Fintech Finance presents: The Fintech Magazine Issue 33

SINGAPORE MAS-SIVE!

HOW THE CITY STATE PLANS TO LEAD GLOBAL FINTECH

GENERATIVE JITTERS THE BANKER’S GUIDE TO AI ADOPTION

THE COST CONUNDRUM SHINING A LIGHT ON ‘HIDDEN’ FEES

FROM TOKENISED FUNDS TO ANGELS

INVESTING WHERE AND HOW

THE FINTECH MAGAZINE

6 Singapore Fintech Festival A breed apart

Following news that the Monetary Authority of Singapore has launched the Global Finance & Technology Network, we talk innovation, regulation and organisation with Pat Patel

8 Lending Solving the SME lending conundrum

11 6

Finastra has sunk investment into its Loan IQ platform to address a persistent problem for small businesses the world over. Chief Revenue Officer for Corporate Lending, Lekshmi Nair, explains how it’s helping banks plug the SME funding gap

11 Banking disruption

The automated bank UK challenger Kroo has a mass market brand proposition, but delivering it profitably means you must run a tight ship, says CTO Alexey Gabsatarov

12 Investing & founders F is for… diversity

Most VC investors aren’t putting their money where their mouths are when it comes to backing diversity. For the co-founders of Fund F, it’s core to who they are

14 Payment cards

Data is power

SaaS data analysis newcomer Torus is intent on shining a light on card fees

16 Orchestration

Bringing harmony to payments

Tom Voaden from BR-DGE unpacks the increasing appetite for payment orchestration from both merchants and acquirers

18 Blockchain Weaving the golden thread

If the world’s major financial institutions had blockchain back in 2007, could we have avoided The Crash? Sergey Nazarov thinks so, which is why Chainlink is so keen to smoothe the path to adoption

THEEDITOR’S VIEW

Pat Patel is excited. “It’s going to be the talk of the festival,” he says.

He’s referring to the launch of the Global Finance & Technology Network (GFTN), which has replaced the Monetary Authority of Singapore’s pioneering not-for-profit Elevandi. Set up as the ‘nexus between policy, finance and technology’, under Patel’s leadership Elevandi took an increasingly global role, but GFTN is an even more ambitious and strategic beast. It's important enough to bring Ravi Menon – who stepped down in January after 13 years as head of the central bank – out of retirement to become GFTN’s chair.

The Network will have four distinct but complementary businesses: convening events, offering advisory and research services, providing a digital platform for businesses, especially SMEs, and running an investment fund for technology startups.

Investment is a special theme of this issue – specifically investment in pre-seed, seed- and early-stage companies, where venture capital (VC) and angels play such a crucial role. Globally, seed- and early-stage investments by VCs recorded strong quarterover-quarter growth in Q2 2024, with average deal sizes increasing by 35 per cent and 14 per cent respectively, according to analysts at Bain & Company. Which is encouraging, since Pitchbook shows private market funds fell off a cliff during the preceding full year.

The macro figures obscure shifting investment strategies, which are just as important to founders chasing funding as the depth of those funders’ pockets.

In interviews with a range of VCs, we look at what’s shaping their investment decisions, where they’re targeted and what they are looking for from today’s entrepreneurs. It’s a fascinating insight into the modus operandi of those who can make or break a founder’s dreams.

At the other end of the investor spectrum, Larry Fink, leader of BlackRock, whose opinion can shift an entire market, has been talking blockchain recently. And in a fascinating discussion with Sergey Nazarov of Chainlink on page 18, we explore why Fink might be right when he says the next generation of the financial market ‘will be the tokenisation of everything’. Blockchain’s been a slowburn but it’s one of our VC’s hottest tips, too, and it’s a major theme at the Singapore festival. Sue Scott, Editor

21

Investing & founders

Alpha nirvana

BACKED VC has a maverick approach to investing and the founders it mentors. Managing Partner Andre de Haes shares his wisdom

24

Embedded finance

The future of football

Andaria CEO Nirav Patel believes embedded finance can truly unlock the fan experience

26 Pay by phone Wallet for the world

They’re primarily tools of convenience in the West, but how powerful could mobile wallets really be if the issue of interoperability was solved, asks TerraPay’s Ram Sundaram

29 Investing & founders The VC’s View

World preservation, life improvement and human empowerment are the ambitious goals of The Venture Collective. We sat down for a fireside chat with Co-Founder Nicholas Shekerdemian

30 Acquirer relationships

Spending time in DACH

Computop and Nexi are well-versed in providing payments services to Germany, Austria and Switzerland. Jennie Johansson Carnhamre explores the existing needs and the potential for change

32 Compliance

Watch what you say

In the wake of multi-million dollar SEC fines for unregulated off-channel-trading comms, Peter Snasdell from Devexperts explores how AI could keep firms compliant

34 Generative AI Along for the ride

Trembling with excitement or paralysed by fear? We asked three experts how legacy banks should integrate this transformational technology

37 Investing & founders Angels (and VCs) of the North

21

As investors and founders gathered at the FinTech North Summit, we look at what makes for a good pitch

SINGAPOREFINTECHFESTIVAL2024

A breed apart

The launch of the Global Finance & Technology Network by the Monetary Authority of Singapore (MAS) co-incided with the festival. We talk innovation, regulation and organisation with GFTN’s Pat Patel

Birthing an innovative startup from within a regulatory authority is, as Pat Patel observes, ‘not a well-trodden path’. But it’s what the Monetary Authority of Singapore (MAS) did – twice!

The Fintech Magazine: Having played a key role in setting up the MAS spin-out, Elevandi, the forerunner to GFTN, what can you tell us about the new organisation, its aims and ambitions?

Pat Patel: MAS has taken another bold step in setting up the Global Finance & Technology Network to strengthen Singapore's position as a global fintech hub and enhance global connectivity for impactful innovation in financial services internationally.

Our mission is to harness technology and foster innovation through global partnerships to promote more efficient, resilient, and inclusive financial policy, finance and technology. It's all about driving greater synergies within the global finance and technology communities to encourage innovations in financial services that create positive economic value and social impact.

GFTN will build on the success of Elevandi to offer a broader suite of services and capabilities. It will have four strategic businesses:

n GFTN Forums – a global conference convenor, dedicated to finance and technology

Pat

Patel, Executive Director at the Global Finance & Technology Network

n GFTN Advisory – a knowledge centre, offering practitioner-led advisory services and research on innovation policies and ecosystems

n GFTN Platforms – provider of digital platforms for national infrastructure and businesses, especially SMEs, and accelerate collaborations between fintech and financial institutions.

n GFTN Capital – an investment fund for technology startups that have the potential for sustained growth and positive social impact

There are exciting and purposeful times ahead.

What makes this even better is that the legend that is Ravi Menon (Singapore's Ambassador for Climate Action and Senior Adviser with the National Climate Change Secretariat in the Prime Minister’s Office), will be leading GFTN as our chairman.

In addition, he will be joined by Leong Sing Chiong (Deputy Managing Director of MAS) and Neil Parekh (nominated member of parliament for Singapore and Non-executive Chairman at Tikehau Capital) who will be our Deputy Chairmen. Lastly, Sopnendu Mohanty (Chief Fintech Officer at MAS), will be joining as our Group CEO.

We will also be announcing at the festival an all-star cast of global leaders from the public and private sectors who will join our International Advisory Board. Prepare to be blown away!

The Fintech Magazine: What has it been like working inside a regulator and getting a look under the hood?

Pat Patel: The opportunity to understand the inner workings is fascinating if you come from the private sector, as I do.

My first month at MAS was when Facebook’s Libra was announced. They came in and gave a presentation on what they were doing and I had the opportunity to have a Q and A with some of the leaders from that organisation. So, you get a certain level of access, but also a lot of privileged insight and knowledge that provides greater context to what’s really going on beyond that superficial layer of financial services that we see in the press.

The Fintech Magazine: What are the strategic advantages that Singapore brings to the fintech table?

Pat Patel: Singapore is a tiny country, but it punches well above its weight and has leveraged its geographic position. You have Thailand as a neighbour, Vietnam is virtually on your doorstep. Malaysia, Indonesia, and even India are only a few hours away. So, it leverages the strength of these markets to attract organisations to locate here, and they use it as a stepping stone to do business in other parts of Asia.

Singapore also has a strong, progressive regulator that’s firm where it needs to be, but always willing to

experiment. A lot of this is down to having a long-term game plan. Whereas many countries tend to think on a two-to-five-year time horizon, Singapore thinks on a 10, 15, even a 20-year time horizon. Having that consistency makes a massive difference.

The Fintech Magazine: Tell us about some of the major developments you’ve seen here.

Pat Patel: Firstly, MAS has committed an additional $100million under its financial sector technology and innovation grant scheme to support financial institutions building capabilities in quantum and AI.

Then there’s Project Nexus, which is led by MAS and the Bank of International Settlements, connecting real-time systems together. They’ve already connected Singapore with Malaysia, the Philippines, Thailand, and India. And what that means is you can make a realtime payment just by knowing someone’s mobile number in one of those markets. In Europe, the equivalent would be making an instant payment from England to France or Germany.

This additional rail, which could be an alternative to money transfer businesses, increases competition and starts to bring the price down, potentially allowing you to build more services on top of those rails.

The Fintech Magazine: This year’s festival has a focus on quantum computing. The signs are that things will change slowly and then suddenly, as has happened with AI. What impact do you see it having on fintech?

Pat Patel: Quantum is going to be closely coupled with other technologies. AI is predicated on having data, so if you have greater processing power with quantum computing, that can enhance the potential applications of artificial intelligence.

I also think enhanced processing power will just enable more activity. We’re in that experimental phase now of asking what we could do more of at faster speed, with more computing power. How does that drive the next wave of generative AI? How could it be

leveraged with digital assets, and in particular stablecoins? Can this make a difference?

We’re beginning to see some of the combinations or the interplay of those technologies already.

The Fintech Magazine: You mentioned digital assets… how will Web3 play a role in the future of fintech?

Pat Patel: Web2 spurred the wave of fintechs and tech companies that we saw from 2007/08 onwards. When Uber came along, it destroyed a lot of local taxi companies, Airbnb disrupted travel agencies. Likewise, we will see new business models come out of Web3.

There will be a blurring of lines between consumer-facing propositions and financial services because quantum, AI and decentralised networks, which are the core of Web3, will start to generate new ways to think about how you engage with businesses, how you consume products and services and how you engage with your friends and your network. That will create the next generation of fintech. We don’t know what that looks like, yet, but we know that when those three technologies come together, we’ll start to see a new way of doing things.

The Fintech Magazine: Many fintechs have come and gone, while others have enjoyed stratospheric growth. What do fintechs today need to consider if they’re going to woo the regulator and stick around long term?

Pat Patel: The regulator has so many priorities to juggle and fintech is just one element of that. Because the industry is moving quickly and it takes a while for regulators to really understand a business model or an application of technology, and assess risk and governance, startups should look to open that bridge with regulators as soon as possible. That way, the regulator can better understand the direction of travel and what the considerations are. Things can then be tweaked and shaped on both sides, and it’s possible that fintech could shape the thinking of some of the policymakers over time.

As for profitability and sticking around, we’re seeing a mindset shift in founders that have survived the last few years as others have fallen by the wayside. Now we’re seeing the rising stars coming through who know it’s not easy to fundraise, and an IPO isn’t necessarily the golden exit it might have been before. It’s creating a different breed of founder.

DON’T MISS… PAT PATEL’S TWO TOP MUST-DOs AT THE FEST’ THIS YEAR

Use Personatech to network with purpose!

“We’re working with Money20/20 founder Anil Aggarwal to deliver a product called Personatech for attendees, which will help create 20,000-30,000 seamless meetings during the festival. Attendees can meet the people they want and drive business development and ROL.”

Join the Insights Forum

“On November 4 and 5 – before the official opening of Singapore Fintech Festival –we’re running the Insights Forum at Marina Bay Sands for 3,000 leaders from public and private sectors. Through open and closed door programmes, there'll be roundtables, workshops and design thinking sessions with policymakers, regulators and the private sectors to address industry problems and new developments. It's a great place to network and learn.”

