Fintech Finance presents: Discover Sibos 2021 by Fintech Finance

VIRTUAL SHOW11-14 OCTOBER2021

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This time it’s for real How the EPI could make Europe’s payments dream come true

Embedded on the front line Currencycloud’s Steve Lemon and the banking lite offensive

Banking on trust

Why Santander is backing the Global Assured Identity Network

Heavenly hosts

SmartStream’s Jason Ang on what to look for in a Cloud-based solutions provider ALSO FEATURING... ACI WORLDWIDE ● CAPCO ● CODAT ● FEEDZAI ● FINASTRA MAMBU ● SANDSTONE TECHNOLOGY ● SOLARISBANK ● TRULIOO ● U.S. BANK

meniga meniga

VIRTUAL SHOW1 1–14 OCTO Up, up and away? BER202 1 The adoption of Cloud technology

W E LCO M E 4 In May this year, the International Banker magazine ran with the headline: Are banks losing the fight against fraud? It might have made CFOs choke on their cornflakes, but it was a reasonable enough question. In an interview for this special Sibos supplement, Rod Boothby, head of global identity at Santander and co-chair of the Open Digital Trust Initiative, points to the ‘stunning’ losses suffered by individuals, businesses and their financial providers over the past year, which increased by as much as 30 per cent in some channels. He’s urging banks to take the lead in stemming this damaging flow, by co-operating over a unique new global assurance standard. The need for such an initiative speaks to the potential, and possibly inevitable, tension between trust/security and another industry-defining trend explored here – interoperability and, by extension, open finance. Trust and identity are among the game-changing themes also highlighted in the Sibos Red Thread programme, along with AI, CBDCs/digital assets, and sustainable finance, all of which have a key role in helping the wider ecosystem to ‘build back better’ in a digital world. As the Sibos organisers put it, ‘recharging global finance’ starts here…

was accelerated during the pandemic, but some institutions are still cautious about further implementation. SmartStream’s Jason Ang addresses their concerns head on

Joining the European payment dots Martina Weimert, CEO of the European Payment 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

Getting to know you Understanding how small businesses tick used to be the sole role of bank relationship managers. But Codat and U.S. Bank believe AI can help them get even closer

An open road Finastra’s State Of The Nation report shows that the financial services industry is well and truly on the bus when it comes to open banking

At your service Solarisbank and Feedzai on the benefits of platforms – whatever your niche

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

FEATURE WRITERS David Firth ● Tracy Fletcher Martin Heminway Natalie Marchant Martin Morris ● Sean Martin John Reynolds Sue Scott ● James Tall

Magical banking Technology is sprinkling the fairy dust of frictionless journeys on everything from trade finance to Uber rides. So where does that leave the traditional bank? Mambu, Solarisbank and Capco conjure up ideas

A question of trust Rod Boothby, Global Head of Identity at Santander and Co-chair of the Open Digital Trust Initiative, believes banks hold the key to restoring broken confidence in an online world. Now, he’s asking them to mobilise to fix it

Ahead of the eight Michael Phillipou brings a unique combination of skills to his new role as CEO of Sandstone Technology – including that of an Australian Football League pundit. We got in a huddle with the new boss to talk tactics, as he maps out his plans to expand on the back of open banking

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2021 Special

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

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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.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021

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.sibos.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.

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2021 Special

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.”

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

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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“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

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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 decades-long 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.fintech.finance

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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

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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.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021 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.sibos.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.

FintechFinancePresents

2021 Special

VIRTUALSHOW11–14_OCTOBER2021

Getting to know you...

Understanding how small businesses tick used to be the sole role of bank relationship managers. Now, say Codat’s Yasamin Karimi and U.S. Bank’s Irv Henderson, AI is helping them get even closer Small and medium-sized businesses (SMBs) have faced historic challenges over the past 18 months. Enforced closures, a dramatic shift from in-person to online sales, and jumping through hoops to obtain precious rescue funding (for those that could get it) have taken their toll and left this significant economic segment reeling.

At the same time, the sudden somersaults banks had to perform to deliver rapid loan injections at governments’ behest, accelerated the need to focus on scaled digital banking solutions to small business customers remotely, when visiting a branch was no longer easy or desirable. The solutions quickly engineered to plug that gap have opened up a raft of new possibilities, perhaps the most exciting of which is the ability for machines to mimic relationship-led approaches, the loss of which has been long-lamented by business owners who miss the tailored support than banks’ business relationship managers used to provide. Aside from the particular challenges posed by the worldwide pandemic, life has long been hard for SMBs – from the endless amounts of admin that owners shoulder, to the difficulties in managing invoicing and cashflow, and securing the credit lines they need to supplement it. But an NCBI report looking at the initial www.sibos.com

impacts of the coronavirus on active small businesses in the US was bleak. Using data from the April 2020 Current Population Survey, it found that SMB numbers plummeted by 3.3 million, from 15 million to 11.7 million, or 22 per cent, from February to April 2020 – the largest drop on record. Equally troubling, a report the same year by JP Morgan and Chase Co, discovered that half of SMBs operate with fewer than 27 days of cash reserve, making them particularly vulnerable in the current and any future economic crises. Meanwhile, PwC research among

We’re beginning to think through things like elastic lending based on real-time data… This is an epic journey for banks Irv Henderson, U.S. Bank

469 US SMBs suggested they felt left out in the cold by banks. Although 81 per cent said they still had the same level of trust in their banks as before the pandemic, 55 per cent said they would like them to be more proactive in helping them through their current troubles. And there were indications that usually loyal SMB

customers were willing to look elsewhere to find solutions. Nearly two-thirds (64 per cent) said a lack of transparency, trust and relationships could lead them to choose a new provider, and 61 per cent could be prompted to move, due to a lack of personalised assistance. Irv Henderson became chief digital officer for small business at U.S. Bank two years ago, when the bank acquired the Talech software company that he’d founded. The bank recognised that it needed some of the groundbreaking solutions Henderson’s tech offered in order to address exactly these kinds of problems. He now focusses on helping small business owners to run things better through software. “Before starting Talech, I led the mobile products division at Yahoo!, so I’ve spent a couple of decades thinking through customer experiences and software experiences for business owners,” says Henderson. “Our journey, at U.S. Bank, is increasingly about getting in front of small business owners through software in order to deliver the bank’s services.” Small business owners’ problems also preoccupy Yasamin Karimi, head of product at British software company Codat. She has a background in payment services at Mastercard, UK challenger Starling, and in her own business.

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2021 Special

SMALL BUSINESS BANKING with a unique and valuable view of their “Our primary focus is on making small financial health. However, understanding businesses’ financial lives easier by providing the banks they use with seamless and interpreting that volume of data can be difficult, which is why we’ve launched integrations into small business software our Insights product to provide banks systems to automate a lot of what they do and other financial institutions with with that bank, like applying for a loan,” out-of-the-box tools to better understand she explains. business performance metrics so they can The pandemic has accelerated banks’ develop and offer more useful products for adoption of such solutions, Karimi says. their business customers.” “It moved the primary delivery Harnessing this data also helps to mechanism for financial products online, enhance banks’ relationships with those as businesses moved online, and a change business customers, says Henderson. that was already rapidly progressing has now been propelled forward. “People stopped going into physical branches, which was a challenge for any banks that weren’t used to operating primarily online. In related areas, like payments, the pandemic led to huge growth in open banking in the UK, and more than 2.5 million people now use it to move, manage and make the most of their money – that’s a mighty 150 per cent rise in the number of users since the outbreak of COVID-19.” Henderson’s experience the other side of the Pond was similar. “One of the core “If we thought pain points for SMBs, bank/small business is cashflow. In most relationships would take major markets in the 10 years to achieve mass US, 85-90 per cent adoption of digitisation, of SMBs have less that’s now probably three than half-a-million in or five years,” he says. Yasamin Karimi, revenues. Cash really, “When I started Talech, Codat really matters and we I was motivated by can help them maximise it by using data significantly improving small businesses’ to deliver delightful product experiences, efficiency to help owners get home earlier like speeding up payments and delaying to their families, by giving them better pay-outs until they’re due. Anything that technology. Now I’m at U.S. Bank, that’s still brings more of the bank’s services into that what it’s all about. With business owners customer journey is really powerful, and not walking into bank branches, we’ve makes them really feel helped.” pivoted to digitising those touchpoints, The integrations that Codat provides using technology to schedule online with software systems that businesses meetings and contextually present the use, gives access to real-time data, so that next opportunity, whether that’s working banks can also better understand their capital or a new business credit card, to business customers and improve the bring services to the customer, rather than standards of service they can offer. waiting for them to ask.” “So, instead of being reactive when a Some of this is about mobilising data business makes a specific request, a bank better, as Karimi explains: “On average, can proactively assess its data to provide it business owners use around 100 software with a loan, for example, or a cheaper credit applications to manage different areas card rate,” explains Karimi. “That changes of workflow, from accounting to online the relationship dynamic, enables banks payment systems, and these provide banks

