Fintech Finance presents: The Fintech Magazine Issue 30 by Fintech Finance

I S S U E #30

CELEB-SPOT T IN G AT T H E FF AWAR DS 2023

INSIGHTS FROM Kani Payments ● SunTec ● ebankIT ● UL Solutions ● ClearBank ● Volante

Worldpay from FIS ● Temenos ● Wise ● SmartStream ● Intix ● KPMG ● Mobiquity ● iGCB

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CONTENTS THE FF AWARDS 2023 7 Reach for the stars! A brilliant – if slightly bonkers! – night marked our third Awards

FINTECH FOCUS 22 Time to make hard Kassh work better Chair of the Payment Choice Alliance, Ron Delnevo, wonders why so few UK fintechs are interested in finding ways to include cash in e-com

40 Risk, strategy and tech The Global Innovation Report from FIS shines a spotlight on attitudes to threats and tech. Azriel Chelst, VP of Venture Investments, comments on some of the key findings

50 Fostering the would-be Titans of tech KPMG Private Enterprise’s Global Technology Innovator competition doesn’t just give out awards – it helps build a community

57 Bringing the retail banking boom to wealth management It’s time to reimagine wealth building, says Peter-Jan van de Venn from Hexaware Mobiquity

66 Surprising Cyprus Fintechs who head to the Med’ find a warm welcome on this tiny island. Fiona McFarlane charts the rise of an innovation hotspot

80 A roof over our heads A report on the state of the housing market in the UK by Yorkshire Building Society points to the urgent need for new technology solutions. We look at the report in detail and some of the proptechs searching for answers

FINT

CH M A G AE ZINE

THEFINTECHVIEW

ISSUE#30 l 2023

So FedNow is live. Four years and $545million in the making, the first instant payment system to be developed by the US government has been working for five months. Will it have a major impact on payments in the States? It’s been hailed as ‘transformative’ and a ‘generational change’, but perhaps that’s less to do with the technology – instant payments have, after all, been available to financial institutions who opt into The Clearing House’s RTP system since 2017, and there are plenty of super-successful, real-time alternative non-banking providers that American consumers are now familiar with. No, it’s more about the pressure of expectation that FedNow creates for instant payments to be made available at scale – and the consequences for banks’ internal systems and pricing models – that could be ‘transformative’. That and the potential erosion of card use – FIS has forecast that FedNow will drive the volume of account-to-account (pay by bank) payments in the States by 14 per cent (CAG) up to 2026. Nearly everyone in the Payments

section of this issue is talking about FedNow. Most software providers, perhaps not surprisingly, see it as an opportunity – an obvious justification for banks to move to a complete payments-as-a-service solution. Others are ready to solve niche issues, such as compliance or reconciliations, which both become infinitely more complex when payments are settled in seconds. Then there is the challenge of how banks build revenue around instant payments – the fear, even, that they might cannibalise other established products – which is where pricing specialists, such as SunTec, and data insights offered by Intix and others can help inform decisions. FedNow certainly seems to have generated more interest than RTP. By this time next year, we’ll know if it was justified. Did you guess our last issue’s spine-tingler? “There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle” was by theoretical physicist Sue Scott, Editor Albert Einstein

40 Issue 30 | TheFintechMagazine

TAEZCI NHE CONTENTS IN F G A M 33 Meet the financial crime squad…

TRANSFORMATION 12 Rebuilding banks: it’s a team effort ‘Componentisation’, otherwise known as composable banking, has emerged as the alternative to ‘big bang transformation’. By its very nature it demands compatible solutions, underpinned by strong vendor partnerships, such as that between Temenos, Capgemini and MongoDB

17 The bank of 20XX Whatever the shape of banks to come, they need to know their strategic choices are paying off – at a granular level. That’s what SunTec can tell them, as Madhur Jain and Amit Dua explain

20 To Infinity and beyond Temenos has built up an in-depth understanding of core banking systems over many years, which is why it believes Cloud-based, software-as-a-service is now the future

Radha Suvarna talks through Finastra’s new Compliance-as-a-Service solution, which leverages Fincom and ThetaRay to provide a package of instant payment controls

34 Time is money As FedNow drives an instant payments revolution in the United States, Chetan Cariappa and Nadish Lad at Volante Technologies, assess the impact

36 Now, now, now! Three payments specialists from UL Solutions – John French, Honore Afene and Daniella Ribeiro – discuss the growth of instant payments and the potential of FedNow

Belgium has grown a fintech industry that impacts the world with smart data handling. The latest partnership between homegrown technology specialist Intix and global giant FIS is evidence of it. Antoine Cuypers and Leo Wagner discuss the benefits

54 Getting to the bottom of data The cumulative impact of failed payments can be felt across a banking enterprise, says Roland Brandli, Strategic Product Manager at SmartStream. But most banks don’t have the operational insight to identify the scale of the consequences, much less prevent them before they do real damage

60 On the money Merchant payment specialist Worldpay from FIS supports more than 225 markets in nearly 135 currencies. So how does it see CBDCs impacting its business? We asked Nabil Manji, Head of Crypto and Web3

62 Evolution or extinction? Selvakumaran S, from iGCB, the retail and central banking solutions arm of Intellect Design Arena, explains how its technology is helping iconic institutions adapt to change

26 Threats and opportunities BUSINESS BANKING 44 A Clear need for change Charlene Lemard-Maxam from ClearBank tells us why its crossing borders and how digital currency will ultimately be part of the payments mix

28 The rise of Wise British money transfer fintech Wise has enjoyed acclaim since it entered the market back in 2011. Steve Naudé explains the development of the company’s B2B Wise Platform and how it is embracing partnerships and diversification at home and abroad

52 Format for success

CENTRAL BANKING

PAYMENTS 24 The big bank juggling act

CBI and its CCO Pilar Fragalà detail how it has developed innovative platforms and aggregated numerous actors to enhance security and promote success

DATA

47 Time to shine After years working in siloed treasury teams for major banks, Allica’s Beata Lubinska found a fintech that understands strategy starts with the balance sheet

CROSSING CONTINENTS 74 A shrewd move Kani by name, canny by nature, chief commercial officer Marc McCarthy makes the case for why a fintech born in North East England can make strides in the US

77 State of the unions Portuguese fintech explorer ebankIT has set sail for the US. Paul Provenzano tells us what it can bring to the new world of ‘old’ banking

THEFINTECHMAGAZINE2023 EXECUTIVE EDITOR Ali Paterson

ART DIRECTOR Chris Swales

GENERAL MANAGER Chloe Butler

PHOTOGRAPHER Jordan Drew

EDITOR Sue Scott

ONLINE EDITOR Lauren Towner HEAD OF CONTENT Douglas Mackenzie

ONLINE TEAM Katy Garnham Lauren Hinton ACCOUNTS TEAM Tom Dickinson Leksy Volkova Shaun Routledge Maurice Enslin

PRODUCTION Taylor Griffin VIDEO TEAM Lewis Averillo-Singh Alexander Craddock Max Burton Luke Evans Louis Jean La Grange

ISSUE #30 FEATURE WRITERS David Firth l Tracy Fletcher Tim Goodfellow James Grant Martin Heminway Sean Martin Fiona McFarlane John Reynolds l James Tall Frank Tennyson Sue Scott

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TheFintechMagazine | Issue 30

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THE FF AWARDS 2023

FINT

CH M A G AE ZINE On the money: Host, comedian Katherine Ryan

A brilliant – if slightly bonkers! – night marked the third Fintech Finance Awards. Sue Scott was there The sign of a great party is when nobody wants to leave, right? And if the company is THIS good, guests can’t be blamed for loitering past the witching hour (which, in London, is when cab fares double for no logical reason). The theme for the third Fintech Finance Awards, held at Old Billingsgate on the bank of the Thames, was distinctly North American. With JobsOhio, the Buckeye State’s economic development corporation, as its principle sponsor, the event rolled out an Oscar-length red carpet to 650 friends of the industry who almost certainly weren’t expecting the variety performance that the event delivered. Hosted by Canadian-born ‘queen of comedy’ Katherine Ryan, rocking a lush Great Gatsby-style gown, the slightly bonkers but brilliant tone for the evening was set by her opening remarks: “I don’t know a lot about your industry and I’m not going to pretend I do. But I spend a lot of money – and I love it!” By this point the audience was well-acquainted, a mix-up in the table plan ensuring that no-one stayed in their comfort zone – although full credit to the catering staff for not poisoning anyone with a nut allergy who’d pre-ordered the safe dessert option. Cash warriors mingled agreeably with digital tech titans as the rollcall of 17 winners and worthy finalists was announced by a fast-paced carousel of fintech personalities and surprise guests. The former included finfluencer Jim Marous, who soft-shoe-shuffled on to the massive stage in his signature sparkling Lacin Kicks, the custom footwear of choice for West Coast entrepreneurs. Ron Rock, the impeccably attired MD of JobsOhio, Nigel Walsh of Google Insurance, Paolo Sironi from IBM, Steve Clark, MD of Money20/20, Ben Robinson, co-founder

of early-stage investor Aperture, and Laura Camplisson from VC Innovations, also bestowed awards. As to the surprises.. well, where to start? Max Fosh, the terribly-well-spoken YouTuber, who was (briefly) the richest man in the world after registering Unlimited Money Ltd with 10 billion shares and selling one for £50, thereby theoretically giving his company a valuation of £500billion, eyeballed a table of regulators as he quipped: “I thought it was a bit of fun; the FSA thought it was a bit of fraud.” The incredibly talented singer/songwriter Saint Harrison followed his all-too-brief set with a presentation, in which he fluffed the big reveal for Authentic ESG by announcing the winner before the finalists, but by then we were all well into the sixth bottle of Merlot anyway. And then – pièce de résistance – comedy legend Sue Perkins showed up with a gigantic inflatable hand for a bit of ‘slap’ stick, referencing the legendary Oscar spat between Chris Rock and Will Smith (obvs). The Awards were established as an antidote to industry gongs. With no table or ticket sales and an open, data-driven judging system (anyone who is a subscriber to Fintech Finance can apply to vote), they are billed as ‘awards worth winning’, celebrating all aspects of digital finance and digital payments. In his address, Ron Rock saluted everyone in the room that night as ‘the future of financial services’. But as I resigned myself to walking back to Shoreditch in the early morning lamplight, the analogue present made itself keenly felt. An unmarked cab screeched to a halt. ‘Where you going?’. ‘Brick Lane.’ ‘Twenty.’ ‘Nah. I’ll walk, thanks.’ ‘Ten for cash.’ ‘You’ve got yourself a ride.’

It’ll be all right on the night: Awards founder Ali Paterson

Dapper: Ron Rock, MD of sponsor JobsOhio

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Fleet-footed: Finfluencer Jim Marous

Issue 30 | TheFintechMagazine

TAEZCI NHE THE FF AWARDS 2023 IN F G A M FF AWARDS 2023 WINNERS IN... EMBEDDED FINANCE

Sprive is a first-of-its-kind mortgage overpayment app that helps homeowners save on interest and become mortgage-free faster. Edenred Payment Solutions worked with the developers to provide payment processing, licensing, compliance and mobile functionality.

FF AWARDS 2023 WINNERS IN... INVISIBLE SECURITY

Bottomline’s suite of software-as-a-service security solutions offers detection, prevention and investigation of external and internal threats. It allows financial institutions to take a proactive approach to risk management while removing complexity and enabling compliance. The Bottomline is you’re safer with it.

FF AWARDS 2023 WINNERS IN... OPEN BANKING

The partnership between NatWest’s Payit open banking payment solution and JS Group’s Aspire Technology Platform, which works with universities to disburse cash to 250,000 students in the UK, demonstrates the real-life impact of open banking technology. Their solution, Aspire Cash, can deliver funds into student bank accounts fast, saving universities work while also giving them insights into how that cash is used. Top marks!

FF AWARDS 2023 WINNERS IN... BUSINESS BANKING

SMEs make up around 90 per cent of the global business community and provide half of all jobs. So why have they been so poorly served by financial institutions? Finastra asked itself the same question and came up with Fusion: Digital Business, an API-powered solution that’s based on the premise that banks’ business customers thrive when they give them access to technology that helps them run their company. Kerching!

FF AWARDS 2023 WINNERS IN... REAL-TIME PAYMENTS

A week before the Awards, the UK-based A2A provider announced that it had been selected by Klarna to provide SEPA Instant, Credit Transfer and Direct Debit connectivity for the platform’s 150 million active customers across more than 500,000 merchants. Form3 was conceived to be a highly scaleably real-time payments platform and Klarna is another ostrich-sized feather in its ever-growing cap.

FF AWARDS 2023 WINNERS IN... TRADING TECHNOLOGY

Our judges added another award to a creaking shelf of gongs for Valantic’s electronic trading and automation systems for capital markets. Its platforms for fixed income trading/eFICC and equities are designed to augment and integrate with existing systems and make building new ones from scratch easy, using modular technology to provide a fully customisable workflow.

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FF AWARDS 2023 WINNERS IN... MOBILE PAYMENTS

Airwallex created its global payments and financial platform for ‘borderless businesses’, slashing fees and putting payments, expense management and more in the palm of a business owner’s hand. It partners with local payment rails to get money where it needs to go, faster and cheaper than high street banks, allowing businesses to accept customers’ local payment of choice.

FF AWARDS 2023 WINNERS IN... CROSS-BORDER PAYMENTS

Pay. Accept. Exchange. Comply. It's that simple! Well for users, yes, but there’s a fiendish amount of work that goes on behind the scenes at Thunes. From mobile wallets to local cards and domestic payment networks, it offers everyone from banks to freelancers a solution to FX and cross-border challenges.

FF AWARDS 2023 WINNERS IN... ARTIFICIAL INTELLIGENCE

One of a new breed of as-a-service companies, Jaid automates and integrates customer communications intelligently into existing workflows. From claims processing to sales automation, customer service to payment exception, its AI-powered platform can organise and make sense of a whole host of diverse data.

FF AWARDS 2023 WINNERS IN... ID VERIFICATION & KYC

Using facial biometrics, image capture technology and ID card verification, Mitek works with a range of companies for whom KYC is critical, including igaming and financial services. Its products power and protect millions of identity evaluations as well as mobile deposits every day, around the world.

FF AWARDS 2023 WINNERS IN... AUTHENTIC ESG

From its inception in 2016, Finland-based payments-processing platform Enfuce has been at the forefront of ESG, whether it’s through promoting financial inclusion for Ukrainian refugees, signing up to the Climate Pledge or offsetting its entire CO2 emissions. A prime example of this is the launch of its First Aid card – a prepaid card (physical or virtual), which can be given to people in need of urgent financial support.

FF AWARDS 2023 WINNERS IN... CRYPTO

Zumo is driven to make digital assets our financial future. It believes a new generation of smart money solutions will deliver a fairer world for all. But it recognises that change will be slow unless the world’s biggest financial players are on board. So it's focussed on encouraging Institutional adoption by offering enterprise clients enterprise-grade solutions with robust compliance and risk management. Its plug-and-play crypto-as-a-service platform offers a fast, flexible and low-barrier route to an exciting new market.

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TAEZCI NHE THE FF AWARDS 2023 IN F G A M

FF AWARDS 2023 WINNERS IN... INNOVATIVE INSURTECH

McKenzie Intelligence Services stood out, thanks to its geospatial tool, Global Events Observer (GEO). It uses data from space, air and ground to provide real-time, actionable intelligence on losses from catastrophic events on one single platform. This enables insurers to increase efficiencies and reduce costs, whilst creating better outcomes for policyholders. Win-win!

FF AWARDS 2023 WINNERS IN... DATA INSIGHTS

The data doesn’t lie! So when our data-driven judging came up with a dead-tie, we had to accept it. These two companies both excel (without Excel) at extracting and crunching the information that businesses need to stay ahead. Freedompay turns electronic transactions over its own commerce platform into priceless analytics for clients; SmartStream‘s sweetspot is giving actionable insights in post-trade operations.

FF AWARDS 2023 WINNERS IN... BANK BUILDERS

FF AWARDS 2023 WINNERS IN... CONSUMER BANKING

One of the grandaddies of the industry, G+D has been touching the lives of consumers around the world - through cash, card and now digital banking – for 170 years. They don’t know it, of course, but the company’s succession of groundbreaking solutions has routinely set the bar for a great customer experience, delivered by high street banks and mobile-only operators alike. It might be a grandad, but it’s a super-cool one!

FF AWARDS 2023 WINNERS IN... PARTNERSHIPS

In March 2023, UK-based ethical lender Plend partnered with GoCardless to provide variable recurring payments (VRPs) via the payment fintech’s Instant Bank Pay feature. Since then, Plend customers have been able to use these open banking-powered VRPs to easily make changes to their payments schedules and take advantage of payment holidays and interest rate freezes to suit their circumstances. This partnership has also seen a significant reduction of manual tasks for the operations team.

What can we say? These guys have been in the business of building banks for years. But they are moving with the times. Check out our features on page 12 and 20 to see how with SaaS.

TheFintechMagazine | Issue 30

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TAEZCI NHE TRANSFORMATION: COMPONENTISATION IN F G A M

REBUILDING BANKS... IT’S A TEAM EFFORT!

‘Componentisation’, sometimes known as composable banking, has emerged as the alternative to ‘big bang transformation’. By its very nature, it demands compatible solutions, underpinned by strong vendor partnerships, such as that between Temenos, Capgemini and MongoDB We asked Joerg Schmuecker, director of industry solutions at document database MongoDB, Mark Ashton, senior director at banking IT solutions provider Capgemini Financial Services, and Paul Carr, global head of partner ecosystems at banking-as-a-service giant Temenos, to explain the concept and implementation of ‘componentisation’ and how it shapes their partnership. THE FINTECH MAGAZINE: What is componentisation and why are banks interested in it? PAUL CARR: Componentisation is all about breaking down big, monolithic systems into smaller, manageable chunks that are easier to install, implement, run and upgrade. This is especially important with the regulatory requirements we’re seeing around databases, enabling us to have faster, more easy and cost-effective access to data securely, without having to change entire banking systems. MARK ASHTON: From a business perspective, the need to access data that’s spread across their organisation in real time is one of the most significant drivers of componentisation among banks. The arrival of nimble fintechs which can access data quickly, has led larger organisations to re-evaluate how they can compete using new agile, more iterative approaches, which break complex information down into simpler elements. For legacy-based organisations, accessing

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data requires so much navigation and understanding, and regulatory and compliance challenges make it hard to unlock the value within it. Looking at it from a technology perspective, to transform legacy systems you have to decompose them, extract and componentise things to provide the necessary access and reinvigorate established systems. Then there are the architecture and the ecosystems that support all that. The challenges are causing a lot of organisations to rethink their architecture, like payment systems that don’t meet modern requirements. Componentisation is one way of changing those building blocks.

The need to access data that’s spread across their organisation in real time is one of the most significant drivers of componentisation among banks Mark Ashton, Capgemini Financial Services

In terms of potential benefits, financial institutions are becoming data owners and brokers for their customers, with onboarding a classic example. Historically, a customer might see a product like a loan advertised online, but taking one out meant having paperwork sent out for them to sign and return and getting documents reviewed.

Fintechs can tell them within 30 seconds if they might be eligible and, if they choose to complete the journey, give them an answer in less than two minutes, all driven by integrating their data with that of other organisations, including credit reference and fraud prevention agencies. Componentisation can help incumbents ensure they also have the right data at the right point of need. JOERG SCHMUECKER: The most important thing to banks that have been around for 30 or 40 years, is their ecosystem of customer data, secured and collated over that time. Bigger, older banks, are very conservative in their approach, so asking them to go big bang and convert everything in one hit is never going to happen. Componentisation, especially with data and databases, enables them to go to the next level of banking solutions without having to build everything in-house and, where you do, being able to switch to another provider’s better implementation of the same thing. For instance, I might have a payment system at my bank that isn’t SEPA Instant payment compliant. I need a component that I can plug into my platform to make me compliant as quickly as possible. If I have everything handcrafted, that might be very difficult but componentisation makes putting stuff into the right boxes easy, and allows you to change those boxes. ffnews.com

Those boxes also need to be able to share data in an easy format, you need to ship the data around. That’s where componentisation and data touch together, because shared state is the hardest part in software development. Temenos is our customer and partner, and it recently announced that MongoDB will be underpinning its Transact platform. In 2022, Temenos built its platform on Amazon Web Services and ran its high-water mark benchmark with MongoDB, with a now-obsolete database behind it. Now it can do the same on Azure, by simply changing the components underpinning its infrastructure. That’s an example of a componentisation well done. TFM: How has the changing nature and volume of data driven the case for componentisation? JS: We used to build systems around disk spaces; now, we are building them around use cases, enabled through better storage platforms, with better development technologies and Cloud providers that can run things in a much more scalable way.

When we talk about data, most people think about hard disks spinning. These things used to be incredibly expensive, but now our phones probably have way more space on them than all the disks in the world had in the 1980s. Because we’ve transitioned to the point where this space is free, it changes the way we handle data. We don’t care about storing redundant information anymore because it’s not expensive, whereas we used to have to save bytes through steps like only referencing years as two digits, not four. That was the situation we came from, and that’s most of the relational database management systems we are dealing with – and a lot of the mindset behind them, too. With document databases like MongoDB and others, because you have a

humongous amount of data space available to you, you can aggregate and bring it together on demand, and slice and dice it as needed for the consumer. So, if I pay a hotel bill via a wire transfer in Italy and then, two days later, go to Italy and want to pay with my credit card, I don’t expect my bank to flag that as a

We used to build systems around disk spaces, now, we are building them around use cases, enabled through better storage platforms and Cloud providers Joerg Schmuecker, MongoDB

potentially fraudulent transaction. It should know I paid the hotel and I’m very likely in Italy, so should take the view that it’s a low risk, especially if I’m only buying an ice cream for €3.50. This is what the fintechs have been brilliant at: they have a small domain, a single bucket [of data] and therefore a great overview.

Creating a better picture: Breaking down systems into more manageable blocks is transforming data management

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TAEZCI NHE TRANSFORMATION: COMPONENTISATION IN F G A M TFM: What are the first steps for organisations thinking of embarking on a componentisation journey? PC: Banks must have realistic expectations rather than thinking ‘you’re going to transform my entire business in six months if I implement this strategy’. Going from a monolithic, 30-year-old system, to a brand new, composable, componentised solution within six months, doesn’t happen, alas. This is one of the reasons why our deployment strategy at Temenos involves engaging with partners like Capgemini early on when we start talking to banks, because we don’t know all of our competitors’ offerings, software, etc, whereas our partners do. It’s about understanding what the bank wants to achieve. Does it want to modernise, does it have an old system and wants to keep the same as it has today but on a new platform, or is it looking to do something different? Lots of banks are looking at banking-as-a-service – not just to satisfy their customers with financial products, but also to consider selling their banking platform to other companies. So it’s understanding where banks are today, where they want to be and how we can get them there, then making sure we’re partnering with the right companies, like Capgemini, like Mongo, to offer a solution. TFM: How can organisations get ‘componentisation-ready’? JS: Being clear on how becoming more data-driven can benefit their business – that’s a good starting point, because otherwise they end up with big data lakes that people just pipe information into, hoping they will be able to make sense of it afterwards. It’s easy and cheap to collect large amounts of data, but making sense of it gets expensive. Once clear what they want to achieve, they can define their data architecture, which might mean having low-latency streaming platforms as with electronic trading platforms. Then, even if their technology is clunky and fragmented, they can use something very low latency to bind their components together. MA: There’s a lot of hype out there, in terms of what generative AI can do. Data underpins AI and the security and guardrails around it will certainly drive

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some interesting conversations. I’m optimistic that it will have value as a tool and help with efficiencies. But it’s not going to be a universal panacea. Meanwhile, the use of data platforms is becoming almost mandatory in this componentised world, with lots of federated data to manage, monitor, track and keep as the core building blocks for any modern architecture. Almost all our banking customers, unless they’re a fintech, are looking at modernising and moving away from legacy systems for their core banking platforms, opening conversations around a modern architecture that leverages technologies like Temenos, AWS and Azure. It also raises questions like ‘how do we define data modelling and ownership when integrating and sharing data with third parties?’. Even with something as simple as an address, we need to ensure information we share is consistent within our own and third-party environments, for seamless integration.