Headline news: How Nasdaq introduced GFTN

Solving the SME lending conundrum

Finastra has sunk investment into its Loan IQ platform to address a persistent problem for small businesses the world over. Chief Revenue Officer for Corporate Lending, Lekshmi Nair, explains how it’s helping banks plug the SME funding gap

It’s widely acknowledged that SMEs are the backbone of any economy. In the UK, they account for nearly two-thirds of total employment and almost half (53 per cent) of turnover in the private sector – a whopping £2.4trillion. And yet it’s notoriously difficult to access finance as a small business owner.

According to the British Chambers of Commerce, 49 per cent of the businesses it surveyed felt that getting funding had become more challenging over the past three years. A Novuna Business Cash Flow survey in February this year found that 28 per cent of SMEs had been rejected for a loan since November 2023.

Given the myriad other pressures and economic headwinds that businesses have faced in recent years, it’s a situation that SMEs are looking to banks to rectify. The challenge is making it profitable for them to do so. Chief revenue officer for corporate lending at Finastra, Lekshmi Nair, believes technology companies like her own can help solve that dilemma.

“SMEs face a lot of challenges post-COVID,” says Nair. “Coming out of that crisis, there have been rising costs for energy and commodities and, of course, increased interest rates. There are also struggles finding the right talent and managing supply chains within the current geopolitical situation. On top of it all, there’s an ever-changing regulatory and tax burden as well.

“We also recognise the challenges faced when looking for financing. Given the lending protocols that businesses need to go through during onboarding, it’s sometimes the case that they don’t have the right documentation covering their credit history and future creditworthiness to fit financiers’ requirements.”

Meanwhile, she says, while banks ‘understand the important role that SMEs play in the economy and also the communities they serve’, lending to them is often not the best margin part of their business.

“Part of the problem is the onboarding process from the banks’ side. The antiquated platforms and processes that are still in place today are burdensome. SMEs may also require a very tailored approach to their financing, and they can’t always take off-the-shelf products. To provide a more effective service, relationship managers really need to build a level of understanding of SME requirements,” says Nair.

New challengers have moved into that lending gap.

“It’s not always the traditional banks that are providing financing. There are now many platforms that have opened up for SME financing outside of the traditional bank,” she adds.

The increased popularity of these agile platforms, and their ability to quickly service this segment, may point to where some of the solutions lie.

Enhanced automation and even developments in open finance could

present a way for banks to streamline processes and offer services to a wider range of clients. Finastra has a lot of expertise here, but the motivation is not just servicing a need. It fits with its broader vision, too.

“We are a deeply purpose-driven organisation, says Nair. “Financial inclusion and enabling access to finance is important for us, which is how we look at open finance.

“Being a global organisation, we have a diverse perspective and a broad range of personal journeys. Everything we do around technology is about putting ourselves in the shoes of our clients and those of our clients’ clients.”

Nair says Finastra ‘doesn’t have a silver bullet’ for the specific problem of financing SMEs but its approach, which involves adopting the mindset of those small businesses, as well as thinking about the banks’ procedures and challenges, means it has a good handle on a solution in the form of its Loan IQ platform, which was originally designed for banks to serve larger corporates.

“The work and investment that we’re doing with our Loan IQ platform, which has traditionally been used for complex lending, a high-margin business, is now focussed on the simplification and the servicing of bilateral and SME loans,” she explains.

The antiquated platforms and processes that are still in place today are burdensome. SMEs may also require a very tailored approach to their financing

“For banks, this means creating a more streamlined UI/UX so they can automate this process, creating fewer touch points and requiring less manual intervention within operations. This lowers the cost to serve and ensures we have the capability for a higher volume of loans on our platforms.” Loan IQ also goes a long way to addressing the interoperability issues associated with legacy banking systems.

“Most banks will have proprietary platforms from a range of vendors and a lot of cost and efficiency is lost in pulling these platforms together,” observes Nair. “Often this means staff will key in the same information multiple times in different platforms as a loan is processed.

“So we’ve been very focussed on the openness of our platform and delivering APIs that provide a seamless and smart integration to enable our clients to drive efficiency, hopefully reducing operational risk and getting them to a decision about a client’s loan much faster with a more seamless onboarding process.”

A showcase event Finastra’s research and development around AI and open finance and how it impacts both the client and staff journeys – how it might accelerate speed to market and reduce the cost to serve and operational risk for everyone in the chain – will be demonstrated at the upcoming Sibos 2024, which will be hosted in Beijing for the first time.

“Sibos is a key event for Finastra, and all of our business units are represented at the event,” says Nair. “It’s a wonderful opportunity for us to connect with our clients, partners and prospects. We want to ensure we remain relevant, that we continue to deliver value to our clients and remain ahead of the curve on innovation.”

Given the event’s location this year, it’s also an opportunity to lean into the Indo-Crescent region, which, according to McKinsey’s Global Banking Review, is home to over half of the world’s top-performing financial institutions and is poised for further growth.

“This is a very dynamic region, undergoing tremendous changes, and we see markets like Japan really opening up,” agrees Nair. “Close collaboration with our clients and partners will ultimately ensure success here.”

In South-East Asia, as elsewhere, SMEs are key. They account for 97 per cent of all businesses in the region and employ 67 per cent of the working population.

“As in many parts of the world, serving them is an imperative that until recently has not been easy to meet. Now, with the help of technology, that might improve.”

Lekshmi Nair CRO Corporate Lending & Global Head of Strategic Accounts at Finastra

The automated bank

UK challenger Kroo has a mass market brand proposition, but delivering it profitably means you have to run a tight ship, says CTO Alexey Gabsatarov

Market-leading benefits are a sure-fire way to woo customers to your new current account – but generosity comes at a cost.

So, for Kroo Bank, harnessing AI to ensure ruthless efficiency is absolutely crucial.

“The flip side of the coin of being good for our customers and passing on as many benefits as possible to them is we have to be very lean operationally,” says the business’s chief technology officer Alexey Gabsatarov.

“Whatever efficiencies we can find, we need to consider them. One way is automating all the manual processes we can, and that means using AI extensively.”

Established in 2016, it took Kroo Bank until June 2022 to gain its UK banking licence. It launched its free current account six months later, swiftly followed by personal lending, and the 100,000 customer milestone was passed by June 23 2023. At the end of last year, it had 152,055 accounts and a combined credit balance of £788.2million.

Ambition and focus

Kroo targets Gen Z and millennials with customer referrals and social media advertising driving recognition – brand building being in co-founder Nazim Valimahomed’s DNA after a lifetime promoting big-name FMCG businesses, such as Coca-Cola and Heineken.

There’s a similar vision behind Kroo – to create a highly consumable bank that can nail

the rankings. Valimahomed has already said it’s out to beat Starling’s banking-licence-toprofitability roadmap, which took six years.

Gabsatarov says the ‘difficult bit’ in creating a current account is now done, and additional products will be added as the firm progresses. But while he is confident that profitability can be achieved in the ‘not-too-distant future’, a £26.8million loss in 2023 means the hunt for operational efficiency must be laser-focussed.

Kroo’s current account pays 4.1 per cent AER on balances by tracking 0.9 of a percentage point below the Bank of England base rate (the margin will rise to -1.1 from late November).

That, together with an account app that allows customers to easily split bills with friends, save into pots and enjoy low costs when spending abroad has won the bank praise among pundits.

Gabsatarov says: “You may think that a new bank won’t have many manual processes but there’s so much heritage complexity in the way banking operates that automation is a continuous effort for us. It’s important to ensure our AI models run on good quality data – if bias or data quality issues are introduced we see issues downstream.

“From the outset, we’ve adopted ethical AI principles by always having a human in the loop. We’re not replacing humans with AI, the way we see it, we complement specialists with generative AI input that makes them more efficient.”

The bank uses both general and specialist AI systems, says Gabsatarov, as both have strengths and weaknesses.

“Using a large language model can be like interviewing someone who is very smart but who’s not a specialist, so they’ll talk around the topic,” he explains. “It’ll make the answer sound plausible but, ultimately, incorrect. Training a specialist large language model counters this problem – you

don’t expose it to irrelevant data. We are open about the way we use AI and we want to ensure our customers trust us to do it responsibly.”

Another efficiency win has been reducing customer queries about transactions via a partnership with Snowdrop Solutions. Snowdrop’s software means account holders at partner banks can see merchant names and logos on transaction data, plus the payment location and merchant contact details.

It means the bank fields fewer queries from people who don’t recognise a transaction they’ve made and fear they’ve fallen victim to fraud. Simply adding a logo and location reduces ambiguity and stops misunderstandings from becoming a drain on staff time.

Gabsatarov says: “We launched that a year ago and we’ve seen a 15 per cent increase in customer engagement with that data and a reduction in customer support queries – it’s improved user experience.”

Another user experience Kroo is developing is automated financial advice, or as Gabsatarov explains, ‘automated nudges and recommendations that would make customers demonstrably better off’.

We are quite open about the way we use AI and we want to ensure our customers trust us to do it responsibly

Neos the world over have adopted similar PFM tools to a greater or lesser extent, but Gabsatarov says Kroo goes further: “People engage with current accounts as individuals but increasingly spend in a social context. So they travel together, live together and spend together. Capturing and serving this element was an important foundational principle for us, and it was a differentiation of ours.

“We’re working on savings products, lending products and so on – adding products that our customers ask for and see value in. Being a small bank we can react to changes and build the business by listening to customers.”

INVESTING&FOUNDERS

F is for… diversity

Most VC investors aren’t putting their money where their mouths are when it comes to backing diversity. For the co-founders of Fund F, it’s core to who they are

Fund F is a pan-European VC fund investing in pre-seed and seed stage companies with gender-diverse founding teams across climatetech, healthtech, femtech, fintech and HRtech.

From its office in Vienna, co-founder Nina Wöss talks fundraising, financial inclusion, and period tracking apps with TheFintechMagazine’s editor-inchief, Ali Paterson.

The Fintech Magazine: Fund F closed its first €20million fund in 2022. How did you become involved in early-stage investing and what led you to this point?

Nina Wöss, Co-Founder of Fund F

Nina Wöss: While at university, I was already engaged in the topic of early-stage investing and entrepreneurship. That led to my first job, which was at Speedinvest, now one of the most prominent funds investing in early-stage companies.

I was there for eight years and it gave me the opportunity to learn everything, from how to work with startups, to building a portfolio. I was exposed to the European venture system, and as a young woman, I experienced firsthand how much the gender gap was prevalent for both investors and founders.

The experience inspired me to read more about gender equality and feminism. I also met my co-founder, Lisa-Marie Fassl, around the same time. We started to work on addressing the challenges of female entrepreneurship and built a community called Female Founders. This led to us launching our own fund, Fund F.

The Fintech Magazine: Investors often talk about the importance of investing in diverse teams. Yet the stats tell a different story with only 1.8 per cent of all VC funds invested in women-led

startups in Europe in 2023, according to PitchBook. What would you say to investors to encourage them to do more of what they say?

Nina Wöss: The majority of people are not thinking about who is designing the products they use, but these products shape our lives for better or worse. It’s very important that investors support leaders of tech businesses who build diverse teams to create products that reflect the diversity of their customer base.

It also makes fiscal sense to invest in diverse teams. Data has repeatedly shown that diverse teams run higher-performing businesses and generate higher returns in the long term. That’s not only with regards to gender, but other characteristics like cultural background, ethnicity, and age, etc.

At Fund F, we consider how diverse a company is at every layer of the business, beyond the founding team. This includes their board, employees, and investors on their CAP table.

That’s how Fund F will achieve our long-term impact over the next 10 to 20 years. Like any investor, we hope to see

exits from successful companies, but we want to create a legacy of future unicorns where not only the founders, but their employees, create personal wealth on exit that can be reinvested into teams that reflect them, and companies that can have a positive impact in turn.

The Fintech Magazine: The world has experienced drastic change and a string of economic, humanitarian and health crises over the past 10 years. How has this impacted the fundraising landscape and what challenges do founders face today?

Nina Wöss: It’s a difficult market at the moment. We focus on pre-seed investing and even at that very early stage we notice rounds that are structured in a way that suits all parties are taking longer to raise and close than in the past.

First-time founders are having an especially hard time in the market to raise their first rounds, and many female founders are also first-time founders. To encourage rounds to come together quickly, we’re becoming increasingly involved in playing the role of the lead investor and bringing co-investors on board, as well as proactively supporting founders to structure their rounds, which is very important to get deals closed. We’ve also seen founders and investors begin to prioritise

revenue-generative businesses that can achieve profitability.