Instead of being reactive when a business makes a request, a bank can proactively assess its data to provide a loan, for example. That changes the relationship dynamic

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to garner a greater share of the SMB’s wallet and means the SMB is having to manage fewer applications.” For both Henderson and Karimi, the whole object of the exercise is to keep customers close. “If you bring in rich data that allows customers to take smart actions, that’s incredibly sticky from a bank’s perspective,” says Henderson. “We’re beginning to think through things like elastic lending, building on real-time data, to lend a business a certain dollar amount at the beginning of the year and a different dollar amount in the middle of the year, because we know their business is cyclical. This is an epic journey for banks. We’re likely embarked on a 15-year disruption here.” Ironically, through data, the relationship between banks and SMBs could come full circle, to one based on lifelong, deep understanding – the way things used to be. “Historically, when someone walked into a bank, the banker would know not only their name, but who they were related to, their family history. There is no reason why we could not deliver that in an even more powerful way,” says Henderson. “We believe a differentiated way of doing it is human-plus-digital. In terms of how we treat a business owner when they walk in, virtually, we are already there. And, if an initial conversation about working capital, for instance, highlights more comprehensive business needs, they can bring specialists, who could be anywhere in the country, into that conversation virtually.” This will all require some joining up behind the scenes, including the sharing of data between departments. “A prerequisite will be building interfaces that connect them,” stresses Henderson. “For example, an offer of working capital, in the context of someone already using the bank’s software to run their business, is perfectly natural. Somebody calling them out of the blue to ask if they want to borrow without understanding their business, is not. For customer retention, going forward, it’s going to be very important to get to that one view,” Karimi agrees that relationship managers are ‘the most important people to SMBs‘, but that to do their job well, they need empowering – with automated access to a level of data that can only come from a digital interface with businesses systems. www.fintech.finance

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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

2021 Special

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.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021

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.sibos.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.”

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2021 Special

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VIRTUALSHOW11–14_OCTOBER2021

At your service Jörg Howein, Chief Product Officer at Solarisbank, and Pedro Barata, Head of Customer Success at Feedzai, on the benefits of platform services – whatever your niche The niche banks of today might well be the mainstream providers of the not-too-distant future. In particular, 'purpose-driven’ challengers – ‘purpose’ being shorthand for whichever environmental and societal benefits feature on their triple bottom line of profit, people and the planet – have made huge strides in customer acquisition over the past year and a half. Such neos might focus on the underbanked, for instance, the environmentally-conscious or an ethnic group. They appeal to people across the generations who’ve had cause to re-examine their values of late and seek out a bank that more closely reflects them. Accenture calls this emerging demographic the ‘reimagined consumer’, following its survey of 25,000 people across 22 countries, which found the pandemic had made half reconsider their personal purpose. Among other things, that’s driven unprecedented interest in ethical investments. According to Triodus Bank, a pioneer of sustainable finance since the 1980s, COVID-19 has motivated one-in-five UK adults to explore ethical funds, a figure that increases to

Banking on a plate: Platform services take the strain

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35 per cent among the under-35s. Tomorrow – a German sustainable finance startup that’s put yesterday’s banking model behind it and uses account holders’ money exclusively to invest in sustainable projects – has seen the impact of the world ‘resetting the dial’ on its account opening, too. Since launching its mobile current account in March 2019, it’s attracted more than 80,000 customers, 20,000 of them in the first half of 2021. So, how do it and others cope with such rapid expansion while maintaining the same level of innovation, all the while doubling down on compliance and security as regulated processes come under the

pressure of numbers? Like many next-gen startups, it’s decided to be selective about what it builds, what it buys and where it partners to achieve its goals. So, while its in-house team continues to concentrate on developing analytics around carbon-neutral spending and investment, and designing sustainable products, the architecture on which that all hangs is devolved to European banking-as-a-service (BaaS) provider, Solarisbank – which also acts as issuer for

Tomorrow's eye-catching wooden debit card. Solarisbank, in turn, now relies on global financial crime gladiator, Feedzai, to ensure that its systems are robust and compliant in every territory for which Solarisbank provides its banking, transaction and lending services. In an ‘as-a-service’ world, whether you’re a standalone startup, a speedboat launch from a legacy bank, or, indeed, a platform provider, 2020 demonstrated that it makes little sense doing everything yourself. “Around 80 per cent of our accounts have been opened in the last 12 months or so. We are growing quicker, every month,” says Jörg Howein, chief product officer at Solarisbank, who’s overseen the building of a broad product suite, ranging from accounts to cards, lending and digital assets, and to which will soon be added brokerage services. “When we started, in 2016, it was all about going to the market quickly and one decision we took at the time was to make ourselves responsible for transaction monitoring and compliance processes,” says Howein. But as Solarisbank clients rapidly expanded their customer base during the pandemic and traffic across its platform increased, it recognised that approach was unsustainable. “So, last year, we brought in Feedzai as a provider for a specific part of our infrastructure.” At the same time, Solarisbank became the first German bank to shift its entire operation to the public Cloud, migrating its core systems, digital products and databases to the Amazon Web Services (AWS) platform. The two moves, combined, positioned it to scale across Europe in 2021. The bank’s decision to partner with Feedzai has not only relieved pressure internally, but has also given Solarisbank access to financial crime data that could reveal way more about emerging threat patterns than it could ever hope to discover from its own platform. Now, it benefits from insights gained from Feedzai’s artificial intelligence monitoring hundreds of millions of transactions every second of every day.

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2021 Special

PLATFORM SERVICES any type of bank or for anybody who wants “We’re learning from the very big boys, to embed financial services in any way into because Feedzai has banks that are larger their product offerings – going with a than us on its platform [four of the five provider can take much of that burden off largest US banks included]. That helps us to your shoulders and enable a quick launch. get better quicker, and that’s what matters, “With Solarisbank, you can build and go in the end,” says Howein. to market in six months maximum and, For Pedro Barata, head of customer with us in the background, you will always success for EMEA at Feedzai, there’s mutual be more efficient, because we do this benefit in the partnership. already for close to two million accounts. “For us, internally, it was such a strong proposition and such an ambitious project,” So, in effect, you’re not starting from scratch; you can leverage the efficiency we he says. “And we knew that we could learn have already built and benefit from where from Solarisbank because I think the we have been bank-as-a-service is the investing to create future, and we believe an efficient platform, we can contribute at very low cost, at to that future with the per account/ our technology per card level.” and know-how.” And not just to individual banks, but to the way finance develops more broadly. Pedro Barata, Feedzai “Look at the problem of the underbanked,” says Barata. “You have a lot of people who want access to financial services, and one of the reasons they are not allowed it, I believe, is because banks look at onboarding through a very traditional lens. “One bank we worked with that wanted to go from a 50 per cent acceptance rate to a 95 per cent acceptance rate, came Scale on demand… to realise that if its fraud levels weren’t to Through a combination increase tenfold, it had to redesign its entire of Cloud and BaaS fraud and fincrime strategy. “We’ve seen some people try to build In that way, Howein the technology and processes themselves. argues, even the nichest They realise how complex it is, to not just of neos, with a potential build but also to maintain, because it’s market capped in the not enough to just have something up hundreds or even tens of and running; you need to continue to thousands of customers, innovate, continue to adapt. It’s a huge, can build a business huge resource hog and even well-known proposition that makes tech companies, that might have tried it financial and operational once, are coming to us now and saying ‘you sense, allowing it a know what? This is too hard. It takes too foot on the first rung much time. Let’s do it together.” of a ladder that might Jörg Howein, The same logic applies to using a otherwise be out of Solarisbank third-party banking platform, says Howein. reach. And so, the “Building a bank, in all its dimensions banking-as-a-service model is creating (compliance, risk, the core banking system, a choice of financial service providers as etc), making sure those processes are nuanced and individual as today’s super-stable, super-solid, getting a licence, ‘reimagined consumers’. fulfilling all the requirements, and then the Barata believes the movement towards effort needed to scale such an organisation, banking that’s more representative of make it efficient, automate things on the consumer’s values, as well as a service account and cards side… for a neobank that’s more personal and more intuitive that is starting in the market – in fact, for to experience, is now unstoppable.

