Payments {R}Evolution 2017 by bobsguide

PAYMENTS {R}EVOLUTION A

RAPID

TRANSFORMATION How PSD2 is set to change the payments landscape forever

SUMMER 2017

Connecting buyers and sellers of financial technology globally

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Welcome

editor’s note W

elcome the Money20/20 Europe special edition of Payments {R}Evolution magazine, the payments industry’s premier print publication.

Money20/20 Europe is a fantastic event, and the team at PaymentEye cannot wait to meet as many delegates and exhibitors as possible at the show. The payments industry continues to accelerate its pace of change through innovation and evolution, and we are excited to hear your opinions on the most significant industry issues and trends affecting the payments ecosystem today. Unsurprisingly, the major theme for this year’s Money20/20 Europe issue of Payments {R}Evolution is the impending arrival of PSD2, and how the industry is preparing for its implementation. With just six months until the directive comes into force, we look at whether financial services are ready for PSD2 adoption, and just how seismic its effect will end up being.

Alex Hammond is the managing editor of the digital finance portfolio of Contentive, which includes bobsguide, GTNews and PaymentEye. An avid journalist and editor, he writes industry analysis articles and conducts exclusive interviews with senior industry figures across all titles, and representing the media brands at industry events.

But even as the shadow of PSD2 continues to loom, regulation isn’t the only factor that is currently having a major impact on the European payments landscape. In this issue of Payments {R}Evolution we also take a closer look at SEPA Instant Payments, the migration of peerto-peer payments into social messenger apps, and the emerging tech trends that will the accepted norm by 2020. And it doesn’t stop there. We’ve also interviews with major influencers from across the industry, including Monzo CEO Tom Blomfield, Stripe UK Country Manager Iain McDougall, Citi’s Treasury and Trade Solutions MD Tony McLaughlin, and many more. I hope you enjoy the issue, and have a great Money20/20 Europe. Alex Hammond Editor, Payments {R}Evolution

Alara Basul is the digital finance reporter for bobsguide and its sister websites GTNews and PaymentEye. She has previous experience in both online editorial and print magazines, as well as working as a news presenter focusing on current global events. Alara studied at Syracuse University in New York before beginning her career in journalism.

Leonie Mercedes is a researcher and reporter for bobsguide. A former B2B journalist reporting on legal developments in intellectual property and life sciences, she now writes and edits reports for bobsguide and its parent company Contentive.

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Contents

contents

Editor’s letter

Issues 8

Industry news

Mergers and acquisitions update

“The markets will remain healthy and conducive to fintech companies for the near to medium term”: Interview with Freeman & Co. Executive Director Tony Seto

Movers and shakers: The latest appointments in the fintech industry

“I want to challenge potential partners to tell us what their pain points are”: Interview with ECommPay’s Head of UK and Western Europe Paul Marcantonio

Editor Alex Hammond Alex.Hammond@contentive.com Reporters Alara Basul Alara.Basul@contentive.com

Cover feature 20 22

Cover art Diego Pedauye

Interview with Modulr’s CEO Myles Stephenson

Features 30

The power of partnership: Interview with Citibank’s Emerging Payments and Business Development Tony McLaughlin and Equiniti International Payments’ Managing Director Nick Pederson

Contentive Media Sales Director Emily Mackenzie Emily.Mackenzie@contentive.com

“Anyone who stands to benefit from faster, simpler and more secure payments will benefit from PSD2”:

Production Manager Jabra Sayegh Contentive CEO Sandeep Saujani

Will PSD2 prove to be the biggest shake-up in the banking industry for 600 years?

Leonie Mercedes Leonie.Mercedes@contentive.com Design Miss Jones Design

How should banks be reacting to PSD2?

SEPA Instant Credit enablement – why bother? Bank to the future: Monzo CEO Tom Blomfield shares his vision of the future of banking

“The world of online payments is the last Googlesized problem on the internet”: Interview with Stripe’s UK Country Manager Iain McDougall

Mobile payments: A new key to success

bobsguide sales director Stephen McMaugh Stephen.McMaugh@bobsguide.com

PaymentEye Sales Manager Edward Drew Edward.Drew@paymenteye.com

Events

Business Development Executive Arun Sowamber Arun.Sowamber@contentive.com

B2B payment innovations: The fourth industrial revolution beats a path to the treasury door

Panel talk: The payments landscape in 2020

Five sessions you can’t afford to miss at Money20/20 Europe 2017

Dan Schulman and Frank Abagnale amongst speakers announced for Money20/20

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Issues | Industry news

Mastercard announces completion of £700m Vocalink Acquisiton In May Mastercard announced the completion of its acquisition of Vocalink for £700m. Vocalink powers real-time bank account payments to drive the major electronic payments transactions and currently operates in some of the world’s largest financial markets. The acquisition will allow Mastercard to expand beyond card-based payments by expanding into other major electronic payments.

Mastercard initially announced the intention to take over Vocalink in July 2016, however the UK’s Competition and Market’s Authority noted that the move could stifle competition. The Vocalink technology will enable Mastercard to further innovate retail transactions and expand payment flows such as person-to-person, business-tobusiness and government disbursements.

Currencycloud raises £20m in Series D funding Payments platform Currencycloud has raised £20m from former Google Ventures company GV, Notion Capital, Sapphire Ventures, and other investors. The UK-based fintech company performs cross-border payments through APIs, with a reported $25bn already having been transferred through its infrastructure.

“Currencycloud provides a set of multi-currency payment and conversion tools that are helping hundreds of companies globalise fast,” said Currencycloud CEO Mike Laven. “We are seeing massive and increasing demand for these services, with volumes growing over 150% last year.”

Samsung Pay goes live in the UK, Switzerland, UAE, Sweden, Taiwan and India The mobile payments and digital wallet service that rivals Apple Pay and Android Pay has gone live in a wide geography of locations over the past few months. This totals the digital wallet service’s availability to a total of 19 countries. Samsung Pay launched in the UK in May 2017, allowing Mastercard holders

more ways to make safe and convenient payments. Samsung Pay allows consumers to pay almost anywhere where contactless payments are accepted. Mastercard contactless payments are accepted in 96 countries and more than six million merchant locations worldwide.

“This is a transformational deal,” said Michael Miebach, Chief Product Officer, Mastercard. “This acquisition brings Vocalink’s world-class technology and people to Mastercard at a time of continued change in payments.” “Joining the Mastercard family brings tremendous new opportunities to Vocalink, our customers and our team,” said Paul Stoddart, CEO of Vocalink. “Our home base of the UK of course remains a top priority as we continue to innovate on our bank account-based payments platform and drive value through services such as fraud analytics and consulting. We also look forward to drawing on Mastercard offerings and expertise to expand to more countries and more customers around the world.”

Google and PayPal partner for digital wallet partnership Paypal and Google are expanding their ongoing partnership with a new collaboration that enables Android users to pay from their PayPal accounts with the tap of a phone. The service will allow PayPal users to link their accounts to Android Pay and give consumers a new funding option when they present their mobile devices at thousands of new retail locations. The move comes as Google is hoping to expand adoption of its mobile payment services against competitors Apple Pay and Samsung Pay.

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Issues | Industry news

Square launches in the UK Square, Inc., a financial services and mobile payments company founded by Twitter CEO Jack Dorsey, has landed in the UK. The UK marks the fifth country where Square is available, joining existing markets Canada, Japan, Australia and the US. According to a Barclaycard survey, Square has estimated that about half of the UK’s 5.4 million small businesses do not yet accept card payments. “We founded Square to empower small businesses with tools to accept all forms of payment and to make a sale anytime, anywhere,” Dorsey explains. “We look forward to working alongside the millions of entrepreneurs and thriving small and medium-sized businesses across the UK, especially those who do not yet take card payments.”

TransferWise launches multi-currency accounts TransferWise, the UK-based payments transfer company, is launching a new service that allows users to make cross-border payments in a multitude of currencies. The borderless scheme has been introduced to improve the efficiency of sending money around the globe. The service will initially only be available for small businesses and freelancers in the UK and Europe, and will be available to

those in the US next month. TransferWise CEO and co-founder Taavet Hinrikus commented: “Business banking is notoriously expensive and difficult to set up and manage, even alternatives like PayPal are expensive for small businesses. So we’ve created the Borderless account. It’s an account that’s not constrained by country or currencies and gives businesses more freedom and control.”

Bitcoin price soars past $2,000 for the first time The price of Bitcoin surpassed $2,000 for the first time in May 2017, pushing the cryptocurrency to an all-time new record. The surge sparked interest from various media outlets, further sparking to its continual growth. At the beginning of the year,

Bitcoin was trading at a high of $1,003.25; in May it reached $2,300, a rise of 137% during the year to date. Reports show that rival cryptocurrency Ethereum has also risen significantly, beginning the year at $8.24 on January 1 to hitting a $203 high throughout the year.

Token raises $15.7M to help European banks comply with PSD2 Token, a turnkey open banking platform provider that enables banks to generate revenue from PSD2, has announced $15.7 million in Series A funding from major investors including Octopus Ventures, EQT Ventures, and OP Financial Group. From January 2018, PSD2 will require banks to grant account access to a variety of third-party service providers

for the purpose of payment initiation and retrieving information. Token’s open banking platform helps banks quickly and cost effectively meet these compliance requirements while also creating opportunities to generate new revenues. Steve Kirsch, Token CEO and founder spoke exclusively to Payments {R}Evolution: “The main purpose of the

funding round is to continue the development of our software. When you’re starting a business on this scale it requires a massive amount of development before you start to see revenues coming in. There’s no question that banks will move to open banking, and Token offers a single API that banks can support.”

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Issues | Mergers & Acquisitions

Mergers and acquisitions update The latest big-money investments in the payments industry D+H and Misys strike $4.8bn deal Earlier this year, Vista Equity Partners announced that it has signed a definitive agreement to acquire D+H, Canada’s biggest financial solutions software provider. The intention is to merge the company with Misys, a global software leader for retail and corporate banking, lending, and investment management. The merger will create a global giant in the fintech industry, employing 10,000 people and generating in excesses of $2.2bn in revenue. The clients of the combined companies currently span over 130 countries and include 48 of the world’s 50 biggest banks. “The combination of our two companies creates significant opportunity for our customers, our employees and our partners,” said Nadeem Syed, CEO Misys. “By coming together, we have the opportunity to create a global fintech powerhouse, positioning us to lead the corporate banking software space, accelerate our cloud-based offerings, and expand our footprint in North America.” “We are thrilled by the prospect of combining these two leaders in the fintech industry,” said Brian Sheth, Co-Founder and President of Vista Equity Partners. “D+H is an outstanding company with impressive talent and deep experience providing technology solutions to financial institutions worldwide. Together, Misys and D+H have the promise to shape and lead the future of financial software.” PayPal acquires TIO Networks for $233m In February, PayPal announced that it would acquire payment management company TIO Networks for $233m. The acquisition comes as PayPal is attempting to compete with big league banks and offer greater financial services. TIO Networks caters to those who are financially excluded and outside the banking system but who make regular utility payments with cash. “By acquiring TIO and integrating bill payment into our global payments platform, PayPal adds another key

service in our efforts to become a part of a consumer’s everyday financial life,” said Dan Schulman, President and CEO of PayPal. “Worldwide, more than two billion people do not have affordable access to basic financial services, making it difficult and expensive for consumers to carry out basic financial tasks, including bill payment. TIO’s digital platform, and physical network of agent locations make paying bills simpler, faster, and more affordable.”

to offer customers the ability to pay for e-commerce purchases via invoice, direct debit and instalments. “We are thrilled to join the Klarna team,” said Nelson Holzner, BillPay’s then-CEO, in a press release. “Together we will have a market-leading position in Germany, Austria and Switzerland, and will be able to offer our merchants and users highly attractive payment options in more international markets in an ever increasing cross-border ecommerce environment.”

Funding Circle raises $100m Funding Circle, the London-based peer-topeer lending platform, has raised $100m in equity investment in January this year. The funding round was led by Accel and also included existing investors such as Rocket Internet and DST Ventures. Chancellor of the Exchequer Phillip Hammond commented: “Funding Circle has become a real success story for British fintech, and news that it has attracted £80m of investment is further evidence of the growing importance of this industry. This is another vote of confidence in a UK firm that plays an important role in our economy – helping businesses to grow and create jobs.” “Funding Circle is changing the financial landscape for small businesses and investors globally, ensuring a better deal for everyone and helping to create a more sustainable and fairer economy,” said Samir Desai, CEO and Co-Founder of Funding Circle. The funding will create a further 50,000 new jobs, help thousands of small businesses access finance, and support the economic growth in the UK, US, and continental Europe.

German fintech Kreditech raises €110m German fintech start-up company Kreditech has received an investment of €110m from payment services provider PayU, which is owned by media group Naspers. The strategic investment is part of PayU’s global plan to build on its payments heritage to become a leading fintech provider in high growth markets. Kreditech works to create credit ratings and works for those who are ‘unbanked’ to build up their credit score. The financing will help expansion into new markets in Eastern Europe, India, and Latin America. “We are thrilled to offer online pointof-sale finance in markets where the development of consumer credit has been severely constrained by the lack of reliable credit risk assessment. Our credit scoring and underwriting technology allows PayU and its merchant partners to offer a competitive, convenient credit product to their retail customers,” said Alexander Graubner-Müller, CEO of Kreditech. “Teaming up with PayU provides underbanked customers new possibilities and supports our mission of providing financial freedom through technology.” Laurent Le Moal, CEO at PayU, commented: “We are excited to build a leading innovative online consumer lending player in high growth markets. At PayU we believe in the enormous potential of technology to unlock credit and financial services for underserved populations. This latest investment in Kreditech fits perfectly with this vision.”