Post-COVID, we saw over-hyped business models that, with hindsight, were clearly never going to be profitable. E-scooters come to mind. From an investor perspective, businesses must be inherently scalable, able to reach profitability, and either achieve an exit that makes sense for everyone involved, or establish themselves as a company that can run on its own. Investors have wised up to misplaced hype and now conduct more thorough due diligence, prolonging the deal process.

This all puts a lot of pressure on founders fundraising at the moment. That said, I’m still convinced that good founders will always be able to raise, regardless of their gender, background, or the economic environment.

The Fintech Magazine: Flo Health, a UK-based period tracking app, recently made headlines for becoming Europe’s first femtech unicorn after raising $200million in a Series C round in July 2024, despite being led by two male founders. So, does it matter who’s running the show if the business is investible?

Nina Wöss: There is nothing inherently wrong about an all-male founding team, funded mostly by men, running a femtech business. But I think it does highlight bias in the tech ecosystem, especially when men in femtech raise more funds than their female counterparts, despite the fact that 70 per cent of femtech companies are founded by women. While they may be excellent founders, it reinforces what research suggests: that men

employees and empathise with their customers to sell effectively.

After a positive first interaction with the founder, we assess the market quickly, including the respective market size, and assess if the company is also fundable on a venture scale and whether VC funding would be appropriate for the founding team. Once we’re satisfied with our market research, we then seek to understand the problem the company is solving and the viability of its solution.

Ultimately what’s important to us is backing teams that are building solutions with potential to scale and solve the global problems of our lifetime. For example, financial inclusion was the main reason we included fintech in our investment thesis. How women participate in stock markets, how – and if – they save to build their personal wealth are all examples of global problems that haven’t been solved yet.

The Fintech Magazine: How can finance and financial services industry move beyond diversity tokenism? What practical steps can we take?

Nina Wöss: As a woman, I’m often invited to diversity panels rather than investor panels, even though I’ve been an investor for the majority of my career. We need to give people the opportunity to represent what they’re doing and how they’re doing it, without being the token woman, the token black person, the token person with a different religion, etc.

We can effect change by creating content, events, and rooms where, by definition, diversity is already ingrained. Unfortunately, addressing systemic issues takes time.

Men are more likely to be funded, even in the femtech space, because the vast majority of decision-makers on the investor side are men

are more likely to be funded, even in the femtech space, because the vast majority of decision-makers on the investor side are men. There is an obvious connection between those who get funds and those who distribute them.

The Fintech Magazine: Diverse founding teams are obviously a prerequisite for Fund F. What else do you look for in founders, and what is your process for evaluating a business?

Nina Wöss: Beyond necessary subject knowledge, founder resilience is a priority and can often be gauged from the first interaction. At least one person on the founding team also needs to be an excellent communicator and harness charisma. Not only to pitch the business to an investor, but also gain the trust of future

The Fintech Magazine: What advice would you give someone if they have an idea for a business?

Nina Wöss: Just get started and tell people what you’re building to get feedback. People are often hesitant to talk about their idea, but they should keep in mind that no idea is so special that nobody else in the whole world has thought of it. This can actually be a good thing, because it means your solution is relevant and addresses a problem that resonates with a lot of people. A founder’s unique advantage is their team and their ability to execute their ideas and bring them to life. Following that, leverage your wider network, from your investors and partners, to employees and customers. At every stage of building a business, it’s the people that make the biggest difference.

Dataispower

SaaS data analysis newcomer Torus says it is intent on shining a much-needed light on card fees for merchants and acquirers

It’s fair to say that, for years, merchants have felt badly done by when it comes to transaction fees for the goods and services they sell.

The rise in cashless transactions – further fuelled by the COVID pandemic when consumers became used to paying for everything from their daily coffee to parking, tube fairs and chewing gum by card or phone –only sharpened their pain, although this explosion in contactless-over-cash did also benefit them in saved admin. It also helped bust open the monopoly the larger issuers had enjoyed over merchant payments infrastructure, and the charges they pay for using it, by increasing competition – although the majority still protest they are paying way too much while there’s way too little transparency of those charges.

Here, software-as-a-service provider Torus believes it can help. Its simple belief is that by better explaining, understanding and forecasting transactional costs at a day-to-day level, acquirers, payment facilitators and merchants can optimise profits, improve competitiveness and benefit from greater trust throughout the value chain.

Kirill Lisitsyn is co-founder and CEO of the three-year-old platform based in Vilnius, which currently serves multiple customers, ‘mostly in Europe and the UK’ but with ‘footsteps in Central Asia and the Far East, like Japan’.

“Merchants tell us they face two main problems,” Lisitsyn explains. “Firstly, the costs themselves. Then, there is lack of transparency, in terms of the drivers of those costs.

“Cards still dominate cashless payments. Even wallets like Apple Pay

Kirill

Lisitsyn, Co-Founder and Chief Executive Officer at Torus

are fuelled by cards and this means the majority of cashless transactions trigger interchange and scheme fees. Merchants are paying their acquirers, plus a margin based on what those acquirers pay towards their own transactional fees. Opaqueness around this means merchants don’t fully understand what they’re paying for, and the explanations acquirers offer them don’t really help.”

This breakdown in communication can damage merchant/acquirer trust. Meanwhile, acquirers are facing their own pressures.

“The card payment industry is still booming, growing by double-digits year-on-year, which is good news for the payment players and also means competition is increasing. The barriers to get into the space are low, especially for e-commerce transactions,” Lisitsyn says.

“However, this also means acquirers are locked in a situation where their margins are diminishing. They need to compete but they still have to be profitable.”

Like merchants, they often lack adequate insight into their own cost cycles, says Lisitsyn. “They need absolute control over the tiniest elements of their profit and loss, revenues and costs and, right now, that’s not always the case.”

He believes the solution is relatively simple.

“Providers are sitting on large data streams from payments schemes that they are not analysing to their full value," Lisitsyn adds.

“Our research, and feedback from customers, suggest if acquirers and others start analysing this data better and deeper, they can extract a lot of value by understanding their true

transactional costs and pricing their merchant services more accurately.

“In some cases, this might reveal certain transactions are super-expensive and they need to charge more to avoid transactional losses; in others, they might be cheaper and more competitive, but they can offer more tailored pricing overall for their merchants.

“With some of the larger grey areas, the acquirers don’t have a handle on the scheme fees, so they are not accurately passed over to merchants. That is creating issues and influencing trust because merchants sometimes think acquirers are overcharging them, and acquirers are not able to prove that, actually, these are the same costs they’re paying to the schemes.”

There has been an attempt by the industry to remove some of the opacity by using the Interchange ++ pricing system, which provides a detailed breakdown of the costs incurred by the merchant from the acquirer, the card scheme and interchange fees. But it’s really only suitable for larger enterprises and even then it often results in more confusion, not less, says Lisitsyn.

“Merchants receive a figure but not all acquirers are able to explain what that number consists of or how they arrived at it. So, it’s no clearer. And for them, it creates additional risks because if they’re paying a blended fixed rate at least they can predict the costs, whereas if it’s Interchange++ they can’t.”

Lisitsyn believes that by unlocking the wealth of transactional data that merchants and acquirers are already sitting on, Torus can keep both better informed and more efficient.

“Acquirers already have all the data they need, they just need to spend a bit more time and resources on

extracting the value from it to create their competitive value proposition and adapt their back-office operations in a way that enables them to be super-clear on the transactional costs and revenues, down to individual transaction level,” he says.

“They need to understand the margin for each transaction, and, if it’s loss-making, what they need to do about that, then respond to it dynamically. That way, they can manage their P&L accurately, on a weekly basis. At the moment, changes are only happening annually – it’s much more efficient to fix things in the moment.

“Imagine that you, as an acquirer, are suddenly able to allocate the scheme fees costs down to a single transaction level, so now you (a) see the real transactional costs and profitability of your individual merchants, (b) are able to provide maximum transparency to your merchants, and (c) know exactly which merchants should be repriced, and how they should be repriced, to maintain target profitability levels.”

The opportunity is greatest for mediumsized industry players.

“While not all of them are working perfectly, the largest providers invest time and resource into building their own, in-house solutions,” says Lisitsyn. “But the mid-market players we’re targeting typically don’t have enough resources to do that. Where they’d have to spend millions and a couple of years’ development to fix just one issue themselves, they can have the same results or even better within a few weeks by partnering with us. We want to enable them to get to

Cards will remain a material part of the payment space and that’s why it’s vital merchants manage those costs at their end

the same level of insights and analysis as the largest players in the market.”

So, how are payments developing and what does that mean for Torus? In Europe, local card schemes are on a steady decline with a European card scheme a distant dream, while the dominance of Visa and Mastercard increases in the region.

“Post-COVID, there is more and more international travel and merchants need to be connected with international schemes and cannot just be localised,” says Lisitsyn.

“And while there is a lot of trendy stuff happening with alternative payment methods (APMs), we don’t believe the rumours that cards will die within the next few years.

“APMs are growing faster than cards in some markets, but they’re doing that by eating their share of the cash pie faster than the card schemes are, not by taking the cards’ share of it. We think, for the next five-toseven years, cards will remain a material part of the payment space, especially in e-comm, and that’s why it’s vital that merchants manage those costs at their end.”

Torus’s SaaS solution, though largely plug-and-play, can be tailored to specific client needs in different jurisdictions, and its data storage solutions are

Cloud-agnostic, processing only anonymised information for optimised security.

“So far we’ve been focussed mostly on users directly connected to Visa and Mastercard and getting their regional data formats from the schemes,” explains Lisitsyn.

“But we are being driven down the value chain by the market. In the past six months, we’ve had a lot of requests from payment facilitators and merchants, asking us to provide similar analysis, and have recently launched a solution which could be specifically used by the acquirer sales force, by payment facilitators, and merchants themselves, to benchmark their transactional costs, including scheme and interchange fees, against where they should be, without data sharing.

“We’re expanding into the merchant space, with more to come on that within the next six-to-nine months.

“We remain focussed on the scheme fees and interchange space and we are naturally scalable geographically, because the data formats our customers get from the various schemes are the same globally.”

Bringing harmony to payments

Tom Voaden from BR-DGE unpacks the increasing appetite for payment orchestration from both merchants and acquirers

The acquiring space has been fundamentally disrupted in recent years. Traditionally the preserve of institutional banks, they’ve lost ground to tech companies and challengers who’ve wooed merchants with value-added services and (apparently) keener prices. Some banks even sold off their acquiring estate.

The biggest acquirer in the US now is Fiserv, a global tech company. Three of the top five acquirers in the UK are global payment processors, not banks.

That doesn’t mean banks have to give ground. And some are holding on fast. In fact, the data around payments that acquiring allows them to collect can create opportunities to deepen relationships with merchants and provide them with other services. The problem in banks leveraging this opportunity is their tech.

“Legacy banks have a huge market share but have struggled with the speed of technological change,” says Tom Voaden, VP of commercial at payment

orchestration experts BR-DGE. "A lot of those larger banks might have launched an acquiring platform 15-20 years ago and then patched it over time. But really this was just about keeping the lights on.”

The fact that the number of payment methods, including hyper-local payment schemes, have exploded hasn’t helped. Serving such a diverse and constantly changing payments demographic is a challenge for both merchants and acquirers. Merchants know that offering a full payment stack cannot come at the expense of customer experience, particularly in e-commerce where the slightest friction can impact sales and cart abandonment rates are already running at unacceptably high levels. It's something acquiring banks would like to help with. And with payment orchestration, they can, says Voaden.

Pa`yment orchestration is an independent tech layer in the chain, connecting all parts of the ecosystem powering connectivity, routing, resilience and process optimisation. As an orchestration expert, BR-DGE was originally established to help merchants transform and optimise their side of the payment flow. But in doing so, it realised that legacy payment providers and acquiring banks needed help with some of the same challenges, too.

Voaden worked with orchestrators during his time at Visa, and now he’s interacting with players across the payments ecosystem, including payment providers, consultancies, card schemes and enterprise merchants..

“We interact with digital, full-stack PSPs and acquirers, but we also work with merchants that use larger legacy acquiring banks and it's clear that competition from these newer players is putting a lot of pressure on more traditional providers,” he says.