BaaS is the future, and we believe we can contribute to that future with our technology and know-how

“If you look at the adoption curve, these banks have moved from that early adopter clique, to the general population; you’re seeing older generations, more traditional generations coming in. I think these banks will continue to gain market share by going into different demographics. This is a very hard-to-stop trend. The fact that you have incumbents launching digital spin-offs is just recognition that this is the new normal.” And the inevitable pressures caused by such growth can be passed back to a platform provider. “Bottlenecks happen on many different levels as you scale,” says Howein. “While with a few thousand customers, you will still be able to handle some things manually, at 10,000 or 100,000, those manual processes don’t work anymore, and suddenly you need to invest all your resources in automating them. At the same time, you need to keep your regulator and supervisory bodies happy, who will be questioning your processes all the time, and forcing you to make them better. “Building and growing a banking business can be a tedious process and going with a BaaS provider can take much of the burden off your shoulders.” The unexpected flush of business during the pandemic, forced Solarisbank to embrace the Cloud, and, in Barata’s opinion, it’s the only way financial organisations can now build for change. “The fact that you don’t have to worry ‘is my database ready for this, is my network scaling at this point, is the monitoring in place or not?’ means everything is much easier,” he says. It’s also much better from a cost management perspective. Over the last 18 months, for instance, banks needed to focus on how to capitalise, how to help clients – not how to change hard disks and scale up databases.” Cloud-based services were a god-send in a time of unprecedented stress and, given that experience, Barata’s advice to any neo is this: “Build knowing that whatever you believe is going to happen, there’s a 50 per cent chance you’re wrong, so you might as well factor that into the technology.”

Building and growing a banking business can be a tedious process... going with a BaaS provider can take much of the burden off your shoulders

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2021 Special

www.fintech.finance

ADVERTORIAL

Crunching the numbers for SMEs How from helps you to put fast financials at their fingertips Accounting systems might have undergone significant change over the past 40 years, but how much does the boss of a typical SME really know about what’s going on under the hood of their business? More importantly, how quickly can they access that information? The answer to the first is not as much as they (or, indeed, their financial providers) would like, and, to the second, not quickly enough to impact decisionmaking and profitability. As SMEs across Europe emerge from one of the most disruptive periods in their history to power economies out of the recent crisis, Romania-based financial software specialist Allevo decided it was time to act. It’s providing SMEs with the granular analysis they need in a format any non-financial expert can understand, and making that available in real time through one portal. Having co-developed the Whizzer financial reporting tool with Norway’s development studio Bakken & Bæck, Allevo is now inviting potential partners to deliver it as a Cloud-hosted service directly into the hands of entrepreneurs. Whizzer interfaces with accounting software used by a business or its outsourced accountants, as well as its mobile/online banking apps. It enriches financial information flows and interprets the data to give rapid answers to questions businesses have every day. Questions such as ‘what are my most recent trading results and how do they compare with a previous period?’; ‘what payments fall due over the next two weeks?’ and ‘what receivables am I www.sibos.com

expecting?’. This information and more – inquiries around their balance sheets, salary payments, invoicing and cashflow – inform daily decisions as well as longer-term financial planning, such as negotiating a loan or better payment terms with suppliers. While many smaller businesses do not themselves have the IT infrastructure, or the financial expertise, to carry out sophisticated data analysis, even larger enterprises with the luxury of a chief finance officer will find such insights invaluable. And, because Whizzer is delivered as a service, it has no impact on those firms’ on-premise infrastructure.

Many financial organisations are now focussed on improving services to SMEs and Whizzer provides them with a way of delivering cost-effective added value Many financial organisations are now focussed on improving services to SMEs – a long overlooked but critical segment – and Whizzer provides them with a way of delivering cost-effective added value. A bank, local clearing house, accountancy firm, or even an ambitious fintech, are all vehicles for putting such critical financial data at a client’s fingertips. So, let’s drill down into how Whizzer works. The application takes data from a business’ annual financial report, either via manual entry or import. Information about indicators, revenue categories and expenses is shown both as raw numbers and in an easy-to-understand visual

format, with each element currently labelled both in Romanian and English to facilitate an easy conversation with potential partners. The application connects to banks via API interfaces to retrieve statements. But, as banks in Romania do not, as yet, provide this type of data to business customers via APIs, statements can also be downloaded via internet/mobile banking and imported into the Whizzer app. Bakken & Bæck designed an algorithm to reconcile this data with incoming and outgoing payments information from other sources, thus allowing Whizzer to generate an accounts payable and accounts receivable report. Whizzer also allows the import of invoices received and issued. These are then checked against incoming and outgoing payments to generate a cashflow report, including forecast. Allevo and Bakken & Bæck are in the final stages of implementing the Whizzer project, supported by an investment of €738,375 from EEA & Norway Grants, operated by the Innovation Norway SMEs Growth Programme. The Whizzer software development kit (SDK) is to be published under a GPL v3 open source licence on Github, and will be accessible there or via the fintp.org portal. Anyone interested in finding out more about Whizzer can access the application from Allevo as a beta version. Let’s empower SMEs together!

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2021 Special

ID VERIFICATION Worldwide footprint: Trulioo is growing in line with its mission to identify everyone, globally

A world on the move There’s never been a more urgent need to create a digital identity system that keeps both people and their data safe. With fresh capital and ambitious expansion plans, Trulioo is determined to be that solution. Senior VP of Identity Solutions Garient Evans and Chief Technology Officer Hal Lonas, who both recently joined Trulioo’s expanding San Diego office, explain how For most of us lucky enough to live in relatively wealthy and peaceful societies, not being able to move around the world at will during the pandemic was an inconvenience. Now that 2.9 billion people have received their first COVID-19 jab, just over one billion of whom have been fully vaccinated, many are regaining that freedom. But international travel comes at a price: your liberty for your data, specifically, your health status. Meanwhile, 80 million people weren’t lucky enough to sit out the pandemic in their home country. They were forcibly displaced by war and internal conflict, according to the UN Refugee Agency (UNHCR). That figure was a grim milestone and one that’s likely to be surpassed over the next few months as conflict in Afghanistan once again escalates, China tightens its grip on Hong Kong, and a humanitarian crisis deepens in Yemen. The World Economic Forum estimates that, in a normal year, there are

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272 million people – 3.5 per cent of the world’s citizens – moving across borders, mostly for work. But ‘normal’ years may no longer be a sensible yardstick. The International Organization for Migration predicts that there is another, even greater force, that will see huge personal, inter- and well as intra-continental upheaval , and that’s climate change. Unchecked, the IOM fears it could create anything from 25 million to two billion ‘climate-displaced persons’. The twin existential threats of a global pandemic and global warming have demonstrated that we are all citizens of the same, vulnerable world, but among the poor and the growing number of uprooted are many who cannot prove they are citizens of anywhere. They make up the one billion lacking any legal form of identification, and therefore denied access to even the most basic financial and other essential services. Against this backdrop, governments’ post-pandemic ambition to ‘level up’