Klarna acquires BillPay for $75m Swedish fintech unicorn Klarna announced in February that it had acquired BillPay, a payments company based in Germany. BillPay, previously owned by UK lender Wonga, allows digital retailers

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Issues | The VC market

Freeman & Co. Executive Director Tony Seto:

“ The markets will remain healthy and conducive to fintech companies for the near to medium term” Tony Seto has recently joined Freeman & Co., a US investment bank specialising in M&A and capital raising advisory services for the financial services industry, to lead its Payments and Banking fintech operations. In an exclusive interview with Payments {R}Evolution, Tony gives his perspective on the state of the fintech M&A market in the US, and looks ahead at where the payments industry can expect growth in the future What is Freeman & Co.’s position in the investment banking space, and what is your role at Freeman & Co? F&Co. is a leading advisor to companies in the financial services space. Our transactions range from as low as $50m to over a $1bn, so we have the flexibility to service companies across the size spectrum. The firm provides mergers and acquisitions (both buy side and sell side) and private capital raising advisory services (traditional VC, PE, and debt financings for companies and capital placement services for funds); it has a strong heritage, successfully completing over 100 deals in its history. Traditionally, F&Co. has focused on providers of financial services such as asset managers, broker dealers, insurance, and specialty finance companies. However, as digital technology has developed and is now an increasingly important facet of

the industry, fintech has also become an increasingly important area of focus for F&Co, where Gagan Sawhney and Chris Pedone have led numerous transactions in securities processing tech, asset/wealth tech, capital markets/trading tech, and other areas of “Wall Street Tech”. I joined F&Co. as an executive director and will lead our efforts with companies in the Payments and Banking Fintech/ Data sectors. Gagan and Chris will continue to focus on advising companies in the “Wall Street Tech” sectors. Talk us through some of the recent fintech deals that you have been involved in advising on. A couple of recent transactions that stand out are engagements with Kount and Transaction Wireless, both of which resulted in marquee announcements in their respective spaces that represented

important trends in the evolving payments market. The Kount deal resulted in an $80m recapitalisation by CVC Growth Equity. CVC is one of the largest private equity firms in the world and Kount was one of the first investments made out of the CVC’s new Growth Equity Fund. CVC recognised Kount as a leader in the card-not-present (CNP) payment fraud prevention space, which is where the motivation to make the deal came from on their side. Gartner recently concluded in a report that companies will begin to incorporate more data-driven detection and response solutions to combat cyber criminals in addition to prevention-only software. This trend will drive growth in the market for years to come. As consumers and businesses continue to accelerate their level of commerce via digital channels, criminals are similarly

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Issues | The VC market

leveraging these channels to commit fraud, meaning that improved security technology has to be implemented at the same rate as omni-channel payments technology is rolled out. Transaction Wireless, a leading provider of digital gift card solutions, was a client I advised during its sale to First Data. This represented a key deal for First Data’s strategy of adding more innovative digital technology solutions. It was the largest acquisition by First Data since the KKR & Co. buyout. Transaction Wireless has since become an important platform within the First Data organisation, leveraging First Data’s leadership position in gift card processing. How has investment in the fintech industry evolved over the past five years? In general, the investment appetite for fintech has grown considerably. Payments have historically been a less sexy sector of technology, because the focus has been on providing the “plumbing” of commerce, which is often invisible to consumers and seen as a commodity. Despite this, the market is still an attractive investment area supported by strong macro trends (e.g. migration from paper to digital forms of payment, increasing demand of real-time and frictionless transactions by both businesses and consumers, and regulatory changes (like in lending) that force the market to adopt new solutions to enhance existing methods). The recurring nature of payments and relatively high incremental gross margins makes for business models that are both relatively predictable and potentially very profitable, at scale. Major drivers of fintech’s recent momentum include changes in consumer preferences and technological advancements. New consumer-facing fintech companies are having a profound impact on the way people manage their finances and payments. This is attracting new investors who historically have been more focused on more consumer-oriented sectors. There is also an increasing need for financial services to collaborate or acquire fintech companies to stay competitive; making these companies valuable investment opportunities. The specific factors that we have seen driving the innovation in payments that has sparked investor interest are: 1.) Consumer technology behaviour Consumers have increasingly gravitated towards remote methods of commerce in replacement of human interaction in all

aspects of their lives (e.g. transportation – Uber, food industry – Seamless, travel – Expedia, ticketing – StubHub, commerce – Amazon). Proliferation of personal devices such as smartphones and tablets have fuelled this growth and enabled on-demand commerce; consumers can bank or buy anything, at any time, from anywhere, thanks to the hardware they keep in their possession at all times. Because consumer habits and available hardware dictate that payments technology is required to fulfil a market need, fintech has responded to the market forces, developing major advancements in enabling safer, more efficient, and more cost-effective commerce environments across digital channels, for both businesses and consumers. In the banking sector, whilst the death of the retail branch has been greatly exaggerated, innovations such as multi-function ATMs and stand-alone kiosks have become necessary to make the in-store banking experience more appealing to today’s consumers. Another example is in the lending space, where online platforms have revolutionised the borrowing experience for the consumer. While the industry certainly has gone through its share of growing pains, there are tremendous opportunities to digitise the entire lending process which will benefit both consumers and lenders. 2.) Data analytics and processing power Consumers’ digital footprints are more extensive than ever, and growing at an accelerating rate. The expansion of data sources for analysts to record and measure activity creates an opportunity for a better consumer experience and more efficient systems. Data analytics are also becoming more advanced to address applications such as marketing, loyalty and fraud prevention. The flipside of increased data collection, however, is that the valuable data provides an opportunity for criminals as well. Fintech solutions are needed to protect against activities such as fraud and ID theft. 3.) Regulations A changing legislation landscape has always been, and will continue to be, a driving force of innovation in financial services, and with such a proliferation of regulatory changes or

uncertainty on the horizon, the market is ideal for fintech to thrive. Past administrations have greatly expanded the power of regulatory institutions through legislation such as Dodd-Frank, with the aim of adding more stringent oversight to the financial sector. Tech has been called upon to monitor and report in this area. The Trump administration certainly seems to be taking softer stance on regulation, with a rolling back of Dodd-Frank certainly not out of the question, but time will tell what kinds of changes we will actually see and how long it will take to make an impact. Other key regulations such as the OCC’s push for national fintech charters in the United States and the PSD2 in Europe promises to support even more innovation in fintech. Are we entering a new phase in fintech investment in 2017? There will be continued growth and acceleration, we have already seen the ramping up of investment for several years, but I wouldn’t say that we are entering a defined “new phase” in fintech investment. What we are seeing is a strengthening of the existing trend. What will also continue to occur in fintech is the entrance of new investors in the market who have not historically been interested in payments before, which will increase competitiveness and innovations in the market. There are also key subsectors of fintech, such as alternative lending, which have seen an investment pause/slowdown (down as much as 75% in 2016 by some accounts) due to negative industry events. We believe this sector will see a resurgence, but the market will set the bar higher for maturity of investment opportunities. Breaking down fintech into more specific areas, are there any fintech verticals that you believe will or should be of particular attention to investors? Alternative lending is a key focus of ours right now. We believe that although there has certainly been a bit of a shock to the system in 2016, a tremendous opportunity remains for those who can pinpoint the right investment. That is because the consumer demand for these offerings remains robust, and traditional banks are continuing to underservice this segment, whether by choice or simply because they are

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Issues | The VC market

handicapped by their infrastructure. Additionally, the market will see increasing investment by asset allocators and other investors who are hungry for yield in the current low rate environment. We have already seen recent, significant commitments by high quality investors such as Fortress, Soros, Guggenheim, among others, supporting the funding needs in the alternative lending market. Fraud and risk management is another key area of focus for us. Whether it is securing the front end of transactions with innovative data-based solutions, software or hardware-based security; working with financial institutions to mitigate the costs and process of dealing with fraud on the back end; or preventing and addressing the theft of personal information (ID theft) so that stolen credentials never make it into the financial systems in the first place; there will be continued investment in trying to secure transactions against criminal activity as this is an essential area of fintech growth in payments. The expansion of the cross-border commerce market also creates tremendous opportunity, but simultaneously introduces a myriad of other considerations that need addressing (e.g. FX transactions, payments logistics, global fraud prevention, and the harnessing of local payment methods). This encompasses C2C payments as well as B2B and C2B. Historically, there has been significant consolidation in the consumer-toconsumer remittance market, with many payment processors and investors looking to add capabilities that compete with the traditional Western Union business. Corporations are also facing issues with payments as their businesses are increasingly global. In order for businesses to truly maximise their global presence, international payments must do a better job of addressing the speed, transparency, ease, and reliability of international

payments. Employees, agents, business partners and other stakeholders of businesses now reside all over the globe and the speed of commerce has outgrown the legacy solutions of wire transfers and correspondent banking networks. Additionally, in this environment where counter-parties are further and further away from each other, risk management systems must be that much more sophisticated to prevent fraud and comply with local regulations, such as AML and KYC. Retailers are also starting to realise the “promise of the internet” which is to truly sell goods and services to anyone, anywhere in the world. However, to facilitate these transactions, local forms of consumer payments must be compatible with a retailer’s system, and potential fraud must be contained, so there is much room for fintech growth in e-commerce. Geographically, do you think we’ll see a shift in where money is going to be invested in fintech moving forward? Different regions will see different investment focuses, given each region’s specific market needs. Mobile payments will continue to garner a lot of attention in the US but given the entrenched systems of card-based payments, physical POS technologies such as NFC will face a tough consumer adoption test. Mobile payments in terms of in-app purchases or e-commerce transactions initiated from a mobile tablet smartphone, however, will continue to see strong growth. Europe and Asia, where infrastructure and consumer behaviours are different, will experience other trends. For example, in Japan, using NFC payments for in-store purchases is a commonly accepted practice. In areas where the financial services infrastructure is relatively underdeveloped (e.g. emerging markets such as Africa, India etc.) the smartphone

becomes the only means for financial inclusion for a vast majority of the population and you will see investments in technologies that address this dynamic. What are the trends do you think we’ll see fintech market M&A in 2017? M&A markets have been robust for a number of years since the credit crisis. This has been driven by strong fundamental performance, a strong capital markets environment, low interest rates and strong trends within fintech themes. We believe that the markets will remain healthy and conducive to fintech companies looking to raise capital or seek exits for the near-to-medium term. Recent PE and VC fund raising efforts have been buoyed by the persistent low rate environment which have pushed some asset allocators to increase their exposure to the private equity asset class that have demonstrated superior returns. According to Prequin, at the end of 2016 private equity firms had $860bn of capital to deploy. A low rate environment also supports increased M&A activity as investors/ buyers are able to finance transactions with less equity. While the US Federal Reserve and the European Central Bank have both increased their hawkish rhetoric of late, we believe any increases will be gradual and modest in the near-tomedium term. Strategic buyers will also be actively looking to grow via acquisition supported by strong cash balances and stocks prices near all-time highs. We therefore anticipate deal flow from quality companies to remain healthy in the nearto-medium term. That said, with rates rising, the new US Administration starting to enact controversial policies, and the undercurrent of global geopolitical uncertainty, longer term risks certainly remain in the US and global economy.

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Issues | Movers and Shakers

Movers and Shakers: The latest appointments in the fintech industry APPOINTMENTS: AEVI announces new CEO AEVI, a fintech company based in Germany, announced that Nelson Holzner has been named its new CEO. Holzner joins AEVI after spending the last eight years growing his own company, a marketleading payments provider. Prior to that, he served at Cerberus Capital Management as Vice President of Private Equity. “AEVI is one of the most exciting companies in fintech, has an amazing trajectory and is set to revolutionize payments around the world. With revenues of about €80m last year, AEVI is certainly one of the largest fintech businesses in Europe,” said Holzner. “I am very excited about the opportunity to scale AEVI further and to build a global market leader in payments together with the team.”

Bank of Ireland names first female CEO Bank of Ireland has appointed HSBC Holdings Plc executive Francesca McDonagh as its new chief executive officer to succeed Richie Boucher, who will retire on October 2. Boucher announced in March he would retire before the end of the year after almost a decade in charge of the bank he guided from the brink of nationalisation to lead a revival across the sector. McDonagh, 42, will become the first female CEO of the 234-year-old lender. “I am very pleased we have been successful in attracting a person of the calibre and experience of Francesca. She has been with HSBC for 20 years, during which time she has held a number of senior leadership roles across seven different countries,” Bank of Ireland chairman Archie Kane said in a statement.

AxiomSL appoints Peter Tierney as APAC region CEO AxiomSL, a global organisation in regulatory reporting, data and risk management solutions, has appointed Peter Tierney as CEO of the firm’s APAC region. He will be based in Singapore and reports to Alexander Tsigutkin, Global CEO. In announcing this appointment, Tsigutkin said: “Peter comes to us with a wealth of knowledge derived from his decades of senior financial technology roles in the UK, US, and Asia. His leadership, business vision, and ability to bring people together will be instrumental as we enter into our next chapter, and we welcome him to the firm.”

LendingHome hires new CFO LendingHome Co., the San Francisco mortgage-marketplace lender, has named Robert Stiles as Chief Financial Officer. Stiles was previously CFO for three years at the Nationstar Mortgage Holdings Inc., a residential-mortgage service provider. He will be instrumental in leading LendingHome’s financial operations and taking the company through the next phase of its business growth. Matt Humphrey, Co-Founder and CEO of LendingHome commented: “Robert brings LendingHome over 20 years of accounting and finance experience, a wealth of know-how from top mortgage and real estate firms, and a thoughtful,

long-term approach to building businesses. We’re thrilled to have Robert join us on this journey to build one of the world’s leading financial services brands.”

DEPARTURES: Agnes Woolrich leaves American Express to join Pay by Bank App Pay by Bank App reported the appointment of Agnes Woolrich as marketing director, the latest in a series of senior level appointments as it prepares for the next stage in its development. Agnes brings proven expertise in driving sustained growth and expansion, globally, across the card payments landscape. She joins from American Express, where she spent 11 years in senior marketing roles, most recently as VP Marketing, Bank Partnerships, where she was responsible for establishing new businesses and driving growth in Africa and the Middle East. Prior to this, she was responsible for growing the value of American Express’s relationships with its largest global merchants. Upon the news of the appointment being released Rajiv Garodia, MD of Pay by Bank App, commented: “We have spent the past couple of years perfecting a mobile payment solution that will become the UK, and in time global, standard for mobile payments. The solution has significant advantages over other alternatives, as it integrates within mobile banking apps, operates on the Faster Payments system and is linked directly to banks’ current accounts.”

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Advertorial | Accuity

Faster payments: what does it mean for compliance?

