store has 4.7 million. While only around 2.5 per cent of those are finance apps, that still means Apple hosts an eye-watering 117,500 of them. AppGallery’s latest figures put its total number of apps integrated with Huawei mobile services worldwide at just 145,000. Still, Børsum isn’t daunted about the task before her. “I remember, back in 2009 and 2010, when we started with Google Play, it took a long time before I had the same apps on my phone as were on iOS.” She’s right, of course: these things tend to take off exponentially, and the AppGallery is still young. Plus, Huawei has size on its side. Despite the disruption caused by US sanctions, which reduced Huawei’s share of global smartphone shipments from 19 per cent in early 2019 to 8.4 per cent in Q3 of 2020, it’s still a significant global player in the smartphone market and it’s worked hard on damage limitation following the negative publicity that surrounded the US sanction over national security concerns. Huawei is already spending five per cent of its R&D budget on cybersecurity, with an extra $2billion committed to enhancing the security of its products over the next five years. “We need to make sure that we treat our customers with respect, with all the necessary security and the privacy elements that they demand,” says Børsum. Even if company’s stature was diminished by the US administration, in AppGallery the financial services industry looks to have been offered a significant driver of change and opportunity. Huawei’s adaptability has been remarkable. If, out of adversity, AppGallery can foster faster fintech development, its post-sanctions pivot will long be regarded as a masterstroke.

It put a lot more pressure on us to approach things from a different angle – and that’s often how you come up with new and better ideas

“Our mission is to bring financial health to every home, to every organisation, and to every person, and that’s something we’re working hard to achieve,” says Børsum. “And we can use the AppGallery to do that, to promote and bring forward smaller players, making consumers aware of the fact that there are so many other solutions out there that can provide them with better services. “It’s through competition that we get better solutions, better products. And that’s not just AppGallery, versus other global app marketplaces, but actually within the industry,” says Børsum.

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FINTECH FOCUS: EMBEDDED FINANCE

Who will join the banking lite race? Currencycloud’s Co-founder Steve Lemon doesn’t pull any punches when he says the traditional banking model is ‘dead’ and extreme embedded finance will likely bury it “If Facebook really wanted to, it could be the global bank overnight,” says Steve Lemon. “It has the communication channels, it has the distribution channels. It’s not straightforward to build a global bank, but the point is, it could, with multiple partners on the back end. “If Nike wanted to launch a banking service, it could just give a banking-as-a-service provider its colour palate and its logos, and off it goes.” When Lemon co-founded money transfer service Currencycloud in 2012 with the sole intention of solving a specific problem for people who wanted to send funds abroad, not even the most extreme financial futurist would have had the audacity to predict a social network and a retailer that made its name selling flashy trainers could become a ‘bank’. Now he is simply stating an obvious fact. They could… but they haven’t. At least not yet. Lemon holds the extreme view that the process of making payments will eventually be ‘abstracted away’ both from those executing them and the banks traditionally responsible for making them happen, with embedded finance delivered by a new generation of ‘banking lite’ providers. However, even he acknowledges that institutions will always have a role to play. Quite what that will be, as companies

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like his own redefine banks’ place within the ecosystem, remains to be seen, though. Currencycloud was launched with the vision of reimagining how money flows globally for businesses, with the belief that moving it across borders shouldn’t be difficult – a vision clearly in line with that of financial services giant Visa, which is in the process of acquiring the business, having both previously partnered with, and invested in it. By removing the barriers long associated with foreign exchange, Currencycloud’s APIs have so far enabled nearly 500 banking and technology clients and have processed payments totalling over $100billion in more than 180 countries, on behalf of customers who, frankly, have no idea how those transfers are facilitated, nor, ultimately, by whom. For them the service is embedded into their experience of whatever financial or even non-financial brand they are interfacing with. As Lemon points out, such ‘embedded finance’ is nothing new – just look at the proliferation of white-labelled credit cards in the 1990s. What has changed is the way those services are distributed. Any company can now add an API layer, like that offered by Currencycloud, to provide financial services to any customer in any environment – either on their own

behalf or that of a partner organisation, through an intermediary application. This ‘platformification’ of financial services, says Lemon, means ‘every financial services business is now a fintech, technology-based business’. He adds: “If you don’t have a technology-led proposition, then you don’t have a proposition in financial services.” And that’s led to the flourishing of symbiotic relationships between financial and non-financial brands. “For example, Goldman Sachs wants to access new customers. It has a great credit card product, so it sticks an API in front of it and says to Apple ‘hey, how about you put your brand on this, and we sell it to your customers and generate a new revenue stream for both of us?’ That’s embedded finance,” says Lemon. Similarly, it’s allowed online operators like Shopify to build an end-to-end platform that enables anyone to set up an e-commerce business. “All you need to do is put your own website and your own brand on the front, and, all of a sudden, you have a complete e-commerce merchant platform with everything from card acceptance, to supplier management, to inventory. “All Uber did was bring together a bunch of platforms. It had its own database, marketing dollars and front end, but it was, www.fintechf.com