2021 Special

society leaves many policymakers unequal to the task, however virtuous the ambition. At the same time, governments are wrestling with the politically sensitive and technically challenging issue of how to attach a COVID-19 vaccination record to an individual in such a way that it can be accessed anywhere by those with the authority to view it – and that could be anyone from a border official to a nightclub bouncer. It’s likely that, without such certification, international travel will be limited or denied, while, in some areas, including certain US states, even grocery shops will be off-limits. It was precisely to avoid people being robbed of the fundamental human right to prove their existence and claim the freedoms that others enjoy that Canadian regtech Trulioo began building a digital ‘trust network’ back in 2011. Its mission was to ensure that everyone was someone in the eyes of the world – and, specifically, of financial institutions – by creating an online digital identity from www.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021 multiple, verifiable data sources that are dynamically updated. With more accessible personal information comes more ability for people to control their economic outcomes, it argued. They would be better able to access the resources they needed to prosper on an individual level, and this would unleash new levels of growth on a country-wide scale. Put another way, it was talking about the levelling up of the global economy, long before the phrase became a vote winner. But Trulioo’s ambition now feels more like an imperative. And with one of the largest single funding rounds ever seen in Canada now safely tucked under its belt, it’s doubling down on the task. In the 10 years since it was founded, Trulioo has refined the technology with which it hopes to achieve its purpose, and expanded the territories in which it hopes to deliver it. It now provides real-time identity verification for five billion customers and 330 million businesses, in nearly 200 countries, through its GlobalGateway identification platform. It’s become the world’s largest identity verification marketplace. In 2020, Trulioo was listed among Canada’s 100 fastest-growing companies, with an annual growth of 503 per cent and, in 2021, it was included in the Narwhal List of successfully scaling private enterprises. Its $394million Series D funding in June, led by TCV, one of the world’s largest growth equity firms, with participation from existing investors, pumped its valuation to $1.75billion and gave Trulioo the capital to accelerate its goal to become an end-to-end identity platform. By the close of 2021, the size of its overall workforce will have increased two-fold, with a new customer-facing team established in Austin, Texas – a top technology hub – and an engineering team, focussed on artificial intelligence and machine learning, established at its existing office in San Diego, where there is already a strong digital identity ecosystem. Its current 260-strong workforce is distributed across Canada, the States and Ireland – all in locations carefully chosen to attract and keep top talent. There are plans to add additional offices in 2022, including in Asia. Both based in San Diego, Garient Evans recently joined Trulioo as senior vice president of identity solutions, and Hal Lonas as chief technology officer. Evans, who has more than 20 years of www.sibos.com

experience in credit, identity, fraud, document verification and compliance, has been brought in as Trulioo continues to develop ways to deliver even smoother digital identity verification. Meanwhile, Lonas, who has been a technology leader for 25 years, now heads up all aspects of Trulioo’s technology development, ensuring the adaptability of its technologies around data, privacy, security and the expanding ecosystem of identity verification, with a particular focus on the use of biometrics. Joining Trulioo is never just a career move: you have to buy into its mission to democratise the digital economy. And Evans says that aim for him is ‘very personal’, even if the scale of what needs to be achieved is mammoth. “It’s not going to happen in my lifetime,” says Evans, “which means that Trulioo’s got a lot of work ahead!” For Lonas, this particular moment in history, though, represents a critical opportunity to catalyse change.

Legislation and regulation can help with standardisation. So the EU coming together to propose C19 passports and how they should operate is important Garient Evans

“The pandemic has really accelerated us into the future,” he says. “The technological transformation of businesses is accelerating, and we’re in the right place, at the right time, to really help them and individuals take advantage this new digital economy.”

A REAL MELTING POT In 2018, McKinsey forecast that the identity verification (IDV)-as-a-service industry would grow by nine-to-15 per cent a year for the next four years. Throw into that mix the huge and many permanent lifestyle changes forced upon the world by the COVID-19 pandemic, and the result is a demand for digital IDV that has never been greater. But if digital identities are to be truly portable across the world, it demands closer co-operation between the public and private sectors, says Evans. “The challenge is making it a global

experience. If a financial service wants to be able to operate in different jurisdictions with different rules, sometimes it comes up against the fact that paper is required in those areas. It needs government support to transition to being paperless. That’s where public and private collaboration is so necessary. We have to work with local politicians to get them to accept and own the fact that they can make life more convenient by embracing digital technology.” As many of those politicians now back some form of vaccine certification, the call for digital COVID passports could be seen as a catalyst for that. It is, in fact, as Trulioo’s chief operating officer Zach Cohen recently pointed out, only the second globally co-ordinated attempt to establish such a verification system: the first being travel passports, which still exist as paper records. For it to be seamlessly interoperable and not put individual’s data at risk, he’s suggested that such a COVID-secure system would need to be underpinned by a new database so that the information is detached from other personal data. But who or what unlocks that information, given that most of us can’t remember where we put our car keys, gives rise to the question, where could it be stored? Decentralised identity solutions to minimise the risks associated with COVID-19 passports and, indeed, any other reason to validate one’s ID, would appear to be the answer. In a recent blog, Lonas suggested that blockchain technologies could ‘create a secure, public and anonymous storage platform for identity data, and if this is combined with the requirement to use biometric authentication – something that, unlike a password, can't be lost and is much more difficult to steal – as the means to claim identity, the process is both transparent and secure’. But he added that such self-sovereign identities would only become mainstream if governments ‘relinquish their sole responsibility for issuing and storing our identity information’. It would also need the technology to widely accepted and for the solution to ‘scale massively and cheaply’. Evans welcomes early signs that governments are co-operating over COVID passports – at least in Europe. “Legislation and regulation can help with standardisation. It makes the decision-making process for technology providers easier and better.

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ID VERIFICATION "So, I do think that the EU coming together to propose these [COVID-19] passports, and describing how they should operate is really important. You don’t want lots of different approaches because you end up with passports that are not interoperable and are unreliable.”

BLURRING THE LINES When it comes to identity verification in financial services, the first ever legal framework was laid down by the USA Patriot Act in 2001, which sought to prevent, detect and prosecute money laundering and the financing of terrorism, and spawned similar KYC and anti-money laundering (AML) laws globally. As e-commerce developed, strict privacy legislation was also introduced by regulators to protect consumers’ personal data from being misused or falling into criminal hands. E-commerce, of course, gave rise to the emergence of big techs like Amazon, which changed consumer expectations forever by offering fast, secure and convenient onboarding to the point where every business operating in the digital economy must now up their game. And, as Evans points out, their arrival has also fundamentally changed financial services. “Now the tech providers are financial services,” he says. “In 2017, Amazon lent US$1billion in cash advances to its merchants. So the lines are blurred between companies that were strictly technology, or e-commerce, or marketplace; now they are clearly participating in this financial market. Walmart even applied to be a bank about 15

SAN DIEGO TEAM

years ago; they were denied that, but they have continued to offer financial services. “All that has meant more choice for consumers. Gone are the days when someone stuck with the bank where they opened their first account; now people have many relationships, maybe dozens of relationships, across their financial lives.” Evans suggests that the way financial institutions can compete with that is through a combination of strategy, technology and talent. “For me, strategy is the intersection between customer need and product value. Some institutions are so obsessed with managing risk, that they’ve made their products really hard to get hold of; while others just have horrible technology that doesn’t allow the match between product value and customer need. But getting the strategy right is nearly impossible unless you have a flexible core technology. “Those responsible for user experience should view their work as being highly scientific, where they’re constantly testing resources, features and capabilities. If the underpinning technology doesn’t allow for that type of experimentation, the right strategy is going to be nearly impossible.” Institutions have at least acknowledged the need for customer-centricity. “When it comes to talent, the largest bank in the US has more than 800 job postings for individuals with the term ‘user experience’ in their profile, which is roughly 10 per cent of all of its openings,” says Evans. “The demand for talent to be able to drive a better customer experience, is just one sign of how financial services view this as an area

Kim Hong Senior VP, Marketing

Trulioo’s new San Diego office is headed up by three senior executives – Kim Hong, Senior Vice President, Marketing Hal Lonas, Chief Technology Officer and Garient Evans, Senior Vice President, Identity Solutions. The next two years will see them being joined by more than 30 employees in engineering – notably, artificial intelligence and machine learning – as well

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SIZE DOESN’T MATTER Trulioo, meanwhile, continues to plough an independent furrow, exploring every opportunity for contextual, proportionate, secure and fast IDV – and not just for large organisations. Authenticity and fraud prevention is just as important for a startup or small business, which arguably has more to lose and much to gain from digital verification software – smaller players in underbanked markets in particular. Last year, Trulioo announced that it had developed facial recognition and document verification technology to give small businesses the same level of online protection, and offer the same level of access to customers, as large corporates.