Henry Balani, Global Head of Strategic Affairs at Accuity, examines how the adoption of instant payments will be impacted by anti-money laundering and KYC compliance requirements Much of the evolution in the payments industry is based on the need for speed. Faster payments in its various iterations – real-time payments, instant payments, immediate payments or anything similar – has become the norm in most of mature markets, and customer expectations are fuelling increased demand. Faster payments is here to stay, fuelled by a powerful collection of trends – a more mobile world, new and innovative banking models, changing demographics as the tech-immersed generations grow up, and booming demand from rapidly growing emerging economies. Faster payments bring clear benefits for everyone involved: businesses can offer better services to their customers; suppliers can better manage their liquidity and cashflow, and banks can offer value-added mobile services. Faster payments is efficient, attractive and in demand; it is no surprise that the industry is putting a huge amount of effort and investment into developing the technology. However, while adoption gathers pace, there is one clear risk that is in danger of holding us back. We have got to the stage where almost all transactions are screened under antimoney laundering (AML) and know-yourcustomer (KYC) requirements; when it comes to international transactions, there are typically multiple screening points along the chain. Faster payments call for faster compliance procedures – and so far, compliance is challenged to keep up. There are two main areas where traditional AML compliance operations cause problems for faster payments. The

first is that AML screening is usually designed to operate in a batch mode, holding and reviewing potential suspicious transactions before releasing them. This approach is fine under a normal payments system, but when it comes to faster payments, effectively negates all the benefits that faster payments are designed to bring. Payments are delayed, customer relationships potentially damaged, and no-one wins. The second is that traditional AML screening approaches tend to throw up a lot of false-positive results (anything between 2% and 15% of total transaction volume). The most common name in the world – Muhammed – can trigger a review. And as a BuzzFeed reporter chronicled when he went to his local deli and tried to pay for a Cuban sandwich using Venmo, so can perfectly innocent references to sanctioned countries. So what can be done? It is essential that AML compliance processes for faster payments are both successful at the screening against illicit transactions while not causing bottlenecks in the speed of the payment. Given the proliferation of illegal financial activities and complexity of the regulatory landscape, performing faster compliance checks will require increased creativity, flexibility and sophistication. This needs to be solved in a systematic way – looking in detail at the compliance screening processes itself, along with the people involved and technology that will help. Processes AML compliance reviews today tend to prioritise legal requirements over

customer satisfaction. Both become equally important in a world of faster payments as the impact of potential reviews on the customer experience needs to be fully considered. Turnaround times, particularly for vital customers, need to be established and respected, and transaction limits should be set. People Payment transactions will need to be processed much more quickly, and that will affect the staff levels required and the training they will need. Staff will need to have the knowledge and authority to review transactions quickly. Furthermore, payments providers have to consider how to manage a team that needs to review payments around the clock and every day. Technology Fortunately, technology is available to help institutions with compliance in a faster payments world, particularly those dealing with high volumes of transactions. Matching engines, screening algorithms, and data intelligence grow more sophisticated each day. A simple example would be excluding ‘Cuba’ from any field other than the address field to reduce false-positive results significantly. It is essential that compliance continues to evolve with the pace of payments speeds. To have truly faster payments, we need faster compliance – and we can only get there if both sides of the equation work together and innovate their processes. n

Issues | Paul Marcantonio

â&#x20AC;&#x153;I want to challenge potential partners to tell us what their pain points areâ&#x20AC;? Earlier this year, international payment service provider ECommPay announced the appointment of Paul Marcantonio as its new head of UK and Western Europe. Payments {R}Evolution met with Paul six months on to find out more about his vision for the company

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Issues | Paul Marcantonio

How did you get into payments? My sales career began working for top video game publishers (SEGA, Ubisoft, THQ), partnering with major retail outlets and mass market distributors. During my 12-year career in video games the market shifted, with more publishers developing a digital strategy in-line with the convergence from physical to digital distribution. Consumers no longer needed to leave their houses to buy and play video games, decreasing demand for physical products. The changing behaviours in video game distribution encouraged me to evaluate how payments played a role in the everchanging ecosystem. My thought process was simple: whenever there’s a sale, physical or digital, there needs to be a payment. I was introduced to ClickandBuy International, who were looking to bolster awareness of their e-Wallet and build on their presence within the videogame and gambling markets. It was a natural fit. During my tenure, I was Head of International Sales and Executive Director, regulated by the FCA. You joined ECommPay at the start of the year. What appealed to you about the role? There’s a lot that attracted me to ECommPay, but one of the key elements was the importance the company puts on partner relationships and managing payment solutions. For ECommPay, it’s not just about signing a contact and moving on, it’s about integrating a partner and taking the time to get under the skin of their business. I was particularly impressed with the fact that ECommPay brought three key elements together: direct acquiring as Principal Member of VISA and Mastercard; an impressive PSP platform, boasting a comprehensive suite of alternative payments and geographies; and the payments technology division, all available within a single integration. We strive to understand the pain points of our clients – both existing and prospective – so we can work with them to provide a tailored solution. While it can be effective to introduce an off-to-shelf solution or a one-size-fits-all payment service, I question whether it is actually benefitting the partner at a granular level. Does your hiring indicate a change of business strategy for ECommPay? I feel extremely humbled by the fact that ECommPay has looked to me to drive the UK and Western European business forward. It’s both a tremendous opportunity and a challenge, which I’ve embraced. I’m building

on the fantastic job ECommPay has done in bringing on board valuable and long term strategic partners, helping them expand into new regions and extend their capabilities. My background in betting and gambling, video gaming and digital commerce has helped forge our strategy. Localised knowledge of the UK market and exposure across various industries within digital payments has altered our strategy, but I’m not re-inventing the wheel. I’m ensuring that our plans, products, and service capacity are sufficiently localised, so that we can offer a market leading suite of relevant services to a diverse merchant portfolio. Have the first six months in the role lived up to your expectations? The first six months surpassed my expectations, especially regarding the company’s core competencies and capabilities. As a payments disrupter, we’re very agile and adaptable, which allows us to create bespoke solutions for a range of companies, regardless of size, industry, or turnover. I’ve been laser focused on business verticals that I feel we can add a tangible value and, as such, have established relationships with key contacts within these verticals. I challenged them to share their pain points, so we’re now working together on how ECommPay can help take their business to the next level. What have you learned about the industry in the past six months that surprised you? It’s a crowded space! There are so many payment providers vying for the same clients that it becomes difficult for organisations to make an informed choice. Cost is important, because it’s the first thing everyone asks about, but we prefer to emphasise the cost to value ratio. Payments, we’ve been told, is not sexy to clients, and when you talk about savings of a few basis points there is a lack of impetus, so we’re focused on educating merchants on how the payments process affects conversion, retention, and revenues. What do you think will be the major points of discussion at Money 2020 Europe? The hot topics right now are regulation and directives. With deadlines for AML4, PSD2, eIDAS, and GDPR fast approaching, financial institutions must implement measures to become compliant. ECommPay must adapt to the changes in the European payments landscape to sustain our competitive advantage. We’ve developed our strategies, and are now offering consulting services to clients.

I also expect there to be further discussion on the threat fintechs pose to traditional banking institutions. Fintechs capture the Millennial mentality and imagination, attracting customers away from high street banks, which challenges the latter to develop new strategies and introduce new products. What do you think are going to be key issues for suppliers like ECommPay in the next 12 months? I’d connect this to the previous question – we’re staying current, up-to-date on all the incoming changes. As I mentioned previously, ECommPay is willing to advise merchants on European directives and regulatory measures, helping them become compliant in the most cost-effective way. Does ECommPay have any major projects or announcements in the pipeline? We position ourselves as a payment technology disruptor, with a team of more than 100 technology specialists and developers creating new tools, plugins, and patches. They’re undertaking a comprehensive renewal and update of all capabilities this year. We’re also producing more specific solutions for the verticals we’re targeting. I think that there is a big opportunity to be disruptive in payments, so we will continue to explore the different ways we can make an impact by bringing solutions engineered to solve common problems merchants encounter. The objective for the year is to continue constantly updating, reviewing, and stress testing our products to improve our portfolio and resources. Is ECommPay looking to diversify its clients? Yes, definitely. We’ve been very successful in video gaming and Forex, and that will always be a core focus for us, but I would like us to look at diversifying our portfolio. I’ve pinpointed which industries we can complement with our range of products and services. It’s not rocket science to guess which areas we might be targeting, but we want to take a very careful, strategic approach. We’ve been going for a little under six years, and although we are still relatively new to the market, we have been successful. I want us to continue establishing ourselves as a trusted and compliant business across multiple verticals. We pride ourselves on our technology and have zero appetite for risk, so I’d love to hear the issues our prospective partners are facing to see where our solutions could work for them.

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How should banks be reacting to PSD2?

With six months to go until the directive comes into force, it is time for banks to start asking themselves some serious questions, says Leonie Mercedes

he countdown has started. At the time of publication, it’ll be just over six months before banks are required to comply with the Second Payments Services Directive (PSD2). The directive requires that by January 2018, banks must grant third parties access to a treasure trove they’ve been sitting on for decades – their customers’ data, as well as payment infrastructure. The change is a bonanza for fintechs building disruptive apps and services, while from the banks’ perspective, this could be alarming – they’re about to lose their monopoly on customer information. But as Payments {R}Evolution finds, PSD2 offers incumbents a wealth of opportunities, as long as they’re on board. Sea change The banks’ initial reaction to PSD2, which was adopted in January 2016, wasn’t entirely positive. According to research by PwC, based on interviews with 30 senior executives from leading banks in mid-2016, there was a “mixed, but mostly negative, perception of PSD2”. Eightyeight percent of the executives “believe that PSD2 will affect their business, but they are far less sure about the specific implications and ramifications of PSD2 or what their response to the directive should be”. Evidently, there is some uncertainty, as well as concern that the directive will cut into the banks’ business. An influx of new businesses is expected to enter the financial services market after PSD2 comes into force, undoubtedly

increasing competition, says Sophie Guibaud, VP of European Expansion at challenger bank Fidor. And it won’t just be the third-party providers (TPPs) and fintechs: “While the regulations theoretically mean that any company can get in on the act, the biggest threat could come from established technology companies who already have a large audience. “For example, if Facebook decided that it wanted to provide a dashboard tool in which all of an individual’s financial information was available at a glance, then it would get significant traction.” Kanika Hope, Strategic Business Development Director of Retail and Corporate Banking for software provider Temenos, says that it is widely believed that the change will lead to banks losing their direct relationship with the customers. However, she adds, banks have the upper hand in that they, unlike their non-traditional competitors, possess the critical ‘three Cs’ – customers, compliance, and capital. “[They also] still hold customers’ trust,” she adds. Daniela Eder, cash management business development manager of treasury services at BNY Mellon, agrees: “TPPs and fintechs have a great deal to offer the payments space in terms of new technology capabilities, but they lack the experience and client trust that has been long established by banks.” Hope continues: “PSD2 provides banks with a unique opportunity, should they choose to exploit it. In order to protect themselves from the risk of

disintermediation, banks should respond to the directive by not merely complying, but by exploiting the directive to create new business models aimed at creating new and deeper relationships with customers and at generating new revenue streams.” However, banks must be proactive, she adds. Your mission, if you choose to accept it According to Hope, banks can respond to PSD2 in one of three ways: simply complying with the directive, monetising access to additional data and insight beyond what is stipulated by PSD2, or becoming an account information service provider (AISP) or payments initiation service provider (PISP). She cautions, however, that banks that decide to merely comply are in danger of becoming a utility, while the customer experience could become owned by the third parties. To avoid losing relevance and fading into the background, one of the second options is the way to go. So what should banks be doing to ensure they succeed, or flourish, under PSD2? According to Eder, there are two things that banks need to do: “Firstly, banks will need to be agile in order to be able to adapt quickly to the fast-moving environment. Secondly, a client-centric strategy is paramount.” Application programming interfaces (APIs) can be beneficial as a means of addressing both of these strategic approaches, she adds. “Not only are they extremely flexible, their customisable

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properties and ease of integration are redefining the way in which banks, clients and third parties interact.” APIs Preparation for the implementation of PSD2 has been underway at BNY Mellon for some time, Eder says. “We cannot say for certain exactly how the landscape will unfold under the new legislation, but flexibility will be a primary focus of our internal PSD2 review. “[We will be] making sure that our services and solutions are malleable and able to easily accommodate further market developments around PSD2 – and indeed market developments in general – while at the same time being compliant with the new regulation.” Eder says that although guidelines specifying exactly how banks will interact with (TPPs) have not yet been published by the European Banking Authority, it is likely that data will be shared via APIs. APIs allow for the effective, efficient exchange of data, and their adaptability makes then particularly useful tools for updating and enhancing systems and solutions, Eder explains. “Furthermore, their seamless and open integration allows banks and clients to work together far more closely on the development of new services and solutions – meaning banks can provide more customised, clientcentric solutions.” If used right, APIs can be like MiracleGro for startups. Uber’s rapid expansion from start-up to global company can be attributed its integration of partner capabilities via APIs, according to PwC. For example, it uses the Google Maps API to find customers and track drivers, Google’s Cloud Messaging API for messaging, and PayPal’s Braintree for payment. Accordingly, BNY Mellon has launched NEXEN, a cloud-based ecosystem that integrates solutions and data from BNY Mellon, its clients and select third parties, including fintechs. “We currently have over 100 APIs in our

API store, which will update and grow in alignment with changing client needs,” Eder explains. An open API architecture is a core part of Fidor’s operating system. “[It] enables fast integration of third-party offerings as well as data exchange with connected partners,” Guibaud adds. Meanwhile, fintech Token offers an open banking solution that aims to address some of the pains of payments, such as poor security, lack of speed, and high cost, with a crypto-based security model with money and an open API. “We enable online merchants to connect to any bank through a single interface,” says Marten Nelson, co-founder of Token. 2 + 2 = 5? Bringing down the walls and allowing banks and fintechs or TPPs to talk to each other more freely with APIs, as PSD2 promises, will have a transformative effect on fintech as a whole. And more than simply being a marriage of convenience between the parties, it promises great gains for both camps, as well as for the consumer. Eder continues: “PSD2 will affect banks’ business models and will require them to think about where in the payment chain they can add value. But while PSD2 is shaking up the industry in terms of competition, importantly, it will be a catalyst for innovation and collaboration between banks and TPPs/fintechs. Such partnerships marry the strengths of both parties and thereby can optimise the payments experience for clients.” She adds that combining skillsets through collaboration between banks and TPPs or fintechs will not only help expedite the development of new concepts, but will help to ensure that the end-to-end payment experience is tailored effectively to meet the needs of the client. “[PSD2 offers] challenger banks the opportunity to provide superior banking (account aggregation and payment services) through modern, state-of-the-art mobile apps that are designed to delight

the end customer so as to ultimately acquire the primary banking relationship,” Hope continues. “It also affords challenger banks and other fintech providers the chance to forge symbiotic partnerships with incumbent banks, taking advantage of the banks’ compliance prowess and large customer bases, to augment their own agile technologies, methodologies and mindsets.” Banking opens up PSD2 represents a giant leap forward toward the open banking standard. Guibaud says that in many ways, it will be a great leveller, “giving challenger banks and fintech companies an equal chance to create services that offer customers every financial service they require while keeping their brand front-of-mind”. “Consumers will benefit from an increase of new added value services,” Nelson says, adding that we will see developers build new apps and services that help consumers make better decisions about their finances. Though with greater access comes greater risk, especially in the context of financial services. Nelson continues: “Unfortunately, there will also be third parties that are looking to scam consumers. Therefore, having the right security and anti-fraud measures in place will be critical for banks.” Eder predicts a wider impact on payments, though what that might look like isn’t entirely clear just yet. “Indeed, we may soon find that the role of the bank has shifted from providing the historical banking services that we have become accustomed to. We may all be using alternative services – such as a PayPal account or similar – to complete our transactions for convenience.” Guibaud concludes: “PSD2 is going to be one of the biggest shake-ups of banking regulations in Europe we have ever seen.” However, she adds, “it could also lead to some of the more established names in the industry being decimated if they don’t move quickly enough”.