They haven’t matched the added features providing other support for SMEs offered by more modern providers, such as Stripe’s, which sit within and outside of payments.

“Building that would be a real challenge for a legacy bank,” says Voaden. “So, we’ve seen a lot of the legacy banks trying to plug gaps by white-labelling or partnering with other large payment acceptance players, but often they’re partnering with providers who are also struggling to keep up.”

Adding a processor’s legacy tech on top of an acquirer’s own legacy technology certainly isn’t the answer. But while taking on new proprietary or bought-in gateways may provide acquiring banks with cutting-edge tools for their front book, the risk is that it creates inconsistency in the merchant experience and does not immediately service the bank’s back book.

Tom Voaden, Vice President Commercial at BR-DGE

Striking a chord: Payment orchestration can help both merchants and financial institutions

Payments orchestration, argues Voaden, offers a way for acquiring banks to build out the payments connectivity and services they need to better support their customers, without the pain of ripping and replacing tech, relying purely on the ageing platforms of processors, or risking disrupting their merchant experience with new systems. Instead, financial institutions can choose, tailor and implement the pieces that best serve their customers and roll it out easily, using templated or out-of -the-box setups that are built for individual merchant segments.

In other words, orchestration can be the ‘glue’ to bind together the new and old, ensuring that all elements of an acquirer’s tech works together and serves all their customer base

Fierce competition

And that’s important, because enterprise merchants are often looking to work with multiple acquirers, while SMEs are finding new one-stop-shop providers very attractive.

“We typically see that once smaller merchants try out new providers, they very quickly build confidence and move over,” says Voaden. “The likes of the challenger business bank Adyen are pushing into whole new places and starting to make their technology interoperable as well, which will only increase their volume.”

The good news, though, for the legacy acquirers, in the short-term at least, is that often the merchant really wants to stay with their big acquiring bank, he says.

“This might be because they’re reliable, have great customer service or because they bank with them from an issuing perspective. What might be missing is the customer-facing, front-end payment methods and checkout personalisation, as well as the back-end routing, tokenisation and resilience capabilities.”

Which is where BR-DGE comes in. It didn’t take long, says Voaden, for payment service providers to notice the benefits of having BR-DGE in the transaction flow.

“They were saying, ‘you’re making customers stick with us, without disrupting the payment flow. We’re still getting the volume through our gateway and acquiring platform, but merchants are happier because they can offer a better front-end experience, while improved routing, optimisation and resilience means payments keep flowing efficiently behind the scenes’.”

A lot of the legacy banks are trying to plug gaps by white-labelling or partnering with other large payment acceptance players. But often they’re partnering with providers who are also struggling to keep up

BR-DGE provides a single entry point into multiple gateways and other solutions, offering an interoperable layer where products can be released and updated alongside existing tech. While its full platform is available as a whitelabel solution, it can also deliver modular product sets, which focus just on routing or tokenisation, for example. In that way, they can more efficiently and selectively consolidate away from their legacy technology over time, says Voaden. While some level of disruption is unavoidable, he believes: “Banks can take solace in knowing they’re not making their merchant move to another gateway, which is going to be outdated in five years. It’s a technology layer that can iterate, and switch between different providers in the background. It’s about future-proofing and building more resilience.”

The option to white-label the technology is insurance for PSPs who might be concerned that an orchestrator could steal their business, allowing these acquirers to offer competitive and innovative services to their merchants, who in turn benefit from orchestration services without having to switch provider. And everybody wins.

If the world’s major financial institutions had blockchain back in 2007, could we have avoided The Crash? Sergey Nazarov thinks so, which is why Chainlink is so keen to smooth the path to adoption

“When the buy-side starts to adopt certain technologies, the rest of the financial system pays attention,” says Sergey Nazarov, co-founder of Chainlink, a decentralised Oracle network that connects off-chain data and systems to blockchains.

By that logic, if Larry Fink, the CEO of BlackRock, the largest investment manager in the world, says (as he did last month) that the next generation of the financial market will be the tokenisation of everything on the blockchain, you can expect a reaction. And it came immediately for Chainlink with a sharp spike in its share price.

Fink’s comments in October came as BUIDL, BlackRock’s seven-month-old institutional liquidity fund, hit a market capitalisation of

$547.7 million, making it one of the biggest uses of asset tokenisation on the blockchain. Only available to qualified institutional investors with a minimum stake of $5million, BUIDL could help fundamentally change the way investment works as regulators in the US consider allowing digital assets to be used as collateral for commodities and derivatives trading. BUIDL, built on the Ethereum network, is already accepted as collateral by FalconX and Hidden Road, two of the largest crypto brokers. Nazarov hopes this ‘tokenisation movement’, as he describes it, will ultimately result in riskless payment methods like central bank digital currencies or bank-issued stablecoins backed by central bank deposits, being used to acquire the underlying assets.

But until, and even when, that time comes, there still needs to be a bridge where the hard edges of a temporal payment system connect with the infinite fungibility of the blockchain.

Chainlink has made big strides towards achieving that in its partnership with Swift, the world’s biggest legacy money mover and a highly centralised one at that. Nazarov recently highlighted a breakthrough in their joint effort with Swift to use its payment messaging system – which is baked into the back-office technology of 11,000 financial institutions and corporations – to create blockchain events, allowing participants to lock assets on chain and execute a transaction.

The concept is ready to move to the next phase, pending additional discussions and demonstrations with Swift and its community, from which the feedback has been positive.

Weaving the golden thread

It’s a groundbreaking effort, but there is more work to do.

“There are a number of key problems that need to be solved in order for institutional grade, smart contracts and institutional levels of value to flow on chain,” says Nazarov. “The amount of data that’s necessary for institutional transactions to happen is larger than the amount of data you find in decentralised finance – there’s reference rate, net asset value, assets under management, various metrics, accounting, principlesatisfying pieces of data, all kinds of information. So, there are a large number of data problems to solve.

“You also need to solve for privacy, to meet certain legal conditions. And then you need to solve for interoperability, which has two dimensions,” Nazarov continues. “Number one is how do you interoperate between chains? How does the chain where I issued my digital asset or my tokenised fund as an asset manager, access the purchasing power of all the other chains?

“The second question, which is where our work with Swift starts to become very relevant, is how do I interface my existing systems with all of these different blockchains so that my existing systems can manage, understand and interact with all of the blockchain events going on?

“We’ve demonstrated how Swift messages can be converted to blockchain events, which then trigger key movements of assets, movements of value, and we’ve shown the movement of that value being represented back into people’s systems through Swift messages. This is something we’ve been working on for many years in close collaboration with Swift and the Swift community and various bank members.

“From what I have seen, this approach is the most efficient way for many banks, asset managers and financial market infrastructures to interface with blockchains. They can continue to use the Swift messages, and Swift secure signing keys, to trigger blockchain events and to receive updates about blockchain events in the format that they are used to.

“The goal of this is to get those 11,000 Swift members on chain with the minimal amount of friction and cost for

them, but with the maximum amount of value going on chain as a result.

“It allows existing payment systems and existing payment flows to be utilised to flow value into digital asset transactions, solving partly the problem of merging the payments world and the digital asset world into a more active market.”

Interoperability is just one critical piece of the puzzle. Chainlink is busy solving others, too. And one sits at the foundation of financial processes: clean, transparent data.

“We’ve chosen to work first on a set of unstructured data called corporate actions that are generally written in different formats and hard for machines to understand,” says Nazarov. “We’ve applied multiple large language models (LLMs) to verify a single result through consensus on the Chainlink Network. That consensus creates an authoritative result, which is considered more reliable than the response of any one AI model.”

Working with market infrastructures Euroclear, Swift and major financial institutions, UBS, Franklin Templeton, Wellington Management, CACEIS, Vontobel, and Sygnum Bank, through the use of Chainlink’s Cross-Chain

Risk appears when all of the participants in a market don’t have the same information. If you look at the financial crisis, there was a lot of siloing of information

Interoperability Protocol (CCIP), it’s shown that the integrity of the unified golden record can be preserved and updated across multiple chains simultaneously. That’s big news, says Nazarov, which potentially impacts everyone by solving one of the biggest weaknesses in the global financial system: transparency.

“Risk appears when all of the participants in a market don’t have the same information. If you look at the 2007/8 financial crisis, there was a lot of siloing of information about the quality

of mortgage-backed baskets of assets.

“There was a small group of people who understood what was actually going on, but for the vast majority of the market, that information was unknown because it was packaged behind layer upon layer of systems and permissions and repackaged in many different data standards. It was just extremely complex. That’s what the reports that reviewed the crisis showed.

“But if you had a single smart contract to represent every mortgage holder, and a million of those smart contracts rolled under another larger smart contract that managed them, you wouldn’t need to be a chief data officer to understand what’s going on. Every time a mortgage holder’s profile changed, that update would be made so we can all analyse it.

“This is what we mean by a unified golden record in the financial markets. And it has extreme benefits to the compliance system because now everyone doesn’t have to keep 15 copies of everything. It has benefits for the back office and middle office world where errors and the managing of errors is a very costly process because nobody really knows what the truth is.

“And for risk management, it’s extremely valuable because if you don’t have access to information, you can’t manage the risk.

“The whole financial system becomes more efficient, more transparent and safer, with less of these weird opaque boom and bust cycles where the fundamental problem was that the information had an error, was inaccurate, and there wasn’t wide access to the market participants. All of these problems pretty much go away if you can transition to this single source of truth, unified golden record world.

“In the Chainlink community, we have multiple systems integrators, different groups that can help people implement the blockchain privacy manager, the CCIP private cross-chain transactions, the identity solutions, the data solutions, and the Swift solutions. All of these are things that I think need to exist.

“And once they get integrated into a bank and an asset manager, it really accelerates their ability to participate in the digital asset economy.”

Sergey Nazarov, Co-founder of Chainlink and Chief Executive Officer at

Chainlink Labs

INVESTING&FOUNDERS

Alpha nirvana

BACKED VC

has a maverick approach to

investing

and the founders it mentors. Managing

Partner

Andre de Haes shares his wisdom

and Managing Partner at BACKED VC

A highly-strung founder of a would-be billion-dollar fintech startup is sitting cross-legged in the evening glow of the Moroccan sun, breathing to the rhythm of tantra meditation. Around them, leaders of other ambitious, early-stage companies are also trying to achieve enlightenment.

It’s not a scene from a Netflix mini-series. This is a real-life strategy for moulding tech tycoons and driving value in the ecosystem.

“Think Davos for the next generation,” says Andre de Haes, co-founder and managing partner of BACKED VC, a European fund that focusses on the brave, the brilliant and – most importantly – the seed stage. Among its disciples are Cloud banking technology company Thought Machine and open banking platform Banked.

It’s a fund, yes, but not as most VCs would know it.

“We invest in four sectors: fintech infrastructure, blockchain infrastructure and applications, manufacturing software, and AI-driven biology – all of them multi-trillion dollar industries,” says de Haes.

But BACKED’s approach is in many ways antithetic. Where UK-based VCs are forever looking to the US to understand emerging sectors and high-growth potential technologies in which to invest, BACKED has its head turned the other way. Not only does it seek out the biggest industries in

Europe that are ripe for tech disruption, but also where Europe has a unique advantage over the US. Rather than follow investment trends, it doubles down on investment sectors where there is limited VC competition. And when it scans the investment horizon for a paradigm shift in value creation, it’s through a very long lens – because BACKED isn’t looking for an exit within the usual six- to eight-year VC cycle.

It believes in rolling out an extended runway for founders who might otherwise be distracted from building a successful company by the gnawing pain of cash starvation.

The fund publicly positions itself as a maverick among traditional venture capitalists, and it’s guided by four key values: ‘Put People First, Be An Apprentice, Push The Limits, And Bring Good Energy’. It might sound like guru-speak, but BACKED’s investment strategy is astute.

The unicorn effect De Haes founded the London-based fund in 2015 with Alex Brunicki, closing an initial €30million fund, ‘Backed 1’, from Groupe Bruxelles Lambert (GBL) Capital in April 2016. GBL is a leading investor in Europe with a net asset value of €16billion and a market capitalisation of €9billion as of June 2024.