Brand banking: All you need is consumer trust and multiple partners

essentially, Google Maps for location services, a merchant acquirer so that it could take payments, and a payments company to make a payment back to the driver. In hindsight, it was so simple.” Travis Kalanick and Garrett Camp, founders of one of the world’s most successful ride-hailing firms, might raise an eyebrow at that being ‘all’ they had to do! But, that aside, Lemon’s argument is this: “The whole point of embedded finance is that financial services abstract away into the background.” And with them, potentially, the relationships with customers that banks have invested so much in over the years. “Your bank will become – from a brand association perspective – redundant. “I couldn’t give two hoots about my bank. I only ever speak to them when I’ve got a complaint about something, or I need to do something really unusual,” says Lemon, a member of what he terms the ‘swipe left, swipe right’ generation, which resents any friction and difficulty associated with www.fintechf.com

The whole point of embedded finance is that financial services abstract away into the background. Your bank will become – from a brand association perspective – redundant financial transactions, even ‘the whole concept of physically needing to go to the effort of initiating a transaction’. A real-life manifestation of this is already underway in the checkout-less Amazon Go grocery stores (Amazon Fresh in the UK), where customers walk in, pick their shopping off the shelves and, thanks to an app, just leave, knowing the bill will

be paid via an Amazon account that’s linked to their payment choice without any conscious effort on their part. Amazon is also a great example of a company, like Apple or Nike, that benefits from strong consumer brand recognition that, when wrapped up with that greatest of temptations – convenience – persuades consumers to trust them with their money. “If I was to ask my mum ‘would you be happy giving multi-billionaire Jeff Bezos access to your bank details so that he can instruct your bank to make a payment to him?’, she’d look at me like I was crazy,” says Lemon. “But if she was presented, in an online environment, with the choice to connect her bank account for free to payment services when buying products from Amazon, she’d probably say yes.” Issue 9 | ThePaytechMagazine

FINTECH FOCUS: EMBEDDED FINANCE Fintech started by unbundling financial products and services – picking off those provided by banks (often at great profit) and reimagining how to present them at less cost, more efficiently and in a format that appealed to the customer. Lemon believes we’re now seeing their rebundling, with smart fintechs and others assembling ‘best-of-breed’ providers. In many ways this stage of development presents more of a threat to traditional institutions. “There are hundreds of banks out there that all do thousands of things fairly well, but provide a single point of access to that suite of financial services,” he explains. “Whereas there are something like 25,000 API-led fintechs now, all doing one thing extremely well – so it’s never been as easy to consume, or build, a financial services product suite [that isn't necessarily accessed via a bank].” Smart payment card Curve is an example of the potential for such disintermediation between banks and their customers. Curve enables them to combine all their credit, debit and loyalty cards into one card for everything, so that they only need to remember one PIN. Within the app, they can choose which of their payment providers a transaction is ultimately routed through, have the ability to add receipts, and even change the account to be debited after the transaction has taken place. “So, if you’re the banking provider that has all the cost and expense of serving that customer, your card is now something the consumer never uses,” says Lemon. “American Express had a complete sense of humour failure over it and said it wouldn't allow its card to work with Curve, because it wanted its brand front and centre. All the traditional lenders are experiencing this obfuscation.” It’s why he believes they need to evolve by creating partnerships and ecosystems to ensure they remain relevant.

CHANGING ROLE OF BANKS Embedded finance is very much a global movement, but while Curve itself was born in Ireland, certain areas are leading the way and it’s not the West, believes Lemon. “Innovation in Europe and the US is not innovation, it’s digital enablement, whereas fintech in Asia is digital at its core,” he says. He is, of course, referring to apps such as Alipay and WeChat Pay. “Your average Chinese Millennial does everything in those apps. They spend more

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time on them than the rest of the apps on their smartphone put together. It’s banking, it’s payments, it’s social, it’s e-commerce... it’s literally everything and it’s all interwoven and inter-embedded,” says Lemon. Eventually, he believes, that type of symbiotic environment will be true of the rest of the world, too. Though slow, it’s already well on the way to being built. “Unless you are literally living under a rock, you consume embedded finance services in one form or another, every single day,” says Lemon. “Let’s be clear: that doesn’t mean the banks are going to find themselves out of business. But their role in the ecosystem will likely change. It’s not going to be in 10 years, or even 20. It’s going to take time, but it will happen.” The fact remains that storing and moving money and extending credit

things in line and build a workflow, without actually owning any of the technology – other than the integration and harmonisation layer across the front. The only thing you’ve got to worry about is getting the business model right.” Sceptics of this ‘every company will be a fintech’ refrain point out that third-party platform providers can be heavily reliant on partners for core financial services and infrastructure, and are therefore limited to certain configurations and capabilities. There’s also the fact banks retain a high-level of consumer trust when it comes to looking after their money, to an extent that fintechs haven’t yet earned. And, just because a customer does one bit of their business with a particular company, it doesn’t mean that they want it as a provider for everything – especially if