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Will PSD2 prove to be the biggest shake-up in the banking industry for 600 years? P

The Second Payments Services Directive (PSD2) is set to transform the payments landscape and enhance banking infrastructure, by opening access to third-party providers. Alara Basul asks the industry what the size of the impending directive’s impact will be

atrick Tans, Senior General Manager, Banking Products, at KBC Bank was a panellist at The European Payment Summit 2017, and stated that banks were facing the biggest upheaval to their industry for over 600 years. But how does the industry feel about the shift in regulation? We spoke to senior figures from across banks and fintechs, as well industry experts to gauge their views on whether the regulation will be the biggest shake-up to banking in six centuries.

Rob Hodgson, Offering Manager, IBM Cloud for Financial Services Implementation of PSD2 will undoubtedly trigger a major change for the banking industry. However, PSD2 is neither the first step nor the last in what is and will be a technology driven evolution occurring across industries.

For an increasing number of years, technology has been driving a major shift in how individuals, businesses and other organisations interact with each other. Starting with the internet and the dissemination of information at a level not previously seen, as with financial markets, equality of information is one driver of transparency. As technology and its consumers evolved, collaborative, social, mobile, digital and cognitive become cornerstones of the new way in which customers and businesses demand to interact with their service providers. Understanding the implications and possibilities created by PSD2 has already started driving a wave of innovative new realisations of interactions and customer experiences that will make the ‘old’ way of doing things seem a distant memory. PSD2 will undoubtedly be a defining moment in the evolution of banking and payments whether it will be ‘the’ defining moment in

five or ten years’ time is less certain. PSD2 will accelerate the formation of ecosystems of fintech applications from which to evaluate and select relevant APIs, data and content as well as availability of open, secure, cloud development platforms on which to develop applications quickly, securely.

Alexandra Foster, Head of Insurance, Finance & Post trade, Global Banking & Financial Markets, BT The PSD2 starting gun has been shot – there’s now less than 30 weeks for EU member states to implement this regulation on a domestic basis. For banks and fintechs alike, effective preparation is crucial to navigate this game-changing regulatory mandate. At its heart, PSD2’s objectives are to promote competition and ensure a level playing field for European payments.

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Some participants have criticised the fact that the current PSD2’s scope may hamper fintech innovation, highlighting that smaller fintechs may be forced to become technologically dependent on banks. However, PSD2 actually presents an opportunity for fintechs and banks to work collaboratively by creating unique, tailored solutions and services for their customers. It’s important to recognise that PSD2’s end-goal is not only to promote competition and de-monopolisation of data, but also to optimise the protection and experience of the end-customer. The functionality and adoptability of the APIs and a guarantee of a consistent focus on the end customer is what will ultimately validate the ideas behind this regulation. Given that many technical specifications won’t be finalised until after 2017, and that banks will have 18 months for implementation, it is likely that we will not see PSD2-specific solutions in full swing until 2019.

James Morton, Country Head UK & NL, MangoPay It will be interesting to watch the introduction of PSD2 unfold. I think it has the potential to instigate a significant shift in the payments landscape. PSD2 helps instant payments between bank accounts to develop, potentially at the expense of traditional card payments. In order for this to work, integration must be achieved within the banking system. Currently, banks are working hard to achieve this, but it is not an easy task. Everything is still very manual in the correspondent banking industry, i.e. cross-border payment reconciliations. Furthermore, greater numbers of companies will enter the tri-party payments space in order to continue their growth, as according to the incoming regulation, marketplaces will not be able to escrow funds for third parties without a licence.

Christian Schaefer, Head of Payments, Product Management, Corporate Cash Management, Deutsche Bank PSD2 has the potential to revolutionise payments: introducing innovation and enhanced flexibility. Certainly PSD2 will encourage collaboration between the varied players across the financial landscape by recognising and regulating third-party providers – creating a secure and transparent environment for the creation of disruptive payments technology.

While PSD2 includes many developments, the three most significant changes work to expand scope, enhance security, and regulate third party providers. The changes reflect some of the major developments across the European payments landscape over the past decade.

Bragi Fjalldal, CMO and VP Business Development, Meniga PSD2 is driving European banks to a defining moment in 2018. PSD2 signals a significant shift in the balance of power in European retail banking, opening the door to innovative fintech companies and setting the financial services industry on a journey towards open banking. Specifically, PSD2 aims to drive increased competition, innovation and transparency across European payments and account information markets by granting thirdparty providers (TPPs) regulated access to a customer’s online account data and payment initiation. With PSD2, the consumer decides who can access their data and authorise payments from their accounts. At its core PSD2 will impact two things: the flow of payments and how we access our finances.

Tanya Andreasyan, Editor, Banking Technology I think that calling PSD2 the biggest change in banking in over 600 years is somewhat over the top. However, it is undoubtedly a huge advancement in altering the place and role of banks in the society. PSD2 will open up the market to more competition – and collaboration – in a way no regulation has done before. We’ll have to see whether traditional banks keep their banking crowns, or whether new fintechs emerge as clear winners once PSD2 comes into effect, as both sides have their share of challenges and advantages. But I do believe that the biggest winners of this fundamental shift will be you and I – the end consumer.

Daniela Eder, Cash Management Business Development Manager, Treasury Services, BNY Mellon PSD2 is not only set to bring about huge change in the industry; it has the potential to trigger a monumental shift in the payments space. A key purpose of PSD2 is to foster competition, and banks will be obligated to share customer account

details (at a customer’s behest) with third party payment providers (TPPs) to help support the payment operations being offered by those new entrants. And with that information, they could potentially build and scale up their business operations with speed, create additional services and products, and begin to establish a substantial client base. Furthermore, this “open banking” approach will make it far easier for customers to switch accounts, and could spark a new influx of TPPs entering the market. Although this may present challenges for banks, PSD2 will also fuel significant opportunities for partnerships and innovation. For example, the sharing of information with TPPs will likely occur through APIs, meaning the new legislation will play a key role in encouraging the use of APIs across the industry. APIs facilitate the effective, efficient exchange of data and, importantly, their flexibility and ease of integration allows banks and clients to work more collaboratively on new solutions – helping banks to adopt truly client-centric strategies, which is crucial in this competitive, fast-evolving landscape.

Will Beeson, Head of Operations & Innovation at Civilised Bank The last 600 years? Surely not. The biggest change in banking in the last 50 years has without a doubt been the move online, to desktop and then mobile. However, the opening of bank APIs to third parties to create fundamentally new experiences has the potential to shape the next century of banking. As devices become increasingly contextual and platforms increasingly integrated, customer experiences in “banking” will start to extend well beyond the current confines of the bank. Frictionless payment for services on apps like Uber are early examples of what this evolution will look like. Expect similar integrations to extend beyond payments into personal finance, investments, invoicing, accounting and much, much more. Open APIs will support seamless, contextual experiences and power us into a new era of experience.

Michael Plimsoll, Senior Manager, Industry Strategy, Adobe PSD2 will shake things up, that’s for sure. But, as it’s still early days, it’s hard to tell how the industry will be affected as a whole. That being said, I believe we’re going to see a lot of partnerships borne

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from the regulatory changes coming into force. Banks will build partnerships with fintechs, instead of competing against them, and work together collaboratively to leverage their scalability. The importance of data, customer behaviour, user experience and personalisation will all be accelerated trends that will be prevalent when PSD2 comes into effect. If traditional banks aren’t forming partnerships, they should heavily focus on the customer and base their strategies with the customer at the core. The regulation will force traditional banks to catch up with the modern day. Where industries such as retail and media have typically led customer experience in the past, it’s now the banks’ turn. As consumers start to feel the effects of the changes borne out of the regulation, it will be a relief, a moment of “at last,” and for banks it will be revolutionary.

Ruth Wandhofer, Global Head of Regulatory & Market Strategy, TTS, Citi PSD2 is ushering in significant change to the payments market. In the 600-year time frame, a lot has happened in banking, which fundamentally got us to where we are today. But what is different now is that the sheer growth of data and the speed with which data can be shared across increasingly digitised economies has reached exponential heights in recent years. Combine this with new technologies and innovative business models, and you get to a very different perspective on payments. The opening up of customer data is a sensitive space, which traditionally has not been touched much by banks themselves given the extensive data protection requirements. A legislation that opens up this space is therefore a big step when looking across the past 600 years. The way this is done is interestingly still under negotiation at EU level, with some players preferring direct access to customer login credentials and underlying accounts, versus the option of leveraging API as a communication interface between third parties and banks. Therefore the question of maintaining the security and integrity of online banking remains. Whilst PSD2 is not the biggest change in banking over the last 600 years (deposit taking is still an activity restricted to fully licenced banks) it reflects a fundamental paradigm shift as it opens up the data assets of banks to a broader set of bank and non-bank service providers. This in turn will trigger innovations, which we may not even imagine today.

Tony Craddock, Director General, Emerging Payments Association PSD2 should shift power from the banks to the consumer. Big banks will get smaller and a host of new organisations will be created to provide consumers with access to enhanced products and services, and to support those providing this access. It’s a complex piece of regulation, so nobody quite knows what its effects will be, but it should bring certain changes. More companies will become regulated, including new types of company such as third party payment service providers, meaning more competitors for banks. Consumers will pay less for their current services and benefit from new, value-adding financial services that do not exist now. The costs of launching new API-enabled products should fall, and as a result, the innovation cycle is shorter, meaning more innovation occurs. Security will be enhanced through the adoption of Strong Customer Authentication. More companies will conform to the regulation, whether they are inside the EU or only have one leg of the transaction inside it. Consumer rights will be strengthened, especially regarding data and refunds, and consumers will pay less, because surcharges on most card payments are to be banned. Of course, success is not guaranteed. The current fear is that if ‘screen scraping’ is outlawed, where companies currently extract information about a consumer’s account with their permission, but which seems to be disallowed by the new regulation, then many of the benefits of PSD2 will disappear. But we think this and other hurdles will be overcome, and that PSD2 will change the shape of the banking industry forever, to the benefit of its users, and by enabling innovation, the paytech industry too.

Brian Gaynor, Executive Director, J.P. Morgan PSD2 will provide an environment for new payment methods to emerge and grow across Europe. Not since the implementation of the euro currency has there been an opportunity to provide common payment methods across the EU, which to date have been localised and restricted by national boundaries. Many new initiatives will emerge based on the

openness to initiate payments coupled with the availability of mobile and the emergence of instant payments. Only time will tell which of these emerging brands will become common standards across the EU. But as a European initiative, will these new payment methods be able to break the boundaries of the EU and become global? The only truly global payment methods are cards. The card rails, irrespective of brand, are familiar to all consumers; localised but global. Cards have proven to be adaptable and grow, balancing the needs of merchants and consumers, convenience and risk. Cards will continue their growth as the global payment method, but in the face of increasing competition from new EU systems spawned by PSD2 as well as those emerging in other regions, such as Alipay.

David Song, Payments UK’s Manager of European Developments PSD2 will set out a common legal framework for businesses and consumers when making and receiving payments within the European Economic Area (EEA) – which comprises the 28 European Union member states plus Norway, Iceland and Liechtenstein – and outside the EEA. The PSD2 text makes it clear that customers have a right to use what are termed Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs), where the payment account is accessible online and where they have given their explicit consent. These changes reflect the market growth in e-commerce activities and use of internet and mobile payments as well as the rise of new technological developments and a trend towards customers having relationships with multiple account providers. This will make internet and mobile payments easier and help customers to manage their accounts and make better comparisons between them. Created by the European Commission, PSD2 represents a significant, Europeanwide shift in terms of the accessibility of customer data to third parties. Enabling those customers to use third-party providers for a range of added value financial services.

Gene Neyer, Head of Industry and Regulatory, D+H PSD2 is ‘turning banking inside out’. Open access shifts control to the customer who will be able to pick and choose

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products and services from different banks and fintechs. This represents a definite sea change from today’s product centric model. Banks will be forced to consider their strengths and weaknesses and choose what they want to represent to their customers going forward – a superior producer (like Walmart) or a platform and a destination (like Amazon). The business model shift will have to be accompanied by an architecture refresh; banks burdened with siloed infrastructure, will have a hard time competing with banks whose capabilities are harmonised across the enterprise. This is an opportunity for banks to reassert their strengths, and to leverage both the consumer trust developed over the centuries and the massive technology investments that have made many banks into technology powerhouses in their own right. The financial industry has been re-inventing itself for centuries, as it did when it moved from paper ledgers to electronics. PSD2 is a major milestone, but banking will carry on.

Anish Kapoor, CEO, AccessPay It’s certainly the biggest and most fundamental shift in banking that I believe we’ll see in our lifetime. It’s more about a shift away from banks that have all the controlling access to financial services, and opening up APIs to third-party providers. PSD2 is arguably the biggest change in terms of the way and which businesses and consumers manage their financial services; the future of banking is going to look very different to the way it does today. I think PSD2 is just starting that process; there’s a bigger shift going on in the market in that direction.

Chris Skinner, Author and Editor of The Finanser I think 600 years is slightly overstating the case. Most banks haven’t been around for 600 years, and it’s just a change to the technology structure of the bank. Banks claim that it’s a massive change as they’re being forced to open up their data to third parties, but on the other hand, I would expect that it will not be such a revolution, it’ll be more of a evolution towards more collaborative banking because banks are being regulated to work with third parties in partnerships, and that’s actually a good thing because it will be create a better customer experience. By their nature, banks have historically done everything themselves, end to end.

But with technology, particularly the open sourcing structures of apps, APIs and analytics, is creating a much more open marketplace where many different players can be involved in delivering the capabilities to the client and as a result, banks are going to have to work in partnership with many different technologies providers, not just doing things themselves.