Componentisation is the future but how we, as vendors, align is key to its success Paul Carr, Temenos

TFM: Banking is a highly regulated industry and banks might be concerned that componentisation introduces risks. How can that be avoided? PC: We work with the Securities and Exchange Commission in the US, with the General Data Protection Regulation in the UK, and multiple other regulatory requirements to create our ‘Country Model Bank’. This sits above our product, satisfying country regulations. We would love it if a bank took our entire platform, from digital front end to core banking, financial crime and wealth management, taking care of the regulatory requirements across everything. But we know that doesn’t happen in the real world, so we need to make sure that if we’re satisfying regulatory requirements in one part of the component, other vendors who are fulfilling the others are doing the same. If we’re going to have

multiple solutions componentised into smaller chunks, we have to think about how we ensure the regulatory requirements span all of them. There are certain things you must start with for componentisation – a platform and a baseline. Whether that’s a Cloud or on-prem infrastructure, everything needs to fit across the components you’re going to use. We need to look at the basics first, and plan, plan, plan before implementing. Regulatory requirements, data sharing and data availability requirements, etc – if you don’t have that basic foundation the rest becomes impossible to manage, upgrade, implement or deploy. Componentisation is the future but how we, as vendors, align is key to its success. It really speaks to a partnership model because no one institution can cover everything, particularly with different data reporting standards and geographies. For me, the key is having simplicity across the platform and all working together towards the same outcome. TFM: How can componentisation support an alternative business model for legacy institutions? PC: All our 3,500 customers are considering how they can generate more business and opportunity than just with current accounts, loans, mortgages, etc. With increasing competition, banks must be agile in offering new services to keep their existing customers and tempt new ones in. Changing their entire banking solution to enable that is not feasible, but componentising it to be able to offer a new loan or loyalty scheme, is. Componentisation is a real enabler for selling their services, not just to customers but to other businesses, almost becoming fintechs themselves. It’s going to be a very exciting ecosystem, with greater competition, where customers have lots of banks from which to choose the one that offers something they are particularly looking for. BaaS and SaaS, supported by componentisation, will bring this revolutionary change to a system that’s been around for three or four hundred years. ffnews.com

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TRANSFORMATION: PRICING

THE BANK OF 20XX

FINT

CH M A G AE ZINE

Whatever the shape of banks to come, they need to know their strategic choices are paying off – at a granular level. That’s what SunTec can tell them, as Madhur Jain and Amit Dua explain “If somebody tells me that, in eight years, banking is going to look ‘like this’, I think they are making fools of everyone, because nobody knows exactly how technology will drive change.”

Wise words from Madhur Jain, global head of SaaS and Solution Consulting for SunTec Business Solutions, whose view is that banks, nevertheless, are at a pivotal point of change. They can choose to be commoditised, and probably eventually disenfranchised, by more nimble fintech players with modern systems and the capability to better meet their customers’ changing needs. Or they can embrace a strategy of co-opetition by bolting on fintech offerings to build loyalty and wallet share with existing customers, and attract more like them, while also developing a banking-as-a-service income stream. Some bigger players have already fully embraced the latter, because, while banks in general are on sound footing now, they know their revenue models are likely to be sorely tested in the near to medium term. As Deloitte’s 2024 Capital and Markets Outlook puts it, they’ll need to demonstrate ‘conviction and agility’ to thrive. ffnews.com

As a relationshipbased pricing and billing specialist, SunTec Business Solutions is concerned with making this new-look model stack up financially for a bank. Using its proprietary approach to value-centred customisation, the company aims to help banks achieve the sweet spot of satisfying individual consumer requirements and doing so profitably, even as the technology landscape around them changes.

Providers talk about being ‘customer first’ but most banks’ business models are far more productor internal-first Madhur Jain

The company doesn’t make itself a hostage to fortune by spelling out exactly how that will change the shape of banking or when it will happen. But what it can say for certain is that ‘The Bank of 20XX’ is a different kind of beast. SunTec‘s customer-first approach is predicated on ‘exchange of value’ in the

supply chain, helping providers to both please their customers – retail and business – and transform that satisfaction into cold, hard cash. Its technology helps clients to create ‘segments of one’, based on deep knowledge of the customer and, effectively, create a supermarket for all that customer’s needs, not just their financial ones. That requires commitment to becoming ‘lifestyle partners’ and a complete reorganisation around the customer’s unique requirements. So, how do they drive greater value out of every single relationship in this way? Overcoming legacy systems’ constraints, adopting cutting-edge technologies like AI, and fostering a data-driven culture are the stepping stones to success, says Jain. “Banking is moving far more towards what a customer’s life cycle events are, and, to be successful in that world, providers need the ability to work around new technology and platforms to deliver what’s important to customers with agility and flexibility. “Providers talk about being ‘customer first’ but most banks’ business models are far more product-or internal first. Issue 30 | TheFintechMagazine

TAEZCI NHE TRANSFORMATION: PRICING IN F G A M “We manage and measure how value is exchanged across complex value chains, between providers and consumer, bearing in mind these roles can change at different points, by keeping the customer or stakeholder always at the heart.”

A SHARE IN THE VALUE CHAIN SunTec’s philosophy is that every player in the chain needs to be adequately rewarded for their contribution if the ecosystem is to flourish and achieve a frictionless experience for the customer, resulting in deeper, stronger, more rewarding relationships for the bank. One example of how relationship-based pricing helps banks make money from more customer-centric strategies is carbon-neutral banking. SunTec provides the technology for banks to offer products both direct to customers and as a BaaS option, allowing participants to both contribute to climate change mitigation efforts and generate additional revenue by maximising value in the product chain. Much of SunTec’s recent work stemmed from demand created during the pandemic. Amit Dua, president of SunTec Business Solutions, based in London, explains: “A number of the banks we have helped found their customers asking for better transparency and control as the pandemic made them more aware of their financial situations. So we used our technology to help banks offer a more holistic view when a customer logs in, showing which products and services they are already subscribed to and their eligibility for others. If they pick and drop other products into their existing relationship with the bank, like an Amazon basket experience, we show them how that affects their current pricing. “If they have a savings account, for example, and are scouring for a mortgage product, and the bank offers them a better price by assimilating the whole thing, they are likely to stop looking elsewhere and so the bank wins by increasing the size of the wallet.” HSBC and Bank of America are among a number of bigger players that have recognised the value in building products around their customers. Allison Shonerd, Bank of America’s head of global digital disbursements, says: “The pace of change makes this a really exciting time and the key for us is staying very

TheFintechMagazine | Issue 30

grounded in our clients, their needs and what they require from us, having them inform our way forward. “We really enjoy being able to test and explore new proof of concept ideas, and many of the solutions I manage were born that way, like our use of Interac in Canada and our recently-launched hook-up with Venmo in the US, to leverage digital wallets that customers use in their everyday lives – all born from the voices of our client and experimentation we kicked off in response.” The bank’s Global Digital Disbursements, its new alias request-to-pay business-to-consumer solution over the Canadian payment rail Interac, enables customers to choose how they want to be paid. It was launched earlier this year and is available through the bank’s CashPro platform. It allows B2C payments and C2B collections to be processed using an email address or phone number as an identifier – offering more speed, flexibility and transparency for companies wanting to

Businesses don’t have the core competency to build for everything. Therefore most industries are transitioning to horizontal integration

Amit Dua

provide an alternative to cash or cheque payments and manage their payment and receipt flows. As one of the world’s biggest international banks, HSBC is hyper-conscious of the growing competition for its cross-border business account holders, so it’s come up with a way of cementing loyalty and preventing a drift to other providers as they grow. Nadya Hijazi, HSBC’s global head of wholesale digital channels, says: “Because we are an international bank, we’ve been looking at how we help our customers be what we call ‘confidently international’. “For small or medium-sized business customers, starting to trade internationally and working with companies in countries like Vietnam, China and Egypt, can be quite daunting. So we want to make international account opening easier, as the start of the journey towards getting your business up and running and being able to receive cash and pay people.

“We’ve recently gone live with a digitised international onboarding experience across 20 countries, allowing customers to open an account in one of those through a digital front end, which we prepopulate with as much information as we can to make it easier for them, and using e-signatures. “We’ve seen an immediate impact with 500 applications since September and a 50 per cent increase in our net promoter score.”

BANKING ON BaaS HSBC is an example of a bank that’s also developing a banking-as-a-service revenue stream. It’s been collaborating with major Cloud enterprise resource planning system provider, Oracle NetSuite, to facilitate international payments and expense management services through its SuiteBanking solution. This allows NetSuite customers to automate accounts payable, accounts receivable and reconciliation processes, to pay bills, send invoices, get paid and maintain full cash flow visibility within one system. HSBC has indicated that it has plans to broaden its BaaS offering with more solutions, including HSBC Global Wallet, a multi-currency digital wallet for making and receiving international payments like a local. Ultimately, SunTec believes that providing end-customers with what they want and need necessitates close partnership between banks, techs and BaaS providers in a complementary ecosystem. Amit Dua adds: “Gone are the days when industries were organised vertically and if you manufactured a product you would take it all the way to distribution. That’s not expected now and businesses don’t have the core competency to build for everything. Therefore most industries are transitioning to horizontal integration.” Indeed, according to a recent survey of 1,000 businesses in the UK and Benelux region, half (51 per cent) of non-banking businesses believe banking as a service (BaaS) will eventually replace traditional banking, with 56 per cent citing the cost-of-living crisis as hastening this shift as consumers look for alternatives among non-financial brands for products like credit, loans, foreign exchange, buy now, pay later and even credit card. That may or may not mean that banks relinquish their relationship with the customer. As Jain says, predicting the future is a fool’s game. ffnews.com

TAEZCI NHE TRANSFORMATION: SOFTWARE-AS-A-SERVICE IN F G A M

To Infi nit y

Temenos has built up an in-depth understanding of core banking systems over many years, which is why it believes Cloud-based, software-as-a-service is now the future Recent data from the American Bankers Association reveals at least 90 per cent of banks maintain some data, applications or operation in the Cloud, while a 2022 Accenture survey revealed banks had already nearly doubled the percentage of workloads they hosted there – and when it came to core functions, more than doubled them. Parallel to banks’ journey to the Cloud has been the rise of software-as-a-service (SaaS), with banks enticed by the prospect of running on a single, Cloud-hosted SaaS licence subscription, coupled with other benefits, such as built-in security and compliance controls. One prominent SaaS provider is Swiss multinational Temenos, which works with

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partners including digital engineering company Nagarro. These partners deal with the people at the sharp end – those who have to make systems work inside a bank, day-in-day-out, and have an intimate knowledge of both the business and the software. Using the ‘building blocks’ of SaaS provided by Temenos allows Nagarro to construct bespoke solutions around those clients. In this Q&A, Holger Lehmann, VP of Infinity for Temenos, Stéphane Meslet, commercial product director for Cloud SaaS, at Temenos, and Surya Vedula, VP of delivery at Nagarro, discuss the virtues of SaaS, its adoption, its challenges and where it will go next. THE FINTECH MAGAZINE: How does Temenos work with partners to bring SaaS to finance giants via its digital banking platform Infinity? HOLGER LEHMANN: Temenos Infinity is the digital banking platform of the Temenos banking solution and it has three layers. The first is a set of micro-services and back-office tools. The micro-services are in

and be

d n yo

place to provide data aggregation from various connected banking back-office systems, as well as adding additional capability that we need in the digital landscape. The second is an API layer, which provides business-orientated services that are consumed by the third layer – which is end customer applications. We’re talking about SaaS on one side but customer-specific and more bespoke solutions on the other. So the first two layers, the APIs, the micro-services and the tools, are standardised but configurable, to provide an optimised SaaS service. With the third layer, the end customer applications, we see an increasing demand for banks to be unique. In this layer, they can differentiate from the competition and provide a bespoke user experience, hence we deliver the applications in the shape of microapps that are taken as an accelerator by an implementation partner, such as Nagarro, to shape a customised, optimised, unique, outstanding user experience. TFM: As a Temenos delivery partner, what is Nagarro’s role in helping banks leverage SaaS? ffnews.com

SURYA VEDULA: Nagarro works with various banks and financial services companies and in doing so we see various use cases. The challenge is not integrating the applications, but the deeper understanding of what else is on the infrastructure inside the bank, what it is that they want to do with it, and how do they want to connect with Infinity; understand the data that comes in, and the data that goes out? We are able to bring consulting experience and suggestions. And, as we build and make these recommendations, we work with Temenos to make sure it’s going to provide the customer with what they want, and progress towards a solution, using the building blocks that Infinity provides. TFM: Can you give examples of SaaS initiatives that Temenos and Nagarro have collaborated on? SV: We work with a large bank in Myanmar, where a retail application had to be built out and a compelling customer experience was needed.

With microapps – accelerators – our partners can shape a customised, optimised, unique, outstanding user experience for the bank Holger Lehmann, Temenos

Using Infinity and other Temenos tools, we were able to do this for them. It provided the flexibility that the customer wants, in terms of the UX, and it was fairly easy to make the customisations needed in how the bank wanted to appear to the customers. We have satisfied customers, and they, in turn, have satisfied customers, which is probably more important. HL: We also have a joint customer in Vietnam, where we are currently in the middle of an implementation project that is turning out to be very successful. Nagarro is providing the expertise, taking the microapps and shaping them into the bank’s vision of its digital platform. Having an implementation partner at ffnews.com

hand like Nagarro, that delivers to the expectations of the bank – based on the software that provides the prerequisites for that – is key in that business. TFM: What do you see as the main challenges presented to banks by digital transformation? STÉPHANE MESLET: The first question banks need to answer in their digital transformation is ‘how do I have a holistic, 360-degree view of my customer?’ – especially if you don’t meet them face to face, and you’ve got milliseconds to give an offer, or price, or whatever it is, online or over the phone. The answer is to leverage the data. Not only do you have to leverage the data that you own as a bank, but you also have to leverage open banking, open finance data – those are great opportunities and key success factors. Leveraging the data is just the start, though. You need to convert that into analytics. And you don’t want to have just static, descriptive analytics. You need dynamic, or advanced analytics, where you can more than describe – you can

The challenge is the deeper understanding of what else they have on the infrastructure inside the bank, what it is that they want to do with it and how they want to connect to Infinity Surya Vedula, Nagarro

prescribe and be proactive in your offering. Basically, like Amazon, you need to anticipate your customer’s needs because, if you don’t, your competitor is going to. In order to have those advanced analytics, you need to put in place whole ecosystems and platforms, such as Infinity. On top of that, you need to add some explainable analytics, based on AI and machine learning. One reason is to better understand your customer, but the other is to make sure you remain compliant. A key challenge is how you onboard the knowledge and the skills internally to do that; how do you recruit those people, the

data scientists who are going to convert this data into advanced analytics, and build those really sophisticated algorithms and models? Another key challenge I see with the customers we have, is how they should close the gap between data science and the business, because the data scientists have to understand the business and its needs in order to leverage this sophisticated model and put it into production very swiftly. TFM: How is the SaaS industry evolving? SM: I think banks have taken on board the fact that they should move to the Cloud and that, basically, developing applications internally is definitely legacy. As a bank, you don’t have time to keep up with the pace of technology and security. You have to have agility and scalability in mind. You want to attack ‘this’ market today – not tomorrow – and maybe in a few months from now, this market is no longer available and you need to target another. For that, you must have a best-of-breed

Banks have taken on board the fact that they should move to the Cloud and that developing applications internally is definitely legacy Stéphane Meslet, Temenos

approach, where you can pick and choose those providers, and get rid of those apps that you don’t need – in exactly the same way as you would on your phone. You don’t use this COVID application anymore, so you get rid of it and you bring a new one in. Banks will have to have this same agility and flexibility and, if you don’t have the infrastructure in place to meet this bandwidth, can you imagine how much opportunity and revenue you are going to be missing? You need the right partner for SaaS with a state-of-the-art application. Temenos is one of those partners. We’ve been on the market for many years, we know what we are doing, we have the technology and it’s best-of-breed. Issue 30 | TheFintechMagazine

TAEZCI NHE FINTECH FOCUS: E-COMMERCE IN F G A M

Time to make hard Kasssh work better Chair of the Payment Choice Alliance, Ron Delnevo, wonders why so few UK fintechs are interested in finding ways to include cash in e-com At the very first public meeting arranged by the UK’s Payment Systems Regulator, nearly 10 years ago, a partner at the payment technology company Accenture made a presentation during which he noted, in a shocked voice, that he had just discovered there was even innovation in the cash industry. His ignorance was understandable because, whilst cash innovation is definitely available, it is constantly being suppressed in markets where the banking industry is pushing society towards its nirvana of ‘cashless’. The UK is, of course, a prime example of this suppression. ATMs, which deliver more than 90 per cent of the cash used by the British public, do little else. Around the planet, a myriad of different services are offered at ATMs – but not in the UK. Why? That’s simple to answer. The high street banks don’t want ATMs to do much more than they did when first launched 50 years ago, because the more they do, the more useful they would become and the more resistance there would be to the machines being removed – which the banks have wanted to do for a mere 20 years or so. The culmination of this push to shuffle ATMs – and cash – through a door marked ’exit’ can be found in the shape of the recent HM Treasury Policy Statement on Cash Access.

TheFintechMagazine | Issue 30

This statement, heralded as the saviour of cash, turned out to be quite the opposite: nowhere in this quite lengthy document is there to be found even a single mention of the acronym ’ATM.’ Why? Again, that’s easy to answer. The current Treasury team is working hard to ensure there are no barriers to high street banks removing their ATMs. They hope not mentioning them means that no one can criticise the Treasury when they are gone. When the last high street bank-owned ATM is removed, the Treasury can simply say ‘we never told you that there would be ATMs.’ Some observers believe the only way the UK ATM network will be saved is if the current Treasury team are relegated at the next UK general election. We shall see. Of course, it’s not just in relation to ATMs that cash innovation is being suppressed. Look at the Community Cash Access pilots. Supposedly launched to pilot innovative solutions for the provision of access to cash, none of the genuine innovations trialled have so far made it beyond the pilot stage. Why? Another easy answer. The high street banks don’t really want to support cash innovation – a bit of window dressing is fine, so long as that exit door for cash looms larger every year. And yet innovative solutions keep coming, undaunted by the resolute resistance from the UK banks and

their collaborators, the international card schemes. Take internet shopping. In the UK, the public has been told that cards are basically the only way to shop online, despite the fact that in many other countries, Cash On Delivery was the norm when internet retailing moved beyond pornography. Now, at last, the British public is being offered a genuine alternative to card and digital online payments. Step forward Kasssh.

KEEPING CASH ON THE TABLE Kasssh is a B2B2C company, which means it works with e-commerce retailers and their customers. Kasssh knows that a very large number of people around the world prefer to use and/or can only use cash. It is, of course, impossible to use physical cash to pay online, so Kasssh decided to give cash customers an innovative online solution. A customer simply goes online, orders the merchandise they want and then checks out. At that point, instead of having to use a card or a digital payment method, the customer receives a unique barcode for the transaction. They then visit one of the Kasssh partner stores, which in the UK means one of the 28,000 locations offering Pay Point. Here they pay the money they owe against the barcode and that’s it.

ffnews.com

Transaction complete and the e-commerce retailer can commence delivery of the ordered product. The magic of the Kasssh solution is that they use some really smart tech to fully automate the settlement of the payment into the e-commerce sites’ existing payment provider within seconds – so business as usual for them, without any back office process changes. Everyone assumes Kasssh is in the cash business, which one could certainly argue. However, Kasssh sees itself as being in the digital commerce business. Kasssh allows more people to be included in the digital economy, through offering payment choice – and that includes those who prefer to use cash for many different reasons. Kasssh is definitely not just for the unbanked.

There are many people who choose to use cash, even though they have cards and accounts at their disposal.

SERVING AN ENDURING NEED The founder and CEO of Kasssh is Piero Macari, who used to work at Mastercard and was responsible for one of its major product sets across Europe: prepaid and fintech. He used to see a number of really great card-based products in the market that were trying to fulfil this digital need. However, for cash users, these digital products were expensive. They would pay monthly fees, cash loading fees, and also, whenever they used their cards, some money would normally be left over – not great if you live your life using cash as a budgeting tool and need to be careful with your money.

As Macari puts it: “There was a premium for using cash for the consumer, which in my eyes felt wrong – hence the birth of Kasssh.” Started in the UK, Macari wants to take Kasssh around the planet. According to the World Bank, more than 80 per cent of world payments are still made using cash, so there is certainly a market for it. Macari merits huge praise for his creativity and initiative – and for his courage in leaving the safe haven of a company like Mastercard to set up his own business at the age of 43. The fact that his business offers a service so obviously supporting the public interest warrants even higher praise. Kasssh deserves to succeed, supporting as it does the success of cash itself, a success story that has lasted 2,500 years and shows no signs of being anywhere close to a final chapter – despite what some would have us believe.

KASSSH ALLOWS MORE PEOPLE TO BE INCLUDED IN THE DIGITAL ECONOMY, THROUGH OFFERING PAYMENT CHOICE Issue 30 | TheFintechMagazine

TAEZCI NHE PAYMENTS: SMEs IN F G A M

THE BIG BANK JUGGLING ACT

Mobile, cash, CBDCs… The UK’s ‘Big Four’ must maintain a payments infrastructure that straddles old and new worlds. NatWest is particularly focussed on maximising choices for SMEs. Mark Brant, NatWest’s Chief Payments Officer, explains how The UK’s high street banks find themselves between the proverbial rock and a hard place. At one end of the spectrum, they are having to continually devise ever more sophisticated ways of enabling their customers to bank digitally in the face of white-hot competition from their neo payment provider rivals. At the other end, they face being fined by the UK’s regulator, the Financial Conduct Authority (FCA), from summer 2024, if their rolling programmes of branch closures reduce free-to-use access to cash from today’s levels. Currently, 95 per cent of the population lives within a mile of being able to access cash and more than 99 per cent lives within three miles. For context, the number of bank and building society branches in the UK fell by about 34 per cent between 2012 and 2021, according to the Office of National Statistics. A briefing paper for the Financial Services and Markets Act 2023, which will give the FCA the power to fine banks that fail to maintain adequate access to cash, notes that cash was used in only 14 per cent of recorded payments in the UK in 2022. But it also points out that more than three million adults still use it as their predominant means of transacting, a group that includes the digitally excluded, as well as older people, individuals in poor health, those with poor financial resilience and/or lower financial capability. Further FCA research has shown that while small businesses have seen the level of cash payments fall by 15 per cent since the pandemic, cash remains the preferred payment method for small transactions

TheFintechMagazine | Issue 30

– with almost 40 per cent of people telling UK Finance in 2022 that they use cash to pay for something at least once a week, and 11 per cent preferring to use it. Interestingly, 16 to 24-year-olds used cash almost as regularly as the 45-54 age group. From a bank’s perspective handling cash is logistically expensive and most set handling charges to offset the cost. NatWest charges its business customers 70p per £100, plus a 70p fee per item. But Mark Brant, who as NatWest’s chief payments officer is in charge of what he describes as a ‘broad church’ of payment topics, all the way from open banking and APIs to cash, insists that the latter will continue to play a central role in the bank’s overall business strategy. He recognises that cash is key to the bank living up to one of its main roles of promoting financial inclusivity. “Cash is really important for small businesses and sole traders; cash is really important for a segment of the population who aren’t ready, or able to fully participate in mobile experiences,” he says. “It’s very easy for some of us – I’m carrying two mobile devices and an iPad, for example. But I have examples in my own family where access to cash is important. One has early-onset dementia and cash is really important for enabling her to be included in society. If everything was digital, she would be completely marginalised. “At NatWest, we invest a huge amount in ensuring access to cash, participating in the Access To Cash programme and Banking Hubs. We’ve a real responsibility to ensure that cash is enabled in a sustainable way across society.”