BACKED’s first pan-European community fund clearly hit the mark because GBL Capital has committed a total of €90million across that and the VC’s two other funds – early-stage

‘Backed 2’, and later-stage ‘Backed Encore 1’ – to date. That gives de Haes and his co-founders room to flex.

They’re comfortable taking bold bets in relatively unknown sectors where business models, pricing strategies, product and technical risks aren’t yet proven. So far, so strategic. So where do the founder camps fit in?

De Haes’ theory is that if you want to maximise alpha in these high-risk investment environments, you need to focus on the individual who’ll deliver it. Hence, the ‘intimate, multi-day, immersive experiences’ where founders ‘get to know each other and build relationships’.

“If you’re an earlier stage founder and you get to be in the room with unicorn founders who become your mates, that’s worth a lot,” he says.

When they’re not on retreat, their investees can also access masterclasses, tools and service providers through BACKED’s proprietary Seed to Series A Founder Development Platform.

“It’s really about doing things from first principles and not being afraid to be judged or edgy. That applies to both what we invest in, then how we do it,” says de Haes. “We have taken a huge amount of technical risk in sectors that people thought were bonkers, like blockchain gaming where the jury’s still out because there haven’t been huge companies built there yet. Fortunately, we’re in, arguably, the two biggest, with multi-billion dollar valuations.

Andre de Haes, Co-founder

“Similarly, we’ve bet on certain bits of banking and payments infrastructure very early. But I think where we’re really maverick is in the events we run for founders.”

Whether that’s kayaking down rapids or immersive breathwork, he believes that forcing them into a place of learning and/or discomfort forges a bond between BACKED and founders that most funds just don’t have.

“Being different for the sake of being different, that kind of Dyson approach to difference, is something we care about,” says de Haes. “We’re willing to take much longer bets; to invest in founder archetypes that a lot of other funds will dismiss; to invest in geographies that are often overlooked. We think you have to be a contrarian as well as right.”

BACKED has a ‘checklist of traits’ before investment decisions on founders are made.

Among these, priority is given to a ‘high pain tolerance, incredible resilience, and grit’. This is based on the rationale that during the earliest stages of a startup, the experience and tenacity of the founding team, its human capital, could be considered a company’s most important – and sometimes only – asset.

Particular attention is also given to a founder’s ‘right to win’, or founder/market fit. In other words, whether they have ‘an insight –a secret – that allows them to build something that no one else could’, says de Haes.

In case you were wondering, it is definitely not exclusively focussed on Gen-Zs. It wants innovative thinkers, yes – but they must be able to implement ideas while navigating an ever-shifting set of skills and priorities.

investors to part with cash; persuade customers to trial your product. At the same time, do you have a strong set of values and the humanity to be a kind and thoughtful manager?

“To go all the way and build a multi-billion dollar company, you have to have a very special type of brilliance, a special type of resilience.”

Paul Taylor, the founder and CEO of Thought Machine might be that kind of guy. The London-based fintech’s £160million Series D saw its post-money valuation rise to $2.7billion in May 2022. It joined 17 fellow fintechs, including Monzo, Revolut, Wise, and Starling Bank, in the exclusive club of 43 UK private companies to have achieved unicorn status.

BACKED VC welcomed Thought Machine to its founder community in 2016 after joining the CAP table in one of the company’s earliest funding rounds. Thought Machine’s $160million Series D saw the post-money valuation rise to

the Power Law: the principle that a small number of investments will yield the majority of a portfolio’s returns, while the remainder will break even or fail. BACKED’s portfolio company, UK-based ticketing platform Pollen, made headlines in 2022 after reaching a valuation of more than £450million and fell into administration four months later.

The fund has nevertheless enjoyed a total of seven reported successful exits since 2015. Most recently, Foundries.io was acquired by Qualcomm in March 2024.

When it comes to investing in seed stage fintech infrastructure, BACKED is a decent-sized fish swimming in a small pond.

“The problem with fintech in Europe is that there aren’t that many specialist fintech VC funds,” says de Haes. “And a lot of the seed funding came from generalist funds that have partially retreated following the revaluations

The problem with fintech in Europe is there are not many specialist VC funds... A lot of seed funding came from generalist

funds

that have

And that often comes with experience and maturity. “It is just so hard being a founder,” says de Haes. “Everyone glamorises it and talks of Bezos, Zuckerberg and Musk as idols, but people forget just how hard they struggled along the way. Dyson made over 5,000 prototypes. “We look for that kind of grit, then for execution speed. You can be intellectually brilliant and know a space intimately but unless you get stuff done unbelievably quickly and you’re willing to make mistakes and rapid decisions, you’re not going to go anywhere. You have to move so fast to win. Finally, you have to be both a storyteller and commercial to be able to sell a vision; persuade people to work for you for way less money than elsewhere; persuade

partially

retreated

$2.7billion in May 2022. The company is currently eyeing an IPO within the next two years.

The go-big-or-home approach BACKED encourages among its founders appears to pay off. Thought Machine is the latest of three companies in its portfolio to have reached unicorn status. Immutable, based in Australia, whose product Immutable X is the first scaling system for carbon-neutral NFTs, reached a $2.5billion valuation after a $200million Series C round in 2022. Meanwhile, Singaporebased online crypto game developer, Sky Mavis, was valued at $3billion after a $150million Series B, led by Andreessen Horowitz in 2021. BACKED has certainly made some shrewd investments, but like every VC, it can’t escape

we’ve seen of later-stage companies like Klarna. Revolut’s recent $45billion valuation secondary deal re-injected some enthusiasm and other later-stage rounds have also buoyed the mood, but we’ve seen a big distinction between companies operating in spaces that most investors deem attractive and others in spaces like credit where it’s gone cold. Investor appetite at seed is now very market-specific.

“There are a few areas commanding interest like securitization of assets that weren’t previously securitized and certain products in the transaction flow.”

The maverick investor’s hottest tip in fintech right now is blockchain.

“Widespread adoption will largely be invisible,” he says. “With a lot of the best applications, people won’t even know they’re leveraging blockchain infrastructure – in things like gaming where some of the applications are hyper-interesting.”

Go big or go home: BACKED looks for brilliance and resillience

The future of football

Andaria CEO Nirav Patel believes embedded finance can truly unlock the fan experience

Embedded finance is one of the biggest topics in fintech and for good reason. Exact figures vary, but one thing is for sure – it’s predicted to grow significantly in the years to come.

One McKinsey report suggested that revenues from embedded finance in Europe could exceed €100billion by the end of the decade, far surpassing traditional financial services. Whatever way you look at it, delivering financial products through non-financial entities is the future of finance.

There are numerous sectors this could penetrate, but one of the most interesting is sports, and, more specifically, the world’s largest sporting segment, football. The numbers here are staggering.

In Deloitte’s Annual Review of Football Finance 2024, an independent review of the business of European professional football, revenue grew by 16 per cent in the 2022/23 season to €35.3billion. The ‘big five’ leagues contributed 56 per cent of that.

The largest, the English Premier League, had another record year in the 2022/23 season, with revenues from PL clubs surpassing £6billion for the first time. Many questions exist around how much of a positive impact this has on the wider footballing pyramid but it’s certainly the case that matchday revenues present a lucrative opportunity for financial services.

Fintech writer Jas Shah, highlighted this opportunity himself, pointing out

Patel, Chief Executive Officer at Andaria Financial Services

that half of football fans (54 per cent) spend more with brands if they have a loyalty card, while 47 per cent want to see more personalised offers in exchange for their support, according to research from SAP Emarsys.

In a world where brand loyalty is hard to win and easy to lose, Shah also noted how football stands out, with ‘a whopping 82 per cent of football fans remaining loyal to their club throughout their entire lives’. That’s regardless of the team’s performance or changes in personal circumstances. It’s a currency that can’t be underestimated and could be leveraged.

One technology company doing just that with an embedded finance offering focussed on the sports fan is Andaria. It provides the technology required to improve the fan experience and release financial capabilities in non-financial organisations. Founded five years ago, it has been operating as a regulated institution for over three years, in both Malta and the UK, giving it a foothold across Europe, where 229 million people attended matches last season, and in the home of the Premier League.

Andaria’s CEO Nirav Patel is a self-proclaimed ‘Gooner’ who would love nothing more than to combine his experience of being an Arsenal fan with rewards and financial incentives. He also has a lot to say about where embedded finance is heading and how clubs can leverage the true value in this technology through customer data.

Fan data is king

In a nutshell, Andaria uses payments as ‘a conduit to data’, says Patel.

Although fans have long been recognised as a vital and valued part of the club, he believes a lot of sports organisations are poor at segmenting or understanding their own. By gaining more specific data from a transaction in the club store, they can build a more complex picture of the individual, which can unlock other opportunities for them.

“For a club, it gets even more interesting if you look at sponsorships and commercial agreements,” he says.

“If a club can segment the client base and say to a potential sponsor, ‘five million of our fans are 25-to-35-year-old, young professionals that live in the centre of London’, you can see how the commercial negotiation for the club becomes a different proposition. And that really starts at payments.”

The question is what does this look

Nirav

mechanism by charging that downstream to their client and adding a markup.

“We’re also focussed on liquidity. What I mean by that is if we’ve onboarded Arsenal, for example, and every Arsenal fan has an account, any transactions that happen between the two sit within Andaria’s network. So it’s peer-to-peer, but also instant.

“A food and beverage stand at the stadium would get its funds instantly rather than in two or three days’ time, which for an organisation like a sports club is key.”

The winning formula

It’s hard to dispute that embedded finance will play a key role in the future but there are some major challenges in the short term, which Andaria is hoping to alleviate.

For a non-tech organisation, says Patel, a major challenge is how an organisation absorbs new technology to make this work. One concern might be that they have to tear down what they’ve got and start again.

“Instead, Andaria aims to complement any existing infrastructure with our unique SDK (software development kits) methodology, which allows clubs to absorb our solutions in a streamlined manner,” says Patel. “This removes the need to overhaul their tech infrastructure.”

Assuming they’re won over by the earning potential and they can make it work

like for the fan? As Patel admits, branded cards are nothing new and downloading a new app to gain loyalty points has become a modern, unwanted point of friction. This may not be a problem for a devoted fan but in any case, Andaria’s offering is not a third-party app that a club has to ship out separately.

“We try and minimise disruption to the fan journey by enhancing their existing app… and make using a branded card a more attractive proposition. We have to find a mechanism to keep fans using the card; rewarding loyalty with the club that you follow is a natural choice,” he says.

Personalising the card with completely unique sporting moments is one way to entice fans, although he does acknowledge the desire from most organisations to reduce plastic.

“There are a few things we’re doing in that space including looking at alternatives to plastic such as the rise of the bamboo card. It doesn’t completely negate the environmental element, but it goes some way towards ensuring that clubs meet their CSR value.”

Andaria, he believes, is delivering the real deal when it comes to embedded finance, providing ‘the ability for our client base to offer banking or other financial products to their client base without having to go for a license themselves’. Looked at this way, it is not just offering the technology but taking away the regulatory burdens that come with offering financial products.

“Sometimes embedded finance is used without having any real substance,” says Patel.

Embedding payments offerings in your checkout is one thing and is usually done with the help of a third party. But actually providing a payment card with your own branding, linked to your organisation, as Andaria does, is another thing entirely.

A sports club partner would operate a technical integration, but the day-to-day operation sits squarely with Andaria, says Patel.

Then there’s the revenue generation opportunity – which is substantial..

“We give our clients the ability to turn transactions into a revenue generation

A stadium food and beverage stand gets its funds instantly rather than in two or three days’ time, which for a sports club is key

technologically, Patel believes more sports clubs of all kinds, not just in football, will take up embedded finance.

“It’s a hugely exciting space to be in. The fact that it’s nascent puts Andaria in a very strong position to grow. You can see how you might embed lending into the buying of a season ticket, for example.”

Another reason why sport is so attractive as a financial segment, is its borderless nature. As Patel says: “It creates a language of its own that is spoken everywhere.

“Irrespective of where you’re from, when you‘re at a football match, you know what that feeling is like. And that’s something that we want to harness.”

Fan loyalty: A currency that can’t be underestimated

PAYBYPHONE

Wallet for the world

They’re primarily tools of convenience in the West, but how powerful could mobile wallets really be if the issue of interoperability was solved? That’s what TerraPay has set out to do, as Ram Sundaram explains

The genesis and the genius of mobile wallets differs hugely around the world.