Brett King, CEO, Moven I think you can say that in terms of access to banking, it represents a very significant change for the structure of the UK banking market. But the most significant change in the last 600 years? I would argue that the internet and the smartphones’ impact on banking on a long-term basis are more impactful. In relation to the fintechs v banks discussion, we’re starting to see new architecture emerge that enables fintechs to compete on a level playing field with banks, if not exceed their capabilities on top of new types of architecture such as PSD2. In that respect, we’re starting to see a first principles design approach to financial services emerge. If we were to start from scratch today and build a banking system – would it look like the banking system that we have today? The answer to that question is no. If you look at markets that give us indication of the future of financial services, such as China, India or Kenya, these are the geographies where we’re seeing these new types of payments systems emerge that are radically different. The exciting and interesting opportunity here is for us to think about the context of payments in very different ways. Anyone with access to the PSD2 layout will be able to come up with revolutionary payment experiences. In that respect, it’s very exciting to think about the greenfield payment experiences that can be embedded in a consumer’s life around service providers that doesn’t need to be bank oriented. As a result, I think some of the innovation we’re going to see in payments will be incredible. PSD2 enables new players like Alipay and WeChat and fintech start-ups to come along and think about payments in a very different manner than what traditional banks would approach. It’s definitely going to produce some very exciting innovation.

Evelien Witlox, Global Head of Payments & Cards at ING PSD2 is a major milestone on the way to an open financial services market.

It will be a great test for a range of financial institutions who need to rethink and redefine their business models. This is really the game changer of the decade; the inevitable, unstoppable opening up of the payments infrastructure for competition and new entrants. This regulation creates both a challenge and an opportunity for both incumbent banks and new entrants. Since it allows for payment initiation by third parties and sharing of account information with third parties, PSD2 is potentially highly disruptive. While some banks may be relegated to being pure account service providers, ING is taking the opportunity to develop multi-bank or bank independent services ahead of PSD2 that work to the benefit of customers. PSD2 is also encouraging a move towards open banking and integration through the mandated use of APIs. Technical development of API solutions is the most visible part of the challenge for banks and they need to focus more on the support processes as well as security across the value chain. To prepare, ING is itself implementing an API-based architecture in order to learn how to deliver better, faster services internally – before translating those findings through to customers. We also have some external projects in the pipeline, including Yolt - an app that aggregates a customer’s data from their accounts held at different financial institutions. PSD2 is undoubtedly shaking up the banking world as banks are challenged to look at their own positions in the equation. At ING, we see this as a great opportunity to build deeper and lasting relationships with our customers.

Steve Kirsch, Token CEO It’s a big change for banking and it’s a bit scary. Bankers don’t like change: change is hard. It’s clear that it’s a change for the better. I think there may be some issues in implanting the changes in the short term in terms of making that transition, and there might be some breaches and problems, but in the long term, I think it’s the best thing to happen to banking in history. It’s really going to open up the banking system to new applications that weren’t possible before, and to improve applications that exist today.

Sophie Guibaud, VP of European Expansion at Fidor Bank Not only does PSD2 challenge existing banks, as it could see them pushed out of their customers’ sight, but it presents

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“Biometrics will emerge as a top player in the industry’s adaptation to PSD2, which will benefit both financial service providers and customers” - Tinna Hung, EyeVerify them with a brilliant opportunity to win the hearts and minds of competitor’s customers too. How well a bank adapts to PSD2 will dictate how successful they are for many years to come.

Anne Boden, CEO and Founder of Starling Bank The future of banking is an invisible one and this will be driven by PSD2, so yes I agree that it is set to transform banking. It is already posing a challenge to traditional banks because it means they no longer compete solely with other banks, but with financial technology companies. However, in the future, this will challenge will also come from other sectors, not least lifestyle brands. Right now we’re seeing a shift as banking becomes an increasingly digital experience, and much less of a physical one. Now, around 60% of UK adults say that they prefer to interact with their bank through digital methods – online and apps – compared to around 23% who still attend prefer visiting bank branches. But this is the tip of the iceberg. PSD2 and the UK’s Open Banking initiative create a clear motion towards customer-centricity, because at the heart of PSD2 is the sharing of financial data and the creation of an ecosystem where customers benefit from access to multiple platforms, services and opportunities that use that data. It means that access to money will soon become inextricable from health, fitness, travel, time management and every other aspect of our day-to-day lives. Banking will become invisible.”

John Chaplin, Chairman of The Global Payments Innovation Jury Report The majority (74%) of European respondents in The Global Payments Innovation Jury Report 2017 consider PSD2 as the regulation that will have the greatest impact in their market in the next three years, especially as there are many costly changes required of almost all the players in the business. While there is no doubt that PSD2 has the potential to shake up the sector by allowing some interesting new payment business models not centred on traditional providers, its eventual impact on innovation is less certain. Almost 40% of the jury members believe that regulation

in general more often than not has a negative impact on innovation because the changes fail to deliver what the policy makers wanted. So what the jury says is rather than just assume that PSD2 will dramatically change industry approaches to payments innovation, we should instead treat the regulation with some skepticism until we see how the industry reacts.

Maximilian Tayenthal, Founder and CFO, N26 PSD2 will bring major changes for the banking industry for years to come and will drive innovation and competition in the European market. On one hand, it offers tremendous opportunities for financial institutions but also for technology players to better fulfill financial needs of customers. As for customers, accessing best products in the market from various providers will become much more convenient. Having an account with one bank does not necessarily mean obtaining all of its products and services. On the other hand, existing revenue streams may cease to remain profitable and will force banks to pursue new business areas as we will see a downward trend in costs and prices of services like payments. We will also see an impact on the competitive landscape as new players will access the market and established, smaller institutions may gain market share. We expect to see more re-shuffles uncoupled from PSD2, caused by disruption, new players in the market, and regulatory demand; to the benefit of customers who are more than ready for new, modern, innovative banking which caters to their lifestyle.

Sebastian Slim, Head of Marketing - Innovation at HPS The banking industry is known as a conservative industry. PSD2 is one of the very few, if not the main, dramatic changes this industry will have to face. Indeed, the PSD2 promise is to remove the monopoly banks have on their customer’s account information and payment services by requesting them to “open” their systems to any third parties, including their potential (new) competitors. All of that at a period of time where we see new

fintechs entering in the market every day, each of them focusing on one specific area of the financial sector. Those fintechs do not focus on digitalising the traditional banking services, they actually re-think the way it should be working by keeping the customer and the UX at the heart of the value proposition. The big challenge of the bank will be to face this new competition at the time where regulation is forcing them to open their systems, facilitating their customer data access to fintechs.

Tinna Hung, Director of Market Strategy, EyeVerify As PSD2 levels the playing field between banks and third-party financial players, the question of customer retention has risen to the fore for banks. However, the struggle for banks specific to PSD2 will not be in losing customers, but in ensuring they maintain deep relationships. The threat of PSD2 is one of disintermediation, where innovative companies offer valueadded services to the customer and shift ownership of the customer relationship away from the banks. The opportunity of PSD2 is one where banks actively partner with companies to create an ecosystem of innovative, high-value services for their customers while maintaining those customer relationships. As banks evaluate partnerships with financial providers, one of their top concerns must be security. Banks are privy to some of consumers’ most sensitive personally identifiable information and PSD2 provisions for this specifically. One of the most beneficial changes PSD2 will bring to the financial services market will be the use of biometrics to secure customer data. There are two factors that will lead to a leap in use of biometrics for payments related to PSD2. The first is the PSD2 requirement for Strong Customer Authentication, defined as two or more of the following factors: what you know, what you have, and who you are. The second is that biometrics can be significantly less difficult than the knowledge element, and consumers are likely to lean towards the options with the least amount of friction. Biometrics will emerge as a top player in the industry’s adaptation to PSD2, which will benefit both financial service providers and customers.

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“Anyone who stands to benefit from faster, simpler and more secure payments will benefit from PSD2” PSD2 will undoubtedly have a huge impact on banks, but how are fintechs preparing for its implementation? Should disruptive payments tech companies be waiting for PSD2 to come into force, or are the conditions already in place for fintech to thrive? Payment’s {R}Evolution sat down with Modulr CEO Myles Stephenson to discover how PSD2 will shape the payments landscape for fintechs, and who stands to benefit Research suggests that banks do not feel sufficiently ready for PSD2 coming into force at the beginning of next year. Is that your impression? PSD2 opens up a new world where the bank and payment services used by business and consumers can be easily integrated into, even embedded in, the offerings of other providers. It’s a change which provides an enormous opportunity whatever your size, and I think the larger banks have embraced that this is coming and are very engaged in what this means for them. However, it is fair to say that it has really galvanised the fintech sector, because it opens up new possibilities and generally levels the playing field for competition. We’re lucky in the UK to have a particularly vibrant fintech sector, and our investors alone [Blenheim Chalcot] have several businesses that are looking to take advantage of the new opportunities. It’s actually going to be critical that the banks are ready too, as forming good partnerships will be as important to the success of PSD2. To your mind how does PSD2 change the playing field for fintechs? Taken together with other regulatory changes underway, the huge investment in fintechs and the general movement to Open Banking, I think it’s fair to say

that PSD2 is going to be the start of quite a watershed for competition in financial services in the UK. In ten to 15 years, we may well look back on it as being retail financial services’ equivalent of wholesale banking’s Big Bang. The big change underway is how it gives more players access to account data and payment options that previously were only accessible via a bank. This opens up a whole range of possibilities for fintechs. For example, the new AISP [Account Information Service Provider] model enables a much greater level of data aggregation, opening up opportunities for both companies that consolidate your data, but also new types of comparison businesses. And the PISP [Payment Initiation Service Provider] status allows companies to push payments, which could lead to new type of instant payment scheme. There are probably more immediate and more obvious routes to value for an AISP, but the PISP route offers great potential too, not least to remove some of the friction of moving money between different banks and financial institutions. An additional area of PSD2 that hasn’t had a great deal of attention is the aspects that support the PSR (Payment Services Regulator) in ensuring access and competition. This is potentially quite significant in levelling the playing field for new and emerging companies

versus the incumbent banks. It’s not as straightforward as simply granting lots of rights, of course, as in many cases these have to be matched with new processes and safeguards. However, I do welcome what PSD2 will do to ensure that where there isn’t access for innovative, new players, this has to be highlighted and either explained or resolved. How did the decision to launch Modulr come about and did PSD2 play a significant factor? It’s certainly true that what Modulr is aiming to do is very much in line with PSD2. We focus on businesses that make a lot of payments, often with a high degree of complexity or time criticality. We started the company because today these businesses use payment services that, whilst they do the job, are not particularly flexible to their specific needs. As a result, businesses tend to use work arounds or just limit the service they can offer their customers. Their only alternative to this ‘one-size-fits-all’ type payments processing was to take on the task of becoming a payments institution themselves, with all the cost and risk that entails. We didn’t think this made sense, so we created our easy-tointegrate easy-to-use E-money Platform, to give a company unprecedented control over making payments, with features like instant accounts, access to Faster

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Payments and powerful automation, all from their own system via APIs. We didn’t need PSD2 to get underway, but it will enable us to make our service even more seamless for customers. Customers and businesses are purported to be the main beneficiaries of PSD2. Is this actually going to be the case? For all the technical side of PSD2, what is most exciting about PSD2 is that it opens up opportunities to make things easier for customers. The reality is business or personal customers invariably use more than one financial institution, but today those are totally siloed. For example, if you are online looking at your account for one company, you can’t see information from another, and you certainly can’t initiate a payment from it. You have to go and login somewhere else. PSD2 opens up a world of more integrated services, where information and activities can be embedded and used more broadly. The legislation doesn’t just provide new services though, it also ensures that consumers for a broader range of companies are properly safeguarded. Take Marketplaces, for example. There was a Commercial Agent exception in PSD1 that allowed for companies who take payment from one person and pass it onto another to be outside the regulation. With the huge growth in Marketplaces-type companies – everyone from Amazon to Uber – it’s right that this is now being brought inside. Personally, I remain concerned that there are still some businesses out there that handle money who won’t be covered. It seems to me that with the opportunities for seamless connection that PSD2 provides, there really is no need for this grey area that is covered only by professional bodies. Payments are really complex these days, with changing technology, regulation, cybersecurity, and so on, and I really do therefore think companies handling money these days should either be properly regulated as financial firms, or should be outsourcing the activities to companies that are. For consumers, do you think there will be trust issues with third parties pulling funds directly from their bank accounts? The European Union has the most stringent data protection laws in the world and the security element of PSD2 reflects this. Even so, experience shows that it takes time for consumers to build confidence in any new option, especially at the start. We’ve seen this with Chip and PIN, for example, and more recently

Contactless. At the end of the day, they are entrusting a business with their money, and so they need to be sure it’s credible. At Modulr, we’ve taken the step of becoming authorised and regulated by the FCA as an Electronic Money Institution (EMI). This not only extends what we can do as a business, it also gives customers the confidence that we comply with their stringent requirements around capital, safeguarding and reporting. However, even then, customer trust still has to be earned. We have a highly experienced team, and have bank grade security environment and practices, such as multi-factor authentication, session management, activity observation and penetration testing. We recognise that whilst customers may be attracted by a clever solution to their problem, they still absolutely won’t use it unless they can be 100% confident it is secure. Do you see any issues with PSD2 that concern you? Is there a danger of too much regulation? Whilst I very much welcome PSD2, there’s no doubt it also throws up some potential challenges for fintechs. One aspect is around the safeguarding regulation. The risks here go both ways. On the one hand, if the bar is set too high – and there are some who might argue for this – then the level of bureaucracy, capital, and so on becomes a real problem for smaller businesses. For example, if we’re not careful, then businesses who don’t want to be payment institutions can end up getting pulled into the net and labelled as PISPs. We think this can actually be counterproductive. Payments these days is a complicated business, and it’s far safer to ensure that innovative companies who do use payments can instead just outsource the activity to experts like us, and in doing so, stay firmly outside the regime. An interesting one is the use of the word ‘Banking’ and ‘Bank’ where there is talk of further legislation. Again, this makes lots of sense insofar as it avoids consumer confusion. But in the same way that it’s fine for a company to talk about partnerships with other firms without legally being an LLP, we have to be careful that we don’t end up ruling out the use of the word ‘banking’ in its entirety. I’d rather the rules were tight on saying what kind of institution you are, but leave room for plain English when it comes to describing your service. Another challenging area is where various regulatory initiatives meet, where I think it’s fair to say there is room for both overlaps and gaps. Take for example

the CMA (Competition and Markets Authority) which overlaps in some – but not all – aspects with PSD2. The danger here is that the Banks focus on the higher pressure they have from the CMA, and that aspects of PSD2 that sit outside of this get neglected. Plus, of course, not all banks are covered by CMA, which means that the momentum created on those aspects by the nine large banks might in fact act to prevent influence from the small ones, which is not the effect we were looking for at all. How is Modulr taking a unique position in the marketplace? At Modulr, we have chosen to focus on businesses that routinely make a lot of payments, and have a lot of complexity or time criticality. That’s fairly unique in itself, and in addition, we believe both our platform and the company itself have some special aspects. Our E-money platform is unlike any other in that it is purpose-built to make it easy for businesses to manage making payments. It’s easily integrated into existing systems and processes, and richly functional, including automation, notifications, access to Faster Payments, and so on. We don’t believe clients should need to be a payments expert though, so we pride ourselves in making our functions simple to use, with clear graphics, real-time information, and familiar controls. What are your objectives for Modulr in the next 12 months? One of the aspects of running Modulr I really enjoy is seeing how companies from different sectors use our E-money Platform in different ways. We have a wide range of clients from payroll providers to lenders all using different modules to give them better control over their payments. Over the next 12 months, we’re extending the Platform in all sorts of ways, with new elements to the Portal, access to additional payment schemes, and new types of notifications, to name just a few. So one objective is to see these new capabilities take Modulr into more sectors, and extend even further the range of uses that clients are putting our Platform to. Ultimately, I’d like Modulr to be recognised for creating a new product category, perhaps to hear someone refer to their company as “like a Modulr”! But most of all, I want all businesses who make a lot of payments to know they do have a choice, and don’t need to become a payment institution themselves these days to make their payments work how they want.