Hal Lonas

Garient Evans

Officer

Identity Solutions

Chief Technology

as sales, partnerships and marketing roles. Nestled down on the Pacific coast in sunny California, close to the Mexican border, San Diego is widely thought to be gaining ground on established fintech centre Silicon Valley, which is just a 30-minute flight away. As well as playing host to some of the world’s fastest-growing tech startups,

2021 Special

of competition and core competency.” But there is still a tension between build, buy or partner in order to innovate, he adds. “Traditional banks are buying services from solution providers like Trulioo, where almost the entire onboarding experience is outsourced via APIs. You have some institutions that have tried to build their own offerings, with mixed success, and then you see some traditional institutions, like Goldman Sachs, having a tonne of success building things on their own, as with [its digital bank] Marcus. There are others that have just abandoned the effort to have a completely digital experience of their own. “So, what you can expect to see is a tremendous amount of merger and acquisition activity playing out over the next few years, where traditional institutions that can’t do it themselves buy players that are truly innovative.”

Senior VP,

big-hitters Google, Apple and Amazon have a presence. The US’s eighth-largest city is considered to have a real advantage over traditional hubs when it comes to cost of living and availability of development talent. It’s certainly popular – according to CBRE, it is the sixth fastest-growing US city for software and technology professionals.

Trulioo’s decision to establish itself in San Diego was influenced by all of this, plus the fact that there are nearly a dozen identity companies – small and large – which contribute to the digital identity ecosystem in some fashion, such as document verification, biometric authentication, digital identity networks and AI/ML fraud detection technologies.

www.fintech.finance

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ID VERIFICATION The new features allow for ID documentation verification and biometric authentication for an added layer of security. This enables small and medium-sized enterprises (SMEs) to check the authenticity of government-issued ID documents and use facial recognition with liveness detection to ensure the person creating the account matches the photo on the ID document. That technology is likely to play a major part in Trulioo’s drive to capture more business in the US, where documents like driving licences, which vary hugely from state to state, are still commonly used for identity verification. “Just look at the proliferation of documents in the States,” says Lonas. “We have been able to take care of that for our customers by building technology that makes a complicated set of connections seamless for them.” Lonas is convinced that biometrics used for digital identification will become commonplace globally, partly because of the pandemic highlighting the needfor inclusion. There is, however, that question over whether ‘identifying the world’ can be achieved without state-backed intervention. Lonas acknowledges the progress of the Indian Government’s Aadhaar project in capturing the biometric details of 1.3 billion people since 2009. But the success of the Aadhaar project was underpinned by trust, which was called into doubt during the pandemic when the data collected was linked, unbeknown to the

Matt Schatz

owners of those identities, to another programme involved in the vaccine roll-out. Trust is one of five vital components identified by Trulioo for creating a successful digital identity ecosystem, the others being simple onboarding, user experience, security and fraud resilience. “Everybody wants that low-friction, high-confidence, high-trust experience, but then sometimes that creates contradictions in the space,” explains Lonas. “Where do we set the dial to ensure the lowest friction with the highest confidence and trust? Making sure all consumers feel comfortable

Everybody wants that low-friction, high-confidence, high-trust experience, but sometimes that creates contradictions Hal Lonas

and confident with not only the onboarding experience, but transparency around the security of their data and where it’s going, is a balancing act. They want to know they are dealing with a trusted partner. “In future, this is a perfect opportunity for artificial intelligence (AI) to help us process the amount of data we need, and spot the subtle signals that, amidst all the noise, make sure we identify people correctly.”

AUSTIN, TEXAS TEAM

Chief Revenue

Officer

At first glance, the capital of Texas might appear a less obvious choice for Trulioo to base a customer-facing team, which it plans to grow to more than 25 staff over the next two years. But this well-educated town is punching above its weight when it comes to attracting America’s fastest-growing companies – it’s among the top 10 in the FT-Statista rankings. In fact, the city has

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James Robison

Senior Manager of Revenue

Evans agrees that the use of AI and machine learning will only expand as the need for effective data processing and analysis becomes ever-more critical. “I’ve heard the quote that data is the new oil. And, much like oil raw from the ground, it needs to be treated in a particular way to make it valuable,” Evans says. “It’s not enough to have fantastic data; you need to be able to derive actionable insights from it. To prevent money laundering and terrorist actions, and accurately identify individuals is a never-ending exercise. “To meet compliance requirements, a financial institution must be able to mine data and transactions and then investigate and report on anything it finds that the laws say it has to do something about. “Cutting-edge institutions will bring in onboarding experts and work with third parties in the identity space, like Trulioo, to secure customer interactions and ensure their compliance. These organisations rely on us to test new technologies and new capabilities, and bring them the best possible solutions. They realise that building a network of really advanced global technology like ours would take them a decade to do, as it did us. We don’t think there’s a one-size-fits-all approach, so we explore things like biometrics, bank account verification, device intelligence and document verification, in order to meet different needs and we’ll continue to be a flexible marketplace for these solutions.”

Carlo Toffano

Operations

Account Executive (Enterprise)

dubbed itself ‘Silicon Hills’, in recognition of the rapid influx of tech, including from Silicon Valley. Elon Musk was one of the first entrepreneurs to base himself there, with facilities for manufacturing Tesla electric cars and components for his SpaceX venture. A number of Fortune 500 companies have their headquarters or regional offices in Austin, too. A lack of state income tax,

light-touch regulation and a government renowned for supporting business development, also make it attractive to startups and the new tech blood is creating a diverse living and working environment in a town previous dominated government, education, and music. On the downside, that’s pushing up house prices! Trulioo chose the States’ 11th most popular city, and

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Arika Swank Account

Executive (Enterprise)

the country’s southernmost state capital specifically because it has grown to become a top technology hub in the United States. “We want to tap into the massive talent pool here in Austin to continue our growth trajectory,” says Matt Schatz. “Austin is such an exciting and vibrant place to be, with technology companies both big and small choosing to open up offices here.”

www.fintech.finance

EMBEDDED FINANCE ‘Embedded finance should be everywhere the customer needs it to be‘. That user-centric vision of financial services is redefining both individual and corporate relationships with the institutions that have facilitated finance for so long. But what does it mean for traditional business models? “It’s a powerful shift,” says Florian Redeker, VP of Product at German Solarisbank, which, with its European banking-as-a-service (BaaS) platform, is doing its best to disrupt those models. “Before, the incumbent banks were able to get away with subpar user experience because they had a monopoly on their processes and market entry barriers were so high. There was no incentive

to improve because they had built this walled garden and they had it very comfortable in there. Maybe those times are over, because, with technology and a new view of finance, it is possible to create seamless user experiences and deeply integrate those financial services into a multitude of use cases. This is what people care about. “With embedded finance and BaaS, we make banking a commodity. We do our best to move financial burdens to the background." You only need to have taken an Uber ride once to know what that means for a truly painless customer journey – quite literally. Those in the driving seat are benefitting from embedded finance, too. Uber Instant Pay uses Visa rails to allow the ride-hailing firm’s employees to cash out their earnings up to five times a day using the Uber Driver app. But Redeker’s concept of ‘commodity banking’ is, of course, anathema to legacy banks, who fight for brand recognition every day. Should they – and can they – keep doing what they’re doing, or is their destiny to become anonymous and leave the customer dog fight to others? According to Agnieszka Walorska, executive director at global technology

and management consultancy Capco and founder of Creative Construction, the design consultancy it acquired in 2020, ‘the battle is not yet lost or won’ for legacy institutions… but the future is unclear. It depends on what, as-yet-unimagined, applications emerge of embedded finance – or what Walorska prefers we call ‘contextual’ finance, because it’s basically in the context of whatever the customer happens to be doing at the time. “Being right there where they need it –this is the future,” she says. “We will see more and more finance in every service.” Customer experience – be that an individual or a business – is the key here. Retailers ‘got’ that decades ago, which is why brands like IKEA and Apple are now so keen to enter financial services, not necessarily because they’re empire

Magıcal bankıng Technology is sprinkling the fairy dust of frictionless journeys on everything from trade finance to Uber rides. So where does that leave the traditional bank? Michael Pierce from Mambu, Florian Redeker of Solarisbank and Capco’s Agnieszka Walorska conjure up ideas