In developed economies they were created for convenience, led by Big Tech developments like Apple Pay and Google Pay, which provide tokenised card payments, linked to existing bank accounts.

In emerging markets they were formed to give financial inclusion to the huge swathes of people who didn’t have bank accounts, allowing them access funds on their phones, which was literally a lifesaver for many. But both models share common futures: that of exponential growth and an increasing need for interoperability.

One of the fintechs with a significant stake in providing the latter is London-based global money movement company TerraPay. Formed in 2014, TerraPay’s network was first used by a hotel worker in Dubai to send $13 to his family in Tanzania. Now it processes payments to more than 2.4 billion mobile wallets, 7.5 billion bank accounts and six billion cards across the world.

Ram Sundaram, Co-Founder and Chief Operating Officer at TerraPay

And such is its growing influence that this summer TerraPay announced that it was connecting Swift’s global payment network, which links more than 11,500 financial institutions across 212 countries, to its digital infrastructure to further enhance cross-border transactions for both businesses and consumers.

Providing an interoperable payments network was always central to TerraPay’s founding vision, explains chief operating officer Ram Sundaram, who co-founded the firm with Ambar Sar, now TerraPay’s CEO.

With a shared background of working in telecoms in India, the pair quickly realised that there was a ‘silo approach’ to the existing mobile payment platforms.

“You essentially had closed user groups where you could pay merchants or other customers on the same platform but you really couldn’t transact with others who were with anyone else,” says Sundaram.

“We thought there was an opportunity to build something like Swift for mobile wallets where we make them interoperable. One of the key

drivers here is that a lot of people in emerging countries will never have a bank account in their lives but they already have or will have mobile wallets and they use them as bank accounts. So making them interoperable, making them work with the rest of the financial infrastructure, is desirable. It promotes financial inclusion, it makes services that banked people take for granted available to non-banked people. We thought this was something that we could work towards.”

So, the pair set their sights from the outset on creating cross-border payment capabilities.

“We realised we would have to be a licensed infrastructure that mobile wallet operators can connect to, not just a messaging platform and that’s what we built out,” explains Sundaram.

“As we were building that out we found we needed settlement accounts and other capabilities and, as we spoke to banks, some of them said they wanted to join the network as well because they wanted to be able to send money to mobile wallet operators or receive money

from mobile wallet customers. So we added bank accounts to the mix. Then we realised it made sense to offer this as a kind of digital infrastructure where we reach mobile wallets and bank accounts. And that’s really what we’ve built out over the last 10 years.”

The global goal of interoperabilitty

Mobile Communications Association found about two-thirds of sub-Saharan Africa’s 1.2 billion people are registered for mobile wallets. International researchers Global Insight predicts the market will see a 18.5 per cent CAGR (compound annual growth rate) from 2023 to 2032. Meanwhile, in the UK, industry body UK Finance’s 2024 Payments Market Report showed that 42 per cent of the adult population registered for mobile contactless payments in 2023 compared with 30 per cent in 2022, and a third of adults used them at least once a month. Given that mobile phone penetration in the UK is above 90 per cent, the report’s forecast of trends to 2033 predicts that mobile contactless payments usage will continue, driven by a migration from contactless cards to mobile contactless devices.

It’s no surprise then that the UK’s Financial Conduct Authority (FCA) and the Payments Services Regulator (PSR) have turned their attention to the future developments in digital wallets. This autumn they put out a call for views around whether they are working well for consumers, businesses and other users; if there are any disincentives or barriers to digital wallets integrating account-to-account payments; and asked if stakeholders thought digital wallets posed any significant consumer protection or market integrity issues.

is explicitly authorised by the account holder on their device.”

It’s not all about the shopper, though as Sundaram points out: “Coming back to emerging markets, a lot of SMEs who don’t really have access to bank accounts use wallets and their requirements are different from individual customers’. So the wallet providers have created SME business wallets that have higher limits or different capabilities.

“Businesses can use them to pay customers and there are also businesses in emerging markets that rely on micro payments, things like micro insurance where they charge a small premium every day for insurance cover because their customers can’t afford to pay a larger amount once a month or once a year. When you do that, you have to have access to wallets because without wallets the cost of a transaction will probably be more than the amount you’re collecting. So there are specific use cases which only wallets can address.”

While the growth in adoption in the UK and Europe has been driven thus far by convenience more than anything else, Sundaram believes there are opportunities to grow the market in other directions – for instance where sizeable populations of migrants have settled.

Far from being a threat, the UK Finance report pointed out that mobile contactless payments benefit from additional security features, such as biometric authorisation of individual payments. And these added security benefits compared to physical cards is a theme Sundaram warms to.

“The low-hanging fruit is to make life easier for your well-heeled customers and that’s what wallets in Europe and the UK have been doing, but I don’t think there have been many wallets that have actively set out to address financial inclusion,” says Sundaram.

As part of TerraPay’s continuing drive towards global interconnectivity, it recently announced a collaboration with five leading wallet operators Airtel, bKash, MPESA, Nequi, and Sama Money to form the Wallet Interoperability Council. Serving millions of customers in countries including Bangladesh, Colombia, Kenya, Senegal, Tanzania and Uganda, the Council members aim to facilitate merchant payments, international remittances, and other use cases in cross-border transactions, interconnecting their diverse platforms by leveraging TerraPay’s technology. It comes as huge growth in the use of mobile wallets is forecast worldwide. A report published this year by the Global System for

“Card payments are legacy, they evolved from a place where there was no security,” he says. “Then, as the world became more digitised we realised these things were very vulnerable. So today all the security that you have around card payments is kind of bolt-on patches on top of patches on top of patches – it’s not a very efficient system.

“I may be very confident that the card I have here in the UAE is secure because it has a second factor authentication but I may travel to another country where the acquirer doesn’t have it or hasn’t turned that on and now anybody can just tap my card and authorise a transaction. That doesn’t exist in the wallet world because it’s a relatively new technology and the way it’s built is that every transaction

“There are lots of migrants in Europe or the UK, for instance, who don’t qualify for bank accounts because of low income levels or because of documentation, and these are things that can be addressed by wallets in cooperation with regulators.

“Obviously, you have to create the regulatory environment for know your customer with a different set of operating rules or thresholds or cost structures for customers like that. But there are also customers, for example, who live on government support in the UK and Europe, and it’s easier to pay them with wallets if there is a widespread wallet ecosystem for acceptance. It’s much cheaper for a start, and helps to make sure that the money goes where it should be going.”

For TerraPay, which was founded on a mission to promote financial inclusion, that seems a perfect plan.

The low-hanging fruit is to make life easier for well-heeled customers and that’s what wallets in Europe and the UK have been doing. There haven’t been many wallets that actively set out to address financial inclusion

World preservation, life improvement and human empowerment are the ambitious goals of The Venture Collective. We sat down for a fireside chat with Co-founder

Nicholas Shekerdemian

Launched in 2019 by Nicholas and his partner Gina Shekerdemian, US/UK-focussed fund The Venture Collective seeks early-stage investment opportunities in sectors that can contribute to its mission to leave a positive impact on the world – and democratising wealth creation puts fintech firmly in the human empowerment box.

Shekerdemian studied Chinese at Oxford while simultaneously trying to launch a graduate recruitment app, but then ditched his degree and won a place on tech investor Peter Thiel’s Thiel Fellowship for college dropouts.

The Venture Collective currently funds 46 firms that are reimagining business to meet environmental, health and wealth goals.

We asked Shekerdemian to share his insights on the fintech industry, market downturns, the current state of VC and the entrepreneurial mindset.

Shekerdemian on fintech: “I’m very bullish about the market, although I think the multiples are still exceptionally high. Ultimately, margins will compress as the market becomes more competitive. But, as investment targets, I like that many fintech business models involve high transaction volumes and diversified risk. And, while customer acquisition costs were a challenge for neo banks, some, such as Monzo and Revolut, have turned things around and got themselves in a good place.

“There’s a lot of noise in payments and it’s challenging to see innovation there. That said, within our portfolio we have Lopay, which is doing really well in the SME space. It’s focussed on empowering small business owners –people such as taxi drivers – with a cheaper mechanism for receiving payments.”

Shekerdemian on… economic downturns: “You see a founder’s true colours when things go sideways, which happens in 99 per cent of entrepreneurial journeys. It’s a painful moment when someone who has been able to raise cash easily and has become reliant on venture capital, suddenly has to make the economics of their business really work. But ultimately, that’s healthy. Businesses that can do that will be better for it.

“It’s exciting for the market to see resets because it brings a new wave of people into the field – 2008 to 2010, for example, was a great time for venture capital because many people were becoming entrepreneurs and you could invest at reasonable prices.”

Shekerdemian on… the current investment slump: “The extension of IPO timelines and the weak merger and acquisition environment is obviously making it more challenging for people to exit. It creates a vicious cycle where limited partners have a lack of realisation, so commitments to new funds are reduced. I think there’s a lot of C-series capital and

You see a founder’s true colours when things go sideways, which happens in 99 per cent of entrepreneurial journeys

investors are willing to take modest investment bets on smart people, but there’s a funding gap where bigger firms would have come in earlier. I don’t see a lack of funding at the pre-seed and seed level.

“The macro cycle is challenging, but, ultimately, it means people have to make better investments into companies that are going to work. The companies that are being funded are generally of better quality relative to the pricing, which I think is great.”

Shekerdemian on… the entrepreneurial mindset: “Entrepreneurial intuition doesn’t go away. When I was building my companies, I used to joke that if all else fails I’d get a real job. But if you’ve got the bug, you just move onto the next company and try to learn from previous mistakes. Some of the best learnings are from company founders who got off the ground, did get scale, but ultimately things didn’t work out. It’s a painful fall but it builds a lot of resilience.

“However, I do worry about the sheer number of people who were encouraged to build companies when it was easy in 2020-21 – it brought in a lot of people who may be great operators in a small business but that doesn’t mean they have the resilience to take the punches that come with being CEO.”

Shekerdemian on… what makes a great founder: “I look for differentiated perspectives. That may sound crazy since that should be the aim of a startup, but so many pitches lack any major insight. I like stories where if the founder’s right, they’re expanding or creating a new market – Airbnb was a great example of that.

“I’m also looking for a deeper passion, because frankly, it’s not that glamorous building a startup. It’s a long struggle, so resilience comes from being passionate. It’s important to stay backing people who have a deep interest in the category they’re focussed on, rather than just opportunistically building there.”

The VCˊs view

ACQUIRERRELATIONSHIPS

Spending time in DACH

A year after Nexi announced its further expansion into Germany, Austria and Switzerland, Jennie Johansson Carnhamre tells us how it’s meeting the existing and future payment needs of this diverse region

Anyone strolling through a traditional German market this Christmas is likely to be carrying a pocketful of euros to exchange for the brightly coloured lebkuchen swinging in delicious coloured posies from the stalls.

Because in Germany, cash still counts for 51 per cent of transactions by volume at point of sale, according to the country's central bank. And yet Statista figures show that, overall, online payment services or digital wallets are used by 66 per cent of German customers, with pay by invoice (Rechnungskauf mit Ratepay), a peculiarly local form of buy now, pay later, coming second in popularity. Meanwhile, Switzerland has taken a relatively new payment method

Jennie Johansson Carnhamre, Senior Partner, Marketing Manager –Ecommerce for DACH at Nexi

completely to heart, with mobile service Twint now the second most popular method of digital payment behind PayPal. And next door, in Austria, 61 per cent of consumers prefer to use digital payment methods over cash, according to the 2023 Austrian Visa Payment Monitor, which also showed that, on average, 25 per cent of Austrians pull out their mobile phone or wearable to pay at the checkout.

Twenty-six per cent are even beginning to actively avoid shops that do not offer digital payments, it says.

Although Germany, Austria and Switzerland share a rich cultural history, they are nonetheless very diverse when it comes to their payment habits and trends.

And that’s why Italian-owned Nexi Group's strategy for expanding into the

region has been to partner with homegrown technology players, merchants and financial institutions in the DACH region, on the basis that the closer you are to a market, the better you understand it. And DACH is, by nature, a bit of an enigma, albeit one that’s ripe for disruption.