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The power of partnership Industry attitudes to collaboration between fintechs and banks in the payments space have turned a corner in recent years. Payments {R}Evolution spoke with Tony McLaughlin, Managing Director at Citiâ&#x20AC;&#x2122;s Treasury and Trade Solutions, and Nick Pederson, Managing Director, EQ Global, to discover how banks and fintechs are partnering to generate new payments propositions

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What is the relationship between EQ Global and Citi? When did the relationship form? TM: The relationship started in 2006. Paymaster 1836 (one of the companies which merged to form Equniti) specialised in paying private and occupational pensions and Citi had just won the mandate from the UK Government to make pension and other payments to retirees overseas. Paymaster was paying many of the same beneficiaries, so we decided to join forces on international pensions payments. Citi also formed a relationship with Lloyds Registrars around cross-border dividend and share plan payments. These two relationships came together under the Equiniti banner when those companies merged. Then a market opportunity was identified in the UK SME market, where foreign needs are not always well served. Citi has a clearly defined and limited target market centred on larger enterprises so we were not able to reach into the UK SME space directly, even though we had superior product capabilities. That’s when we formed the relationship with EQ Global, through a contractual structure where EQ Global would be the front-end of the business supported by our global network, and enter the marketplace as a next generation transactional foreign exchange provider. This is a perfect example of a fintech working with a bank; where two different organisations come together and do something that they couldn’t do individually. There is no reason for EQ Global to replicate the foreign exchange dealing or the payment processing that Citi performs at global scale. By the same token Citi found it difficult to reach all the market segments that our capabilities were applicable to. By marrying the capabilities, the domain expertise, and the market reach, we created a completely new business that was primed for growth. Has the partnership developed in the way you expected to when the deal was first signed? NP: When I became involved in the partnership four years ago the thought was that EQ Global could provide competition to some of the major cross-border payments companies, and go after traditional core SME payments. The result of changes in the digital economy is that our front-end technology, added to Citi’s network, is quite compelling; the achieved result is not just a payments

network anymore. We can turn around development in a couple of weeks and solve a very narrow problem for a very particular sector e.g. global payroll. Are there any banks and fintechs that could or should be looking at this relationship model? NP: I think most banks would be wise to find a small number of specialised partners to work with, rather than the approach of partnering with 150 fintechs and seeing which technology works. The approach Citi takes, which I think is the better one, is a focus on a smaller portfolio that the bank can really work closely with. We are looking for feedback from Citi on the products we are developing because they see the high level macro trends in the market and we see the minutiae. When you put those perspectives together you can create something quite powerful. Does the integral nature of your relationship with Citi preclude you from working with other partners? NP: When we are focused on building products it is preferable to not be burdened with a dozen customer relationships to nurture and satisfy. Every bank will always want to do more business with you if you are performing well, and it is much easier to do that when you only have one or two banks that you work with. So the relationship with Citi may preclude us from working with other banks, but that is not something I am missing. What are the characteristics of fintechs that the bank looks for when seeking out new partners? TM: We partner with fintechs in a number of different modes. We have a Citi Ventures arm, which acquires minority equity stakes. Here we’re looking for businesses that offer a unique capability that we don’t already have ourselves, or a business that can take us into markets that we can’t reach ourselves. We also have several innovation labs where we co-create with fintechs, and we run the Citi Mobile Challenge and the Citi Tech for Integrity Challenge to engage with fintechs through thematic competitions. From a business perspective, we’re quite selective about the partners we work with. Citi’s compliance requirements are high; we can only work with companies we believe are very high quality counterparties. We also examine opportunities through a commercial lens

by asking who we think can be successful in a highly contested field. Apparently 40% of all fintech is payments, and there are hundreds of start-ups in any given niche. We like to work with people who have differentiated value propositions. Having worked for both a bank and now a fintech, do you believe that you have a unique perspective of how banks and fintechs should collaborate? NP: Being on the banking side trying to identify differentiators within fintechs gave me a good insight on where we could take EQ Global’s business, because that’s the really crucial challenge that a fintech has. It’s not so much about forming that relationship, it’s how you make the most of it once you have the doors open to a bank like Citi – you don’t want to squander it by spending years building products that no one wants, so the trick is to decide quite quickly how you are going to differentiate yourselves and build something the market needs. Do you think that one of the reasons fintechs and banks have been so combative in the past was that neither could see the industry from the other’s perspective? NP: If you look at a lot of the more aggressive fintechs that have been antibank and not that collaborative, they tend to be run by consultants; very few are run by bankers. Or serial entrepreneurs that enjoy disrupting legacy systems and see banking infrastructure as something to be disrupted. I think what they are realising now is that to really achieve scale they are going to have to rely on banking infrastructure, and that is not going to go away overnight. There is a trend of more and more bankers going into fintech and I think that is an element that is changing that attitude to collaboration. There will always be fintechs that are out there designed to disrupt banks and take them down, but the trend is moving towards the model that we operate. TM: EQ Global and Citi have built a business together that we are scaling and that the clients find value in – we have found a common opportunity that we approach from a single perspective and there is no clash of interests. There are many fintechs that are absolutely reliant on riding on banks‘ rails, but they may find their access limited. In cases of perceived market failure, regulators then step in to force

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banks to open up and allow non-bank competition to flourish. Have you considered how PSD2 might affect the working relationship between Citi and EQ Global? TM: PSD2 has two aspects; account aggregation and payments initiation, and we are particularly interested in the payments aspect. For a business such as EQ Global, you are either paying on behalf of a client, or you are receiving money on behalf of a client. PSD2 will open up new ways to receive money on behalf of a client, so there is definitely an opportunity. NP: I think that is where collaboration becomes so necessary. You can be a small fintech playing around with open banking infrastructure, not really know what you are doing, and quickly fail. When you are able to collaborate with a bank that is going through the same thought process you quickly understand what PSD2 means for us as a fintech and the bank. TM: We see PSD2 in a global context. Understanding a new market factor is reliant on having a framework for understanding it – you can only understand something if it looks similar to something you already understand. We understand PSD2 in the light of Alipay in China, in the light of UPI in India and in the light of faster payments developments all around the world. These create reference points so when PSD2 is implemented it is not a strange animal. What do you think are the issues or trends that are going to have the biggest effect on international payments in the next 12 months? NP: The concept of being able to pay and receive from the same institutions – the outbound payments space and the collection space – have been quite separate for a number of years. You have our traditional competition which is primarily focused on outbound international networks. Then you have the card acquiring networks that focus purely on the collection side, but there is no one place for the next eCommerce giant to go to in order to solve both problems of paying and receiving money overseas. I think this is the dynamic many of us are trying to work out, without becoming all things to all people but instead solve it in particular niche areas.

TM: For Citi there are four macro developments in the payment space that we are tracking very closely. First is the proliferation of faster payments schemes. We’ve had faster payments in the UK since 2008, but many countries are now implementing faster payment schemes. By 2020 there will be an incredible global structure for making and receiving payments in realtime that will benefit national economies, but also what you’ll see is people who are running global networks such as Citi tapping into those networks to enable real-time payments and receivables across the globe. As Citi lays those pipes locally (and we’re likely to be members of more of these faster payments schemes than any other player), we will make that network available to partners like EQ Global and that will take EQ Global’s proposition to the next level. The second is the development of bank APIs, and sometimes that is being encouraged by regulators such as with open banking in the UK and PSD2 in Europe. The trend goes much wider – many banks are deploying APIs, so that creates another layer of infrastructure into which Citi can connect to provide new services that become available to our partners such as EQ Global. A third area of interest is the developments that are taking place in the distributed ledger space. At the moment these are in sandbox mode rather than production, but they might have relevance in the payments space with further development, so we’re studying those things very deeply. The final potential development people are talking about is national digital currencies – digital dollars, pounds and yen. These are more at the conceptual stage at the moment and already there is much commentary on their potential unintended consequences, such as damaging commercial banking systems. The first two trends are in production, and are creating usable infrastructures, while the second two are more conceptual or experimental at this point in time. Do you foresee blockchain being a potential competitor in international payments? NP: I would only see blockchain as a tool from a back office reconciliation perspective, I don’t believe in blockchain as a cryptocurrency tool. We would only look at it to make our back-end processing more efficient.

TM: Blockchain is a new technology and new technologies can take time to find their feet. The relational database was invented in 1970 and only commercialised in 1979 by Oracle. Now almost all of the technology that we take for granted contains relational databases, so it shows that many foundational innovations go through long gestation periods. Payments are made up of two layers, a messaging layer and a settlement layer. For a blockchain or DLT to be adopted by the marketplace it has to be superior in at least one of those two layers. On a settlement layer, the usage of a cryptocurrency for payments is problematic. For example, what is the currency worth? How easy is it to steal? Are banks expected to hold that currency on their balance sheet? There is a bid/offer spread every time you make an exchange, and by buying and selling a cryptocurrency you add an unnecessary currency exchange into the transaction. Many blockchain providers are moving away from using a cryptocurrency in their payment schemes, but if you take out the cryptocurrency element then you are back to normal settlement routes. Settlement is either done through commercial bank money or central bank money, so in a sense by not having cryptocurrency you remove potential benefits from a blockchain solution. From a messaging perspective, blockchain electrons move at the same speed as any other electrons, so there is nothing about blockchain that is inherently faster. The payments world has spent a lot of time building very ‘fat’ and extensible message formats, ISO 20022, where you can fit thousands of lines of invoice data. If you want to write ISO XML messages to a blockchain, you may have to build new power stations to power the computers doing the cryptographic calculations. In addition, we also examine likelihood of adoption. There are two SWIFT networks; the FIN network and the IP network. It would appear that some of the benefits of blockchain would be delivered if every bank in the world connected to the SWIFT IP network and adopted XML message standards. NP: Global payments networks are so complicated with so many incumbents already in place solving a lot of the problems, I would rather see blockchain solve a smaller problem first, such as reconciliation of air miles, and that might generate some adoption in payments.

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Features | Collaboration

“Fintechs will have a field day with the infrastructure being created with PSD2 and real-time payments, but banks can also have a field day if they go about it with the right mindset”

TM: If a tool cannot solve a simple problem, it seems a stretch to extrapolate it to very complex problems. Let’s see the demonstrated use of blockchain in a simple domain in production, not in sandbox, and then that tool may move up the curve of complexity. But to my way of thinking, attacking very complex domains before you solved very simple domains isn’t the correct approach. NP: If you look at the main criticisms that are levelled at cross border payments, they are price, speed, and accuracy. Those issues are steadily being solved by other methods to blockchain. In principle a blockchain concept could solve some of those things, in particular around speed and price, but what you have seen recently is the drive of price down in any case; you can send money overseas as a consumer at extremely competitive prices. The big challenge for cross border payments going forward is not price, it’s more speed, potentially the accuracy of delivery, but particularly using technology to solve an end-to-end problem around making a payment. Do fintechs have an advantage in user experience that they can offer banks when collaborating? NP: User experience is an interesting angle that fintechs are bringing to banks. Consumers these days can’t understand why financial services products aren’t as easy to use as Google. TM: The examples that have been deployed by fintechs have made banks raise their game. The question though is whether that is a sustainable source of advantage for fintechs. A bank can spend

more money on UI/UX than a fintech company, even buy design companies just to improve UI/UX. Will fintech partnerships ever be at the heart of a bank’s offering? TM: A lot of what the fintechs offer doesn’t focus on the heart of banking. Banks are fundamentally about balance sheets, and there are arguably not that many fintech initiatives that really aim to supplant the role of banks in doing the fundamental maturity transformation happening on bank balance sheets. Where there might be an opportunity is the fintech equivalent of basic research. Fintechs should work much more closely with academia in terms of basic research on finance and coming to new understandings and conclusions and then building propositions from a deeper basis. The world does not really need another FX broker with a nice user interface and a big marketing budget. As the global economy grows, we may well need entirely new forms of financial intermediation and yes, disintermediation. Do you think there will be an increase in bank and fintech collaboration in the next 12 months? Are changing attitudes going to actually translate into greater collaboration? NP: The attitude on both sides has changed. Culturally fintechs are starting to wake up to the fact that banks are there to help them scale. And the number of banks you see that are appointing a Head of Payments Innovation has skyrocketed, which is an indication that banks believe fintechs complement their offering. The advantage of fintechs is that we tend to be very narrow solving very

specific problems and there are many of us. In each different vertical and each geography banks should be looking to those narrow specialists. Our focus is cross border payments, we focus on narrow sectors and on certain clients e.g. the payroll sector. We solve problems around payroll to the minutia that banks would not bother to look at. That’s where the collaboration comes in, because we can solve very narrow problems for banks. TM: Collaboration is already huge between governments, academia, fintechs, banks, and clients. Everyone is reaching for better ways of doing things in financial services that are empowered by new technologies. Incredible financial services will be constructed in banks and fintechs based on the infrastructure we are creating. The toolkit is now coming online for everyone to use, especially with APIs. I see a situation where every bank will have an API, every fintech will have an API, every clearing system will have an API, even governments are creating APIs. So were going to have a system where there’s a hyper-connected API economy. NP: I don’t think competition will come from banks. The challenge fintechs are about to face will come from tech companies. I would argue that you haven’t really seen the tech powerhouses truly delve into financial services yet. That is where the next five or ten years will be played out. Fintechs, almost as a defence mechanism, will have to think about collaborating with banks because their challenge will come when Facebook gets into banking, and I’m sure it will.