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2021 Special

www.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021 building (although that too), but because they see it as a way of further enhancing the shopper’s experience of their brand and, they hope, their loyalty to it. The same is true for Uber, where invisible payments have long been central to the offer, and also for the ’paymentless’ store format where there is no obvious sign that shoppers are being relieved of their cash. The growing realisation among non-financial companies that they can leverage fintech solutions to embed these added-value financial services into their own customer experience, is what’s driving growth at providers like Solarisbank. “We do this with technology and our full banking licence. We make it possible for companies – startups and fintechs, but also established companies and especially established brands – to integrate financial services seamlessly into their user experiences,” says Redeker. Startups can obviously benefit from such services, which are quicker to market and easily scalable, but their appeal also extends to major players. IKEA, for example, announced earlier this year that it was taking a 49-per-cent stake in its financial services partner Ikano Bank, which will allow it to offer financial products in-store and online, saying it would make the furniture retailer ‘more affordable, accessible and sustainable’. Although there has been much speculation over exactly what that will mean for customers long-term, the partnership has already enabled the store to offer its own-branded buy now, pay later (BNPL), interest-free service in the UK. It fits comfortably into IKEA’s positioning as a brand that supports its customers’ aspirations and turns dreams into affordable reality. As it put it at the launch: “We hope this new service helps customers create the home they dream of and leads to a better everyday life.” The sentiment of helping customers lead a better life is one shared elsewhere. Indeed, Amazon Go, the big tech retailer’s grocery store format, is a particularly good example of hyper-personalisation and customer-centric experiences, according to Michael Pierce, director of partnership commercialisation at software-as-a-service Cloud banking platform Mambu. “What Amazon Go has done, essentially, www.sibos.com

is looked at the customer journey and identified that the biggest pain point in that is the checkout process,” says Pierce. “And if they can eradicate that checkout process entirely, they can likely increase conversion rates and encourage more spending, which results in more revenues.” Pierce cites one report that says companies investing in personalisation are outselling their counterparts by 30 per cent or more. Another found that 80 per cent of consumers are more likely to purchase at firms with tailored experiences, he adds. “What we’ve seen from our 200-plus customers across the world, is that the financial product has taken a bit of a backseat and experience has taken the front seat,” he says. “I, as a consumer, don’t want to care about the product behind my BNPL proposition. I just want to know that I can buy now and pay later, and everything else sort itself out.” Experience is everything and everyone can profit, including the banks if they maximise their existing customer relationships, their scale and status, believes Walorska, particularly in B2B.

With embedded finance and banking-as-a-service, we make banking a commodity.We move financial burdens to the background Florian Redeker, Solarisbank

“A lot of banks are talking about embedded finance, [in relation to payments],” she says, but she’d urge them to explore services beyond exchange of value, such as identity verification services embedded into brand process flows. She points to paytech Stripe’s launch of Stripe Identity, a know-your-customer tool for businesses, as an example of how banks could leverage their resources to create a new revenue stream through APIs. US banking giant Goldman Sachs’ collaboration with Apple on embedded products – such as, reportedly, an Apple Pay Later service, following its Apple credit card tie-up – and, in corporate banking, Commerzbank experimenting

with new sources of revenue by facilitating the exchange of trade between two client companies over its blockchain, are others. One advantage that it’s hard to take away from banks is that they continue to play an important infrastructure role in the wider ecosystem. A banking licence is hard won and expensive to justify without the full panoply of tech, time and expertise usually only available to a big institution. As Redeker says: “There is a reason that banks are out there: they are regulated by the state, and there is supervision to make sure the financial ecosystem is controlled. Sometimes banks stand in the way of what people want to achieve. But, on the other hand, it’s great that society has an eye on those systems, and makes sure that they work for the people, and not against them.” It is also important to note that many consumers, despite the financial crisis, still trust banks more than they trust Big Tech or fintechs as a store for their money – although, among younger generations especially, that view is being eroded fast. The banking crisis of 2008 drove many consumers into the arms of challengers who made much of their untarnished reputation, but they were like flies on a buffalo to the big banks. Now, they look more like a flock of cranes, as perceptions change. “Banks, historically, have made customers work on their behalf, and I think what you’re seeing now is customers are demanding that banks work on their behalf,” says Pierce. He believes banks must adapt to five major trends in order to expand their offering and future-proof themselves. Firstly, they need to really understand how consumer behaviours are changing. “They need to understand specifically what that means they need to do as a business – so not just lowering interest rates, or eroding fees on bank accounts, but launching better services,” he adds. Secondly, they need to embrace banking disruptors and move on from the ‘little fintech versus big bank’ friction, which, to be fair, has already been eroded over the past 18 months. “I think the convergence of being able to provide services and find harmony within this is something that is going to be very critical,” says Pierce.

FintechFinancePresents

2021 Special

EMBEDDED FINANCE When a bank is not a bank: Embedded finance will change the business model

FINTECH FOCUS: EMBEDDED FINANCE

The key is clearly going to be BaaS, he adds, along with the rise of openness and being able to better use data-driven insights – data, of course, being one thing banks have in abundance. His final, and most interesting, piece of advice, is that banks mustn’t overlook certain customer segments because they are deemed just too expensive or unprofitable to service. “Find ways to optimise your architecture, your technology, your experience, to be able to – otherwise there’ll be others that enter the market who will. Banking is not finite, it is infinite, which means it is constantly evolving and we’ll need to keep adapting,” he says. The consensus that emerges is that banks shouldn’t replicate what has gone before – and, indeed, will fail to stay relevant if they do. Banking is becoming an ecosystem with a multitude of players – both from financial and non-financial services, including retail, automotive and telecommunications. They must master the Kardashian-like art of reinvention. “I think players have placed their stakes in the ground and now it’s about [how] they play with each other, and where in the market they are all working with each other,” says Pierce. After all, people may still trust the big

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banks to hold their money, but, in the right context, they tend to trust certain brands way more, observes Redeker. In other words, banks’ status is not unassailable. This is where non-financial players, such as home retailers, e-commerce platforms and telcos, could have an advantage in the everevolving embedded finance ecosystem.

What we’ve seen from our 200-plus customers across the world, is that the financial product has taken a bit of a backseat and experience has taken the front seat

Michael Pierce, Mambu

Commenting on the Spanish telecommunications giant Orange launching its own bank in 2019, underpinned by Mambu’s tech (with now 1.2 million customers across Europe), Pierce says: “I remember seeing this coming in and thinking ‘why is a telco in banking? This doesn’t make any sense’. But then you realise that Orange, as a company, has such a strong brand. “It is trusted, it is proven, and it has pivoted into the financial space because

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they’ve been able to maximise on the big data they use, to have better insights, to understand the types of financial products their customers are going to need.” One final benefit of embedded finance and increased integration of third-party services that is worthy of mention, is the impact on customers’ financial health, as it enables better data-driven insights on factors such as creditworthiness. London-based B2B Bud Financial, for example, enables regular rent payments to be recognised by credit reference agencies and lenders, meaning tenants can build a credit history in a way denied to them before. Meanwhile, some neobanks are working on chat features where someone can simply ask ‘can I afford this?’ before deciding to spend. With so many movements in so many different directions, it’s difficult to predict where things are going next, says Walorska. “But I’m really pretty sure it’s going to be more intuitive, more automated, more personalised and a better overall experience – both in B2C and B2B. “Paradoxically, technology is making the financial experience more human. You have the finance and the technology but the only thing that the user sees at the end is the magic.” www.fintech.finance

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IDENTITY & TRUST Much to GAIN: The proposed new standard could restore banks’ status

Rod Boothby, Global Head of Identity at Santander and Co-chair of the Open Digital Trust Initiative, believes banks hold the key to restoring broken confidence in an online world. Now, he’s asking them to mobilise to fix it Who do you trust to vouch for you? Your government, your doctor, a solicitor? How about your bank? By the end of next year, millions of us could be looking to the organisations we deposit our money with to be the custodians of what is, arguably, a much more valuable asset – our digital selves. The Open Digital Trust Initiative is being steered by the Institute of International Finance and the OpenID Foundation, which have built a coalition of organisations across the identity community, to create a global digital trust infrastructure that hopes to assign a new role to regulated entities – financial

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institutions principal among them. It’s called the Global Assured Identity Network (GAIN) and it maps out a way for banks and others to offer digital trust services via APIs. To be clear, that’s not just for banks to act as gatekeepers for our identity in relation to financial services, but also delegated responsibility to confirm we can travel across borders, access health services and much more. Why should banks take on the mantel? According to Rod Boothby, global head of identity at Santander and co-chair of the Open Digital Trust Initiative, because they already have what it takes to execute on