A CONTACTLESS REVOLUTION However, there is no denying the dash from cash, which was accelerated by lockdown measures introduced during the COVID-19 pandemic. The use of cashless payments in the UK has almost doubled in the past decade. By March 2023, for instance, contactless payments alone accounted for 61 per cent of all credit card payments and 75 per cent of all debit card transactions. It has meant that NatWest has had to develop the digital tools its small business customers need to stay competitive. In 2019, it started Tyl, a payments service and management portal, which enables businesses to track sales and payments, and even create customer loyalty offers. As a merchant acquiring business, Tyl is part of a much wider SME payments strategy at the bank, which includes its digital-only small business neobank, Mettle, and its open banking merchant payments service, Payit. Payit, started in the summer of 2020, enables businesses to send and receive payments without the need for bank or card details, streamlining the process and greatly reducing admin time. By August 2022, Payit had reached the milestone of processing £1billion of payments with an average value of £200 and has since swept up a plethora of awards. For Brant, innovations like Tyl and Payit will be further enhanced with the added data and greater visibility contained in the soon-to-be universally adopted ISO 20022 global payments messaging standard. “At NatWest, we’ve been working hard for many years now, to make sure that

we can meet the deadlines for ISO, and we’re constantly ffnews.com

looking for benefits from it, as well,” he says. “I think those benefit cases will come, over a prolonged period of time. Data, and the enhanced data that will come with it, should enable payments to flow straight through without being interrupted, and that’s what our customers expect.” Further emphasising that need for payment systems to be both flexible and transparent, Brant adds: “Our customers want payments to be safe, simple, and secure. They want to be able to initiate them from any device, at any time of day, and they want to have visibility of them. “If I take the example of some of the delivery experiences that we’ve got at the moment in the UK – the Ubers, or the Deliveroos, the Just Eats – can you imagine how frustrated you’d be if you didn’t know where your pizza or kebab was? Something similar to that traceability needs to be applied

SOME WOULD ARGUE THAT THE WORLD IS MOVING FURTHER APART, NOT CLOSER TOGETHER, WHILE IN THE PAYMENTS INDUSTRY, THAT IS PRECISELY WHAT WE’RE DOING ffnews.com

to the payments industry. And ISO 20022 and the evolution of APIs, mean that both NatWest and our partners can develop experiences that give our customers that much greater visibility of where their payments are.” As evidenced by NatWest’s continual development of its Tyl and Payit services, with recent enhancements such as the Tap to Pay smartphone app for Tyl and a payment link feature for Payit, Brant sees an increasing shift happening in payments from electronic to digital for SMEs. “Customers of different shapes and sizes have different needs for different propositions, and both NatWest and our partners have been developing those different propositions – and, of course, our competitors have been as well! “Tyl is a great example of the evolution of card acceptance. With Payit, and the ability to generate a payment link that initiates an open banking transaction, it means that you can request money from me now, and instantly I can send it to you.

“So, the movement of money, from being electronic to digital, is the next wave, and that will enable a whole host of other things because digital money is programmable and it is instant.”

A CONTACTLESS REVOLUTION The ultimate goal for some is a digital currency to replace fiat. There’s still much debate around whether the Bank of England will issue its own ‘Britcoin’, as it’s been dubbed, with a decision expected to be taken in 2025. The Bank has been keen to stress that any digital currency would work alongside cash, which it’s said will be issued ‘for as long as the public want it.’ While Brant believes cash has a proven utility as a means of transacting, he urges caution when it comes to going down the path of a central bank digital currency. “I think we need to take sensible steps forward, as a country, as an industry, as a world,” he says. “We need to make sure we’re not doing something just for the sake of doing it.” That said, he believes the various geopolitical crises in the world could very well influence how the payments sector develops in the next few years. And, in his view, that means there's a stronger case than ever for co-operation and standardisation across the industry. “Some would argue that the world is moving further apart, not closer together, while in the payments industry, that’s precisely what we’re doing – looking to make things simpler,” he says. He highlights the global adoption of ISO 20022 as a good example of that. “I’d like to think that there will be a list of benefits that come out of ISO, because the industry has made a huge investment in it,” he says. “The benefit case has to follow and we all need to work together on it as payments is a network business – there are always at least two sides to it,” he says. “All parties have to collaborate in an appropriate way, to get the benefits from ISO. In five years’ time, I’d like us all to be able to point to a list and say ‘look, these are all the benefits that we’ve got. If we hadn’t made this huge effort with ISO, these are the things which wouldn’t have been possible’.”

Issue 30 | TheFintechMagazine

TAEZCI NHE PAYMENTS: OPEN FINANCE IN F G A M

Threatsand opportunities CBI and its CCO Pilar Fragalà detail how it has developed innovative platforms and aggregated numerous actors to enhance security and promote success Since the EU announced its digital finance strategy and a proposal for open finance, market players have been adopting new strategies and business models to stay ahead of competition. Digitisation is reshaping the financial market, including changes in demand and supply for financial products and services. Clearly, COVID-19 was an accelerator for this enormous shift, pushing not only financial institutions to increase their investments in innovative technologies and digital payments but also prompting regulators to develop frameworks to strengthen security and transparency. New providers, enabled by technology, have entered the market, in particular providing open banking services. Now the European Commission has expanded the changes introduced by the first revised payment Services Directive (PSD2) in the open banking sector by pushing in the direction of open finance. Following a series of public consultations and impact studies, the European Commission published proposals for the Payment Services Directive 3 (PSD3) and the Payment Services Regulation (PSR) to adjust to the rapid developments in the EU electronic payments market. One of the market players supporting this evolution is CBI – a public-limited consortium company, comprising 400 banks and other intermediaries as shareholders – that develops infrastructures, services and ecosystems for the financial and banking industry. CBI supports more than 450 payment

TheFintechMagazine | Issue 30

service providers, and about three million corporates in Italy use CBI standards. More than 11 million citizens have already used its service to pay online bills and public administration payment notices. In 2019, CBI launched CBI Globe, an API-powered platform designed to achieve compliance with PSD2 and facilitate the spread of open finance in Italy and the creation of value-added services aimed at improving the competitiveness of CBI’s clients. The 500 payment service providers (PSPs) that have joined CBI Globe represent 80 per cent of the Italian banking market. Another relevant service, developed by CBI, is Check IBAN. The Check IBAN service is available to all PSPs who wish to offer the service directly to their corporate and retail customers. In this way, PSPs can expand their range of services by taking advantage of the CBI Globe ecosystem to centralise numerous common functions and simplify their implementation. To further expand its role as an industry change facilitator, CBI has developed the Check Iban Cross Border Service. This solution offers a real-time verification and security service to Italian and European customers. It not only minimises risk of fraud through instant verification by matching an IBAN number to VAT code, but also offers a smarter and more efficient international payment services and customer onboarding experience. The Name Check CBI service – a confirmation of payee (CoP) service launched in July – allows verification in real time through the correct association of IBAN code and the name of the

beneficiary, therefore mitigating fraud and payment errors. Payee confirmation provides customers (both individuals and businesses) with greater assurance that payments are sent to the intended recipient. This service will allow the Italian banking industry to meet compliance requirements as mandated by the Instant Payment Regulation. Name Check CBI enhances security in transactions, helps prevent fraudulent or mistaken payments and increases stability and efficiency of the financial sector, whilst enabling the development of innovative products and services. Another versatile authentication service that CBI has developed recently is CBI Safe Trade. This creates a database that collects information on advance invoices from a multi-bank and multi-channel perspective to verify that the invoice has not yet been submitted or presented. Through its commitment to accelerating the transition of banks into true transaction operators, CBI is investing in integrated and sustainable technological innovation and digital skills. One of these is CBI GO. With this solution, PSPs can offer corporate customers a new fast and secure onboarding service for their users, thanks to the use of banking credentials. The CBI-enabled interbank communication allows online feeding via API of the user’s data for registration purposes (e.g. personal data, contact details, bank details, etc) through the use of data collected by their bank in the ffnews.com

To protect and serve: Italy’s CBI are taking steps to minimise fraud in the payments space

know your customer process. There are multiple advantages to using CBI Go: ■ Improves the user experience of customers, corporate and retail, by speeding up and simplifying the onboarding process through recognition with strong authentication (SCA) ■ Enables the transmission of more reliable and secure data, through SCA authentication, that minimises risk of fraud and human error in completing forms ■ Offers a shared dataset with a format that can be adjusted, according to business needs and the implemented use case In all cases, banks and PSPs will benefit from an integrated anti-fraud and fully compliant service that meets European regulatory requirements. It’s a belt-and-braces approach, given the safeguards already built into open banking. CBI will continue to pursue the development of innovative services that improve the user experience of corporate and retail customers, whilst increasingly intermediating the needs of banking players at the European level. This perspective is reinforced in the recent Worldpay from FIS Global Payments Report 2023, which reveals that account-to-account payments constitute approximately 18 per cent of European e-commerce transactions. However, these payments don’t automatically register as valid payment methods at the point of ffnews.com

sale, leading to a concerning number of non-open banking-facilitated payments being either misdirected or hijacked. Within Europe, PSD3 makes it mandatory for PSPs to perform IBAN verification for all SEPA credit transfers, including instant transfers. Although some implementation details remain unclear, the requirement for PSPs to conduct real-time IBAN queries on every transfer poses a significant challenge for those lacking the capacity to execute such checks at scale. “For them, CBI’s utility proves to be an invaluable tool and serves as an example of the ’innovative, collaborative’ approach that CBI envisions as the next evolutionary step for open banking,” says CBI CCO Pilar Fragalà.

Especially in Europe, we need a clear regulatory framework. To be compliant, you need to understand what the regulatory plan is “Through open data, different players from different markets can share more information, allowing them to develop new services. The PSD3 proposal demonstrates that the Commission’s main goal is to promote new services and business models, based on data sharing.

“Especially in Europe, we need a clear regulatory framework. There are a lot of opportunities; as a market player, you have to choose the right one. And in order to be compliant, you need to understand what the regulatory plan is. ”Also, for a collaborative model to succeed, it needs to stimulate members to get involved and be aware of risks, weaknesses, strengths and opportunities. There should be efforts not just to create new use cases, but to also ensure that the organisations will be prepared to deliver those services.” CBI has a strong commitment to accelerating the transition from open banking to open finance by investing in integrated and sustainable technological innovation as well as digital expertise. ”This will contribute to the creation of value-added services from an international perspective and data monetisation,” says Fragalà. ”Thus, CBI’s greatest accomplishment lies not only in the development of innovative platforms and services, but also in its capacity to aggregate various actors in the ecosystem. ”Collaborative innovation brings success if it is supported by the adhesion of the subjects of the ecosystem. The effort needed is not only to create innovative use cases, based on interoperable standards, but also to ensure that these are adopted by a large quantity of subjects, so that the service can be used by the community, benefiting from the advantages of the network economy.” Issue 30 | TheFintechMagazine

TAEZCI NHE PAYMENTS: COMPANY PROFILE IN F G A M

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British money transfer fintech Wise has enjoyed acclaim since it entered the market back in 2011. Steve Naudé explains the development of the company’s B2B Wise Platform and how it is embracing partnerships and diversification at home and abroad In today’s digital world, people are moving around more. A lot more. Whether displaced by conflict or seeking new pastures in the search for economic stability amidst a spiralling cost-of-living crisis, there has been a surge in digital nomads and economic migrants in recent years. This means that whether it’s a migrant worker sharing their pay with family overseas, a small business paying its international suppliers, or a gig worker getting paid internationally, cross-border payments are increasingly important in terms of keeping the global economy moving. According to figures from the World Bank, in 2022 total global remittances rose to $794billion, with the cash inflows accounting for more than 15 per cent of the GDP in 25 low- and middle-income countries. And global remittances are expected to hit more than $810billion in 2023. Simply put, there has never been such a high demand for payments technology that enables fast, secure, and transparent money transfers. “Customer expectations have really shifted in recent years, not just in payments but in many areas,” explains Steve Naudé, global head of Wise Platform at Wise. “If you order food to your home, you want it to be there in 10 minutes. You can get groceries in 10 minutes. So when you then send money internationally, and it takes three or four days, it’s a real disconnect from this kind of now, now, now world

TheFintechMagazine | Issue 30

that we all live in. Speed is a huge part of customer expectations these days.”

THE AWAKENING OF A FINTECH GIANT Against this backdrop, Wise has emerged as one of fintech’s leading lights. Launched in 2011 as TransferWise, and with the mission of making international transfers cheaper and fairer, the company was the brainchild of Estonian businessmen Kristo Käärmann and Taavet Hinrikus. As the story goes, Hinrikus, who was the first employee at Skype, lived in London but got paid in euros. And Käärmann, who worked for Deloitte, also lived in London and got paid in pounds. But he had a mortgage in euros back in Estonia. In the search for a better solution than expensive bank fees and poor exchange rates, they came up with a simple, yet effective workaround. Each month, they checked out the real exchange rate on Reuters. Hinrikus put his euros into Käärmann’s Estonian bank account, and Käärmann topped up Hinrikus’ UK account with his pounds. They both got the currency they needed almost instantly, and neither paid anything extra on bad exchange rates or unreasonable charges. As the company developed from these humble origins, it realised that people needed more than just money transfers. It added a multi-currency account, a debit card, and a business account. In February 2021, it rebranded from TransferWise to Wise ahead of a direct listing on the

London Stock Exchange later that year which saw the fintech valued at $11billion. Today, Wise offers three main products: Wise Account, Wise Business, and Wise Platform. Its multi-currency account is helping around 16 million people and small businesses around the world to manage their money more smartly. But Wise Platform, it’s B2B arm, is perhaps the one to watch most closely. “Wise has spent the last 13 years building some of the best cross-border money movement infrastructure in the world, and we’ve used that for our own products, for our own customers, whether consumers or businesses,” said Naudé. “And what we’ve now realised is that other large companies and banks were coming to us saying, ‘what you’ve built is pretty cool, actually’. “So what Wise Platform does is take this infrastructure and let others build their own products, services, and solutions on it, to take to their customers.”

EXPANSION: HOME AND AWAY Wise says its growth strategy of diversification and innovation is in response to people’s common pain points, and rising competition, in the digital remittance market. Much of its current focus is on partnerships powered by Wise Platform, which the company refers to as ’ Wise – but for banks, large businesses, and other major enterprises.’ This shift into the B2B space is enabling financial institutions to partner with Wise to offer ffnews.com

The need for speed: Wise Platform allows partners to embed a fast way to send, receive and manage money

faster, easier, and more transparent FX products to their customers at a lower cost. In 2022, Wise forged a total of 15 partnerships, claiming it had opened up cheaper and more convenient international payments to almost 10 million people and businesses worldwide. This included a tie-up with financial well-being app, Wagestream, which has strengthened Wise’s impact on how people around the world are paid by their employers. Wise Platform has also deepened the company’s footprint in Asia and North America, expanding in two areas in particular: investments and business services. In June 2023, for example, the company announced its first Wise Platform bank integration in India with IndusInd Bank. Wise is working with the Mumbai-based private lender to provide remittance services from the US and Singapore to India with no hidden fees or exchange rate markups. This is a prudent move, with a Capital Economic study showing that consumers sending money to India paid more than $2.79billion on FX fees in 2020, of which about $1billion was hidden. By making cross-border payments cheaper, Wise can tap into a huge market. For instance, remittance inflows to India will reach $103.88billion this year, according to Insider Intelligence. The real magic behind Wise’s technology is its ability to bypass obstacles. “Although half our payments are instant, some are not, and that’s limited by the infrastructure available in certain markets which maybe don’t yet have instant payment schemes,” explained Naudé. “So we’ve reversed-engineer all the payment schemes around the world, to understand ffnews.com

what cut-offs they have, both at a payment scheme level and at an individual bank level. “How long do we see banks take to credit customers’ money? How long do they take to receive it through the scheme? And when will that transaction actually get posted to the recipient account? “We then run hundreds of our own tests. We get thousands of pieces of customer feedback, to tell us exactly when the money arrives. All of this, we then put together in this pretty awesome model that spits out that one number you see on Wise, which is, ‘your money should arrive… here,’ you know, ‘at 11am tomorrow,‘ yes, in ‘three hours.‘ It’s a very simple number, but the

What we’ve done is reverse-engineer all the payment schemes around the world, to understand what cut-offs they have, both at a payment scheme level and at an individual bank level complexity behind calculating that number is enormous. We’ve had a whole team working on this for years, literally reverse engineering payment schemes and payment flows.” In the UK, meanwhile, Wise is also focussing on making its product suite more

appealing. It now offers customers a 4.12 per cent variable interest rate for pound sterling balances on its instant access accounts. Users can hold multiple currencies and also earn interest on US dollars (4.55 per cent) and euros (2.71 per cent). Wise has partnered with BlackRock for the accounts and charges customers 0.29 per cent fees annually. The fintech’s higher savings rates are helping it to stand out from mainstream lenders offering weak returns in the UK – an environment in which politicians are criticising banks for not passing on higher interest rates.

THE OLD WORLD MEETS NEW Wise’s biggest move this year is the new partnership with Swift that was officially launched at Sibos in Toronto in September. This landmark industry collaboration will help to increase the cross-border payment options for financial institutions and their customers, enabling payments sent securely via Swift to complete seamlessly over Wise with end-to-end transparency. “Banks face huge challenges when it comes to enhancing their international payments, including that this often requires them to embed technology which is incompatible with legacy infrastructure,” said Naudé. Issue 30 | TheFintechMagazine

TAEZCI NHE PAYMENTS: COMPANY PROFILE IN F G A M “By simultaneously leveraging existing payments architecture and optimising payouts using Wise’s network, we empower banks to innovate more effortlessly.” Financial institutions seeking to improve their offering can now route Swift payment messages directly to Wise Platform through its latest Correspondent Services solution. This enables their end customers to benefit from the speed and convenience of Wise, and the breadth and security of Swift, without needing to implement any major changes to their systems. Commenting on the partnership in a statement released at Sibos, Thierry Chilosi, Swift’s Chief Strategy Officer, said: “Swift has built an infrastructure that connects the world that is trusted and relied upon every day. Our collaboration with Wise illustrates how Swift can be the bedrock from which the whole industry can innovate to improve cross-border payments and enhance the options available for customers across the globe.” Both parties have been keen to stress that this collaboration will be just the start of a broader relationship, with the new relationship conceived at a time when increased innovation and fragmentation in

JANUARY 2011

TransferWise is founded by Kristo Käärmann and Taavet Hinrikus

MAY 2013

TransferWise secures a $6million investment round, led by Peter Thiel’s Valar Ventures

2012

The company is named one of ‘East London’s 20 hottest tech start-ups’ by The Guardian and one of ‘five start-ups to watch’ by Wired UK

JUNE 2014

The company raises a further $25million, adding Richard Branson as an investor

The

BUILDING of a GIANT 30

the financial ecosystem is creating more ways for money to move – and more consumer demand for choice. Importantly, it is also directly aligned with both G20 and UN Sustainable Development goals on the speed, transparency, cost, and access of cross-border transactions. Customer experience and wellbeing is at the heart of what Wise is looking to accomplish. “One of the areas of regulation that’s closest to our hearts is how customers see the fees when they send money internationally,” said Naudé. “We’ve been asking for years, and continue to ask, for stricter and tighter regulation around helping customers understand how much it costs them when they send money overseas. One thing we’re really pushing for, and asking regulators to do, is to bring more transparency to the industry, and help everyone work off the same level playing field. Then everyone will be able to have the same point of comparison and the same understanding of what the total cost actually is.” With a laser-sharp understanding of customer paint points, an enviable roster of partners, and a rapidly growing footprint, the future looks bright for one of fintech’s biggest success stories.

TheFintechMagazine | Issue 30

JUNE 2015

Speaking live on BBC Radio 4’s Today programme, Hinrikus announced that Wise users were moving over £500million a month on the platform

MAY 2015

The company is ranked No.8 on CNBC’s 2015 Disrupter 50 list

JUNE 2023

The company announces its first Wise Platform bank integration in India with IndusInd Bank

Founders stories: Kristo Käärmann & Taavet Hinrikus

Selected as one of the World Economic Forum’s Technology Pioneers 2015, Käärmann is still the CEO of Wise.

In May 2023, he announced he was taking a three-month sabbatical to spend time with his family and look after his new-born son, saying that his time off was ‘overdue’. Hinrikus stepped down from his role as chairman and director of Wise in December 2021, and was replaced by David Wells, the former CFO of Netflix. Since leaving Wise, he has been working as a partner at Plural Platform. In 2023, both founders improved their positions in The Sunday Times Rich List of the wealthiest people in the UK. Käärmann was ranked 156th, worth £1.134billion, with Hinrikus ranked 197th with a net worth of £861million.