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REAL-TIME PAYMENTS

ARE HERE AREYOU READY TO CLIMB ABOARD? Real-time payments RTP schemes are arriving across the world and you don’t want to be left behind. So you ask yourself, “Are my competitors getting ready for RTP?”... Yes they are. “Can I be RTP ready quickly and easily?”... Yes you can. Volante Technologies has created the VolPay Hub: RTP Suite to help with this specific that VolPay will quickly enhance your payment processing capability with the RTP schemes you choose. Learn more about VolPay Hub: RTP Suite by emailing info@volantetech.com or visiting

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challenge. Our experience in US TCH RTP, SEPA ICT and UK FPS amongst others means

Features | Instant payments

SEPA Instant Credit enablement – why bother? By Darryl Proctor, Product Director, Temenos

EPA Instant Credits (SEPA Inst.) is due to go live in November 2017. Temenos is amongst those assisting a number of banks in joining the scheme, supporting all infrastructures, including featuring as a front runner for the EBA’s R1 system. European banks have just months to prepare to meet this imminent deadline, however there are still those yet to start the journey. SEPA Inst. enablement isn’t obligatory for banks (only infrastructure providers) so why would a bank look to offer customers this service and what’s needed to make SEPA Inst. a reality? Reviewing the business case for SEPA Instant Credits Some recent feedback we’ve received from banks is that they just don’t see the business case for SEPA Inst. This is a surprise as there are many established cases and examples of how real-time payments in general can add value and SEPA has also added value to date. One of the main business case for real-time payments is based on corporate banking. As a result of the digitisation of the supply chain, real-time payments enable corporates to collect and analyse financial transaction data in real-time, derive financial insights immediately, and drastically reduce the effort involved in reconciliation. But let’s look at the opportunities more closely. Cross-border payments – a $240bn opportunity Ultimately, corporates expect better cross-border payments services and, according to McKinsey, 70% are willing to consider alternative providers to get them. Individual (C2C) remittances make up less than 0.5% of the world’s crossborder payment activity ($405bn in flows). Providers earn $25bn in revenue around the world, accounting for 8% of total

cross-border revenue. In comparison, business-to-business (B2B) payments offer $135tn in flows, bringing in $240bn in revenue. The average transaction value is between $15,000 and $20,000, so that means corporate cross-border payments typically cost $30 to $40 per transaction. That’s a lot to pay for a payment that takes three days to settle and may not provide any certainty when funds are committed. These statistics are global, but give you an idea of the opportunity that offering SEPA Inst. Credits could provide. This also indicates the high risk that alternative providers could take this opportunity (and your customers) if banks aren’t able to offer SEPA Inst. And, to further reinforce the benefit to corporates that SEPA Inst. offers, we need only to look at the current advantages of SEPA for corporates. Surveys show that as much as 75% of treasury professionals said that their European payments are more efficient post SEPA. But are these examples of demand for instant cross-border transactions and the success of SEPA from a corporate banking perspective enough to build a business case? Real-time payments – the new bank standard? I believe yes and no. Of course, volumes must be considered to build a business case, however, so should disintermediation. After all, it is estimated that it costs between four and ten times more to acquire a new customer in general than it does to keep an existing one. However, bank acquisition is considered to be even higher, with some sources saying cost of acquiring a new customer is over 30 times that of keeping an existing one. And with today’s growing competition it’s never been more important to have a competitive offering. There is no doubt that real-time payments

as a whole will play an enormous role in the evolution of the payments market. With 22 live schemes already, this rising tide of immediate payments reflects growing consumer demand for real-time transactions, driven partly by the ubiquity of smartphones and other connected devices, which have catalysed consumer expectation for immediacy. As well as meeting consumers’ rising expectations around payments, the banking industry is facing rising pressure from governments to create ubiquitous nationwide and regional immediate payments systems that can be used by all financial institutions. Given these twin drivers, real-time payments from a domestic perspective is expected to become the new standard for banks, acting as the banking world’s answer to payment initiatives from new competitors such as Venmo (US) and BlueCash (Poland). Ultimately, banks have a choice, offer realtime payments (SEPA or domestic) or risk losing market share. Real-time payments – offering added value to corporates Rapid payments can allow a bank to offer premium services to its corporate clients. These benefits include last-minute payroll services, disaster payments, multi-bank cash concentration, tax payments and many others. In essence, concert, rapid transactions initiatives can enhance the revenue lever, by not only driving a customer to use its services concentrated across multiple bank, it also gives the treasurer that much sought-after ‘real time cash position’. A recent survey by Ovum and Temenos, Understanding Today’s Corporate Treasurer, further highlights corporates’ need for real-time cash positions. It shows that only 13% of multinational corporates can see their global cash position in real-time – creating a clear challenge to effective cash and liquidity management. At the same time, only 45%

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Features | Instant payments

are able to view more than half of their global cash position in real-time. Real-time payments – ultimately benefiting banks Data compiled by the Reserve Bank of Australia and The Centre for Economics and Business Research shows that a real-time, centralised system is the least expensive method of processing payments per transaction. Real-time payments has the potential to eventually reduce costs for banks, by breaking their payment silos. Banks incur additional costs just to maintain the status quo in payments, operating and maintaining multiple silos. Ultimately, real-time payments provides an opportunity for banks to move away from ageing legacy payment systems and toward a modern infrastructure. Real-time payments also tend to result in fewer ‘exceptions’ to the payments clearing process. In fact, cost savings from reduced failed payments due to real-time are likely to be the largest potential saving from a real time infrastructure – estimated between $612m and $1.7bn in 2020. However, banks must consider that, while real-time payments will help accelerate the shift away from cash and cheques, it may also impact other revenue streams. In addition, real-time payments means a greater level of real-time data. Deployment of ISO 20022 opens up the possibilities for data handling and the marketing of consumer analytics. This is because reporting can be broken down into payment status, account balances and transaction details in both intra-day and end-of-day situations. ISO 20022 not only has a rich set of data definitions, but it is supported by sophisticated toolsets and utilities to manage them that greatly simplify definition of new message sets and rules. In turn, this makes ISO 20022-based systems easier and less costly to maintain than ISO 3583-based systems (which don’t have a similar set of tools). However, in addition to its data richness, it is the flexibility and maintainability of ISO20022 that definitely adds true value. With SEPA Inst. banks can increase focus on their customers cross-border business, gaining a greater understanding through analytics to design and offer valuable services to customers as well as providing insight to support their business such as information on liquidity. The SEPA Inst. challenge So real-time payments are set to be the new normal, and SEPA must keep up, but SEPA Inst. Credits is quite different

from SEPA Credit Transfers. SEPA credit transfers are processed in batch. The new scheme is different, the processing of SEPA Inst. Payments will be at a transaction level. As soon as a payment service provider recognises a SEPA transaction (using ISO 20022 global messaging standards), this single real-time credit transfer has to be received, accepted, validated, with funds checked, compliance checked, processed by the clearing and settlements mechanism (including liquidity management), sent to the beneficiary bank, processed and posted to the beneficiary’s account. And this processing has to be done non-stop. No down time, not even scheduled downtime is allowed, forcing banks to run real-time operations 24/7 hours a day, every day. How can banks efficiently achieve this? Meeting the challenge – beyond real-time transactions To support the need for real-time payments functionality now, banks must have a sufficiently agile real-time payments solution and to be really top of the class, have a sufficiently agile real time core. Breadth and depth of functionality as well as flexibility through configuration, saving time, reducing risk and providing quick time to market is also key. But real-time payments isn’t just about processing the transaction. Banks must ensure that transactional data is also real-time. Real-time payments are irrevocable, once sent to be cleared real-time accounting with the core back-office and real-time status tracking is available. Banks should be looking to support the management of real-time enquiries, for example, offering the ability to view unconfirmed real-time payments with timeout expiry, for monitoring and remedial action. Also, real-time notification of payment status to payer (for outgoing payments) and payee (for incoming payments). In addition, they may want to ensure they have real-time payments tracking, and value-added services such as automatic SMS/email to provide real-time status updates to customers etc. Without a real-time, modern platform you are only part of the pack, not the leader. Meeting the challenge – supporting corporate liquidity The opportunity for bank corporate customers is huge, but to leverage this, banks need to ensure they have a solution providing full visibility of the payment journey with real-time updates of funds availability and status confirmations. Realtime payment status updates with rich payment information allows customers

to increase supply chain automation, through electronic reconciliation of payments against orders. In addition, Instant Payments supports investigations on real-time payment status and associated workflows, providing clarity on transactions initiated automatically and manual investigation messages, and process answers received gives bank the ability to fully service their customers. A real-time payments solution should look to push liquidity updates to an external Liquidity/Cash Position Management engine and offer reporting compatible with both their core banking platform and external data framework and analytical reporting solutions. Making the move to SEPA Inst. The requirements of each real-time payments scheme vary and continually evolve until scheme launch (and sometimes beyond). But banks must not be despondent or worry that it is too hard to achieve the points raised above. There are a range of service providers who have established standalone, real-time solutions for domestic and SEPA schemes as well as partnerships with fintechs to support cross-border transactions outside of the Eurozone. These should be easy to implement, with cost efficiency at their core and the end user as a focus. A paper from Deloitte recently stated: “There are many different back-end solutions in the marketplace that have the potential to enable faster payments. In our experience with innovation in the financial services sector, effective organisations start with the customer’s need, develop value propositions that are clearly differentiated against competitors, and then put in place the infrastructure needed to support those value propositions.” SEPA Inst. – forming part of payments evolution There is no doubt that real-time payments as a whole will play an enormous role in the evolution of the payments market. And SEPA Inst. Payments will be no exception. In a webcast by KPMG focused on whether the SEPA region really needs Inst. Payments now that they have SEPA, it was highlighted that: “SEPA kept us all very busy for years, especially the corporate market but also to bring direct debits over 34 countries. At the same time when Europe worked on SEPA, other countries worked in parallel in speeding up payments to fulfil customer expectations.” So to answer the question as to why bother with SEPA Inst. Credits, all I can say is: can you afford not to?

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Features | Tom Blomfield

Bank to the future: Monzo CEO Tom Blomfield shares his vision of the future of banking Monzo, described as ‘the bank of the future’, is a vision that was created by Tom Blomfield and his co-founders in 2015. Two years later, the smart bank has £35m in funding under its belt, over 200,000 users and has broken the world record for the quickest crowd-funding campaign in history, raising £1 million in 96 seconds via Crowdcube. Alara Basul sat down with Tom to discuss the bank’s new current accounts, the road to a billion users, and his vision for the future of banking

What makes Monzo stand out from your competitors? The most obvious example is that we don’t have branches; we’re available on the mobile phone, on Android and iOS. You can download the app, get a card and can get started straight away. Our focus in the long term is solving customer problems rather than selling financial products. If you’re a big high street bank then you may care a lot about your mortgage rate, or your savings accounts and credit cards; basically, optimising these financial products to make them profitable. We’re much more focused on solving customer problems day to day. We’re almost questioning, as a bank, what problems are we best placed to solve? Should we be helping you budget, or collect loyalty points, or pay friends back for dinners, rather than a continual focus on selling mortgages. You recently had your restricted banking licence lifted, what’s next for Monzo? We received our restricted banking licence in August 2016, and in April this year the restrictions were lifted so

we’re a full unrestricted bank now. We can now offer full current accounts with account numbers and sort codes. The next step is to transition all of our users who currently have prepaid cards over to current accounts. The current accounts are currently in a testing phase using a small group of customers before we move over the bulk of customers later this summer. What will the current accounts offer? Everything the app currently offers will be available on the current account: You’ll get instant notifications when you spend, you’ll be able to put money into budgeting pots, and see where all your money is being spent. If you lose your card you’ll be able to freeze it, if you go abroad you’ll be able to spend money in any currency with no fees or charges. In addition, you’ll get an account number and sort code, so you can get your salary paid into the account, you can pay direct debits and standing orders such as rent and mortgage payments. And if you want to, you can borrow, we’ll extend overdrafts subject to credit checks.

With the roll out of current accounts, what will be the main difference between Monzo and traditional banks? Very few of our customers have come to us saying: “I really want a prepaid card.” People have come to us saying they want be part of something bigger, this vision of re-shaping banking, and that is what attracted them to Monzo. More recently, Monzo has become an app that helps people control their money, budget, and give users visibility and control. I don’t think that will change with the current accounts at all. The existing customers do want a different way to do their banking and I think that will continue, but through a current account product which is the mechanism of how they want to bank. The main reason why customers today want a Monzo account is purely because all their friends have one. The product users has transitioned from the early adopters into the mainstream, the demographic of people who don’t like to be the first to try an app, but once ten friends have it the app becomes necessary to split bills and pay peers back. I don’t

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Features | Tom Blomfield

“People have come to us saying they want be part of something bigger, this vision of re-shaping banking” think banks have done these social features of finance well at all.

example: “How would X work if we had a billion customers?”

How important are referrals for your customers? Viral word-of-mouth growth is extremely important to us. Our new customers are probably over 90% via referrals and we have almost zero paid acquisitions. This is the way that consumer tech companies grow exponentially for free today. Paid acquisition tends to scale in a sublinear way; broadly speaking the more users you get, the more expensive each acquisition becomes. A viral acquisition network doesn’t work like that; it scales exponentially well. There are two aspects; the first is simple word-of-mouth referral, some financial services such as Metrobank have done this really well. When you have a great product that people love, they tell their friends about it because they just want to share the good news. This is powerful. But when you combine this with the network effect, where the product becomes more valuable the more users there are, this is accelerated further. Skype is a great example of this: The more of your friends that use Skype, the more people you can call, so it’s better for you as a consumer to bring more people on. Real network effect is very powerful because you have a selfish incentive to bring people on. That’s what we’re trying to do with concepts such as bill splitting, and sending and receiving money. And in time we’ll introduce shared pots, where a group can pay into a pot to pay for a joint holiday, or shared accounts for students or flat sharing. All of these things will generate network effect which helps us to continuously grow exponentially for free. That’s the plan for getting to a billion customers.

How will your strategy of putting the customer at the core of everything you do be affected with this rapid growth? To parrot a phrase from Apple: “You build a product that just works.” There are huge scale effects, but as a software engineer or designer you have to remember that if you create something that just works, it just works for a billion people as well as it does one person. For us that means we have to invest heavily in design and technology to produce a service that just solves people’s problems. For example, I think there is a place for human interaction, but sometimes that model doesn’t scale as well. For simpler processes such as changing an address, a human interaction is unnecessary and will hinder scaling.