There is no one-size-fits-all in payments, so understanding your customers (who they are, where they are from) is essential, says Jennie Johansson Carnhamre, senior partner marketing manager at Nexi Group.

“Nexi has a long track record across Europe of working with merchants small, large, domestic and international to understand this complex equation.

“Our approach is ‘local by nature and European by scale’ – and therefore

Sweet pickings: the DACH region is ripe for disruption

Germany in particular has a number of distinctive characteristics when it comes to ecommerce payments, she says. While PayPal plays a major role as does payment by invoice, account-to-account payments are seeing increased adoption and new payment methods are coming to the fore.

Buy-now, pay-later (BNPL) is also on the rise in the region. The German BNPL market generated a revenue of $417.4million in 2023 and is expected to reach $2,212million by 2030. In fact, BNPL transactions in Germany are so far 14 per cent higher in 2024 than in 2023. Klarna, one of Europe’s leading providers of BNPL, has been in the country since 2017, contributing to this growth. With more and more people shopping online, it’s no wonder that customers are looking for these options at the checkout.

companies can help mitigate risks and strengthen security measures, according to Nexi. But it can also often lead to the creation of innovative payment methods, and streamlined checkout experiences – if first you understand local payment preferences, shopping habits and desires. That’s especially true in a region where home-grown merchants benefit from loyal consumers, who have quite a high propensity for buying local. According to Nexi’s 2023 report, 49 per cent of internet users across Europe indicate they want to buy from businesses in their own country, but that rises to 78 per cent in Germany.

we offer all the local payment methods wherever we operate. We understand consumers, their preferences and behaviours to ensure that whichever industry you are in, we know the way to support sales growth in the most effective way possible.”

This approach has already seen it partner with many PSPs who are deeply embedded in the DACH region. In Germany, they include ecommerce payments solutions specialist Computop, based in Bamberg and Berlin’s Orderbird, which provides hospitality and small businesses with digital POS systems that are compliant with local tax authorities

These and other partnerships across the region, allow Nexi Group to configure its products in the most effective way and be a merchant’s partner on their growth journey, says Johansson Carnhamre.

Nexi’s own recent report on the region found there had been a 12 per cent growth in online spending during 2023 compared to 2022 and in DACH roughly 90 per cent of the people surveyed had purchased something online in the previous 28 days.

Collaboration is key

The growth of account-to-account payments, as in other areas of the world, has been largely influenced by Europe’s revised Payment Services Directive (PSD2), soon to be upgraded by PSD3 with its focus on secure authentication, which is likely to impact A2A payments. PSPs and merchants also need to consider the Consumer Credit Directive, which goes live in 2025 and further enhances consumer protection around new forms of credit.

This directive, driven by the European Central Bank (ECB), is partly a response to the growth of BNPL, which some feel has not been appropriately regulated so far. Rather than stunting innovation, the hope is the Consumer Credit Directive will allow the consumer to safely engage with newer forms of payment. But its impact on instalment payments, particularly payments on invoice has yet to be seen.

Nexi has recognised this rise in localism as a phenomenon that stretches around the world, pointing out in its report that it’s not merely a ‘pandemic-inspired trend’. But the numbers are particularly high in the DACH region where it found that 'consumers agree that it feels good to support small and local businesses and it also feels more personal or familiar. Price was also a big factor in their decision’.

Having an acquirer that understands these nuanced behaviours and sentiments among shoppers in the DACH region is an asset for PSPs who are trying to provide the best payment options. But it goes beyond that.

“Partnerships can help mitigate risks and strengthen security measures. Cybersecurity threats and fraud are constant concerns in online payments. By partnering with cybersecurity firms and fraud detection specialists, ecommerce gateways and payments companies can bolster their defences and stay ahead of emerging threats,” continues Johansson Carnhamre

Nexi’s approach is ‘local by nature –European by scale’ – and therefore we offer all the local payment methods wherever we operate

Adding extra layers of security always comes with the concern that it may lead to greater friction for genuine customers. Collaboration between ecommerce gateways and payment

“Collaborating with regulatory bodies and compliance experts also ensures that they adhere to industry regulations and standards, reducing the risk of legal and financial repercussions. Furthermore, partnerships drive customer satisfaction and loyalty.

“By integrating complementary services and offering bundled solutions, payments companies can provide added value to merchants and consumers alike. For example, partnering with shipping and logistics providers can offer merchants discounted shipping rates or expedited delivery options, enhancing the overall shopping experience.”

you say Watch what

In the wake of multi-million dollar SEC fines for unregulated off-channel-trading comms, Peter Snasdell from Devexperts explores how AI could keep firms compliant

Internal communications were changed forever by the pandemic. Forced online out of necessity, we all found we relied on instant messaging more than we had before, after the big reset. And while it hasn’t replaced email as the most-used digital comms tool in the workplace yet, it’s certainly a lot more popular.

For a highly regulated industry like capital markets, this presents a problem. Encrypted services such as WhatsApp and Telegram might be great for protecting conversations you’d prefer the whole office didn’t see, but they are also a potential channel for insider trading. COMPLIANCE

The regulator of the world’s largest financial market, the US Securities and Exchange Commission (SEC) recently issued multiple fines for firms found guilty of record-keeping failures, specifically relating to this ‘off-channel’ communication between staff. That’s not to say any of these firms, including BNY Mellon, Stifel, Nicolaus & Company and Invesco, were guilty of malpractice, but, given how sensitive this area is, unrecorded communication presents a real threat to the integrity of the business.

According to the SEC, it ‘uncovered pervasive and longstanding use of unapproved communication methods… As described in the SEC’s orders, the firms admitted that during the

periods relevant to each order, their personnel sent and received off-channel communications that were records required to be maintained under securities laws’.

The messages were sent using several apps on personal devices, including iMessage, WhatsApp and Signal. One of the most recent fines ordered at least 11 firms to pay more than $88m combined as a result. The rules are pretty clear. What’s not is how an increasingly flexible working landscape can stay compliant.

Hybrid and remote work is now a norm across all industries. According to Forbes Advisor, 63 per cent of workers in the UK work remotely either all or some of the time and

businesses now have less control over the channels of communication being used between them than ever before.

The workforce is getting younger, too, and it’s leading to wider adoption of channels like WhatsApp as its default mode of keeping in touch with friends, peers and coworkers.

Something clearly needs to be done to help regulated industries keep on the right side of the law when it comes to communication, but the key is finding the right balance between flexibility and compliance.

Peter Snasdell has worked in investment banking since 1996 and has seen how technology has changed the industry. “I come from a time of using phones and writing on pieces of paper to trade!” he says.

Mobile communication ‘presents a massive challenge for regulators and a reputational risk for the banks and individuals involved’, says Snasdell. “If the wrong thing is said, it can have a disastrous effect on a business’ bottom line. So there have to be checks and balances in place to make sure that digital communication is being used correctly.”

While generative AI is only likely to accelerate growth in the internal and unified comms sector, who’s to say AI couldn’t also help keep ‘off-channel’ communication compliant?

“AI systems today can monitor communications in real time, flagging potential compliance issues before they become a problem,” agrees Sansdell. “For a regulator, that’s manna from heaven, so I think there’s going to be a lot more communication between companies like ourselves and regulators, to get to a situation where the AI does what regulators need it to do while also being useful for companies.”

Keeping it above board

When it comes to communication with clients, Devexperts’ product, Devexa leverages AI to provide a communication platform for retail and institutional brokers, prop trading firms, institutional brokers, trading signal providers, and trading media portals by combining live

AI systems can monitor communications in real time, flagging potential compliance issues before they become an issue. For a regulator, that’s manna from heaven

Now, as senior vice president for Devexperts in the US, the trading software provider, Snasdell has been paying close attention to the recent activity at the SEC.

“Regulators are hot on off-channel communication because in the past it’s been used to create advantages for some investors and disadvantages for others. There have been instances of market manipulation,” he says.

“With financial markets as interconnected as they are globally, whatever the SEC does is going to have an impact on every single regulator around the world.”

chat, video calls, screen sharing, broadcasting, and chatbots into a single interface. The AI-powered virtual assistant functions as a widget embedded into trading platforms, websites, and landing pages.

The idea is that all user interactions across these channels can be captured and monitored in one place and that data is then stored to create a consolidated audit trail, precisely avoiding the discrepancies that companies have fallen foul of.

No one program can be expected to serve all firms in multiple jurisdictions, says Snasdell.

“Whether you’re a broker or a prop trader or a hedge fund or investment bank, you’re going to have to choose the AI product that suits your needs.”

But large language models (LLMs) are more than capable of learning what’s required in a specific context. Devexa understands trading and investment slang and can banter like the best broker.

By helping to automate many of the routine tasks of a brokerage operation or a bank operation, the AI could potentially lighten the load on an employee in areas of overwhelm which are perhaps linked to quick off-channel exchanges taking place in the first place. Ultimately, Snasdell says, this machine has learned what it takes to stay compliant and provides the necessary guardrails for the trading body.

Devexperts sees itself as part of a wider movement of adopting AI tools for meaningful purposes.

“We’re in the early stages of a productivity J-curve where institutions are retooling their tech suite to operate with AI,” says Snasdell. “People need to learn where they fit into that and how they interact with the program, before we start to see productivity really take off. With Devexa, at the moment we have a fairly large amount of human interaction – so a human can take over the interaction at any time and start talking.

“But as we get more comfortable with using AI and letting it do its own thing, we’re going to see productivity increase and the level of human interaction decrease over time.”

As for the future, he’s optimistic, perhaps because of how he has seen technology change so dynamically over the course of his years in the industry. “I’m still here!” he jokes.

“I think people are unduly scared by the role of AI. Human interaction is still needed to run markets and a human will always be the decider of what gets traded and why.

“I think what AI is going to do – what it is already doing – is enhance that process and make our job 10 times easier with less paperwork, less keystrokes, and less reporting.

“As a result, I personally believe people are going to have more time to focus on what they need to do.”

Peter Snasdell, Senior Vice President for Devexperts in the US

GENERATIVEAI

Along for the ride

Trembling with excitement or paralysed by fear? We asked three experts how legacy banks should integrate a technology that’s ‘as powerful as electricity’ in its ability to transform organisations

Since ChatGPT’s arrival two years ago it seems the world has been on tenterhooks, awaiting a generative AI (genAI) revolution. After false dawns with other technologies, the consensus is that this time it’s different. But what does genAI mean for banks today, and where is it taking them?

We asked three industry leaders for their insight – Ranil Boteju, chief data and analytics officer at Lloyds, ING’s head of advanced analytics strategy, Marco Li Mandri, and chief executive of software solutions company BBD, Kevin Staples.

The Fintech Magazine: We had tech consultancy Gartner tell us genAI was at the top of its hype cycle – it certainly seems to be entering a point of maturity. Will AI revolutionise banking? Is this time different?

Ranil Boteju: Yes, it’s not hype. We’ve seen technology hype cycles before with distributed ledger, blockchain, Web3, metaverse, quantum. But let’s be honest, none has made a huge impact yet, they’re very much top-down driven. Generative AI was different, within three months of ChatGPT coming out we had engineers all over Lloyds

using large language models to solve real problems off their own bat. I’ve never seen that – that organic growth of use cases popping up.

I’m convinced this is a general-purpose technology that will transform organisations, like electricity did when it was discovered.

Marco Li Mandri: I agree it will be transformative. But a common misconception is that this is easy. Building this system takes quite some craft because the more you go into a core system, the more monitoring you have to do. Plus, you have to make the system safe, which is demanding.

Kevin Staples: If you consider the sheer rate these generative AI models are advancing, it can seem terrifying. And that leaves an organisation not knowing how to move forward. There is an inertia and it’s often related to the risk elements. My preferred

approach with a technology that’s inherently not definitive, like this, where the outcome isn’t guaranteed, is a proof-of-concept approach where we adopt a mindset of let’s fail fast.

You’ve got to understand that because this technology is changing so fast, anything you adopt today will not be as appropriate as the better tech that arrives tomorrow. So, my advice is: keep it simple, look at use cases that will have value, then dive in, solve the problem, and realise quickly if you’re failing.

The Fintech Magazine: So what is genAI being used for right now, and what is coming soon?