MAY 2019

TransferWise is valued at $3.5billion after a new investment round, making it Europe’s most valuable financial technology startup

FEBRUARY 2021

The company is rebranded from TransferWise to Wise

JULY 2021

Wise goes public with a direct listing on the London Stock Exchange and is valued at $11billion

2022

Wise Platform launches 15 new partnerships, including Wagestream, Onfolk, and Tiger Brokers

SEPTEMBER 2023

Wise announces a new partnership with Swift at Sibos in Toronto ffnews.com

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PAYMENTS: COMPLIANCE

FINT

CH M A G AE ZINE

Meet the financial crime squad… Radha Suvarna talks through Finastra’s new Compliance-as-a-Service solution, which leverages Fincom and ThetaRay to provide a package of instant payment controls

The instant and irrevocable nature of real-time payments makes them attractive to consumers and merchants alike. But they pose particular challenges for financial services providers when it comes to compliance, , specifically anti-money laundering (AML) and sanctions screening. Their growing impact on the payments system is highlighted by the impending instant payments regulation in Europe, the TARGET Instant Payment Settlement (TIPS) system and, more recently, the FedNow instant payments system in the US. “These payments happen in real time, at high volumes,” explains Radha Suvarna, chief growth and product officer for embedded finance and payment solutions at global fintech company Finastra. “Some of the bigger banks have the bandwidth and the technologies to do that, but most have not equipped their platforms to operate in real time, at high volume, around compliance capabilities.” Finastra enables its clients to get the best of fintech through a range of solutions that cover everything from payments to treasury and capital markets to core banking by leveraging banking-as-a-service (BaaS), which Suvarna describes as ‘taking financial services products where they are manufactured, and connecting them to where they are consumed’. In the case of its latest Compliance-as-a-Service offering, Finastra connects regtechs Fincom, which carries out sanctions screening, and ThetaRay, an AML transaction monitoring provider, to create a pre-packaged product, available over Microsoft Azure. ffnews.com

The benefits, says Suvarna, are multifold. Not only does the package address a major pain point for clients, but it can also improve their bottom line. “The value it brings is in reducing the cost of compliance,” he explains, citing the

Some of the capabilities we have reduce false positives by almost 90 per cent example of a false positive payment flag, where the rules-based logic that a bank uses identifies a recipient as a potential suspect or a prohibited designated entity. “When that happens, someone in the operations department has to do a lot of manual processes to validate it,” says Suvarna. “Some of our capabilities reduce the false positives by almost 90 per cent, so that means fewer staff doing manual processes, which reduces the

Better together: Compliance and fraud solutions are a team effort

cost and also reduces a lot of headaches for the clients, who have to follow through on that. Ultimately, it enhances the customer experience,” he adds. Finastra doesn’t claim to have all the answers to every problem but the point is, it works with the ecosystem to find them, constantly evaluating the market to source, onboard and collaborate with the best fintechs and their respective capabilities to build solutions to its clients’ challenges. It also continues to co-create and collaborate with its clients to broaden its range of fintech solutions. Suvarna believes that AI and machine learning will play an increasingly important role in that. For example, ThetaRay uses AI to identify suspicious transactions; NICE Actimize, another Finastra partner which is already pre-integrated with its corporate payments, cash management and retail banking solutions, leverages AI to identify fraudulent transactions. And that’s exciting, he says, because most anti-fincrime and compliance models are only as good as the historic data that is fed into them. “There is potential for using generative AI to mimic and create fraudulent transactions, so they can constantly learn and improve, versus waiting for the fraud to happen, and collecting data over a number of years,” says Suvarna. “We’re leveraging AI/ML to improve our efficiency, how we develop code, how we identify defects in our code, etc. We’ve just started to unpack those internal use cases, as well as client-facing ones, but there‘s a lot of potential.” In all this, collaboration is key. As Suvarna explains: “For us, this is a journey – of not trying to build everything ourselves, but rather work with the partners who are best-in-class to bring value to our clients.” Issue 30 | TheFintechMagazine

TAEZCI NHE PAYMENTS: INSTANT PAYMENTS IN F G A M

TIMEISMONEY As FedNow drives an instant payments revolution in the United States. Chetan Cariappa, North American Account Manager at Volante Technologies, assesses the impact In a ground-breaking development that could reshape the landscape of financial transactions in the United States, the instant payment infrastructure FedNow launched on July 20, 2023. A response to the private instant payment system created by The Clearing House (TCH) in 2017, FedNow marks a significant step towards banks, credit unions, and financial institutions of all sizes being able to offer customers account-toaccount transfers, be that P2P, B2C or C2B, and have those funds settle within seconds. Despite leading the world in umpteen ways, when it comes to fast payment systems, the United States has been slow. But back in the early 2000s homegrown fintech Volante Technologies was already pushing the transaction envelope. Its state-of-the-art transformation and mapping platform ‘caught on like wildfire with all of the big Tier 1 banks at the time’, according to Chetan Cariappa, Volante’s North American account manager. And when The Clearing House chose Volante, along with a handful of other providers, to facilitate the first real-time payment in the United States on the TCH’s RTP system in 2017, the company’s pedestal in the payments hall of fame was secured. It had helped bring about the first new core payments infrastructure in the US for more than 40 years. The Clearing House went on to establish a stronghold, working with the financial institutions that custody close to 90 per cent of all US demand deposit accounts. However, the long-anticipated instant payment alternative created by the Federal Reserve has now finally hit the market. Since 2019, the Federal Reserve has been building its own instant payment infrastructure that could allow eligible depository institutions of different sizes across the US to provide instant payment

TheFintechMagazine | Issue 30

services to one another in a peer-to-peer fashion. Through financial institutions participating in the FedNow service, businesses and individuals could thus send and receive instant payments between one another democratically. In the face of the rising popularity of C2C, B2B, and B2C non-banking real-time payment platforms like PayPal and Venmo, FedNow can give financial institutions the tools necessary for them to compete. Thanks to its role as a participant in the FedNow’s pilot programme, where it helped shape the product's functions, provide input into the user experience, ensure readiness for testing and was the first to experience the FedNow service before its general availability, Volante Technologies has been able to closely observe FedNow’s development.

A lot is going to change in the payment industry in the US from now on Cariappa says: “It’s been a great journey. As a company, we are serious about being at the forefront of payment innovation and have learned a lot from our real-time experiences with The Clearing House, as well as with many banks in Europe, Mexico, Saudi Arabia, and other countries. “Added to this was the chance to participate in the creation of FedNow, which is very much the new kid on the block. I think a lot is going to change in the payment industry in the US from now on.” By the beginning of October, 108 institutions were sending and receiving on the FedNow network with 21 financial institutions providing liquidity and settlement services, and 20 service providers supporting payment processing in the instant payments infrastructure. They include community banks and large lenders like JPMorgan Chase, Bank of New

York Mellon and US Bancorp. Notably, the US Treasury Bureau of Fiscal Services is also using FedNow to distribute government payments to more than 22 government organisations, showcasing the service’s practical applications in the public sector. A challenge that Cariappa is interested in keeping an eye on is the one that Volante’s Cloud-native and API-first solutions deal with implicitly. Namely, the complex demands that ISO 20022 puts on instant payments networks. He explains that, at present, the industry is in ‘a coexistence period’. The old and the new systems live together, but need to migrate data between each other – reverting data back to legacy format, if necessary. Consequential data loss or mismanagement issues are therefore a serious concern. But Cariappa is confident that FedNow’s incorporation of data elements, tailored to enhance the efficiency and security of transactions conducted through its system, will prove to be sturdy. There are a lack of statistics on the percentage of US banking payments that are currently real-time, let alone the number going over the FedNow instant rail, making it difficult to assess its success – and to figure out whether these payment methods are solving problems for users. But statistics are, in any case, only part of the story. How other platforms respond to the arrival of this ‘new kid’ will be a better indicator of FedNow’s impact. That, and if users perceive it to be Cometh the hour: broadening financial The FedNow access for ordinary rollout promises people, will be to transform the real tests. payments in the US ffnews.com

What happens next? We spoke to Nadish Lad, Managing Director, Global Head of Strategic Business at Volante, about how technology will shape future payments THE FINTECH MAGAZINE: What will be your biggest technology takeaways from 2023? NADISH LAD: It’s impossible to narrow down to the singular! One is that banking infrastructures are going to need changes to be able to support real-time payments, since so many of the existing systems need upgrades and replacements to become real-time compliant. I have also seen that a lot of the fraud systems will need to be upgraded, too, to be able to best support both the data migration path and the exposure that will come from operating 24/7/365. The challenges around the migration path are complex, and not for the faint-hearted. But there is a lot of revenue that banks can take advantage of by biting the transformation bullet, and I think the advantages to getting on to real-time far outweigh what the challenges might be. TFM: Is there one technology that can help overcome the real-time challenges? NL: A tool that I really see smoothing the gaps between innovating and collaborating between the banks, fintechs, and paytechs is API technology because it provides a standardisation with strong security authentication with so much simplicity and speed. It speed-drives innovation and problem solving. APIs have been around for a long time, and the fintech industry’s adoption of the technology as an ease-off mechanism isn’t novel. But I am paying particular attention to the rise and convergence of interest in single-usage APIs for multiple capabilities. Because, ultimately, an API for each payment capability is a nightmare. One that can accommodate all of these is the magic wand.

ffnews.com

TFM: Where will payments be in the next five years? NL: A lot of AI, blockchain and machine learning technology is going to really kick in within the payment world by then, and I think consumers’ expectations will be the surprisingly strong driving force, thanks to the amount of pressure they put on their banks. I’m also conscious of the knock-on effects we’ll observe from the proliferation of real-time payments, like seeing a decline in cheque usage as a form of payment, for example. It’s already begun, but an aggravator of that will the fact that real-time gives you much faster fund access. Probably the strongest prediction, or evolution to watch out for is the economical play occurring with the transformation of payment-as-a-service

An API for each payment capability is a nightmare. One that can accommodate all of these is the magic wand mirroring banking-as-a-service. Because a key point – at least in the banking world – for the past few years has always been capex: where you pay something, acquire a product, maintain it, and pay for the maintenance. With payments-as-a-service however, you are converting that capex to opex, where you are paying for what you use. And this is a much easier method for banks to track, whether it is transaction-based, payment type-based, or otherwise. The whole ROI model will become more predictable by essentially moving to payments-as-a-service, rather than a speculative discounted cashflow analysis of the ROI.

Issue 30 | TheFintechMagazine

TAEZCI NHE PAYMENTS: INSTANT IN F G A M

Now, Now, Now! Three payments specialists from UL Solutions – John French, Honore Afene and Daniella Ribeiro – discuss the growth of instant payments and the potential of FedNow

THE FINTECH MAGAZINE: What is the history of UL Solutions and how is it involved with payments? JOHN FRENCH (JF): UL Solutions has been in the safety industry for more than 100 years. We certify many of the familiar items that you have in your house today – it could be a TV or a fridge. As for the connection with payments, have you ordered something online in the last 24 hours, perhaps paying with your phone or maybe even using a smart watch? Who would have imagined, just 10 years ago, that we could make payments using a watch? There are so many different payment avenues today. We make sure they are safer, that your money is going securely from A to B, and nothing interferes with that. HONORE AFENE (HA): What we do for payments is similar to what we do for many other industries: namely, confirm safety and inspire confidence. When you make a payment, an online payment, or in a store, it has to be trusted. We provide that trust by working with merchants, acquirers, and issuers to secure the payments ecosystem. TFM: FedNow, which launched recently in the United States, is among a growing number of instant payments systems worldwide. What do instant payments mean for financial institutions

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and customers, and how do you think they will develop? DANIELLA RIBEIRO (DR): Instant payment systems mean instant settlement and clearing. Money will be available immediately, which is a huge shift and in countries such as Brazil and India, and across Europe, where these payments are already available, it has been transformative. We’re a little bit behind in the US, but we are catching up!

There are so many different payment avenues today. We make sure they are safer John French

The main use case so far for FedNow is account-to-account payments, enabling you to pay anyone directly, making things really easy in our daily lives. But there are endless other possibilities. Think about all the things connected to payments, such as taxes and insurance, and the change brought about by ISO 20022, which adds to the mix and increases the potential. HA: Instant payments and real-time payments are terms that are often used interchangeably, meaning that settlement is completed immediately.

However, this is a common mistake, because real-time payments are already here and might refer to a transaction that could pend for two to three days. That’s a big delay and it’s the opposite of an instant payment where we’re talking just seconds once I’ve initiated the payment. Instant settlement will unlock new services, too, because the ISO 20022 message format is the underlying technology. It brings additional data and improves processing and versatility, offering so much more for payments. Take FedNow where account-to-account – sometimes called peer-to-peer – is a key use case, but it’s not just peer-to-peer between two consumers, it might also be between businesses and consumers. And another clear use case for instant payments is payroll. Because we’re not using batch payments, your employer can pay you immediately, which is a game-changer for temporary workers. JF: Account-to-account payments move money directly from one account to another without the need for intermediaries or payment tools, such as cards. I’m in the US, but originally from the UK. When I send my nieces back home some money, it will go directly to them from my bank account. That’s instant payment, instant settlement – and instant cross border.

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TFM: How is UL Solutions helping to smooth the way for instant payments? DR: Having learned from similar implementations elsewhere, we understand the importance of onboarding customers and verifying identities. Education must come first because we are also changing the message type and the whole industry is affected, so the benefits must be made clear. We offer training and can help financial institutions navigate the switch to instant payments. We also have a readiness programme to specifically enable connections to FedNow.

In countries where instant payments already exist, such as Brazil and India, and across Europe, it’s been transformative for payments. We’re a little bit behind in the US, but we are catching up Daniella Ribeiro

HA: We’ve learned from those implementations in Brazil and Europe, which helps with the implementation of FedNow use cases. It’s essential that institutions understand the technology before making any business decisions about the use cases for instant payments. That’s why we place the emphasis on education so that financial institutions and other players understand the use case and can then move safely to the design and implementation. Everything you develop must be tested and we have the tools to do that. For

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example, with EMV migration, our test platform enables merchants to customise, according to their needs. They might use our platform to design a regression programme and find bugs and defects before deploying. Merchants can test their solutions, their implementations, and deploy early, and, most importantly, they can deploy safely. Previous experience has also helped us on the fraud learning curve. Although some fraud might be specific to a region, it’s an indication of what we might encounter in a year elsewhere. This is the knowledge that we bring to the US market because we can design the system according to what we know might happen, and thus mitigate risk. You need to understand and develop the use cases, then implement and test them. This is a key part of the architecture update for FedNow, and understanding the steps is how we help our partners. Our advisory team is at the heart of successful transformations like these. TFM: We understand you have a three-step approach to payments transformation. Could you explain what each step does? HA: Education is the first step. Then there is acceleration, which is for those who already know about instant payments and just want to comply with FedNow, for example. They need to understand to troubleshoot, for instance, the test cases that they have implemented and they can leverage our platform and knowledge to do that. The third step is called the masterclass, and it is purely education about ISO 20022 and what the use cases are. Clients can select which steps apply to their needs.

TFM: How do you see the future playing out for digital payments? HA: Thanks to all the progress we’ve made with digital identities, we will strengthen authentication and improve security in the payments ecosystem. Think about it: if we know who you are in the digital world, it means we can safely unlock some services and provide more access. For example, if we know that a customer is over 25, it means they can order age-restricted items. So, secure payments built on digital IDs will be increasingly important over the next couple of years. DR: Instant payments will impact a lot of what we are doing, and how we are doing. There‘s a big crossover with the use of electronic ID, for example – in many countries you can already make

It’s essential to understand the technology before making any business decisions about use cases Honore Afene

instant payments using your biometrics. The shifts will be slightly different, depending on the market. We see Europe, for example, is working towards a domestic payment scheme. Here the focus currently is on instant payments and FedNow. JF: FedNow is going to have a huge impact. It was one of the hottest topics at Money20/20 Vegas this year. It’s going to be revolutionary. But payments are a moving target, they are always evolving, always changing. We just have to keep up!

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TAEZCI NHE FINETCH FOCUS: GLOBAL INNOVATION REPORT IN F G A M

Risk, strategy and tech The Global Innovation Report from FIS shines a spotlight on attitudes to threats and tech. Azriel Chelst, VP of Venture Investments, comments on some of the key findings If in 2020 you’d asked the world’s leading risk analysts what factors would most impact global stability in 2023, you’d probably have a large number of unrealised predictions today that those professionals would rather forget. To say a lot has happened in the last few years is an understatement. Often, a new business-imperilling crisis has sprung up to challenge the status quo before the impacts of the previous shock have been fully understood. An era-defining global pandemic has been followed by runaway worldwide inflation, the return of hand-to-hand combat between nations on the European mainland and the spectre of a new Cold War. In this unpredictable and risk-rich new reality, businesses are often hard-pressed to effectively avoid damage, let alone strengthen profit margins. So what are they most concerned about and how are they dealing with it? That’s what the Global Innovation Report: Creating Advantage In Uncertainty from FIS set out to discover. The authors polled 2,000 leading senior decisionmakers across eight countries and eight industries, creating a detailed view of how

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they perceive the new risk environment and what their strategies are for managing it, including using innovation and new technologies as solutions. A whopping 49 per cent of business leaders surveyed believe their organisation faces more risk than at any time in the past. Retail and fintech companies registered the highest state of risk, polling 60 and 56 per cent respectively. In almost all organisations surveyed, financial and strategic risk were the

I’d be scared if not every executive had told us they believed in innovation – the issue is what? most compelling areas for concern, including interest rate fluctuation and supply and staffing shortages, and increasingly competitive and fragmented markets. Fifty-five per cent of respondents concerned about financial risk claim to have been already impacted by it, with

31 per cent of those surveyed expecting to be in the next year. But despite troubled times, 93 per cent of all businesses surveyed are confident that they will be able to overcome the challenges. And a massive 98 per cent of firms believe innovation plays a role in mitigating macro risks. Fintechs cite innovation in two areas – technology and systems and customer experience – as their primary strategies. “What we were trying to do with the report is make sure we understood the right way forward through innovation, and the fears behind executing around it,” says Azriel Chelst, who runs direct investments inside FIS Ventures. “Ultimately, what everybody is scared about, when it comes to adopting new technologies, is whether it will increase the volume of work. When you have a system that involves alerts, for example, having a technology tell you something is wrong, and having nobody to execute on it, is not a fun place to be. “Everybody has to figure out how to balance innovation and risk. Once a computer, or AI, is doing something for you, do you have the right guardrails? ffnews.com

Is it doing things the way it should? Is it meeting all the regulatory requirements? “I’d be scared if not every executive had told us they believed in innovation,” Chelst laughs. “The issue is what? Technology innovation, system innovation, business model innovation, AI, GenAI…? We really tried to slice and dice the data and what came across was that technology and system innovation was the priority. “Executives know their technology stack can be better, but they’ve also got some systems and processes – whether it’s an organisation of 10 or 10,000 – which are broken, some of which can be done better and faster. So they’re also looking towards innovation there to see how they can improve them. This report is meant to clarify and confirm how investing in innovation and technology can help executives mitigate many types of risk.” It found that financial institutions, investment and fintech companies were more likely than the rest to reach for technology to solve a challenge. And that gave them a marked degree of extra confidence. Early technology adopters in particular thought they faced less risk than in the past – a 20 per cent confidence rate compared to 16 per cent across the rest of the businesses surveyed, with 60 per cent of executives identifying as early adopters rating themselves as ‘very confident’ in managing risk effectively, versus the rest at 44 per cent. Many companies seem to be doubling down on this innovation-led approach. Around two-thirds of existing tech adopters plan to increase their technology spend in the next 12 months, with digital tech for the customer experience and AI the top targets (69 and 68 per cent). And across all sectors, AI/GenAI-focussed solutions were top of the executive shopping list. The study shows almost universal consensus on what innovation brings to businesses that embrace it. Almost all of those surveyed said it helped them maintain a competitive edge. Improving internal culture was the least compelling reason to innovate. But that’s a missed opportunity, observes Chelst. ffnews.com

What's hot: AI & embedded finance Forty per cent of non-financial services companies surveyed claim to have already adopted AI, and 36 per cent claim to be using GenAI. That rises to 48 per cent and 44 per cent in financial services. But those figures might be misleading, says FIS’s Azriel Chelst. “It’s interesting how people think about these things. Is all of their AI just decisioning, or was it really generating content, which is GenAI?” If the figures in fact indicate a broad lack of understanding of what GenAI is, then executives are also likely to

underestimate its true potential. “That was certainly a big ‘aha moment’ for us,” adds Chelst. There was more clarity around embedded finance. Ninety-five per cent of financial services executives were using or plan to use embedded technologies in the next one to three years. “Embedded finance was number one for fintechs,” says Chelst, “because it’s an opportunity to move forward on the revenue side – maybe even on the margin side – and go beyond the transaction layer.”

What’s not: Sustainability threats Only 37 per cent of the executives polled list environmental, social and corporate (ESG) risk as a priority, ranking it behind financial, strategic, legal and regulatory. This is despite 49 per cent of these organisations saying they have already felt the impact of environmental transition risk. Changes on the horizon, however, may cause this package of threats to start rocketing up the corporate risk agenda. In the US, incoming Securities and Exchange Commission regulation will soon force all companies to report their ESG scores, an initiative that many believe will be adopted around the

world. Indeed, there’s good evidence that ESG pressure is already coming to bear on executives from corporate stakeholders, with Stanford Business publishing a detailed new report on how this works in practice. For Stephen Vitoria, Climate Risk Manager at FIS, this is potentially a big innovation driver. “Increasing pressure from stakeholders around ESG is guiding how many organisations prioritise risks and pursue innovation,” he says. ”The financial impact of sustainability and climate-related risks and opportunities... will likely spur investment in product, service and operating model innovation, as these are likely to deliver the most visible and tangible results.”

An under-estimated peril: Climate-related risk isn’t at the top of everyone’s agenda

Issue 30 | TheFintechMagazine

TAEZCI NHE FINTECH FOCUS: GLOBAL INNOVATION REPORT IN F G A M “We used to think, ‘do we really have to build good technology for employees? Can’t they just figure it out?’ You know, ‘if it looks like Windows 3.1, that’s fine, they’ll just do it’. But the truth is, there’s a new kind of employee base that doesn’t want to suffer old solutions. They want technology that feels like the thing that you put on your iPhone, or Android. They want solutions that feel good, easy, that act sensibly. “In the old days, technology wasn’t very sensible, because you just tried to solve for the greatest audience. Now, we’re looking at how you improve the process flow, because, when you do those things, employees are happier, they work faster, they love their job, they really do want to be part of the solution. And that’s really where AI and technology help – on that system innovation side.” The FIS team has created a detailed six-part guide to implementing a strategy

that circumvents uncertainty and turns innovation into advantage. The first recommended step is to conduct a thorough analysis to determine the short- and long-term risks to a business. The next is to identify which innovation strategies can most effectively mitigate risk to technology infrastructure, business

The potential for enhanced efficiency, personalised experience and sustainability is immense model and customer experience. Next, business leaders must build an understanding of how the latest tech can support their innovation strategy and how it can be leveraged to help achieve business goals. They need to

understand where resistance to innovation is coming from, whether it’s educational, operational or budgetary (the last of which was cited by more than 50 per cent of respondents to the report). Then they need to map where internal knowledge and skills must be augmented – whether this involves training existing staff, new employees or partnering with an expert. Finally, customer input must guide decision-making as a client-centric strategy is the most effective path to success. With such an approach in place, John Avery, VP of enterprise strategy at FIS, believes embracing emerging technologies could revolutionise the business world. “The potential for enhanced efficiency, personalised experience and sustainability is immense,” he says. “These technologies are also important levers for mitigating a variety of risks – making them critical to fostering trust and long-term growth.”

Startup risk: Will they survive the great ‘mass extinction’? “Macro risks are really crushing the startups,” says Azriel Chelst, VP of venture investments at FIS. “At the end of the day, they raised money with expectations that it would last them a certain amount of time and that, later on in the process, they would raise again. Unfortunately, with interest rates and access to credit where they are, they can’t do that. So now they’re just… bleeding.“ This isn’t an isolated view. In February, Investment Monitor predicted 2023 would be the biggest ‘startup mass extinction’ event since 2008, with 81 per cent of early-stage startups telling it they had less than 12 months of runway left. Investment Monitor cited Globaldata statistics which showed the scale of plummeting global venture financing throughout 2022. It said the value of global VC had dropped 36 per cent in 2022 – from $512.7billion in 2021 to $293.8billion.

This trend can also be seen at a more granular level, with startup deals dropping nine per cent in the fourth quarter of 2022 and growth-stage deals experiencing an even bigger, 24 per cent drop in deal volume. Has there been any cause for optimism since then? Well, a recent Crunch.co.uk report says that, despite a challenging year, startups have displayed ‘remarkable resilience’, adapting to a new peril-filled environment with innovative solutions and agile strategies, even in the face of a cautious funding cycle. “What we’re seeing is that about a third of startups are trying to just make it work,” says Chelst. “They’re trying to improve their margins, they’re trying to reduce burn, and really focussing on new ways to streamline the processes – it’s about automation, automation, automation. You can throw that after every word, treasury automation, AP automation, AR automation.”

Of all the businesses affected by existential threats, it’s this cohort of young companies which is the most vulnerable, he says, but it is also the most determined and capable of using technology to outpace the threats. “We’ve met startups who had launched solutions in Ukraine, for instance, and had 20 banks behind them as customers, and as soon as the war broke out, they were stuck. So then what did they do? Some have come over to the US or Canada and they do their best to just take the technology that they’ve built, and port it over to a new customer base. “There are amazing founders, who have used this as an opportunity to reset their strategy, but, ultimately, deliver great solutions. “At FIS, we understand the pains, the challenges they go through, and we want to try to do our best to help them.”