2021 Special

possibly the most important mission of all – ‘to deliver truth and trust while allowing people to protect their privacy’. And they can do it by leveraging their existing electronic know your customer (eKYC) and strong customer identification capabilities, as well as the confidence invested in them by public and business. “Banks treat your identity as an asset and they can provide a custodial service to protect it, just as they provide custodial services to protect your cash or your stocks, because it’s your property,” says Boothby. “By delivering this [identity-as-a] service, we hope to reduce the challenges www.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021 we see globally around whether or not people are who they claim to be online – and that covers everything from annoying spam messages, to catfishing on a dating site and spreading misinformation via social media.” The aim is to deliver what is, in effect, ‘financial-grade’ identity assurance alongside a dramatically-simplified user experience that’s characterised by far fewer passwords and forms. GAIN will be made possible by a new standard for verified data sharing services, developed by Santander and built on top of OpenID, the protocol that’s used billions of times a day by people across the world to log into platforms such as Facebook and Google. It will allow banks to securely transmit information related to customers in three circumstances: to verify a customer’s identity, the bank simply confirming the client’s name and other basic identifying information to a third party; to share a summary of the information but not the private data behind it – for example, to confirm a person is old enough to buy alcohol but not revealing the date of birth; and to confirm and fully share verified data. All of the above would only be initiated with the customer’s consent, but the potential use cases that could be built on top of such a global standard are myriad – think applying for a product and getting the best deal based on your profile characteristics; enjoying a simplified vetting process when renting accommodation or applying for a job; even helping to select the right profiles for you on a matching platform; or simply proving you can act on behalf of your company. It’s ideas like these that Boothby hopes to explore further during Sibos. “Every time new standards are created, huge new value is built on top; many players come forward to provide all sorts of services,” he says. To deliver those across borders will require partnerships, of course – hence the importance of building out the network. “There are huge partnership opportunities to help bring this to market,” says Boothby. “For example, if you have a small company, you don’t want to sign contracts with 2,000 banks globally; you want to work with an entity that brings all the banks to you – a broker or aggregator. And those organisations could work in www.sibos.com

domain-specific spaces, like healthcare, facilitating information around insurance and payments, travel or even managing vaccine status.” Banks have collaborated to build mutualised infrastructures before – transaction rails for trade, cards, digital payments and securities. Identity is now, as the Institute for International Finance, recognised when it co-published the GAIN white paper in September, the next such ‘critical frontier for the global economy’. Boothby believes that, with this new purpose, banks could not only address several of the threats currently undermining their status – namely disintermediation and fragmentation of financial services – but also turn the security and compliance cost centre into a revenue stream, countering the effects of the unlevel playing field caused by how some aspects of open banking are being implemented. Thus, for banks, facilitating truth, trust and protection could be seen as not just a moral imperative, but also a business one. The idea of banks collaborating over identity flows isn’t entirely new. Although confined within regional borders, there are several forerunners for a trust network operated by banks: Sweden and Norway have the almost universallyadopted BankID, Germany has the Yes network, Belgium has Itsme, and 17 million Canadians access federal government services via Verified.Me. “In Sweden or Norway, when you go to a website, instead of clicking ‘log in with your Google ID’ or ‘log in with your Facebook ID’, you click ‘log in with your BankID’,” says Boothby. “A message on your phone from your banking app asks if you really want to log in, and, if you’re registering for a site, if you want to really share that information with it. Usually, the bank will be able to reduce the amount of information that is shared. For example, in the UK, if you want to buy a lotto ticket, the National Lottery needs to know only two things; that you’re a UK resident and that you’re 16 years or older. That’s it. They don’t need your name, your picture, your biometrics; they don’t need to know your address. “We want to create this simple, easy flow, where you can bring your identity wherever you go. You no longer have to

spread your identity information everywhere; instead, you have the choice as a consumer to work with an institution that you trust, an institution that doesn’t resell your data.” While there are obvious privacy advantages for consumers, using banks to validate a business’ identity could benefit the economy, too. “If I want to order goods from a company in a different country, and a bank in that part of the world can say ‘this person with a widget factory is trustworthy’, I can order widgets from them in confidence, knowing they’ll deliver,” says Boothby. “This levels the global playing field. Businesses do not have to give a cut of their profit to some big online company to distribute things for them. Instead, they can go direct to their counterparties.” Importantly, it could address the rising, and seemingly unstoppable, tide of online crime targetting businesses and customers daily. The United Nations estimates that money laundering, alone, is equivalent to two-to-five per cent of annual global gross domestic product (GDP). “The amount lost to financial crime and money laundering is stunning and facilitates all sorts of damaging activities,” says Boothby. “So, how do we create an environment where the individual has better control over their information and people don’t constantly feel they are under threat? If we get this right, this standard will mean you can be certain you’ve reached a specific person who’s made a decision, and that the data they’ve shared with you is bona fide,” says Boothby. “They really are the CEO of that company and can sign legal agreements on its behalf. They really are in accounts receivable, that is a real invoice, and those are real payment instructions. They really are from a company‘s call centre and are trying to help you.” The urgency now is to persuade financial institutions to collaborate to deliver that trust with global reach; to bring about, as the GAIN white paper describes it, a fundamental shift in the digital economy. “This is an open and free standard and we’re hoping many will want to learn about it,” Boothby adds. “We have huge challenges around identity and need participants to join us in solving them.”

There are huge partnership opportunities to help bring this to market

FintechFinancePresents

2021 Special

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

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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.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021

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.sibos.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.”

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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

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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.fintech.finance

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OPEN BANKING

Ahead of the eight

Michael Phillipou brings a unique combination of skills to his new role as CEO of Sandstone Technology – including that of an Australian Football League pundit. We got in a huddle with the new boss to talk tactics as he maps out his plans to expand on the back of open banking “There’s so much work for banks to do over the next decade when it comes to having a compelling digital value proposition because digital is the battleground now for financial institutions,” says Michael Phillipou, the newly-instated CEO of Australian fintech, Sandstone Technology.

And that’s not just a technology vendor talking. He’s come to that conclusion from the perspective of a banker who ‘fell in love’ with the first-wave challengers that emerged after the financial crash, and also as founder of a lendtech himself. Technological advances, regulatory pressure points and evolving consumer habits mean that to win, competitors on

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the financial services pitch must change their game plan, teammates and targets, while playing to their strengths and addressing any weaknesses – and Phillipou knows a thing or two about adapting to the field of play. As an Australian Football League boundary rider for Oz broadcaster ABC, he turned up to deliver commentary on games from the sidelines while simultaneously building his career in financial services. Having watched premiership cup strategies over five seasons, he’s hoping to increase the digital goal score at Sandstone, where he was appointed CEO last December after occupying the role of chief customer officer for 15 months.

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Sandstone has been at the forefront of fintech since before the term was even coined. The mid-90s startup is now a global technology business, providing a wide range of micro services, mainly for top and mid-tier financial organisations that are upgrading or transitioning systems such as digital acquisition, loan origination, settlement management, internet banking, mobile banking and online financial management. It doesn't provide core banking services, but works with partners that do. Phillipou’s appointment as CEO coincided with the firm’s 25th anniversary and comes during a sea change for financial services on its home turf. www.fintech.finance

VIRTUALSHOW11–14_OCTOBER2021 Australia is currently rolling out the Consumer Data Right (CDR), its own version of open banking, allowing the permitted sharing of customer data to improve access to, and availability of, financial services for millions of people. Open banking also encourages competition among providers and creates opportunities for technology companies like Sandstone, as existing institutions seek to maximise the use of data to achieve efficiencies, become more innovative, and improve, or even redefine, customer relationships. July was a milestone in the phased introduction of the CDR as, by that point, every bank, not just the big four – CommBank, NAB, Westpac and ANZ – were required to have systems in place to share data. A crucial difference between open banking in Australia and the UK is the scale of the concept. Perhaps in keeping with its reputation as a big country with big ambitions, open access to data isn’t stopping at financial services. Under the watchful eye of the Australian Competition and Consumer Commission (ACCC), it’s going full throttle for an open data economy, giving Australians the right to access not just all their financial data but their utility and telecoms data, and more. 25TH ANNIVERSARY 1996-1999 Sandstone Technology is founded by Violet Yu and Bob Hall. A series of market firsts follows, including internet banking enabled across multiple devices, internet banking solutions with scramble pad security, two-factor authentication integrated into internet banking and deployment of an intractive voice respose (IVR) solution.

www.sibos.com

With clients in Australia, New Zealand, Asia and the UK, Sandstone has its own views on why adoption of open banking in most other regions where it has been introduced has been relatively slow. In November it even produced a white paper on the subject, concluding that where open banking hesitancy existed, it was due to a combination of regulation, the complexity of the technology change, and fear – not just among consumers who have been told for years never to share their data, but also among banks who see the legislation as a major threat to their highly valued customer relationship. Noting how Australia could learn from, in particular, mistakes in the UK, where still less than 20 per cent of banks have signed up to open banking, it warned that ‘in the UK, the regulatory framework and cost of entry has seen significant shortcomings in uptake’. Nevertheless, Australia took its lead from there, in that standards in the two countries are technically similar. “Technology is a little bit like fashion, where whatever you guys are wearing today, we’ll be wearing in three years’ time,” laughs Phillipou. Despite the UK’s shortcomings – and perhaps lack of ambition – Phillipou sees it as a market that Sandstone absolutely must target, particularly when it comes to micro services for credit.