Embedded in the day-to-day: Uber is just one non-financial brand offering intuitive financial services

is tough in a regulated environment. But Lemon argues that it’s possible by partnering with multiple providers and taking an as-a-service approach. “The financial services organisations of the future are not necessarily going to be organisations that own the whole stack, whereas your traditional bank owns everything,” he says. “It’s the purveyor of the licence, it creates the products, it runs the technology… it’s got to keep the lights on and keep the plates spinning, front to back. Whereas, the purveyors of financial services in the future might not actually be financial services companies themselves because it’s never been as easy to curate a suite of products, services and required functionalities, like onboarding and know your customer. You just bring all those

the service is inferior to elsewhere – leading to fragmentation of the market. Nevertheless, Lemon maintains that the status quo is unsustainable. If traditional financial brands are to avoid invisibility, they’ll have to come up with something very different to what has gone before. “The definition of a bank is an organisation that provides deposit and lending services, and will arbitrage the difference in the interest rate to make a revenue,” says Lemon. “But with the low-interest-rate environment, that model has been dead for years. On the other hand, you can create a company that offers banking-lite services, without being a bank.” If you’re listening, Nike, now might be a good time to pull on those 110s and sprint to the starting line. www.fintechf.com

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LAST WORDS

Strike up the brand! Good things happen when you combine customer-centricity, art and science with company purpose, says Eric Fulwiler, Chief Commercial Officer at 11:FS I can’t wait for the impact of brand to be fully measurable. There’s a new generation of ad tech businesses coming to market that promise to do just that, and it will be game-changing. Brand has always been a core part of how financial services businesses grow, but how much and how well they do it has been dependent on the person leading those businesses and their own experience and perspective on its relative importance. Eventually, all those ‘hard-to-quantify’ or even ‘intangible’ benefits of brand will be tracked and measured and everyone will invest in being a brand-led business. Until then, it’s the smart, savvy, and in many cases start-up businesses differentiating and growing through brand building. So, how are they doing it? A successful modern brand is built on three core principles: customer-centricity, art and science, and purpose. Let’s break those down. Customer-centricity is easy to understand as a concept, but hard to do consistently at scale. You know it when you see it because the brand speaks to you and the product works as if it’s been designed with you in mind… because, of course, it has. On the inside of customer-centric companies, you see people constantly looking for ways to connect with and add value to their customers and potential customers. You hear people constantly asking what their customers want, putting themselves in their customers’ shoes, and using their customers to

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guide their decisions. On the outside, you see things like Community.Monzo or the WealthSimple Magazine, both of which are examples of customer-centric approaches to building equity, trust and advocacy in the brand. Every company says they are customer-centric, but few actually do it well. The devil is in the details of who’s actually living and breathing it as a first principle in the day-to-day. Good marketing can be great art or great science. It can be a brilliant creative idea or an awesome use of data or technology. Great marketing is both great art and great science.

Every company says they are customer-centric, but few actually do it well Traditional marketing has its roots in art – think about the cliché Don Draper creative type, thinking (and drinking) for weeks to finally have an ‘Aha’ moment for a picture-perfect TV commercial. Modern marketing has its roots in science, both because modern marketers tend to have more experience with data and technology, but also because the companies they work for (usually start-ups/scale-ups) tend to be more data- and tech-led. Most fintechs don’t have a marketer in the founding team and don’t hire a CMO until after their Series A. Marketing in the early days is very product and data-led, which is a great foundation to grow from. But whether your personal balance or that

of your company skews more towards art or science, you should figure out how to bring a balance of both to your go-to-market strategy and tactics. Purpose is a word that’s being thrown around a lot in the marketing industry right now. Every brand seems to have a vision to push of how they’re changing the world. It’s easy to get cynical as a consumer, but it’s because of consumers that brands are doing this! We vote with our time and money. And over the last few years, we’ve been voting for brands that have a clear purpose that goes beyond just making money. We want to buy a product or service that does what we need and stands for something we care about. It’s not that silly when you think about it that way…what’s silly is the brands that don’t do it well! Successful, effective brand purposes are the ones that reflect what a company truly is, not what it wants people to think it is. As fintech fragments the financial services landscape by developing niche products for niche audiences, many such brands are successfully, effectively purpose-led. Check out Daylight over in the US or Tridos in the Netherlands. Companies grow (or don’t) for many reasons – market conditions, product quality, strategy and execution, leadership and team… the list goes on. But increasingly, companies that invest in and build their brand by being customer-centric, balancing art and science, and leading with purpose are seeing, and will continue to see, outsized returns on the mind and market share they’re able to gain. www.fintech.finance

WINTER DIGITAL EDITION

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The ultimate sessions of a year of Hybrid events 25 march - 15 aPril - 30 june - 01 july - 12 october - 13 october - 02 dEcember - 03 dEcember

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