All at sea or stemming the tide?: In challenging conditions, startups are using technology to create innovative solutions

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TAEZCI NHE BUSINESS BANKING: CLEARING SERVICES IN F G A M

A Clear need for change

Charlene Lemard-Maxam from ClearBank tells us why its crossing borders and how digital currency will ultimately be part of the payments mix According to a report this summer from payments provider Neo, 78 per cent of SMEs rely on incumbent banks for their cross-border transactions, but they’re not necessarily happy with the service they’re getting. It said 55 per cent of SMEs identified ‘unfair pricing’ as their biggest pain point, while 45 per cent were dissatisfied with how long a payment took to arrive: 72 per cent reported funds taking two to five days to appear on suppliers’ bank statements. PayUK found a similar story when it asked SMEs what their experience of banking and payments had been in 2022. It said only 15 per cent of SMEs did not experience any problems arranging cross-border payments, although it claimed ‘65 per cent of UK SMEs are using non-banking payment solutions to get around these pain points, including payment service providers and electronic money institutions’. ClearBank’s senior client director Charlene Lemard-Maxam agrees that serious problems still exist in the cross-border space. “There are certain barriers to entry,” she says. “It’s still very difficult for some small and medium-sized businesses to make payments effectively, given the challenges around just opening a bank account and having bank accounts in different locations. “In addition, there are problems such as the speed of transactions; there are

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issues with SWIFT transactions, for example, that still take days to settle in some jurisdictions. And fragmentation of data formats means it’s just really difficult for SMEs to get a full understanding of where their payment is, if it has reached the beneficiary, because sometimes that data is truncated and lost. “That said, we are seeing a lot of movement towards the New Payment Architecture in the UK, and more adoption of ISO 20022, which, in itself, will help the UK payments infrastructure and ensure that payments are faster and swifter here. The same thing is happening in the US, with the instant payment service FedNow, which is huge for retailers – where it used to take ages for them to get refunds, now that’s potentially instant. “So there’s more of a focus on local payments, and, globally, adoption of instant payments locally, which then should, hopefully, feed through to the cross-border space.”

from the Dutch central bank is imminent, allowing it to passport services to other key economies in Europe. Here, it will meet competition from payment facilitators making similar claims to be able to cure the cross-border headache that millions of SMEs can’t shift – Banking Circle, Railsr and Solaris Bank among them. But ClearBank’s trump card is its established status in the UK, where it holds deposits on a 1:1 basis at the Bank of England, its core revenue coming from fee-based transaction services and embedded banking, which is an increasingly important part of the mix. SME financial platform Tide, for example, now offers its 550,000

TRANSPARENTLY DIFFRENT When ClearBank launched in 2017, promising to provide a fully regulated banking infrastructure and real-time clearing access for fintechs, challenger banks and credit unions, it broke the Big Four banks’ monopoly as gatekeepers to the UK’s payments infrastructure. Backed by PPF Group from the start, in 2022 it raised £175million from new investor Apax Partners to fund expansion into Europe and the US. A banking licence

clients, representing 10 per cent of the UK’s small business market, a current account via ClearBank. This combination of clearing and licensed banking for third parties put ClearBank on track for its first full year profit in 2023/24. Its half-year results, published in September, showed it had more than doubled its year-on-year revenue allowing it to realise a pre-tax

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profit of £5.9million, with deposits growing by 80 per cent to £5.4billion. But the business model doesn’t stack up in quite the same way outside of the UK; to qualify for a full banking licence in the EU and the US, an institution must offer lending services. CEO Charles McManus has already said the bank will do ‘credit intermediation in connection with payments’, but will not offer loans or mortgages. “As we expand into Europe, we hope to become a strong international player within the transaction banking space,” says Lemard-Maxam. “That’s our primary focus, partnering with other financial institutions and non-banks to provide top-tier transaction services to them and their underlying clients.” For now, ClearBank offers a current account, a virtual account, and an interestbearing account. But it’s not shy of engaging with the digital asset community – it already handles the receipt and disbursement of funds for several regulated exchanges. “We are looking at digital assets,” confirms Lemard-Maxam. “There is a lot of opportunity to innovate in this space and

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I think there will be interoperability between legacy systems and new tech, such as digital currencies and stablecoins ClearBank wants to make sure we are at the forefront of that innovation. So, we’re working with our partners to establish use cases where we think that not just ourselves and the underlying SME, but the end user will benefit from such technology. “A lot of work still needs to be done, but I’m really excited by the direction of travel,” she adds. “In the future, I think there will be interoperability between legacy systems and new tech, such as digital currencies and stablecoins. There will be an amalgamation of the old and the new. What will underpin that is finding the right partners to come up with a solution that offers value to different users across the payment channel.”

Alternative view : ClearBank is actively engaged with the digital asset community

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BUSINESS BANKING: TREASURY MANAGEMENT

Treasury: time to shine

FINT

CH M A G AE ZINE

After years working in siloed treasury teams for major banks, Allica’s Beata Lubinska found a fintech that understands strategy starts with the balance sheet Banks are in the business of using money to make money at the lowest risk. So, it would seem obvious that the treasury department would be front and centre in every key decision that a bank makes. That, however, is often very far from the reality. For many banks, treasuries operate in silos, divorced from the strategy-making heart of the organisation. And yet the fundamental concerns of treasury departments are the fundamental concerns of any bank. If anyone needed a lesson in that, they only have to look to the collapse of Silicon Valley Bank where a perilous mismatch of the duration of loans and duration of assets created a giant-sized risk that led to corporate failure. It’s the sort of mistake that Beata Lubinska, treasurer of UK challenger bank Allica, has written books about – how financial institutions must strategically plan to optimise their balance sheets to reduce the risks. Her guiding principle is to ensure treasury is at the heart of every decision at Allica, which gained a UK licence in 2019 as a specialist bank for established SMEs and reached profitability in June 2022, making it one of the fastest UK fintechs to do so. Spelling out her views, Lubinska says: “There is definitely a growing role of the treasury department in general, in the banking industry in particular, and it is no exception here in Allica.” ffnews.com

But that kind of integrated thinking hasn’t always been her experience. In a career that’s spanned almost 20 years in treasury departments at a number of banks, both in Milan and London, she often found herself working in siloed environments – and it defined her thinking. “In the past, I have seen quite a lot of this silo-based attitude, when the main treasury risks, which treasury is supposed to manage, or supposed to look at, are approached on a separate basis,” she recalls. “We had different people in the team who – as is quite often the case, in the biggest institutions – didn’t speak to each other. So they didn’t know what the other person was actually doing in order to increase the profitability of the bank, or to deliver the strategy. “At Allica, we look at the balance sheet holistically, at the risks that the bank is exposed to, and try to get a better understanding of what should be the positioning of the balance sheet to the market, in terms of the risk exposure, or interest rate risk. Or how we should manage the liquidity in order to achieve the lowest achievable cost of funds and improve our margin. “Treasury is also very active in the pricing of products, which in turn can steer the behaviour of the balance sheet. So, for example, we can incentivise products that are strategic for the bank, and which are adding value to the

balance sheet, and we can get rid of the products which are value destroyers.” Taking such an approach certainly seems to be working for Allica, which provides banking services for established businesses with between 10 and 250 employees – a market it identified as being badly underserved.

THE NUMBERS GAME The bank’s loan book exceeded £100million by April 2021 while its deposit book exceeded £1billion by March 2022. But that year it also completed the acquisition of the £600million GB SME lending portfolio of Allied Irish Bank (UK). Allica’s 2022 balance sheet shows that its loans increased year-on-year by 138 per cent to £1.35billion while customer deposits increased year-on-year by 78.2 per cent to £1.51billion. In other words, it’s putting its cash to work. The bank made a profit of £3million in the second half of 2022, helped by interest on loans increasing by £54.2million and an additional £6.6million being earned in interest from its liquid assets portfolio. This was offset by higher interest expenses of £19.7million due to an increase in the group’s interest-bearing liabilities but the bank’s liquidity coverage ratio was 145.2 per cent at the end of 2022, 45.2 per cent higher than the regulatory minimum of 100 per cent. Issue 30 | TheFintechMagazine

TAEZCI NHE BUSINESS BANKING: TREASURY MANAGEMENT IN F G A M

A core principle: The treasury department should be the life-blood of any bank

A expanding business itself, in 2022 Allica raised £155million in funding rounds. The last major tranche came from TCV, a leading technology global investor, which joined existing investors Warwick Capital and Atalaya Capital Management. With staff numbers increasing from 184 to 324, including the development of a software engineering team in India, the bank is working harder than ever to distribute cash to other growing SMEs: Allica is forecast to complete £3billion of lending by 2024.

UNLOCKING THE FUTURE The use of financial technology tools, including AI, is key to the treasury team’s ability to keep on top of that success. “Without automation, the treasurer cannot see the holistic picture,” says Lubinska. “You can’t see the cash flow need or business requirement, over the next one week, two weeks, one month, or even longer time horizon. “This is known, in treasury, as robust liquidity management, which is divided into two parts. You have the short-term liquidity management, which includes not only the tactical management – like what should be my funding need in order to cover the needs of the business for the next one week, or two weeks, or

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even today, which is known as intraday liquidity management. But also there is the strategic picture of the funding composition of the balance sheet for the future. And this is where portfolio optimisation comes into play.” Hedging strategies have played an important role in Allica’s financial risk management as interest rates climbed over the last two years. “Before rates started moving up very sharply, we already knew that we had some products that exposed the bank to pipeline risk,” says Lubinska. “Pipeline risk is very dangerous because it can compress your margin and profitability quite a lot if you don’t manage it – between the moment you fix the rate with the customer and the moment they effectively draw down the product, or the product is on the balance sheet, the margin can effectively be compressed if the rates are moving up so sharply. And we saw a lot of market volatility – when the swap rates were fluctuating literally plus/minus 60

Allica has purposefully invested in technology because we really believe that without automation we won’t succeed

basis points within a two-week time period. That was really challenging. Without the pipeline hedging strategy, we would be in a much worse place today. But this programme is fine-tuned, calibrated, and it’s working well for us.” Allica partners with technology providers, an example being deposit aggregators, but it is also investing heavily in developing its own technology. “We have opened a subsidiary in India where we have access to the best finance engineers, probably in the world, and we are leveraging their knowledge to develop products, optimise the offering and service for clients as well as the treasury department," says Lubinska. “Allica is famous for being technology-driven. We’ve purposefully invested in technology because we really believe that without automation, we simply won’t succeed.” So what’s on her personal technology shopping list? Something to help fine-tune funding optimisation strategies, perhaps? “I want to have a tool that tells me, almost instantaneously, where the treasury should be heading to, where the best funding opportunities lie. I need a more strategic view, in terms of optimisation techniques,” says Lubinska. “But I haven’t seen that solution yet.” ffnews.com

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TAEZCI NHE FINTECH FOCUS: SCALEUPS IN F G A M

KPMG Private Enterprise’s Global Technology Innovator competition is about more than lifting the crown – it helps build a community, say KPMG’s Conor Moore and Anthony Lacavera from Globalive Fintechs were among the emerging talent battling it out in this year’s KPMG Private Enterprise Global Technology Innovator competition, as national winners went head-to-head in Portugal. After 1,300 applicants were whittled down to 23 for the final showdown, Sweden’s PlasticFri – whose green technology converts agricultural waste into eco-friendly products that can replace plastics – took the crown. But five fintech founders were among those finalists showcasing their businesses at the event in November, which is keenly watched by stakeholders and investors. KPMG says the contest serves two purposes – to help the consulting giant identify the next set of great disruptive companies; and to provide an international networking opportunity for contestants. Conor Moore, partner and global head of KPMG Private Enterprise, which founded the Global Technology Innovator (GTI), said: “KPMG wants to work with the best companies out there. And we all

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Lacavera, a judge at this year’s finals, explained: “Networking with other top founders from all these different geographies is an amazing opportunity to expand your network. Whether that results in new client opportunities, new investor opportunities, new geographies that you can expand your business into, or just making new friends who are facing the same challenges, it’s invaluable.” know the pace at which these companies grow and replace older companies. So, for us to achieve our objective, we must be invested in this space. “If we are to attract and retain the best talent at KPMG, we also must be seen to be working with these groundbreaking companies. That’s what our people demand. It’s particularly true of younger

WE ALL KNOW THE PACE AT WHICH THESE COMPANIES GROW AND REPLACE OLDER COMPANIES. SO, FOR US TO ACHIEVE OUR OBJECTIVE, WE MUST BE INVESTED IN THIS SPACE

Conor Moore, KPMG

people. If you’re not working with these companies, you lose in the talent war.” Canadian telecoms entrepreneur Anthony Lacavera of Globalive said that the GTI offers an ‘immense yield on time’ for founders, given the contacts they will develop there.

FOUNDER SHOWCASE The GTI was launched during the pandemic in 2021 when KPMG ran national competitions in 17 countries. Six more countries have been added since then with each national winner presenting their business idea to judges at the grand final. There are eligibility criteria for technology companies taking part. To ensure competitors have already built scale, they must have an annual revenue of between $1million and $15million, or have raised capital of at least $500,000 if the business is at pre-revenue stage. The finalists are scored by five judges on six criteria: innovation and disruption; marketing potential; customer adoption; marketing buzz; long-term potential; and the quality of the pitch. Though there’s only one winner, the 23 finalists are showcased in a ‘fireside chat’ with Lacavera – his business Globalive Media records the one-to-ones for broadcast, raising their profiles. ffnews.com

Lacavera, who launched Canadian wireless carrier WIND Mobile and counts ‘five exits and three failures’ on his CV, says: “The GTI is about identifying these amazing founders and their technologies, which are often in deep tech that can be a few years away from commercialisation. In the interviews, we document the founders’ journeys, these emerging technologies and reveal their potential. “For me, it’s a chance to give back to the innovation ecosystem and help build the profile of founders – and they can use the content for their own ecosystem, stakeholders, investors, clients and on their social networks. “At the same time, during the conversation, I hope to offer some advice about the things I’ve seen go wrong in my own career and the vast litany of mistakes that I’ve made!”

A SUPPORTIVE NETWORK Since winning the first GTI in 2021, Brazilian agriculture nanotech business Krilltech has increased staff headcount, completed a funding round and expanded into several other countries.

FOR ME, IT’S A CHANCE TO GIVE BACK TO THE INNOVATION ECOSYSTEM AND HELP BUILD THE PROFILE OF FOUNDERS

Anthony Lacavera, Globalive

KPMG’s Moore says: “Being a national winner or the international winner opens doors that didn’t exist previously. It can help attract investors and business partners, and it can improve credibility when dealing with government officials.” But it’s not just about business development potential. “When it was announced that Diego Stone, the founder of Krilltech had won the very first competition in Lisbon, there was a tonne of emotion,” recalls Moore. “He immediately got online with his grandmother, who had been watching. It was very cool. And the other finalists, who had just that second found out that they had not won, were so happy for Diego – they all rallied around each other. “Looking at that group from afar, you could say they were going to be friends and business acquaintances for life. It was borderline emotional watching it happen.” ffnews.com

COUNTRY FINALISTS

MEET THE 2023 GTI FINTECH FINALISTS from Ghana Founded in 2021, Motito provides alternative financing for essential assets, including buy now, pay later and peer-to-peer financing in markets dominated by cash. With its buy now, pay later ‘Pay Small Small’ plans, instalments can be personalised by the customer using the Motito app, and repayments are made over a maximum of six months, the first 30 days interest free. Its Pay4Me scheme allows individuals to set up a payment page so ‘supporters’, typically friends and relatives, can pitch in and help buy an item, such as a laptop for a student or a sewing machine for business use. Motito has held four funding rounds since its inception and aims to have 100,000 users by the end of 2023.

from Portugal Rauva created what it calls ‘Portugal’s first business super app’ with a business account, digital invoicing, expense management, payments and data analysis functions. Built ‘by entrepreneurs for entrepreneurs’, the fintech aims to be a one-stop shop for freelancers and small business owners with business tools collated in one place. Launched in 2022, Rauva bought Banco Montepio business banking brand Banco de Empresas Montepio (BEM) in September, which was reportedly valued at €30million. The deal included BEM’s customer data, which Rauva said it would integrate into its quantum machine learning technology.

from South Africa The Match Exchange aims to disrupt agricultural commodity trading through its app that matches farmers with crop buyers. The firm likens itself to X, formerly Twitter, in that farmers can easily communicate to their followers (buyers) that they have product to sell.

It promises to improve profits for participants by shortening supply chains through its use of data and network of brokers. Once a farmer or product buyer chooses a broker, they can follow progress through the Match Exchange app. When a deal is done, the fintech manages invoicing, payment, can arrange transportation and arbitrate in quality disputes.

from the Philippines Peddlr is a digital accounting and point-of-sale startup launched to transform a market where pen and paper remain the norm. Its mobile app provides a full range of bookkeeping services to micro and small businesses such as market traders and shop owners, covering sales, accounting and business reports. It was founded in 2021 by former Proctor & Gamble and Unilever executive Nel Laygo with Aiko Reyes, a founder of women’s rights organisation Zonta International. Peddlr is backed by venture capital firm Kaya Founders, which has 39 digital companies in its portfolio.

from Ireland Founded by former restaurant boss Conor Sheridan in 2021, Nory is an operating system for hospitality businesses, covering everything from forecasting to workforce and inventory management and payroll. It employs AI to ‘learn’ a business and then advise a restaurant’s teams accordingly. For example, Nory can track staff productivity, predict customer peaks and troughs so people are in the right place at the right time, manage HR tasks such as rotas, and execute payroll. It uses AI to predict ordering needs days or weeks in advance and prepares prep lists for kitchen staff. Nory claims this boosts profit by minimising waste, plus the system can set profit targets for specific dishes. By September, it had raised $10million in funding and employed 34 people.

Issue 30 | TheFintechMagazine

TAEZCI NHE DATA: PARTNERSHIPS IN F G A M

Format for success Belgium has grown a fintech industry that impacts the world with smart data handling. The latest partnership between homegrown technology specialist Intix and global giant FIS is evidence of it. Antoine Cuypers and Leo Wagner discuss the benefits

Intix is headquartered in Mechelen, Flanders – a modest northern Belgium city with 88,000 inhabitants that’s known principally for its robust vegetable cultivation. The company has a highly-skilled workforce that’s counted in the 10s not hundreds. And yet, like several fintechs to have successfully emerged from this comparatively small nation, Intix is having a disproportionately big impact on financial institutions across the world. As a niche technology provider, helping banks screen and analyse transactions, its clients include some of the best-known names in commercial banking, such as Société Générale and Nordea. And in 2023 it signed a joint deal with one of the giants of fintech, FIS. Intix has been described as a kind of Google for banks. It uses indexing technology to trace and categorise transactional data into transparent, actionable intel. Its skill is, therefore, predominately organisational – but in a modern world where banks are waking up every morning to an ever-expanding spaghetti junction of data, that’s a powerful asset, especially for companies

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like FIS, which supports 95 per cent of the world’s banks. Leo Wagner, FIS senior solutions consultant, says that in today's dynamic and fast-moving financial technology landscape, the effective management of payments data is emerging as a critical challenge for organisations. “Banks need cost-effective ways of dealing with mountains of data and we want to offer our financial institution clients the most advanced technologies

INDEXING ALONE ONLY SOLVES ONE PART OF THE CHALLENGE… THE SECOND PART IS FINDING A WAY TO PUT THE DATA INTO A SINGLE UNIFIED FORMAT

Antoine Cuypers, Intix

and the best experiences,” says Wagner. “With Intix, we have found the ideal partner to provide our customers with a world-class payments warehouse analytics and reporting solution.” Antoine Cuypers, Intix’s director of strategic alliances and key accounts, who was one of the first to join Intix founders

Marc Braet and Wouter Van Santvliet‘s startup team in 2013, has seen how payment flows have become more complex for major financial institutions over the past decade. “But as one of our customers – whether you’re an institution or a corporation – a payment is a payment and a settlement is a settlement, regardless of the underlying technology. They don’t have to worry whether their payment is expressed in this language or that,” he says. This is precisely what creates the complexity for institutions and those who try to turn the information that payments data contains into actionable insights. “Data is spread all over the institution and it resides in different formats,” adds Cuypers. So the Intix vision was always to provide ‘a single-window’ to unlock the power it contains. And the company’s success today is due to it offering that solution at just the right time. “Twenty years ago, banking was made up of specialist, niche systems that took care of individualistic functions within an institution, each with their own data silo,” says Cuypers. “Now banks are trying to ffnews.com

consolidate that information in a centralised manner – think about the data lakes, data warehouses, and data stores projects underway. Intix is a natural solution fit for that because of our data centralisation capabilities, which allows for the accessing and valorising of all that data.” The indexing technology it deploys uses the same tools that help big data firms like eBay and Amazon succeed in managing billions upon billions of records and yet give users a response time of a few seconds. “But indexing alone only solves one part of the challenge,” says Cuypers. “The second part of the challenge is finding a way to put the data into a single unified index format so that it simply says ‘a payment is a payment’ when in reality this was expressed in 10 or 20 different technical formats. “At Intix, we have constructed proprietary approaches around indexing so that – in layman’s terms – we can come into the bank and, like Google Search indexes the internet and puts it at your fingertips, we index all the bank’s

BELGIUM: AN INSPIRED FINTECH HUB YOU CAN BANK ON Belgium might be little in terms of geography, but its location at the economic nerve centre of Europe has made it big in the world of fintech. It’s one of the most significant pioneers with currently more than 100 fintech companies headquartered there, ranging from innovative startups to fast-maturing heavyweights, inspired by the stories of the nation’s home-grown superstars. One of Belgian fintech’s earliest champions was Jurgen Ingels with his Clear2Pay, the payment processing firm, which, in the space of 13 years, became one of the world’s most sophisticated payment companies. It was acquired by FIS for $357million in 2014, but continues to hold business operations in Belgium.

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transactions, institution-wide, and put it at their fingertips.” That allows financial institutions to see a problem in their pipeline before their customers do, and act on it. Cuypers explains: “Institutions often find out about a challenge because their customer calls to tell them about it, and that’s not the type of alarm bell you want in business. What our unified index enables is early detection in their

business flow in near real-time, followed by an alert, and intelligence on the value at risk. Are we talking about a problem which is worth €100 to an individual customer, or a problem worth €100million to a chain of high custody customers? “The value factor is really pertinent because the value at risk will affect one’s response level: if it’s €100, you’re going to

ask Jake around the corner to stay late. But if it’s €100million, you’re going to have a whole department mobilised. This type of insight and decision power is what we believe will allow customers to move from reactive to proactive.” According to Leo Wagner at FIS, the global shift towards ISO 20022 and instant payments is impacting not only bank payment systems but also the downstream data warehouses, archiving and reporting systems that Intix is involved with. So, the partnership between the two companies will see Intix making real-time financial transparency a reality for FIS clients via two dedicated solutions, the FIS Transaction Warehouse and Reporting (TWR) and the FIS Central Payments Store (CPS). “The time is definitely right for banks to pivot away from considering data management as a cost centre, towards extracting value from the data in the form of new revenue streams and actionable insights into the bank’s business,” says Wagner. “Tapping into this mine of information to harness its full value has the potential to be a game-changer.”

Another is Unifiedpost Group SA, the Cloud-based financial software firm founded by Hans Leybaert in 2001, which has blossomed into a listed and leading company now intent on expanding its European reach through acquisitions (eight companies in the past four years including 21grams and BanqUP). A third is SWIFT. Arguably the most famous of Belgium’s homegrown financial services, its secure messaging and interface software services 11,000 financial instructions across 212 countries in its network and handles 44.8 million FIN messages per day. This year, it celebrated its 50th anniversary, and in September announced a new partnership with Wise. Antoine Cuypers from Intix was formerly with SIDE International, a little-known Belgian firm that made a big name for itself in the aftermath of the regulation changes prompted by the 9/11 attacks. “Along with the French company FircoSoft, we were the two key players offering adapted sanctions screening technology. SIDE’s product was soon servicing more than 500 of the biggest

banks in the world in approximately 103 countries, and all out of little Belgium,” Cuypers says. He believes the secret to Belgian companies’ explosive fintech success lies partly in location and partly in the ecosystem it has managed to create. “It goes without saying that the geographical location, which places us at the centre of Europe and so close to everything, is a good start. It means that if we want to go talk to some of the biggest banks in France, we take the train and are in Paris in under two hours. This translates into a huge potential to grow one’s business organically.” There are also advantages to having the offices of the European Central Bank and European Union in one’s backyard. “Add to that the level of knowledge and expertise found in the Belgian workforce because of our fintech history and the far-reaching Swift diaspora,” adds Cuypers. “You have to pay a price for that, but it makes hiring people with finely-tuned know-how and knowledge – whether from a marketing, a sales, or a technical perspective – that much easier.”