“The size of the lending and therefore the origination capability and opportunity in the United Kingdom is much greater than the Australian market,” he says. “From our perspective, it looks more evolved, ready to take more banking-as-a-service (BaaS) capability.” There’s one trend in the area of lending that could benefit greatly from open banking – more accurately described, says Sandstone, as ‘everything-as-a-service’ – and that’s buy now, pay later (BNPL). New providers and business models have been reinventing the loan origination market Down Under for some time. But it’s a service that has raised issues for policymakers both there and in the UK. “It’s under scrutiny now in terms of what the regulatory requirements should look like because BNPL is not subject to the same level of compliance obligations that lenders or banks are,” says Phillipou. “However, we’re likely to see that change and the BNPL players adjust. What we are seeing already are collaborations with major organisations, major banks, that recognise there is some extraordinary capability in this.” Technology that provides lending insights is one of Sandstone’s core competencies, and an area Phillipou knows well.

A FINTECH BEFORE THERE WERE FINTECHS: THE SANDSTONE TECHNOLOGY STORY 2000-2009 A loan origination solution for personal and home loans is launched, including home loans in the UK. Sandstone becomes the first organisation to certify BPAY View for internet banking and apply internet banking transaction signing functionality. It develops one of the first device-agnostic mobile banking solutions (using HTML 5) in Australia. A loan origination solution is deployed into an Australian Tier 1 Bank.

2011-2012 Launches a mobile banking app at Finovate in Europe. Rolls out a digital lending solution for credit cards and personal loans. 2014 Deploys a P2P mobile payments, enabled for Paym (the UK’s mobile payments service), to Cumberland Building Society.

2017-2018 The first customer in Asia (Vietinbank) goes live with an online banking (responsive) solution. Deploys end-to-end consumer digital home loan acquisition solution. Launches AI-driven document verification tool (DiVA). 2019 Launches open banking solution in the UK for Cumberland Building Society, followed by first fully automated online mortgage top-up product into the market (Loan+).

2020 Launches home loan digital management tool, Manage My Mortgage. Michael Phillipou is appointed CEO. 2021 Celebrates 25 years in business and appoints Ross Watts as chief customer officer and Katherine Dziaman as chief financial and operating officer. Launches Tranche Management for managing the flow of retail and business deposits.

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REGIONAL SPOTLIGHT: AUSTRALIA OPEN BANKING Having worked in financial services for more than 20 years, holding general management roles across the industry including Westpac, Bendigo and Adelaide Bank, he co-founded the innovative digital financial services disruptor, Lodex, in 2017. Australia’s first loan and deposit marketplace, Lodex was way ahead of its time in using personal data, including social, to leverage power for consumers. It was a brave concept, borne out of Phillipou’s own fascination for pioneering fintechs that were challenging the distribution model. “Back in the early 2010s, I realised that technology was changing the landscape around how financial services products would be distributed and fell in love with the likes of Revolut, TransferWise [now Wise], Monzo, N26, and all the neos – Curve and the likes of LendingClub, Credit Karma, and some of the US fintechs that were making waves. Then I was fortunate enough to found a company with a group of people, and we built some pretty cool stuff. I exited that business in 2019.” Did he never argue the case from inside the bank to adopt the technology that was then emerging? “I probably didn’t realise the gravity of the opportunity,” he admits. “I think, certainly now, sitting on the vendor side, the tech side, and seeing the way we’ve built out some of the capability of banking-as-a-service, particularly in the UK, that is certainly our strategy – to be able to support banks to have the latest and greatest overall core. We’re not a core banking player ourselves but we partner with core players, and provide all the front-end capability.” Last year, for example, recognising the post-COVID shift towards consumer self-service, as banking customers became less enthusiastic about face-to-face meetings, it released a new suite of digital tools. These gave homeowners more autonomy in managing their loans; a kind of self-service lending, centred around the removal of the mortgage broker as middleman, to simplify the process. This year it has developed Tranche Management, a back-office feature, which is a component of Sandstone’s digital origination product BankFast Apply. The new feature allows financial institutions to easily and quickly manage the flow of retail and business deposits. It’s designed to take the guesswork out of predicting when a savings product tranche is full, which

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supports a company’s risk management. The company ‘partners where it counts’ to deliver services, says Phillipou. “Banks need to have optionality, and they’ll have preferences when it comes to credit decisioning, so, for example, we’ve done all the integrations with major bureaus here in Australia – Equifax, Experian, and Illion. Partnerships exist when it comes to desktop property valuation capability or know your customer (KYC)/anti-money laundering (AML) requirements. We’re out there, benchmarking the ecosystem in terms of real speciality areas of the value chain.” Now that open banking and the BaaS concept is gathering speed, Phillipou finds himself at the helm of a company that can influence the way banks maximise those opportunities by creating the self-same ‘beautiful UI (user interface) and UX (user experience)’ used by the pioneering fintechs he so admired. “We’re an enabler. We can support them to provide a frictionless experience and complement their overall offering,” he says. “What they’re focussing on, is being able to enhance their overall digital value proposition to support their objectives. Every board is saying to every CEO, ‘we need you to do three things. Firstly, increase the return on equity, so grow your assets and liabilities book. Number two, reduce the cost-to-income ratio, do more with less and become more efficient. Number three, make sure you meet your regulatory obligations’. “We see this across every single bank and every single board. And we can provide technology as an enabler of all those key points, by providing straight-through capability for the origination of products. Efficiency is really about trying to replace low-value human tasks with AI and machine learning, and digitise and automate processes. Then your systems need to be regulatory compliant, and comply with data obligations – data sovereignty and the general data protection regulation (GDPR), over in the UK and European market.” Now pushing Sandstone to reach deeper into its target markets, Phillipou nevertheless makes time to combine his unique

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skillset – that of banker, innovator and broadcaster – in co-hosting the regular podcast, Digital First: A Banking Transformation Series. A collaboration between Sandstone and Financial Executive Women (FEW), a career advocacy programme for women within financial services, it’s seen him interview thought leaders of both sexes from banks and fintechs that have run transformation programmes themselves. “They’ll talk about all the different pillars that are involved in running a successful transformation, and some of the pitfalls that invariably organisations will have to navigate through. We’ve been getting really good feedback from the FEW members and they’re pushing us to bring many of the guests back onto the programme – the likes of Joseph Healy, one of the co-founders of Judo Bank [an SME challenger bank in Australia], who’s remarkably impressive.” He hopes the show will give decision-makers moral support when they run onto the digital pitch. As for Sandstone, it’s heading for the top of the league table, building on its track record of 100 per cent successful implementation. “The biggest risk with any transformation programme is execution risk. You hear horror stories of banks going through transformation programmes, spending hundreds of millions, quite often, and then not ending up with a functional product, and obviously a few years behind the eight ball,” says Phillipou. “Proudly, we’ve never not delivered. “With banking executives thinking ‘how do we futureproof our business overall?’, the answer is that unless they innovate, they’re going to find it very difficult. So, our major investments over the next few years are going to be very much around straight-through processing capability, from origination to our data strategy, and making sure we capitalise on all the opportunities when it comes to open banking – SME banking, in particular. Then you’ll see the evolution of our BaaS offering, as we push to take more positions and win more customers.”

Every board is saying to every CEO, we need you to do three things: increase the ROI, reduce the cost to income ratio, and make sure you comply with your regulatory obligations

www.fintech.finance

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