Kevin Staples: There are three categories where it’s being adopted by banks and other corporates. First is staff – we’re using these tools already in our day-to-day jobs as efficiency tools. Second is back-office processing – for our banking clients we do a lot of process re-engineering work and that’s a use case that’s within reach, it’s relatively straightforward to get there. And third is the holy grail – customer-facing applications.

I believe that, in the future, most banking customers will have their own ‘digital twin’ of a personal banker and this is an area I’ve been working on with our clients to achieve. It’s hard and we’re not quite there

I’m convinced this is a general-purpose technology that will transform organisations

Ranil Boteju, Lloyds Bank

yet, but we’re overcoming a myriad of technical and business-risk complexities to head in that direction.

Marco Li Mandri: At ING we’re focussing on several things. First is scale – we identify use cases that can scale across all the markets and countries where we’re operating. The second one is about domain. In our case, there’s a lot of potential in the contact centre space, and also marketing personalisation. GenAI can also help support analysts with their work in software engineering, and lastly, we’re using it in wholesale banking where we have a commitment to sustainability.

Ranil Boteju: We’re funnelling our use cases into four categories at Lloyds. For engineering, as Marco and Kevin touched upon – there are lots of opportunities for engineers to use coding copilots, automate test cases and documentation, and create synthetic data. The second category is using genAI to create tools for frontline colleagues –things like call summarisers, post-call quality assessments – very important when you’re selling financial services products – and training tools. They’re working well. Third is tools focussed on the back office. Then fourth, and the one we’ve paused on until we’ve got the right guardrails in place, is exposing generative capabilities directly to customers.

The Fintech Magazine: What are the obstacles to scaling this technology? What is your own strategy?

Marco Li Mandri: A few years ago, the challenge to scaling AI was around data. Now it’s about building a platform that’s embedded in processes that are core for the bank. It takes time, but at least it’s clear what we need to do. On the technical side, you need a good roadmap so you’re clear about which use cases to focus on. You need scalable monitoring for when there’s a lot of interaction, and you need data-driven quality assurance.

On the people side, we know we need to educate all employees about the risks and opportunities that genAI can bring, and not just the people using it. And we see an increased need for what we call AI product leaders who will shape this technology. They know a particular banking domain, they understand IT, analytics, they care about the craft and so on. But it’s a tough role.

Ranil Boteju: AI, data science –these things have been around for more than 20 years at banks. GenAI posed additional risks, such as hallucination, misinformation, misalignment, toxicity and so on. We’ve worked through manual and automated controls you can use. For hallucination, you can train the model on a more precise data set. You do something called ‘red teaming’ where people pose questions and if the answers are wrong, correct them. Then there’s ‘ground truthing’ where you compare answers against a known database of answers. But the one we use mainly is having a human in the loop until we’re confident the answers are correct. So, it’s all about understanding the risks and putting mitigants in place.

Keep it simple, look at use cases that will have value, then dive in, solve the problem, and realise quickly if you’re failing

Kevin Staples, BBD

Secondly, you need a platform that allows you to scale consistently. When we started, we had lots of people doing use cases that weren’t scalable, there was duplication, they were building on non-target platforms. So we’ve started to build out a clear target architecture with the capabilities we need to scale. We’re building on our Cloud platform. Unfortunately, these things take a while! Kevin Staples: I’ll repeat what Marco said earlier – it’s not easy. Such a broad range of skills are needed to use these large language models (LLMs). Yes, you do need data science but you also need data engineering, Cloud platform engineering, you need machine learning ops and software engineering. It’s a hard, especially in an existing bank,

to implement LLMs into production, and where business leaders need to be accountable for the money they’re spending but there’s no guaranteed outcome. Which is why my go-to approach is find the right skills and partners, understand the need to fail fast, to realise value fast, chop and change as time goes on.

It’s going to be a bumpy ride adopting AI, but quite an exhilarating one.

The Fintech Magazine: How will genAI shape the next big shift in consumer banking?

Marco Li Mandri: I always remind our teams about the 1970s and 80s when we put a computer on everyone’s desk and assumed productivity would increase. It didn’t, because for a long time we just put a computer in every process, and the processes didn’t change. We must try to do the opposite with AI. Start from the domain and ask how you can re-engineer the entire process. At ING, we link it to outputs, such as measuring straight-through-processing rates. For customers, decisions, such as for loans, will happen faster and hyper-personalisation will be a big shift. We also have an ambition to steer customers towards sustainability which we can do increasingly well, thanks to AI.

Ranil Boteju: Banking has been around for centuries but we’ve basically layered on new technologies. We haven’t reimagined what a bank should be. I expect people to ask what role a bank should play in people’s lives. And with AI as a core tool, what could that look like? People will learn from the mistakes of digital and mobile where everyone just digitised their paper-based processes. We’re going to see organisations start from scratch, and it’ll be interesting to see who survives that, and who doesn’t.

A few years ago, the challenge to scaling AI was around data. Now it’s about building a platform that’s embedded in processes that are core for the bank

Marco

Li Mandri, ING

Ranil Boteju, Chief Data and Analytics Officer at Lloyds

Marco Li Mandri, Head of Advanced Analytics Strategy at ING

Kevin Staples Chief Executive Officer at BBD

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As investors and founders gathered at the FinTech North Summit, we look at the regional investment market and what makes for a good pitch in poor times

It wasn’t as dramatic as some feared, but a hike in capital gains tax announced by the new UK government in its first Budget in October was nevertheless a bitter blow for those who’ve worked so hard to build an investment community in the north of England.

They’d already fought off one ill-thoughtthrough plan this year – hatched by the previous administration – to increase the earnings qualification threshold at which individual investors, or Angels, could be invited to back the region’s entrepreneurs.

That would have reduced the number of eligible female investors to precisely zero in the North East, and by 70 per cent to just 3,000 in Yorkshire & Humber, achieving a magnificent

double blow to both diversity and access to capital in an area of the UK where there’s been a pronounced ‘capital gap’ for decades (especially in that crucial early stage investment period where patient Angels are key).

It’s all very well pulling your business up by your own bootstraps, but they’re a lot shorter here. The North has the lowest median earnings across the whole of the country, which means there are a lot of early-stage companies with good, but cash-poor founders seeking investment, and a comparatively small pool of individuals from whom to ask it.

Coupled with the change in tax rules –which, as Sarah Coles, head of personal finance at Hargreaves Lansdown says, could make investment ‘less attractive for newcomers who don’t want to have to get to grips with a new tax risk’ – that means any founder seeking funds locally has to have a standout pitch and a platform as tall as the Blackpool Tower to pitch from.

Held a couple of weeks before the Chancellor’s potential round-raising dampener, the FinTech North summit in York’s magnificent Merchant Hall, was (perhaps deliberately, given rumours around the government’s plans) focussed on helping the sector’s regional entrepreneurs achieve their capital-raising goals.

Acknowledging that there had been ‘dramatically obvious’ deal drop-off since 2022, Peter Cunnane, director of national and International Initiatives at Investment UK, rallied founders with ‘reasons to be cheerful’.

He said £2.02billion had been invested into UK fintech business in the six months of the year, half of which had been landed by female entrepreneurs. Along with the rest of global fintech, inward investment was significantly down on 2023, but the good news was that the UK remained the second largest fintech hub and there were now signs of improved capital flow – the principal beneficiaries of which had been asset management and payments.

That’s reflected in a recent report, Scaling UK Regional Fintech, which also noted that wealthtech and payments account for the largest number of scaleups among fintechs outside of London, although it’s proptech firms that are most likely to raise funding.

The report, produced by Innovate UK, Streets Consulting and the founders of FinTech North, Whitecap Consulting, was based on research among 250 regional fintechs. Among several insights, they observed: “Raising investment wasn’t seen as a badge of honour. It was acknowledged that external funding can drive accelerated growth, but the entrepreneurs urged caution about chasing large valuations, taking too much funding, and losing control of the business.”

Angels (and VCs) of the North

Getting

bad money out of your cap table is a pain, so choose the cap table wisely

While investors may be thin on the ground in the North of England, inward investment manager at West Yorkshire Combined Authority Tom Purvis still urged founders to exercise discretion when choosing one.

“All VCs will tell you they will help you grow,” he told the summit. “Term sheets are full of all the wonderful things that they can do for you. But be a bit cynical of that. Unless they can point to a programme to show ‘that’s how we helped them’, they probably haven’t helped them that much.

“In an investor relationship, stuff is going to go down. Could you WhatsApp them at nine o’clock at night and know they will roll up their sleeves and help you out? Go and ask some of their portfolio companies that have folded and ask them. Getting bad money out of your cap table is a pain, so choose the cap table wisely.”

Ben Davies, group marketing director at Praetura Ventures, a VC firm, based in Manchester, focussed on early stage; companies, observed that, in the initial stages of chasing capital ‘founders can be a bit of a sponge. You need to hone your ability to distinguish good advice’.

So, his was to ‘cast your net as wide as possible’ and use failed pitches as a stepping

stone to build much more valuable relationships.

“The founder of Softbank-backed Peak [one of Praetura’s portfolio companies] made a list of 200 investors and started with the ones he didn’t really want and chipped away, getting all the feedback along the way, so when he got to the ones he really wanted he was bulletproof and had nailed that process. That’s what I would encourage founders to do,” said Davies.

Ant Barker, director of venture capital from Aviva, agreed it was essential for a founder to understand what they want from an investor.

“When you’re talking to them, be really clear what unfair advantage they can bring – maybe it’s in their network or access to expertise that can build out your product or solution?

“Also show you know who your consumer is, what success looks like and really showcase your team because a big part of early investment discussion is around ‘is this a team we can back?’.

“Investors’ minds and metrics have changed,” he added. “Historically, in fintech it was ‘how do you get to as much revenue and as many consumers as possible?’, irrespective of what the economics looked like. Having a path to profitability, or a realistic, credible route over a reasonable timeframe is what’s important now. That’s quite a shift.”

Dan Graf founded Earthchain, a fintech/climatetech hybrid, following a 20-year career in payments, including senior roles at ACI and Credit Suisse.

In 2020, he exited Infraxis AG, the Swiss paytech he’d co-founded, following its acquisition by TAS International SA for €18million, and is currently studying for an MSc in sustainable development at Leeds University.

Graf is doing things slightly differently as a second-time entrepreneur.

“We bootstrapped [Infraxis] all the way through,” he says. “And one of the mistakes we made was that we didn’t discuss the exit strategy – that was a question we addressed at Earthchain on day one!”

Earthchain positions itself as a platform to manage and report on carbon emissions across a business’s value chain.

“There are 270 carbon accounting tools out there and it’s very difficult for SMEs to choose one that’s the right fit,” says Graf. “Almost all of them are glorified spreadsheets – what we do is take raw, unstructured data – from a flight confirmation email for example – and turn it into detailed carbon reports in line with international disclosure standards.”

For companies who by choice – or, increasingly by regulatory or stakeholder pressure – want to understand and reduce their own emissions and emissions in the supply chain, that saves a whole lot of work. In one trial, it reduced a small company’s data input time from four days a month to just one minute.

Daniel Goldstone and his co-founder at RangeTeller set out to build an algo trading framework and ended up solving a consumer credit problem.

Its machine learning helps lenders move beyond the ‘take it or leave it’ credit score to create a decision-making tool that can look at historic lending data and assist them in creating a bespoke risk parameter.

The framework’s components – ML, with a transparent and explainable protocol and human in the loop – were originally designed

to be used in the regulated investment community. But when the developers saw how many loans banks were rejecting because they didn’t have sufficient insight into their own data, they pivoted.

In a pilot, out of 11,000 people that a lender had previously rejected for a loan, the AI identified that 55 per cent could have qualified.

“That’s 6109 people they can go back to and issue $4million in loans to,” Goldstone told the Summit. “We are starting the with personal loan market but we see massive opportunities with mortgages, car loans, tenant evaluation and insurance. We don’t need another credit score, we need a more flexible system.”

The program can identify gaps in data, where companies might look to find it, help manage their carbon offsetting, and come up with carbon-saving suggestions.

Already integrated into the small business accounting platform Xero, Earthchain knows its quickest route to market is embedded into payment processing, banking and fintech services for business users, and it’s open to partnerships.

“SMEs are responsible for 50 per cent of the UK’s business-related carbon emissions and SMEs make up 90 per cent of businesses in the UK,” says Graf. “If we’re serious about tackling it, we have to get this automated.”