THE TIME IS DEFINITELY RIGHT FOR BANKS TO PIVOT AWAY FROM CONSIDERING DATA MANAGEMENT AS A COST CENTRE

Leo Wagner, FIS

Issue 30 | TheFintechMagazine

TAEZCI NHE DATA: MANAGING RISK IN F G A M

The cumulative impact of failed payments can be felt across a banking enterprise, says Roland Brandli, Strategic Product Manager at SmartStream, but most banks don’t have the operational insight to identify the scale of the consequences, much less prevent them before they do real damage

TheFintechMagazine | Issue 30

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THE FINTECH MAGAZINE: What impact will ISO 20022 have on the data that banks are now going to have to deal with? ROLAND BRANDLI: Many banks have already changed their legacy systems because they weren’t built to deal with the type and volume of data that ISO 20022 generates. Next, they have to identify how they can best use it. And I don’t think everyone has a clear picture of that yet. We think where that data really comes into play is operationally. SmartStream is mainly known for its reconciliation software, but we have other solutions, such as for cash and liquidity, corporate actions, collateral, etc. And, in many cases, all those are working off the same dataset. So it’s really about connecting the dots – we have probably the widest set of data, with the deepest quality, within a banking organisation. It’s a question of identifying where can they reuse that data, and, if they have a problem, find where the source of that problem is. For instance, if a payment goes wrong, that’s potentially going to have a knock-on effect on a bank’s ability to buy an equity and that might affect its collateral, which impacts its cash and liquidity. Most of the past couple of crises have arisen from liquidity risk, and then the market freezes up completely. And it’s because banks don’t really have the transparency between those systems. This is what SmartStream with its AI components is trying to address. Up until now, I used to say we built the solution on two foundational data columns, one being process, the other being exception management. Now we’ve added a third pillar, which is operational data. You can reuse it in other systems, but you can also draw in data from other systems, and provide context, from an operational control perspective. TFM: And how does that help banks meet their obligations to the regulator? RB: There was a big aspect of Basel III – BCBS 239 – that has never really been put into play, and that was that the regulators wanted to be able to connect source data to whatever happened to it later on. That’s exactly what SmartStream can do now. We can take source data coming from the internal or the external world, and while we’ll probably reconcile it, we can also push it to other systems. And, ffnews.com

if there’s an exception, we’ll put in the entire lineage of where it’s been – not only in the back office, but also post-trade, or pre-trade. We can also show how products connect up to collateral, and how that connects up to cash and liquidity. That one payment that goes wrong will go into different silos today, and each one will report that they potentially have a problem. What the bank needs to know is if they are all coming from the same transaction, or not. And that’s what most banks can’t really answer, at the moment. But we can identify if it’s exactly the same payment that is causing the problem across all of these different silos. The first step of improvement is root analysis. Right? If you don’t understand where the problem is coming from, there’s no way you’re ever going to fix it. TFM: And can this help with historical payment analysis to inform future exceptions management, too? RB: Absolutely. The potential is really huge. One of the things we can do with our Advanced Payment Control, which is all about payments exception management,

The first step of improvement is root analysis. If you don’t understand where the problem is coming from, there’s no way you’re ever going to fix it is show which are flagged for anti-money laundering (AML) and which are flagged for know your customer (KYC). What quite often happens is that you get false positives, and later on, that same customer might be flagged again. But, because we’ve monitored the exception process, we can send that information to the corresponding KYC or AML system, and say, ‘in future, don’t flag that’. Again, that’s because we provide the context and all the history, providing banks with a unique capability of making sure that data is verified, checked, and corrected. TFM: OK, so that’s a lot to think about, but banks are trying to operate at the same time as revolutionising their core,

so isn’t this another system change they’re going to have to plan for? RB: We prefer to deliver preconfigured, out-of-the-box solutions, that don’t require a great deal of customisation. The SmartStream solutions sit on top of banks’ existing systems. Imagine a factory workshop with a conveyor belt, which is the bank’s broadest system – it could be a data bus, or their core banking system – which everything touches. Then there are lots of robots handling the transactions – the treasury systems, the trading systems, the payment system, the portfolio management system. We make sure that the data is correct as it flows through those systems, and, if it’s not, we throw up an exception, which allows the bank to handle it. If the bank uses that strategically, it will also show issues that continue to be repeated, and it allows the bank to define a strategy that will change that. The change will come from the underlying processing systems, of course, but SmartStream gives them better operational control, across the enterprise and across all those systems. When it comes to how banks decide which systems to change, that’s something we and our clients define together, working out which is the path that makes the most sense. Because only the bank can identify which systems have weaknesses or benefits. Take a payment exception. The first thing that happens when there’s a problem is someone will have to go and check how that payment was instructed by the customer by physically accessing a system because most transactions now are via an internet banking portal, then check how it was executed, to see if there are any differences. Then you’re going to have to decide what you are going to do about it, potentially ending up with a reversal. That all consumes a disproportionate amount of time, and it’s mostly just unnecessary work. We might be able to integrate with some of your existing systems, even replace them, but that’s a path we have to find together. It’s not just about selling software; it’s about formulating a common strategy and vision, together with the banks. What we bring is the understanding of standardisation and of optimisation; we can show the way that this can be achieved. If there’s no appetite in a bank for that, there’s no appetite. But we’ve seen a lot of hungry people recently. Issue 30 | TheFintechMagazine

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FINTECH FOCUS: WEALTH MANAGEMENT

FINT

CH M A G AE ZINE

Bringing the retail banking boom to wealth management It’s time to reimagine wealth management, as users enjoy continued transformation in how they interact with their money, says Peter-Jan van de Venn from Hexaware Mobiquity The consumer banking environment in which many Gen Zs came of age was characterised by two things: exploding digital adoption and the collapse of interest rates that had shored up savings for decades. Take the UK. Overall, the average UK interest rate for the last 50 years – from 1973 to 2023 – has been 9.1 per cent, according to the Bank of England. But in the 2010s, it struggled to reach one per cent and the lowest was 0.25 per cent. During those 10 years, most areas of retail finance were fast migrating to

mobile-first provision and high-touch customer interaction, led by young businesses challenging the way established banking institutions operated. Wealth management was behind the curve. Then came the pandemic. It accelerated a handful of existing trends, namely investor preferences for lower-cost, passive strategies; the adoption of digital channels across generational divides; and advisory’s shift toward holistic financial planning and customised experiences. But it also meant wealth management firms and private banking for high net-worth individuals – which historically were the most highly personalised of all financial services – suddenly found themselves marooned from customers without the opportunity for face-to-face interaction.

Lower down the investment scale, savers who could see there was no value to be had from leaving savings on deposit, used lockdown to try their hand at ‘arm-chair’ investing – the so-called ‘Robinhood Generation’ who turned to that and other investment apps to try to maximise returns from money they couldn’t spend. The trouble was that many, lacking the experience and knowledge that had traditionally been provided by wealth managers, suffered losses when the markets corrected after 2020. The total share of trading turnover attributed to retail investors last year returned to the pre-pandemic level of 12 per cent after surging as high as 20 per cent, according ffnews.com

to ASX data in Australia – although micro-investing apps are still estimated to be a US$1trillion market globally. The combination of shifts in these two wealth-chasing demographics – the traditional wealth management client and the self-serve investor – means any institution looking to own the transformation in advisory services now is faced with an increasingly diversified and complex audience. But the opportunity for banks, who already have a relationship with both, of course, is evident… that’s if they get the strategy right. In the words of Peter-Jan van de Venn, VP of global digital banking at Hexaware Mobiquity, there has been a fundamental shift in who is looking to manage wealth and how. “It all starts with the democratisation of access to investment services. It used to be for ultra-high-net-worth individuals, but, driven by technology and low interest rates, there’s need for investment and wealth management products in the mass market.”

Issue 30 | TheFintechMagazine

TAEZCI NHE FINTECH FOCUS: WEALTH MANAGEMENT IN F G A M But, as in many other areas, so much of what is out there is depressingly similar. “It is still surprising to me that there is so much of the same brought to customers,” says van de Venn. “Differentiation is so key. We see it also in our retail banking research, where we found that 80 per cent of the features that banks bring to their customers are common. In wealth management, it’s even higher. There’s a lot of the same type of investments, the robo advice, etc.” Hexaware Mobiquity’s Wealth Management Features Radar, the latest in a series of Banking Radar reports, aims to correct that. It highlights how banks can take advantage of what’s been dubbed elsewhere ‘Wealth Management 3.0’ – using tech-led innovations to imaginatively serve lower wealth segments at a profit, something that wasn’t feasible previously. As with the company’s previous analyses, the conclusion is that providers shouldn’t reinvent the wheel, but use off-the-shelf solutions for the foundational services that customers expect, and invest money, time and effort in proprietary products and services that are uniquely designed for that bank’s target demographic. “We see banks focussing a lot on the product, but a customer is not buying an investment; they want to retire, or they want to have a safe future for their children,” says van de Venn. “So the life journey is way more important to look at than the product journey. “That could be achieved by having a more holistic view of wealth management – having an overview of a customer’s total net worth, not just what they have at the bank, or what they invest there. So really helping with financial planning in the longer term. These types of products and services are now also moving into the digital space on a feature level.” Hexaware Mobiquity puts wealth management tools into three main categories: The Musts, The Delighters and The Differentiators. The Musts are defined as the features that every wealth management platform has to offer. The Delighters are features that are more of a rarity on the market, but are a feasible type of feature for wealth management platforms to offer in order to improve their customer experience beyond the bare bones. The Differentiators are the crème de la crème, the functions and features that

TheFintechMagazine | Issue 30

can’t be commonly achieved – ambitious solutions that set a provider apart from the competition. Each of these categories can be applied to eight areas of innovation: Client Onboarding, Financial Planning, Analytics, Advice and Interactions, Portfolio Setup, Trading and Investment, Portfolio Monitoring, Account Top-Up and Holistic Wealth Planning. Beyond that, brand promise is also really important, says van de Venn. “Even with the same products, you can have a different view, you can serve a different segment, you can adjust the language to your segment… but have that consistently everywhere in the processes that you run. “Sometimes, when I am in my own banking app, I can see that there is different technology on the back end when I move to another area of the app – it looks Embracing the difference: The retail investor today isn’t always male, mature and wealthy

wealth management platform was designed specifically with women in mind. In practice, this means taking into account obvious gender differences, such as longer expected lifespans and higher chances that they’ll be controlling finances without a partner in later life. Women clearly value it; Ellevest currently has 3.3 million members. Another example is Zoya, which offers halal investing, designed to take the guesswork out of aligning investment decisions with faith-based beliefs. It also reflects another trend: the increasing demand for ESG and impact investing – allowing investors to make money in a way that sits comfortably with their values. Wealth management platforms have not always been in a position to offer this flexibility. Technology has changed that. Forbes recently published a positively glowing endorsement of the impact of AI on the wealth management sector, citing its potential to reduce risk and cost, scale advisor efficiency and offer supercharged customer-personalisation. But not everyone has the budget or desire to build all this provision in-house, which is often where Hexaware Mobiquity, comes in. It designs, builds and maintains customer centric digital banking solutions. In this model, banks and wealth managers can create cutting-edge solutions to cater to a range of customers and their needs. At the end of the day, though, a bank’s strategy for extending any wealth management offer has to build into a viable business case, hence van de Venn’s caution against reinventing the technology wheel but rather banks leveraging the information they hold on customers to create an offer based on a well-informed knowledge of what would delight them. “We see many neobanks popping up, very customer-centric, but they are not profitable,” says van de Venn. “So, my advice is to innovate only where you can differentiate. Don’t try to be too different on stuff that everybody has. Leverage out-of-the-box components as much as possible for your foundation layer, so there is more budget left for true differentiation and true innovation. “Then you have the ingredients to build a successful bank, focussed on wealth management.”

The life journey is way more important to look at than the product journey

different, or it takes a little bit longer. And this all hurts the customer experience,” he says. Building an understanding of which products to build for customers comes from a fundamental re-imagining of customer relations – from understanding which products have the potential to generate the most income to what Hexaware Mobiquity calls ‘needs-based sub-segmentation’. “When it comes to defining subsegments, we don’t think in terms of income, but rather we think in terms of, ‘what are their needs?’, because that is way more important,” says van de Venn. “A needs-based sub-segmentation allows you to truly understand the frictions your customers have in their daily financial lives.” This focus on diversity and, crucially, customer-centric product offerings, while still in its infancy, is evidenced among the most innovative wealthtechs. Ellevest is a good example. The US-based

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TAEZCI NHE CENTRAL BANKS: CBDCs IN F G A M

Merchant payment specialist Worldpay from FIS supports more than 225 markets in nearly 135 currencies. So how does it see CBDCs impacting its business? We asked Nabil Manji, Head of Crypto and Web3 THE FINTECH MAGAZINE: You believe CBDCs are the future. So, how do they fit into your role at Worldpay from FIS? NABIL MANJI: I have a team that is responsible for providing all of our payment products and services into the crypto ecosystem (exchanges, wallets, ramps, etc). I also focus on thinking about how we, by which I mean Worldpay from FIS, think about how blockchain-based solutions could either enhance, augment, or potentially replace some of our products and services that we sell more broadly. In the last two years, we’ve gone from the questioning phase of ‘are CBDCs a thing? Are they going to materialise?’, to where I now confidently believe that they are coming. And I have some fun facts from the Atlantic Council to support that. In May of 2020, there were 34 or 35 countries formally exploring CBDCs to some degree. Fast forward to today, and there are now between 130 and 135 countries that are in some formal phase of exploration, design, or development. That is representative of 98 per cent of our global GDP and is inclusive of 19 of the G20 countries, and major economies like the UK, Europe, and the US. If that many central banks are delving into CBDCs and spending the time and the resource to do so, it’s coming.

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TFM: Do you believe it’s the adoption or acceptance of CBDCs that will be the most challenging? NM: The way I think about it is, CBDCs are just another form of digital money. In our lives today, we have a lot of different forms of digital money in circulation. We obviously have the numbers that show up on the screen in our bank accounts, but we might also have balances in something like a Venmo, a PayPal account perhaps, or other sorts of applications. To me, using CBDCs is just going to mean we are in possession of another

SMEs are unlikely to create a direct integration with a central bank digital wallet system themselves. They’ll simply go to their payment provider and ask if they’ll enable it wallet containing central bank digital money, and which we might use for certain things that make sense to us, like peer-to-peer payments to a person who is in the same country as us, or using them for certain types of merchant payments.

In terms of usage, I think they’ll have a lot of the same use cases that we have for money today, but there might be some additional features or benefits to using the CBDC over a Venmo, a PayPal, a debit card, or a credit card. TFM: What role do PSPs like Worldpay from FIS have in the future of CBDCs? NM: There are so many different things that you can do with money: you can buy assets, like a home or a car; you can invest it into equities or stocks; and you can pay people and merchants. But the core purpose of payments is to buy goods and services. And for that to be true for CBDCs, merchants need to be able to accept CBDCs. That’s where we come in. As a payment processor, we try to be payment method-agnostic, and so central bank digital currencies will become just another payment method we offer. And that is important because merchants, especially SMEs, are very unlikely to create a direct integration with a central bank digital wallet system themselves. They’ll simply go to their payment provider of choice and ask them if they’ll enable it. That’s where we come into the equation and drive CBDC adoption as a new payment method.

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TFM: Is Worldpay from FIS already in the process of helping merchants understand the value-add of CBDCs? NM: Of course, one of our inherent jobs is to obscure the complexity of payments, and, at the end of the day, most merchants won’t want to think about the complexities behind accepting an e-wallet versus a bank transfer, versus a CBDC. A big area that we are looking at is how CBDCs will fit into the ecosystem of our platforms today so that we may harmonise the integration, the reporting, the reconciliation, and the fraud and risk management of it all. Then merchants, when they choose to enable it, won’t be facing a big integration process. It’ll be as easy as saying ’hey, this is one of the five or 10 payment methods I accept, and I know everything around it is going to work, just like it does for my cards, e-wallets, and bank transfers.’ TFM: Will CBDCs have the same cross-border capabilities and interoperability as other digital payment methods, like Alipay? NM: It’s a good question, which central banks are working through today. It also falls right into the biggest question that people within the industry, like myself, are asking with regard to the conversion

capability of one currency into another. Like pounds to euros, for instance. Is it going to hop across to their distributed ledger technology (DLT) system and be escrowed somewhere, or what? TFM: And how will it work with your FX? NM: That’s another good question, particularly because the FX system that we have today has been built up over decades with the use of agreed-upon standards and conventions created through an authority or community consensus on an agreed-upon process of interoperability. It’s the reason why our FX platform is so quick at moving money pretty much anywhere in the world now. When we roll out the new rails, the same sorts of questions will need to be answered in order to have interoperability. At present, we are a little uncertain about where that’s coming from, but it must be there. TFM: How is programmable money going to change the way that institutions and merchants at least try to reduce fraud? NM: I’ll use some live examples to illustrate this answer. At present, I am in the United States. During COVID, the US government delivered a lot of

stimuli into their economy. Some of that went to businesses, some of that went to households and consumers, etc, and we now know, with the benefit of retrospection and some of the research, that some of that money was misused. In fact, due to the scale of stimulus undertaken by the US, the total amount of misused dollars was significant. So now, imagine if you’re a government and you want to distribute a stimulus package to a business so that they may pay their bills, rent, and employees. What if you could create a special purpose CBDC wallet, and program it so that when it receives money, that money is only allowed to be spent on certain merchant category codes, i.e. certain types of goods and services? Such traceability is just impossible with today’s system. Once money is placed into someone’s bank account, the recipient can pretty much do whatever they want with it, and if spent inappropriately then you have investigated after the fact, and work towards potentially penalising them. I therefore think that the accountability and programmability aspect of CBDCs will certainly become a very big part of preventing fraud.

The gold standard: CBDCs’ ’inevitable’ arrival will expand consumer choice and help prevent fraud, says Manji

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Issue 30 | TheFintechMagazine

TAEZCI NHE CENTRAL BANKS: DIGITISATION IN F G A M

EVOLUTION EXTINCTION

Selvakumaran S, from iGCB, the retail and central banking solutions arm of Intellect Design Arena, explains how its technology is helping iconic institutions adapt to change When the Swedish Riksbank first threw open its vaults in 1668, a groundbreaking, eventually globe-spanning new structure was put in place – an innovation that would reshape the movement of money throughout the nascent global economy. As the very first central bank, the Riksbank redefined how national governments direct and orientate their economies, and it’s a function that has spanned generations, changing only marginally… until now. The first central bank was conceived exclusively as a means to lend the Swedish government funds and to act as a clearing house for commerce. As time wore on, other roles were allocated to central banking institutions (Napoleon founded the Banque de France to stabilise the Franc in the face of runaway hyperinflation) and central banks came to establish a monopoly on maintaining the currency of nations. In most recent decades, they have mainly been tasked with three jobs: to maintain low inflation and high price stability; to ensure stability in the real economy (i.e. high employment and stable growth); and to step in when necessary to maintain economic stability during financial crises. Many central banks now hold inflation targeting as their paramount policy framework, and operate independently of national governments. That requires a granular understanding of where the economy is heading and the sentiment among businesses that participate in it. Today, a suite of new challenges presents themselves to central banks. Will digital currencies and blockchain implementation threaten their role, even rendering them obsolete? Has globalisation fundamentally

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undermined the centrality of the central bank? Is it appropriate to focus on growth and inflation, given the looming risk of climate-based peril, and the importance of inclusive economies? A slew of Bank of England reports and International Monetary Fund articles shows their future path is far from clear. But what isn’t disputed is that ongoing digitisation of the financial system, including decentralised finance (DeFi), cryptocurrencies, blockchain tech and the rise of central bank digital currencies (CBDCs) all massively spur the need for central bank digitisation. “In today’s fast-paced, interlinked, dynamic world, central banks are faced with implementing policies much faster, and they want to have real-time visibility of operations across the nation, with more

As countries evolve with, for example, CBDCs, or real-time faster payments, the central bank infrastructure is supposed to be operational 24/7, 365 days a year. There is no exception control over what they can do at a national level,” observes Selvakumaran S, who heads up central banking and treasury operations globally for iGCB, the retail and central banking solutions arm of Intellect Design Arena. “Take monetary policies. Central banks are looking for clear objectives, choice of instruments, and timely rollout of those policies because a stable and liquid financial market is critical for better macroeconomic conditions.

“We deal with central banks’ executive management teams – governors, deputy governors, and directors – and consistently we are asked for a core banking system that is modern, efficient, scalable, and which can support them with the efficient and faster implementation of policies.” iGCB’s Quantum Central Banking Solution (QCBS) is uniquely designed to do just that and the company has a team of more than 750 domain-rich staff. “The platform was specially designed for central banks about a decade ago,” s ays Selvakumaran S. “Since then, we have been transforming many central banks by helping them generate their balance sheet or financial statements in real time, without any reconciliation requirements. “The second part of our solution is all about providing treasury with a single account at a national level, giving the visibility of balances spread across the nation, drilling down into ministries, regions, departments. This is, in fact, one of the concepts being recommended by the World Bank and IMF for bringing efficiency at the country level,” he adds. “Then the platform can offer an advanced payment and settlement mechanism for supporting the central bank with transactions, cutting across monetary policy, collateral management, portfolio management, etc, with integrated operation. That’s supported by real-time integrated currency circulation management and wrapped around with advanced collateral management and monetary policy tools. “The solution also is equipped with an advanced composability, extensibility and integration framework called iTurmeric that helps central banks to quickly configure processes and put them into production.” ffnews.com

A MATTER OF TIME iGCB has worked with the Reserve Bank of India for almost a decade, its platform successfully managing an almost-$1trillion vault and generating a balance sheet in minutes with visibility of balances at granular level across the country. This kind of detailed national database-building was also called for in Accenture’s recent study Now Or Never: High Time Central Banks Embraced Total Enterprise Reinvention. That pointed to the Silicon Valley Bank run, which was initiated by consumer-held mobile devices, as evidence of the new reality that central banking systems face – one in which analogue systems have no hope of keeping up with real-world financial events. By Accenture’s reckoning, there are four main areas that central banks must embrace to remain relevant. The first is to become more data-driven and analytics-focussed, drawing on the wealth of new financial information available. The second involves an enthusiastic embracing of cutting-edge functionality to achieve the bank’s goals of stimulating and regulating the economy. The third calls for automation-based efficiency savings, spurring a faster, more responsive banking ecosystem. And the report recommends effective, consumer-centric communications, too, similar to the communication revolution we’ve seen in the last decade in the retail banking sector, with a view to averting fraud and enabling the system to work better with those it serves. QCBS is designed for central banks from the ground up, allowing them to operate at the kind of scale required to successfully analyse a complex nation-sized system, says iGCB. “We have, in fact, benchmarked the solution to support 100 million transactions on a peak day, and more than 30 million payment messages on a single day,” adds Selvakumaran S.

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“As countries evolve with, for example, CBDCs, or real-time faster payments, the central bank infrastructure is supposed to be operational 24/7, 365 days a year. There is no exception. There is no concept of making it 99.95. Our solution has been specially designed to support that kind of scale, reliability, and availability – and not only infrastructure, but application-level design, too, and in terms of ensuring world-class security. “We have supported the Reserve Bank of India with 24/7 operations for the last few years. And our system is the backbone for the Riksbank’s monetary policy and advanced collateral management, which is connected with pretty much all the depositories and payment systems in Europe. We’re looking at some very key strategic items for central banks now, including the launch of CDBCs, and the integration of generative AI. “There are some interesting use cases there, including integrated deep risk analytics for market and credit risk.” iCGB’s technology has been implemented for different segments of central banks of all sizes, from the largest, such as the Reserve Bank of India and the Bank of Indonesia, to the smallest, including the central banks of Mauritius, Madagascar, and Papua New

Guinea. iGCB is poised to announce some large deals in the Americas, too. Whatever their size, all users have a ‘360-view dashboard’ tracking 2,000 attributes for users, enabling them to implement monetary policy faster. Currency management and public debt underwriting can also be managed via these platforms, offering a comprehensive re-imagining of how a central bank controls activity within the system it is responsible for. As ever, reliability and availability are key here. The appetite for increased digitisation is being adopted around the world. Germany’s Bundesbank recently ran a series of Expert Panels catering to the Eurosystem central banks, during which it was argued that digital transformation must become a fundamental focus of their development planning, a direction that’s enthusiastically supported by the European Central Bank. The role of central banks is undergoing a profound transformation driven by a combination of economic, technological, and societal changes. While the traditional functions of monetary policy and financial stability remain crucial, central banks are adapting to new challenges and opportunities.

Protecting their legacy: Central banks see the imperative to become nimbler and more efficient

Issue 30 | TheFintechMagazine

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TAEZCI NHE FINTECH FOCUS: THE REFLECT FESTIVAL IN F G A M

SURPRISING

CYPRUS! Fintechs who head to the Med’ find a warm welcome on this tiny island. Fiona McFarlane charts the rise of an innovation hotspot and chats with industry leaders at its annual Reflect Festival for tech entrepreneurs Though small is size, Cyprus has almost always had big ambitions to be viewed internationally as a business hub of choice. And to that end, its government and banking system have worked extensively to turn the island into a desirable headquarters or second office location for international finance and tech companies. Cyprus’ offering of a skilled workforce at cheaper rates than mainland Europe, oversight bodies, and a geographical location at the crossroads between upper and lower Euroasia, has made it popular with finance companies since the 90s. When Cyprus became part of the EU in 2004, it offered an enticingly low 12.5 per cent corporate income tax, which can be further whittled down to 2.5 per cent via its intellectual property taxation regime.

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Since then, it has regularly added thoughtful initiatives directed at sectors that might be struggling elsewhere. While other states were slow to adopt crypto, for example, Cyprus rolled out one of the first digital currency university degrees and accelerated the education of its regulatory bodies. When a messy Brexit left financial firms stranded without an EU licence, Cyprus handed out three-year temporary permits like safety jackets. Shortly after the EU put an end to the island’s citizenship-through-investment scheme in 2020, Cyprus turned its pro-entrepreneurship campaigns up a notch to let everyone know that the country was serious about building an ecosystem that packed a punch. The strategy proved to be effective. SME finance companies with a tech component have trickled in – European

ones in search of better incentives, MENA ones looking for access to the EEA, American ones in search of a kindred community. At times, external stimuli like the Ukrainian conflict or the collapse of Lebanon’s startup scene even turned the trickle into a steady stream. Cyprus today is home to the highest number of investment companies in the EU in terms of the number of clients by home member state, and its coastal city of Limassol is a hotspot for global firms in finance. Some big names on display include Nest Investment Group, MUFG Investor Services, the global asset arm of Mitsubishi UFJ Financial Group which built an entire office block last year, and Exness, a leading forex broker that reported a total trading volume of $27.2trillion for 2022. ffnews.com

Many of these names attended and sponsored the 2023 Reflect Festival, an annual two-day conference that, according to the event’s platinum sponsor, payabl., which is based in Cyprus, showcased the island’s blossoming fintech sector particularly well. Payabl.’s chief product officer Igor Skachkov flew in from Frankfurt to give a presentation and describing the event, said that ‘the energy and level of focus on payments this year is fantastic’. “At this moment there are said to be about 446 startups and scaleups with a combined enterprise value of €3.7billion in Cyprus, of which 250 are fintech firms. Statistics like this often feel empty, but the turnout at Reflect and its numerous side events brought it to life,” Skachkov added. Payabl., which was categorised by Deloitte as the island’s second fastest growing fintech company this year, is an omniverse payment facilitator, making a name for itself through offering the highest-trending payment services. At present, it offers 300-plus online and offline payment methods, and has most recently launched a new POS terminal. With offices in Italy, Germany, Poland, Lithuania, the Netherlands, and the UK –

THERE ARE ABOUT 446 STARTUPS AND SCALEUPS WITH A COMBINED ENTERPRISE VALUE OF €3.7BILLION, OF WHICH 250 ARE FINTECH FIRMS where it was crowned this year’s Best EMI at the Finance Magnates London Summit week – payabl. could have chosen to headquarter itself pretty much anywhere, but picked Cyprus due to the business operating conditions and the impact it could see itself having on the island’s community from a financial, technological, and educational perspective. Payabl.’s CEO Ugne Buraciene observed: “We're all about giving support– whether it is to startups at the Reflect Festival, or to the young children of Cyprus and its educators in tech, science, arts and entrepreneurship, which we do via other partnerships such as our recent one with the Youth Tech Fest. We do it because we believe in the benefit of giving every child the chance to learn and explore tech.” ffnews.com

CEO IN THE SPOTLIGHT

Solving the payments puzzle We asked Ugne Buraciene, CEO of payabl. – the second largest fintech in Cyprus and sponsor of its biggest event for entrepreneurs – to tell us three things that define her #1 Cyprus Cyprus has emerged in the last decade as an up-and-coming business hub, and recent reports are placing it high within the Middle East and Southern Europe entrepreneurial and tech ecosystem. I am originally from Lithuania, but have been living on the island for 10 years now and I am happy to call Cyprus home. As the CEO of its second largest fintech, I love afinding ways to contribute to the business community here – either through sponsoring events like Reflect, taking on director roles with TechIsland (the largest tech association), or creating a platform for women through my work as the country’s ambassador for the European Women in Payments Network, which I have been for five years now. I also encourage our team to donate time and share their tech knowledge at local events, like November’s Youth Tech Fest Cyprus in Nicosia.

#2 My life in a suitcase Roughly 50 per cent of my time is spent on the go. I travel in between our offices in Germany, the Netherlands, and the UK, visiting clients and managing partners, but I also attend industry events when I can. In the past two months I’ve been to the Payment Leaders’ Summit in Rotterdam, the Finance Magnate Summit in London, the Web Summit in Lisbon, the European Women in

Payments Conference in Vienna, the Merchant Risk Council in Athens, and Money 20/20 in Vegas.

#3 Sense of purpose I always say that I sort of walked into payments because I didn’t know I had an interest in the field. But, looking back, I was lucky that my first significant job was working for an IT company building software for financial institutions. From that moment, I took time to understand every piece involved in the payments industry – like what it takes to process transactions, how banking works, and how many pieces are really running within an infrastructure. I didn’t understand the full significance of each element, then, because I didn’t have all of the pieces of the puzzle, but I eventually found them when I moved into a more specific role within payments. From there, I really began to understand the other parts of the ecosystem, and where the industry was going. That is how I ended up doing the job that I do now. Some CEOs may aspire to run companies like a family business, but I challenge that. I think a company has its own goals and objectives to achieve, but what is important is to keep a healthy environment where people – who are a company’s strongest asset – are motivated, appreciated and have a place to grow. Personally, I cannot stay in a place where challenges have been exhausted and I am not growing. My innate drive is to learn, dare, and improve myself and the company that I run. So, with me, payabl. is run as an vagile, modern fintech company – and we have a lot of things to do! Issue 30 | TheFintechMagazine

TAEZCI NHE FINTECH FOCUS: THE REFLECT FESTIVAL IN F G A M

The Netherlands leads, whether you know it or not! NAME: Daniel Van Delft COMPANY: CEO, Currence, the Netherlands As the CEO of a company behind iDEAL, the payment tool that 96 per cent of all online shoppers in the Netherlands use, one of the first things I think whenever I’m asked about my perspective on the Dutch payment ecosystem is how little known it is that we are so well-digitised! In terms of our digital nativeness, you can compare us with more accuracy to the Scandinavian markets than with Germany, despite the latter being our direct neighbour, because our percentage split of digital payments to physical money and cards is 80/20 now in favour of digital. We were also one of the first countries with a very high adoption of mobile phone usage, which

gave our mobile banking statistics a real headstart when it took off. For those who haven’t heard of iDEAL, it is an online payment system that allows users to directly pay from their personal online banking accounts to the business they are ordering from, with a simple direct transfer of money rather than having to share their debit or credit card details online. One accreditation I give to the high adoption rate of iDEAL is the ease at which we can layer frameworks over the iDEAL payments platform, like we saw with mobile banking and the tangible value it gave to users. Before iDEAL, if you had a subscription in the Netherlands you would normally receive an invoice via email, which had to be signed and sent back. Now, you simply have an iDEAL payment link that pushes payment as soon as you identify yourself. Finished.

My favourite development is that, very excitingly, iDEAL has been chosen by the European Payment Initiative (EPI) to be used as the building block for its EPI payment scheme, which will create a unified pan-European payment solution with a higher degree of transparency and control than is currently available. This, like others, is one of the many uplifting trends underfoot in the Dutch market. The undertow disadvantage is that we are also a very competitive market with, on average, a lower price per transaction– irrespective of which payment type you talk about– in comparison to other markets. And this is somewhat challenging now, particularly when it comes to funding innovation in new segments or alternative forms of payments.

Crypto will, ultimately, change the game NAME: Dr. Andrea Vachos COMPANY: Until recently, the Growth Manager at Binance for Greece and Cyprus In Cyprus, as well as in the rest of the world, cryptocurrencies have really grown in popularity as an alternative method of finance and have started changing the payments game with their ability to allow businesses and individuals to make cross-border transactions in real time. In terms of payment systems, Binance Pay developed a program that allows Binance users around the globe to send and receive money instantly, with almost zero fees. And this has, so far, performed formidably as a payment system and network, especially for addressing B2C payments. In terms of popularity, it had around $55billion in volume on the network in early 2023. From my perspective as a blockchain

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expert, I admire how crypto and blockchain bring decentralisation and real ownership of funds to users through a reliable protocol. And I have certainly seen remittances players and credit card networks turning to the technology, and understanding that, though traditional payments providers are sometimes reluctant to adopt crypto-based payments, they do stand to benefit from the technology’s faster

settlement cycles and access to new customer segments. Satoshi’s vision was to develop Bitcoin as an alternative payment mechanism, so we are on the right adoption patch, but at this moment I believe his vision is still a little more ‘decentralised’ than the way many wish to treat their finances at present. Not everyone is ready to download a DeFi wallet and manage their funds. Some obviously are – as we have seen in El Salvador where they have adopted Bitcoin as legal tender, thereby making it mandatory for online and offline shops to accept Bitcoin as a payment method – but certainly not all.

The democratisation of finance: Binance aims to increase the freedom of money for users

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TAEZCI NHE FINTECH FOCUS: THE REFLECT FESTIVAL IN F G A M

Subscriptions are moving up a gear NAME: Gabriel Colic COMPANY: Co-founder of FlexCar, Germany and Cyprus I work for a fast-growing company called FlexCar, which is a vehicle subscription company that offers monthly subscriptions to a variety of cars as a mid to long-term alternative to full car ownership. One of the big reasons why European statistics show that the average age of a new car purchaser is often over 50 is because traditional car ownership is just not flexible enough for today’s contemporary consumer segments. To be clear, there is nothing novel about mobility services with embedded financial services. Renault, Alfa Romeo and SEAT, for instance, all offer loans and complementary products, such as car insurance or hire-purchase.

Volkswagen even has its own bank. But embedded finance is certainly offering brand new opportunities for businesses like our own to redefine how we interact with consumers, money, payments, and banking. We’re seeing its ability to build deep relationships with customers first-hand. There is a combination of a primary purpose (obtaining a car), followed by a longer relationship where we are able to become a further part of the financial lives of our customers on an ongoing basis by offering add-on options, like vehicle swaps, rental

pause periods, or the chance to offset CO2 emissions. Once trust has been created with modern customers who appreciate the value of an ‘all-in-one’ leasing service, further customer loyalty is won with intuitive ease. So far, we’ve had a strong customer response, which has fuelled our growth from Greece to Cyprus, where we have a fleet of more than 1,000 cars, to Italy and now Mexico. I can’t wait to see where it takes us next.

SMEs need to spread their banking risk NAME: Alana Condratrov COMPANY: Director of New Business, Freemarket, UK Call me a little biased if you want, but I think B2B payments is the big trending topic. Recent research showed that its market cap will be somewhere around $44trillion by 2024, which, in my eyes, translates as a massive opportunity for everybody – including Freemarket. Our company is actually an aggregator of banking services, focussed on B2B cross-border payments, and aims to provide customers with great value options and banking resilience, the latter of which is also a trending topic because in this climate we have seen how banks can change their risk appetite from one day to the next. That means that companies are suddenly finding themselves without a

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Opportunity knocks: SMEs are struggling to access basic banking services

banking partner, or payment methods, and looking at needing to factor in three to six months to apply for a new corporate banking account. It’s not a good place to be in business, so being able to mitigate that kind of turbulence is important to the operational

resilience of SMEs around the world, which is why we decided to set ourselves apart from other players by working with multiple banking providers. In my view, giving oneself more than one option in case a bank becomes inhibited by global conflicts, or suddenly becomes reluctant to work with SMEs in general, should be a top priority, because we are moving into an increasingly interdependent and interconnected world, which creates both new opportunities and risks. On the one hand, a more connected business and financial ecosystem can make it easier to expand globally, but, on the other, this connectivity can result in greater reliance on markets that you have little to no control over. To my mind, versifying you banking relationships through solution providers is key.

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TAEZCI NHE FINTECH FOCUS: THE REFLECT FESTIVAL IN F G A M

Crypto biases in banking must evolve NAME: Luciano Nonnis COMPANY: Co-founder, Peanuds, Germany Aside from a three-year stint in wealth management and finance, I have been ingrained in the crypto space since 2013, perhaps most significantly as the co-founder of the DAO initiative at Germany’s biggest crypto network. I was also the co-founder and CEO of a Cypriot crypto exchange, which I ran successfully and sold in 2021. Today I’m the co-founder of crypto neobank, Peanuds. The decision to focus on cryptocurrency as our first niche was an obvious choice for us because of the industry’s deafening cries for a crypto-sympathetic banking solution. At the moment, there are more than 970 payment institutions

in Europe, and officially only 17 to 18 fintech banks or payment providers are serving the crypto market. When attending crypto events, the first question we hear is always, ’where do you bank? I need a bank account. I have lost 20 already. They shut down my account for no reason and are not telling me what I did wrong. Even though I pay my taxes, and everything is legal, they just don’t like it.’. Genuinely, it’s crazy how the same story gets told a thousand times, but in the same breath I understand that it all boils down to a payment pain point that is caused by having too few service providers. It’s like having one bakery to provide the entire world with bread – can you imagine its quality? As such, Peanuds’ aim is to support the industry by designing a banking partner who understands these business cases, but also promises to listen without judgment or discrimination against individuals and businesses because they are part of an

industry that is not yet compatible with the current monetary system, or with other banks, because they are perceived as a competitor. I believe that the competition aspect is tremendously healthy because the monetary system hasn’t had any competition until now, and since the arrival of crypto, I have seen the banking system improve tenfold. After all, the presence of another player in town pushes others to pick up the pace, right? Not to mention the fantastic opportunity we have of combining the two wonderful markets together at some point.

There’s a quiet revolution happening in Finland NAME: Roman Mazur COMPANY: COO and Co-founder of Narvi Payments, Finland Back in Finland, I run a corporate fintech solution called Narvi Payments which, in a nutshell, is a tech company that offers corporates a suite of banking services they would otherwise struggle to access, and we plug these into one dashboard via API connections for seamless access. The Finnish banking system, with its 24/7 credit institutions, is conservative and has gone through some shrinking in the past year. Conversations I hear often revolve around how the space has also evolved into a completely different animal over the last 20 years due to the exponential growth of digitisation, which brings to market products that weren’t even on the horizon a year ago, as well as behaviours.

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One-stop shop: Narvi offers multiple banking services via a single dashboard

Mobile payment is a good example: the percentage of Finns who use it jumped from 37 per cent to 58 per cent between 2021 and 2022. And the fintechs who’ve harnessed their proposal will have grown at a monstrous speed. There are remaining pockets of challenges, which need to be worked on; like legacy messaging boards, which were invented in the 70s, and Bermuda Triangle regions in cross-border payments. It is still too difficult to send funds to certain areas of Africa or LatAm. Our product in Finland tries to help in its own way, and is quite unique in regards to the fact that we’ve built

everything from scratch and we have kept our number of vendors down to a minimum to give clients and ourselves more flexibility to build business, based on our approach. At the moment, we’re in the process of expanding our payment rails to accommodate a banking-as-a-service platform so that we can connect Nordic IBANs with Western Europe.

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TAEZCI NHE CROSSING CONTINENTS: UK TO THE US IN F G A M

shrewdmove Kani by name, canny by nature, chief commercial officer Marc McCarthy makes the case for why a fintech born in North East England can make strides in the US Real-time transactions (RTPs) in North America are expected to grow from 3.9 billion in 2022, to 13 billion by 2027, a compound annual growth rate of 27.3 per cent, according to recent projections by ACI Worldwide. Although a relative slowcoach compared to other territories, (as a proportion of electronic payments, USA RTPs are forecast to be just five per cent by 2027) the volume of growth in North America is still significant and it’s being further fuelled by the new instant settlement rail FedNow and a steady move away from cash. No wonder Kani Payments, a self-proclaimed ‘fintech for fintechs’, which has reconciled billions in payments for customers since its inception in 2018, is keen to answer Uncle Sam’s call. Based in the north-east of England, the company’s name – a play on the word ‘canny’ which translates locally as ‘shrewd’ but also as ‘good’ – aptly describes how it sees its offering. Kani is a solution to the pressure that bank back offices are experiencing in the face of the global explosion of instant payments. Legacy processes and technology – the use of Excel sheets, for example – are increasingly unfit for purpose in this environment. If payments are settled in minutes, seconds even, banks need a real-time view of their liquidity, and that’s where Kani comes in. “We’re coming into a space that is really lacking solutions,” says Kani chief commercial officer Marc McCarthy. “While we’ve seen technology introduced into the front end, a lot of the back-end processes are still done manually. That is a real problem for a lot of institutions.” Having provided the back-office software engine to many UK payment firms, such as

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TPL and Moorwand and climate-conscious we’re not. It is a different country, with bank Frost, Kani is now casting its eye over completely different attitudes, and I think the Pond, with advanced discussions with we’ve seen that, over the past few years, potential US clients underway, and plans to coming more and more to the fore. open an office in Atlanta. “But in all our markets we need to have In fact, McCarthy’s appointment in a business understanding of data, and January of this year came with the very more so as we look to expand into the US. clear declaration that one of his key Look at consumer behaviour, for example. responsibilities would centre around the Businesses obviously want to predict what expansion of Kani into the States. the consumer is going to do next – what “The US presents a big opportunity, in kind of purchases they are making, when that it’s seeing a surge of digital payments,” they are making those transactions, etc – says McCarthy, who is a former senior and what we see is a lot of companies have vice president of international sales for a lot of the data that can tell them that, but AutoRek. “Not that long ago, people were they don’t really know what to do with it. still walking around with big wads of dollar “Because it comes from different sources, bills. Now, they are starting to accept they try to manage it individually, rather that they can tap with their than as one group of card – they don’t even data. At Kani, we basically To have a swipe like they used consolidate all of it into partner like to. We’re going to see a single place, and then Mastercard sitting a huge proliferation of provide reporting elements side-by-side with payments, including off the back of that. digital micropayments, “In the US, it is us gives a strong and we certainly want complicated, not just by signal to the to be part of helping the regulation, but by the market that we manage that expansion.” fact that you are dealing have a world-class with a number of very product different players: credit AN ENGLISH unions, community banks, FINTECH ABROAD smaller banks, and then the mid-tier, the A move into the American market, isn’t regionals, super-regionals, and everything straight-forward, however. Although less in between, who have been slower to tightly regulated than Europe, there are 50 adopt modern technology. states all transacting differently, according “The particularly encouraging and to legacy or regional conventions. exciting thing here is that often they’re keen It’s certainly a challenging environment to learn, they’re keen to understand, and for a newcomer to enter – the US is often they’re keen to get best-in-class. But not seen as the graveyard of European and UK only that, it’s like they almost want to fintech hopes – but Kani is going in with leapfrog. They’re like, ‘we know we were its eyes wide open, says McCarthy. behind, and we had legacy systems, but He explains: “A lot of companies tend to now we want the future. We don’t want enter the US thinking it’s an extension of the what everyone else is using, we want to British market. We speak the same language, look at the latest and greatest technology.’ so therefore we are culturally aligned. Well, ffnews.com

side. The announcement in 2022 that Kani had been selected to join Mastercard’s Start Path global programme was certainly a boon for the organisation as it gave Kani the opportunity to co-innovate with the payments giant to scale its platform. Recently, that arrangement has morphed into a fully-formed partnership, with Mastercard directly introducing Kani to a number of its clients. Clearly, having a stateside behemoth in your corner will oil the wheels when talking to a new audience. “To work more closely with Mastercard, just seems to be sort of a natural evolution in the process,” says McCarthy. “Mastercard has taken a view that they would like to partner with us,

The land of opportunity: Kani says the North American market presents a route for growth

“I think that really is where Kani can excel. So, for us as a business, the opportunity in the US outweighs the challenges.” It helps, of course, when you walk into a country full of strangers that you have one of the bestknown brands in finance by your ffnews.com

particularly in North America. So, for us, in terms of timing, that’s just worked out incredibly well. “It’s hugely important to not just turn up and say, ‘hey, we’re Kani!’ when no-one knows who we are, but actually, to have partners like Mastercard sitting side-by-side

with us gives a strong signal to the market that we have a world-class product, that’s recognised by one of the largest card schemes globally.” Kani’s selection to be part of the FIS Fintech Accelerator programme, which identifies and advances fintech firms with high potential to scale globally and creates partnership opportunities with FIS clients, has also helped to open doors. “It’s a great opportunity to expand our customer base in the US,“ admits McCarthy.

FUTURE PLANS So, if the immediate focus is on making an entrance in the US, what about the longer term? What payments trends has Kani identified to form the basis of the business’s future endeavours? “The current state of the fintech ecosystem is one of extreme growth and there’s an anticipation of about $14.9trillion worth of global payments being transacted digitally by 2027,” says McCarthy. “We will see new payment rails coming out, a different way of new generations dealing with finances and dealing with payments. I personally foresee that a lot of ways that we pay for things today, just won’t exist tomorrow. “Walking to a machine or using a phone to pay for parking? Gone. You’ll pay automatically. Just think about Amazon Fresh, where you can go into one of Amazon’s stores, not even have to scan anything, walk out and everything just gets paid. We will see more of those kinds of instances of payments, going forward. “And I think much of that innovation will come from the US because Silicon Valley has already given us pretty much everything we have today, in terms of tech. “Every time there is a new technological advance, we see a new way of paying – including the increased use of AI. Therefore, the volume and complexity of data will inevitably continue to climb. The need for reconciliation solutions such as ours will be even more apparent.” Issue 30 | TheFintechMagazine

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CROSSING CONTINENTS: PORTUGAL TO THE US

FINT

CH M A G AE ZINE

State of the unions Portuguese fintech explorer ebankIT has set sail for the US. Paul Provenzano tells us what it can bring to the new world of ‘old’ banking The US started a global payments revolution with the invention of the credit card (Diners’ Club) almost three-quarters of a century ago. But, as the rest of the world moved to digital payment systems, eliminating – or almost eliminating – traditional methods, such as paper cheques, the country became something of a laggard. Indeed, a recent survey revealed that 55 per cent of adult Americans had written at least one cheque in 2022. Cheques are also still commonly used for business-to-business transactions in the US, despite being both expensive and time-consuming to process. But landmark changes are now afoot. Most recent was the launch of the Federal Reserve’s instant payments network FedNow, which went live in mid-2023 and within weeks was being used by more than 100 institutions to send and receive payments. There is also the increasing adoption of data-rich ISO 20022 payments messaging – hugely helped, of course, by global payments provider Swift insisting its customers use it. And then there is the influence of the COVID-19 pandemic, which ffnews.com

changed the habits of several generations and saw the use of digital payments, including mobile, soar. All this has made the States an appealing destination for innovative fintechs – and among them is Portugal’s ebankIT, which is moving into the US market with its Omnichannel Digital Banking Platform. ebankIT was founded in 2014 with headquarters in Porto and went on to establish offices in London, Vancouver and now Atlanta. It says its open API-based, low/no-code platform can be integrated into any core system to provide an interactive digital experience. It is already licensed to financial institutions across 11 countries in Europe and Africa, as well as Canada, serving millions of customers.

Financial institutions are keen to hear about our experience globally, because there is some expertise we can bring that’s uniquely valuable to the US The company’s strategy has been to develop partnerships with some of the best-known digital providers, which include blue-chip firms such as Microsoft and IBM, to create an ecosystem that’s able to explore and deliver new banking solutions.

One of its most recent collaborations has been with MX, whose insights and personal financial management tools have been integrated into the ebankIT banking platform, allowing financial institutions to provide a combination of predictive financial guidance and financial wellness capabilities to their customers. Paul Provenzano, ebankIT’s VP of market development in the US, believes this integrated partnership approach – with what some might see as being competitors – helps set the company apart. “There’s competition going on between fintechs and banks but, at the same time, there’s an opportunity to leverage technology,” he explains. “What we do is enable financial institutions to pick the winners that are going to serve them and their customers best, and then, through our open API framework, integrate those into the different use cases, so it creates a much cleaner and simpler user experience, without having to worrying about settlement, fraud, nor any of the other obstacles or friction that might come up along the way.” The open API approach was deliberately architected into the ebankIT platform. “We’re agnostic to third parties,” says Provenzano, “because we believe that the financial institution that we partner with should be able to enable whatever it wants for its customers, based on whether they’re a consumer, a business, or a commercial account.” Issue 30 | TheFintechMagazine

TAEZCI NHE CROSSING CONTINENTS: PORTUGAL TO THE US IN F G A M Provenzano says ebankIT has received a lot of ‘strong interest’ in what it can bring to the party from US financial institutions. “They are keen to hear about our experience globally, because there is some expertise that we can bring, that’s uniquely valuable to the US,” he says. Specifically, that’s ebankIT’s previous work in Canada with credit unions. A distinct feature of North American banking, there are slightly under 5,000 in the US that collectively serve 135 million customers. ebankIT won a contract back in 2017 to provide its digital platform to Canada’s largest credit union, Coast Capital, which serves almost 600,000 members through its network of 50 branches that stretch from

Dollar signs: Changes in the US payments ecosystem are attracting foreign fintechs

coast to coast. Within four years, ebankIT’s platform was licensed to financial institutions representing 35 per cent of total end-users of the top 100 credit unions in the country, excluding those in Quebec.

COMMUNITY SERVICE A recent report by consultancy Cornerstone, which surveyed the digital investment programmes of 87 US credit unions and banks, found those with an average size of $4.4billion had more than doubled their digital transformation spend from 2021 to 2022 to $425,000 per $1billion in assets. But, despite the growing focus on mobile channels, the overall percentage of checking account holders who were active mobile banking users increased by only two per cent over the same period. Perhaps that’s because in a country where credit unions once represented a distinctly different way of banking,

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digitisation has made it harder for them to distinguish the customer experience from that offered by mainstream banks and fintech challengers. The report also noted that only half of credit unions that expected to deploy a new digital account opening system in 2022 actually did so, which might be a reflection of the limited in-house resources these small and mid-sized organisations have, compared to their rivals. “Too many institutions think a new system will magically drive new account applications and deposit gathering,” states the report. “The reality is that deploying a new system changes – or at least, should change – a lot of processes throughout the

a small business, or a more specialised commercial segment such as agriculture,” he says. “These business lines are already starting to require and demand more personalised or specific capabilities. And personalisation, for us, is an area of focus.” That chimes with credit unions’ ethos. Often based exclusively in the communities where they were founded, they are defined by their deep and long-standing relationship with local customers. Digital payments are a specific area where Provenzano believes ebankIT’s global experience can help add value. “In the US there’s still a lot of paper cheques being facilitated, especially in business, so I know that business banking is eager to deploy more and more use cases around the FedNow rails,” says Provenzano. “I think there are still a lot of use cases to be deployed, which is exciting. But then there are other payment transaction methods that are continuing to evolve around P2P. “What’s interesting about the US market is the fragmentation. There are a lot of payment rails, so what I think what we’ll see over the next one to three years is some level of consolidation. “There are things we’re learning globally that we can introduce to the US as best

There is an opportunity to help extend the types of services that credit unions enable for the breadth of business lines that they cover

organisation related to account opening, onboarding, marketing, risk management and know your customer. Redesigning those processes to improve speed and efficiency is a significant effort.” What the Cornerstone report did find, though, was a clear correlation between institutions that had improved their digital performance and those that had improved their overall business performance. And it would be wrong to paint credit unions as backward when it comes to technology. Alliant, for instance, one of the biggest in the US, has won several awards for the quality of its digital banking experience. Provenzano believes ebankIT’s platform could give many more a chance to catch up. “There is an opportunity to help extend the types of services that credit unions enable for the breadth of business lines that they cover, whether it’s a consumer,

practice – interesting use cases around how you make a domestic payment experience frictionless and more simple, and then how you start to enable international money movement – international wires, for example, can be very complex. “At the end of the day, whether it’s a consumer or a business, they just want the money to get where it’s supposed to go, efficiently, and on time. “That’s definitely an example of how we can take our global expertise and bring it to the US market to create much more simple and seamless experiences.” Five hundred years ago, Portuguese colonisers were locked out of North America in a political land battle with their Spanish neighbours… Perhaps ebankIT will plant a new, digital flag. ffnews.com

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TAEZCI NHE FINTECH FOCUS: PROPERTY IN F G A M

over roof ourheads A major report on the state of the housing market in the UK by Yorkshire Building Society points to the urgent need for new thinking and new technology solutions. Here, we look at the report in detail and some of the proptechs who are searching for answers

In 1874, the Building Societies Act electrified the growing mutual building society movement in Britain. A form of regional cooperative, these financial institutions focussed on enabling ordinary working people to buy their own homes for the first time – something unheard of until that point – thereby indelibly linking property ownership to social equity. Nearly 150 years later, are we turning the clock back? According to a new report from Yorkshire Building Society, we could be entering another era of the ‘haves’ and the ‘have-nots’ when it comes to housing. Yorkshire Building Society, one of the UK’s largest, was established in the heat of Victorian social reform in 1864. But its Home Truths report suggests almost four-fifths (78 per cent) of first-time buyers and seven in 10 (73 per cent) remortgagers think homeownership is

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property prices and a cost-of-living again becoming an elite privilege. In crisis, compounded by a return to more fact, two-thirds (61 per cent) of first-time normal interest rate levels than a whole buyers and over half (54 per cent) of generation of borrowers have been remortgagers believe the UK could be used to. The cumulative effect of this a nation of renters within five years. makes it harder and harder for would-be And that poses a wider potential borrowers to meet the affordability problem, given that three-fifths (58 per criteria for a mortgage. cent) of private landlords said they feel Technology alone can’t address pushed out of the rental sector by the systemic issues in the economy, but it government. Tougher regulation of the can facilitate new ways of assessing an rental market and new tax regimes are individual’s creditworthiness and help making it harder to make property lenders come up with a radically different investment pay – 61 per cent feel that approach to home ownership and property ownership is becoming less renting that could help attractive as an investment option. to rebalance the market So, how has this happened? – ultimately, to give The report, which per cent of everyone access to canvassed the views of remortgagers decent, affordable 500 first-time buyers, as thinking of housing, just as the well as 500 remortgagers extending their term said innovative social reformers and 500 landlords, identifies they would consider did more than a century ago. a perfect storm of spiralling paying into retirement

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Social change is contributing to the need for urgency, the report argues, with factors including the green imperative and post-COVID hybrid working where ‘for many people, their home is not just their castle, it is also their office’. Ben Merritt, Yorkshire Building Society’s director of mortgages explains that one of the problems is how few of today’s applicants fit the ‘vanilla’ model of a borrower, due to changing lifestyles and social dynamics. The industry needs to catch up with that trend, he says. “The reality is that family structures are changing due to things like greater life expectancy prompting a rise in

PROPTECH : RENT-TO-BUY

ADJOIN HOMES

Adjoin Homes founders Marios Tsatsos and Kostas Zachariadis established the company in 2018, inspired by their own experience of the rent trap. Its rent-to-buy model offers a way out – and in – for landlords and tenants. Landlords sign over their property management to Adjoin and receive a rental increment of up to 20 per cent for a defined period, with a guaranteed eventual sale. Tenants, meanwhile, can choose one of three options to run alongside their tenancy agreement. In line with Adjoin's mission of helping renters ‘pour less money down the drain’, these allow them to ‘test drive’ a chosen property, with the chance to eventually buy and receive up to 40 per cent of any price appreciation, in return for the level of top-up rent (10, 15 or 20 per cent) they’ve chosen to pay. With demand increasing, Tsatsos says Adjoin hopes to make a serious impact,

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multi-generational living. More people are working for themselves, or employed as contractors, meaning they have unstructured incomes, while factors like the shift to hybrid working following the global pandemic are changing what they want from a home, and therefore their borrowing needs,” says Merritt. A small but growing army of proptechs are finding their own ways to navigate this new paradigm, from rent-to-buy facilitators like Keyzy and Adjoin Homes, to new-model lenders like Molo Finance. Forward-thinking established players like Dutch bank ING are playing their part, too. The urgent need for innovation is clear from trends identified in the report,

including the fact that the chief reason for first time buyers wanting to get onto the property ladder was to stop wasting money on rent (53 per cent). Those very high rental costs are themselves hampering their efforts to save a deposit – possibly galvanising demand for new rent-to-buy solutions. Almost all first-time buyers surveyed (94 per cent) were saving towards a deposit (averaging £32,000 or £44,100 in London), and expecting that to take them four-and-a-half years. Those who can, are seeking financial assistance from family – almost a third (29 per cent) from parents – while 64 per cent are buying with a partner rather than going it alone.

where ‘those aiming to become owners are able to achieve their tangible end goal through our platform: own the property they’re already living in’. “We provide resources to help them save, coach them on what it takes to become a homeowner, and allow them to buy into the appreciation of the property before they own it, ensuring the market can’t leave them behind,” he explains. In fact, Adjoin is playing its role in a wholesale shift in the UK concept of homeownership that dates back hundreds of years: “Every crisis invites and supports disrupting solutions. The dire straits of the present housing crisis might be hiding the opportunity for landlords and tenants alike,” he continues. “We cover the gap between renting and owning and have the financial and technological tools to make it happen. “As touched on in the King’s Speech, we could be seeing a massive overhaul to the feudal age leasehold and freehold system... to simplify the way ownership works. “We are also closely following

developments in fractional ownership, wondering if it could become more mainstream, leading to a more liquid housing market. It could reduce barriers to entry, as smaller sums would be needed to become a homeowner. If backed by lenders and relevant legislation, this could make a large difference to the way property assets are viewed.” In the meantime, a generation of renters needs help and Adjoin is developing cutting-edge solutions to make its offering as seamless as possible. “In collaboration with University College London, we have developed our own automated valuation model," adds Zachariadis. “We are also developing scientific forecasting tools so that at every point, the tenant and the owner can know exactly how much their Adjoin wallet is worth.”

Issue 30 | TheFintechMagazine

TAEZCI NHE FINTECH FOCUS: PROPERTY IN F G A M But, as the report points out, some of the steps they are taking could be storing up problems for the future, as three-fifths (58 per cent) of first time buyers are purchasing homes later due to economic volatility, and therefore looking to pay them off later in life, too. Remortgagers, meanwhile are facing a fixed-rate cliff as low-interest deals end, affecting an estimated 100,000 people every month. Seven in 10 (72 per cent) of them said they would consider extending their mortgage terms to reduce their monthly payments, and four-fifths (84 per cent) of these said that they would consider continuing to pay their debt into retirement, with an average age

PROPTECH: KEY WORKERS

KEYZY

One of the gaps highlighted by the Yorkshire‘s respondents was financial education to help bamboozled first-time buyers and property owners navigate a path through today‘s market. That is central to the innovations underway at another rent-to-own fintech, Keyzy, seeking to get despairing would-be owners back on track. “Education is a key part of the problem and an area of opportunity,“ says co-founder Simon Groll. “Many renters who lost hope of becoming homeowners have developed habits that reduce their future chances. The first part of re-education is showing that there are viable alternatives, like Keyzy. “We work with residents to ensure they are in a position to buy a home by helping to build up a deposit, improve their credit score and adopt better financial behaviours, to qualify for a mortgage in future.” Understanding that even applying for a home can be daunting, Keyzy is making that as straightforward as possible, too, using ecommerce-style approaches. “We’ve designed our homeownership application based on the best ecommerce websites,“ continues Groll. “Secure

expectation for paying it off, of almost cent) about how to eventually pay off their 70 (69.9 years). Going interest-only for mortgages. Using a capital lump sum was the a period (55 per cent) was an option for most common plan at 22 per cent, followed some – a potential ticking timebomb for by using their pension, at 16 per cent. those with no eventual repayment vehicle. PensionBee director of public affairs, Becky Other industry experts have highlighted O’Connor, suggested increased mortgage similarly concerning trends, particularly rates could be causing an ‘abrupt rethink’ around some of the choices older of retirement plans and worry among older borrowers are having to make in order to homeowners still repaying loans. She warned manage their payments. that while tapping into pensions to pay PensionBee research from June off home loans with mortgage showed that three-quarters rates rising might be tempting, (76 per cent) of mortgage savers should consider the per cent holders over 55 were potential impact of of first-time worried about rising using up tax-free cash buyers and 73 interest rates; 62 per cent early on in retirement per cent of remortgagers about managing their and not having sufficient think homeownership payments to the end of their money to sustain them is again becoming term; and almost half (46 per an elite privilege for the rest of their lives.

identity and income verification technology makes it easier for prospective homebuyers to apply, often in less than 10 minutes compared to the hours of paperwork and manual document checks some mortgage lenders require. “We'll also soon be launching a new coaching tool to help all prospective homebuyers understand what it takes to get onto the property ladder.“ With finding a sizable deposit among the key issues in these days of high house prices, compounded by high rents making it harder to save, Keyzy offers zero-deposit, rent-to-buy packages for young professionals, key workers and other first-time buyers. Anyone with a minimum income of £30,000 can complete an application and ID verification with a selfie and scan of their driver’s licence or passport, verify their income and expenditure using open banking then start looking for homes within their budget. Keyzy promises immediate call scheduling with an agent, a budget in 90 seconds and the potential to

complete a full application within 20 minutes to ‘create a better path to homeownership’, stating it is ‘here to help those who keep the country running: healthcare professionals, nursing and social care, teachers and others in education, firefighters, police and prisons, and government services‘. Once a would-be buyer finds a house they want, Keyzy negotiates a price for them and they simply move in, renting until they’re ready to buy, knowing 25 per cent of their rental payments are going towards reducing the eventual purchase price when they are ready. For landlords, Keyzy combines a rental premium with a guaranteed sale at a fixed price lined up within three years – to ‘help landlords future-proof their properties, secure their financial futures, maximise their rental income and reduce their maintenance costs’.

Opening the door: Keyzy is giving key workers a leg-up onto the property ladder

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TAEZCI NHE FINTECH FOCUS: PROPERTY IN F G A M Creating financial tools to help people choose between being mortgage-free and having a better pension income would appear to be a clear gap in the market.

THE LANDLORD STORY Landlords play a crucial role in the housing ecosystem and the Home Truths report shows they are facing their own financial challenges, putting a huge question mark over long-term housing availability for the most vulnerable. Research shows that private landlords are key to providing housing to couples with dependent children (34 per cent), single parent households (18 per cent), the low paid (nine per cent) and those with disabilities (four per cent).

Only half (49 per cent) of landlords strengthening tenants’ rights and standards surveyed for the report had increased for properties adding to financial pressure. rent demands in the last 12 months; and And yet they will have a significant part to by an average of 10.2 per cent, in line with play in helping the market find ways forward. Consumer Price Index inflation for the year to March 2023 (10.1 per cent). A NEW HOPE Two-thirds (66 per cent) said they Providing perhaps a glimmer of optimism, intended to continue to rent out property for research from HSBC bank in November the next five years. Almost two-fifths (38 per suggests seven in 10 (68 per cent) UK cent), though, said the government should first-time buyers are more confident about do more to support the rental sector in light getting on the property ladder than they of changes to regulation and taxation, were at the start of the year. making it harder for them to Its findings coincide with the operate profitably, by allowing Bank of England holding its them enough time to base rate for two per cent make required changes. consecutive months of private The report concludes and property market landlords that ‘landlords feel under rates reflecting this with feel pushed out of siege’ with legislative changes a downward trend. the rental sector

PROPTECH: NEW LENDING

MOLO FINANCE

Sourcing finance is the single, biggest challenge facing today‘s buyers and homeowners, who are struggling to demonstrate their ability to pay amidst rising costs. While it can’t take all that pain away, award-winning fintech startup Molo Finance is making applying as straightforward as possible. Calling itself ‘Europe’s only digitally native mortgage lender‘ and ‘the first player to offer mortgages underwritten fully online‘, Molo launched in 2019 as a buy-to-let lender and expanded into residential home loans last year. It aims to ‘deliver simpler and faster online mortgage lending to make homeownership easier for everyone‘, with ‘real-time lending decisions via a digital, seamless and transparent journey to give

customers quicker answers and a better overall experience‘ and mortgages agreed 'within a matter of days, rather than weeks‘. To meet the current market challenges, product innovation is key. It has recently added the ability for buy-to-let investors to combine personal income with rental returns to help prove affordability because traditional assessments, based on interest coverage ratio, fall short due to higher interest rates. Meanwhile, its ground-breaking FlexLife mortgage, at fixed rate for the entirety of the loan, gives borrowers more certainty with the ability to repay in full without penalties, any time. Molo is responding to the findings of its own Generation Rent research report, which highlighted that ‘despite significant financial barriers, owning property is the still number one life goal for nearly half of millennials‘, though almost all the 1,000

first-time buyers it surveyed said it was hard to afford a home, with affordability the biggest barrier. Forty-eight per cent also wanted an easier mortgage process. Molo says it exists solely to ‘fix what is fundamentally broken in the mortgage market’ and promises to turn ‘cumbersome, inefficient and slow processes’ into fast, real-time decisions. “A lack of transparency and waiting weeks, only to find out you haven’t been approved, becomes transparency of eligibility and decisioning,” it adds. “And layers of cost and tricksy incentives, becomes fair value, with low fees and no hidden charges... people deserve the best choices possible.“

Consumer friendly: Molo was established as a buy-to-let lender, but is now tackling issues in the wider market

TheFintechMagazine | Issue 30

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TAEZCI NHE FINTECH FOCUS: PROPERTY IN F G A M In the wider economy, inflation, the key contributor to rising costs, also fell further than predicted in October, to 4.6 per cent – the largest single monthly drop since 1992 Andrew Matson, head of mortgages at HSBC UK, said of the findings: “It’s encouraging to see more optimism amongst first-time buyers. The first half of this year has been challenging, but the shift in attitudes is reassuring and highlights the resilience of the housing market.” Indeed, Yorkshire Building Society’s research shows that two-fifths (37 per cent) of first-time buyers are still aiming –

and budgeting – to buy their own property within the next year. But the report concludes that while the aspiration to own

The mortgage and housing markets in the UK are undergoing profound change – the models and expectations that have dominated the market… are being challenged Home Truths report, Yorkshire Building Society

one’s own home remains strong, the majority of people fear it is out of reach. There is no silver bullet to the complex challenges facing home ownership in the UK in 2024, but technology can, and has the potential to do more, to reform it. As the report says: “The mortgage and housing markets in the UK are undergoing profound change – the models and expectations that have dominated… are being challenged. Lenders will need to continue to think outside of the norms of traditional deposit, affordability and credit score constructs.”

PROPTECH: ING BANK

ING BANK

Green mortgages – which help borrowers do the right thing and save money on energy bills – are on borrowers’ radar, with nine out of 10 of the Yorkshire's respondents saying they’d consider a green mortgage, 73 per cent of those to make energy efficient upgrades. The mortgage industry itself is still working out what green options are appropriate to help borrowers benefit and play their part in the move to Net Zero housing. But the political imperative is growing, with buildings (three-quarters of them residential) accounting for 40 per cent of EU energy consumption and 36 per cent of greenhouse gas emissions, according to EU Commission figures. Without industry-wide effort to tackle the problem, achieving the EU’s Green Deal, which aims for carbon

TheFintechMagazine | Issue 30

neutrality by 2050, appears a hard nut to crack. Given how stretched households are, right now, left to themselves, they aren’t likely to tackle this issue of environmentally unsustainable housing, any time soon. Dutch bank ING is endeavouring to help, though, with its Terra approach to steering the most carbon-intensive parts of its property lending portfolio towards Net Zero by 2050. Developed with the Two Degrees Investing Initiative 2DII, using its Paris Agreement Capital Transition Assessment (PACTA) tool, it focusses on nine sectors responsible for most GHG emissions, including residential mortgages in which ING has €320billion invested. That represents a third of its balance sheet and its reform is vital to a good ‘green asset’ score under the EU’s new reporting rules. An EU classification system called the EU Taxonomy has given lenders criteria for checking if individual financed projects, like home or home improvement loans, are green. Environmentally positive assets will count towards a lender’s published Green Asset Ratio (GAR) for 2024. Anne-Sophie Castelnau, ING’s global head of sustainability, explained that mortgages create a massive exposure for the bank. And so, to encourage progress, in 2019, when 55 per cent of its mortgaged homes had poor energy performance certificate (EPC) ratings of D to G, ING began offering lower-interest green personal home loans for up to €10,000. In Holland, it also offered discounts on ‘sustainable housing’ products and services via its online ING marketplace; coupled with a free home energy scan and an expert investment plan for home

upgrades. Its goal was to upgrade at least half of them to a C rating by 2022, ‘by making homeowners and homebuyers more aware and motivated, while… making the financing supply too good to refuse’. This has proved a challenge, given varying housing stock, regulation, energy mixes and population engagement across countries. In its 2022 Climate Report, ING acknowledged that: “While our products have shown the promise of change, demand among clients is still not at the level required to drive the transition.“ Undeterred, ING now offers Eco Mortgages for houses with the highest EPC ratings in most territories and plans to roll out eco renovation lending products to customers across its markets by 2025. All the while, it’s spearheading new innovations like the ING carbon footprint tracking app, developed with fintech Cogo, which shows how customers‘ spending translates into CO2 emissions and gives an idea of their CO2 footprint and tips for adjusting their behaviour. “In the future, apps like these will become one-stop-shops, where customers can see in real time how their behaviour impacts the environment and how their mortgage incentives respond to them... for a full picture of how they can lessen their negative impact,” said Castelnau.

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