Is reaching one billion customers your goal? Eventually! We’re growing about 4-5% a week at the moment. If we continue to grow about 3-4% a week, we’ll hit around 50 million customers in three years, and we’d hit a billion in about six years. The billion customers objective is a North Star for us. It’s a method that we use internally to evaluate the way we do things, for

What is the next phase of development for Monzo after the current account is fully launched? The future of banking, as we’ve said a lot before, is a marketplace, and we want to be the platform of marketplace for other people’s products. We don’t want to roll out a Monzo mortgage or a Monzo loan, because we don’t think we’re the best at doing that, to be frank. What we are great at is delighting customers through interfaces, technology, and APIs that are enabled to be plugged together. There are law changes that are coming into force over the next year or so which means that banks will have to open up all their data, which really helps aggregate all your accounts into one place. Monzo’s aim is to be the aggregator, so that eventually when you want a mortgage you can take all of your Monzo data, and the data from your ISA or savings account, and bring it all together and ask your mortgage broker which type of mortgage you can get. With very little manual intervention you will be able to accomplish the goals you want, and Monzo is the facilitator of that. Finally, what is the ultimate mantra you live by at Monzo? I think if someone says “this is the accepted best practice at a bank”,

or “this is the way it’s always been done”, then it is a good rule of thumb to not necessarily feel constrained to doing it like that. The banking industry is in a pretty bad place right now, so I think for us there’s huge value in starting from first principles, almost naively. So we focus on not having a preconception of what the solution looks like, and instead just coming into a problem from scratch and looking at the source legislation, looking at the technology and talking to customers and understanding what they need and synthesising a solution that actually works for people. Rather than saying we need two proof of addresses and a driving licence to open an account because that’s what everyone else does, for example. It’s really starting from scratch and figuring out what you’re trying to achieve.

The quick-fire round If you were to describe Monzo in three words… Mobile phone bank. Can you descibe the Monzo customer in three words? Probably not anymore! Lives on smartphone…? Do you prefer debit or credit cards? It doesn’t matter, they’re just a token that points to an account fundamentally. People have tied up borrowing up with a plastic card, it’s weird. A card is just a token that says to take it out of that pot. Your iris can be a token, your thumb can be a token. It’s one of those financial products that banks have invented that humans just shouldn’t have to think about. Contactless or chip and pin? I like contactless, it’s much more convenient. But there’s a place for both. Your favourite feature about Monzo is… Hot coral card! So is bright coral your favourite colour? (laughs) Yes!

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Features | Iain McDougall

“The world of online payments is the last Google-sized problem on the internet” Stripe is a US-based technology company that provides APIs and tools to enable businesses to accept and manage online payments. With investments from the likes of CapitalG, VISA and American Express, co-founders Patrick and John Collison have led the business to become one of the most innovative companies in the fintech industry. Alara Basul spoke to Stripe’s UK Country Manager Iain McDougall on Stripe’s success and drive for improving digital commerce

How does Stripe stand out in the payments industry? We have a fundamental goal to increase the GDP of the internet. We’re passionate about helping technology businesses get started and scale online, with a view to accelerate the globalisation of businesses through the internet and technology. We’ve been operating in the UK for a few years and it’s our largest market outside of the US. We’ve had a particularly

good run in the UK which is due to the strong concentration of start-ups in the market, especially in the fintech sector. There are incredibly innovative companies that are built on top of Stripe, such as Zopa and Monzo, and some that are ondemand platforms with global reach such as Deliveroo. These conditions have been particularly good drivers of our success in the UK. Whilst our focus is primarily on developers, start-ups and the fintech

community, increasingly what we’ve seen is interest from larger organisations. It’s either businesses that are taking a foray into online e-commerce for the first time, or established companies who are going through a process of re-inventing themselves with new products and channels to the market. ASOS Marketplace is a great example of how an established retailer is looking to technology to create a new channel to reach a new demographic in the market.

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Features | Iain McDougall

For any credit card that’s used on the internet today, there’s an 80% chance that we’ve seen it before on Stripe How does Stripe think about other verticals to target in addition to fintech? The core of what we’re doing as a company is to shift a greater percentage of commerce to online. It’s bizarre that the internet has been around for 25 years, yet only 5% of global commerce currently is happening online. When we think about different industries and verticals we think of it against this global backdrop. It’s extremely easy for information to flow around the world, and easy for individuals and businesses to communicate seamlessly through social media platforms, yet historically it’s been difficult for people to send each other money in an equally seamless way. We see this as a problem in design and code rather than finance. As a technology company, we’re determined to offer our platform to help companies build their businesses and give them seamless access to the world’s underlying financial infrastructure.

seamlessly to exchange money anywhere in the world.

What’s your largest growing geographical market? We’re growing fast globally which is great. Typically, what we’ve done in terms of how we think about international growth is to anchor ourselves around the world’s innovation hubs. There are few of those; the Bay Area in San Francisco, London, increasingly Singapore, Stockholm, Paris and others. We’re seeing great opportunities for growth internationally and we fundamentally believe that developers are changing the world. We’re very well aligned with this notion, and give them the tools they need to globalise and monetise their fantastic ideas, and not be concerned about how they’re going to manage the complexity of integrating to the world’s financial infrastructure. Co-founders John and Patrick Collison experienced this problem first hand as they built businesses online, and that’s really at the heart of why Stripe was born. We see the world of online payments as really the last Google-sized problem on the internet; in the same way that Google organises the world’s information and makes it available in a democratic way, similar to how Facebook has connected the world socially, Stripe is about building the equivalent of this in global financial infrastructure and enabling people

Are there any trends and technologies you’re keeping a close eye on? Above anything right now, mobile, in the context of what it means to global commerce and payments, is extremely exciting. With software and mobile driving innovation in the world and bringing the opportunity for commerce to more businesses, the world’s legacy financial infrastructure has just simply not kept up. For mobile wallets such as Apple Pay and Android Pay and non-card payment methods, it’s exponentially difficult for businesses to have to think about how to integrate and manage, so we’re focusing on that. We believe it’s a significant trend we’re only just starting to see. I think the other trend we’re particularly thinking about is all the other features of software that we need to be building to make Stripe an even richer business platform. If payment processing is the core; what other platforms do we need to build around and on top of it to make it an even richer infrastructure. We’re also thinking about the applications of machine learning to solving some of those problems. We’ve been applying machine learning to the area of fraud detection and prevention, and we productise this in a service offering called Radar to allow our users to leverage our capability and investment in machine learning models to

What are the main challenges you face and how do you overcome them? The challenges that we see to our success are less about Stripe as a company, and more so about the economy and technology ecosystem. We exist to help more technology businesses get started and solve the problems we’ve seen in the past. We’ve geared ourselves to looking at that with payments as a starting point, but there are other inhibitors for businesses getting started beyond just tech and payments. We launched Atlas last year which is geared towards getting businesses started. The platform is about incorporating businesses as companies, getting a bank account set up seamlessly, giving access to the basic professional services such as the legal, tax, and accounting that they need to get started. Our technology takes care of this to not only help companies get started, but also accelerate the globalisation of the business.

cut the rate of fraud. That’s in everybody’s interest, from businesses to Stripe to banks, and we’re able to do that in a unique way now we’ve reached a certain size and scale. How does Stripe scale globally in the payments sector? For any credit card that’s used on the internet today, there’s an 80% chance that we’ve seen it before on Stripe. When we see a card, certainly in the US, we’ve seen it an average of six times before, and 50% of Americans have bought something with a credit card that’s gone through Stripe. We’re seeing more than 100 million hits a day on our API in terms of our users making requests. So that scale has allowed us to do a lot of interesting things, but one of the most tangible applications of that is the benefit from machine learning around fraud for sure. Will we see blockchain integrated into payments soon or is the technology overhyped? There is a certain amount of hype around blockchain. It started as everybody analysing the technology as the underlying capability for cryptocurrencies. We support bitcoin from a currency perspective and we’ll keep an open mind to where the blockchain applications, such as in distributed ledger technology, are going over time, both for ourselves, but also for our financial partners and users around the world. I still think we’re in the very early days of blockchain. What do you see as the future of the payments industry? In the past, payments were an inhibitor to new business models being developed, but now we’re seeing payments being the enabler for that. It’s important to think of the scale and opportunity that comes from shifting commerce online so commerce is analogous to how information flows on the internet today; money should be able to flow as securely and conveniently as that. We see massive opportunities to take away the complexity for online businesses. An analogy that I often use is that if you were setting up an offline retailer or store today, you wouldn’t consider building a cash register or till from its component parts, or even building the shop, so why should it be any different for an online business to do so? That analogy holds true to what we do at Stripe.

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Features | Guy Talmi

Mobile payments: A new key to success New innovative banking solutions were on show at the recent Temenos Community Forum Innovation Jam in Lisbon. Payment {R}Evolution sat down with the eventual winners, PayKey, to find out more about its radical keyboard function that allows consumers to make payments from their mobile banking app on social platforms You are a complementary product to banks’ digital products, not a competitor. How did the decision to go down that route come about? The idea was to look at improving payments through the eyes of the banks, that are currently experiencing a lot of disruptive technology in their sector. Rather than be disruptor ourselves and compete with the banks for consumers we decided to take our ideas and help by the bank by developing the technology that would enable them to compete in the new era of social networks and social banking. That was the strategic approach that we took, and thankfully it has proven to be very successful, because of the tech we have been able to develop. We have created a white label solution that we sell to banks, since we launched the company we have created a great funnel of banks who are working with us, and have commercial agreements with banks in place in Norway, Colombia, Australia and in Turkey. Are there any competitors to what PayKey is bringing to the market? The competitive landscape starts with other alternatives for social payments, of which there are plenty. There are

peer-to-peer solutions which are nonbank solutions and require onboarding to provide the user with the same functionality as we offer through a bank on a social platform. In terms of developing a social payments solution which is based on the keyboard, however, which can be integrated with banks’ mobile apps, we haven’t seen anybody else that is currently doing what we are doing or can rival our product directly in any way. There are two banks that have developed a similar solution in-house with a slightly different approach, but similarly giving the user the ability to make payments from the keyboard. We believe this is a superior product to the alternative payment apps on the market. Have you conducted any market research that has helped you shape the product? We recently launched a marketing survey in the UK because we wanted to get a better sense of our target users, particularly Millennials. We wanted to better understand their payment habit, and their perceptions of the banks’ current digital offerings. The results of that survey were extremely interesting, so much so that we published a whitepaper on the subject

which was very well received. That whitepaper highlighted a number of fascinating conclusions we could draw from the research. The first is that all the hype surrounding alternative payment solutions is currently just that, hype. These dedicated payment solutions for peer-to-peer captured a fraction of the market today, approximately 6%. The message coming from the data is to be careful of hype, if you look at the numbers usage isn’t that significant. The second interesting point is that if you ask users what they think about the digital payments offerings, most of them will tell you that they’d rather use a payment solution offered by a bank because they trust the banks most. The trust is still there with the banks when it comes to payments, however the user experience doesn’t currently reflect what consumers want or indeed what they expect. This is exactly where PayKey comes into the picture, leveraging the banks’ in a positive way for trust but helping them overcome the user experience issues of the banks’ apps. Placing the banks’ capabilities into social and messenger apps makes these payments contextual, inclusive, and part of daily life. It truly addresses the challenge.

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Features | Guy Talmi

Have you seen much specific consumer feedback or do you have data to study how the app is being used? This is definitely a focus for us moving forward, we are looking to receive feedback on how the product is being by consulting with the bank. We don’t collect the data ourselves because the product architecture is such that we have no access to the data generated by the white label solution, but we are working with the banks to gain a better insight into the product’s engagement. There are a number of factors we can look at in terms of benchmarks for engagement, namely how many people download or update the PayKey functionality on their keyboard, and then also how many people have used it to make payments and how often. Adoption and conversation rates today are important, but these are affected by the marketing efforts that each individual bank is taking. Simply launching the product only the first stage in rolling it out, the banks need to educate the consumers. It’s still early stage but we’ve had lots of positive feedback, and we have focused on improving the product as the market has reacted to it. Are there plans to develop the products further? There are many plans to expand the product further. Initially the product was focused on offering a peer-to-peer payments service, following feedback from banks there are many other features that the product is going to be capable of completing including balance checks and cardless withdrawals. These features, together with a payment button that can be branded, enable the bank to completely customise the banking experience. Banks have already implemented this function to push a menu to the user, and a one-time function to withdraw cash from an ATM without inserting a card by generating a code that the user can either use or send to another person to withdraw money. Other banks have put a balance check feature into the app, so peer-to-peer payments is just the first step of how the technology can be used to bridge the gap between social lifestyle apps and banking. You completed a Series A funding round at the end of 2016. Are there any strategic partnerships that will emerge from that investment? Yes, we are looking to develop partnerships in addition to securing the

funding. Mastercard, Santander and Commerzbank were three of the investors in the funding round, we are working with all three on other initiatives around the PayKey product. We were happy to be chosen by each investor to bring solutions to the market. Do you have any interaction with the social messenger platforms themselves? The product works through the social messenger channel, but it does so independently. This is one of the key characteristics of the product, the fact that it is social media agnostic. Because our solution is based on the keyboard we don’t need any type of integration relationship with the social messenger on the technical or business side. With PayKey we can make these payments happen through any social messaging platform regardless of where you are, where your friends are, you can make a payment to anybody who is in your contacts list, no matter what their preferred social platform might be. Statistics indicate that consumers are now using fewer apps than they have previously, but spending more time using social apps. Do you ever discuss the likelihood that that trend will reverse, or do you not consider it a possibility? To be honest I don’t see this happening in the next few years. On in the contrary, if you look at markets like China with WeChat, social platforms have become much more than messaging application networks. The whole lifestyle of a Millennial is managed within the social apps now, including payments and merchant relationships. WeChat is a great example of how social platforms can capture more of the user’s lifestyle habits real estate. We don’t see that changing in the near future, so we continue to focus on bringing the banks back into a position where they can stay relevant for users. Is it important for you to participate and win awards like the Temenos Innovation Jam? We have learnt to appreciate these opportunities and their value in spreading the message of PayKey globally. We have been very lucky to win quite a lot of awards for our solution to date. Competing in these innovation competitions is a part of our marketing efforts, it gives us a lot of recognition and marketing exposure, and is a great way to

introduce PayKey to the industry. We are happy to say that the events generate a lot of interest in the company. For this event specifically, Temenos is a great partner for us and a great potential channel to the market. In addition, a company like Temenos has core competencies for developing and integrating software into the financial industry I am sure we can gain a lot of value from this relationship by learning from that. We won at Temenos’ Innovation Jam event in Miami, and then now have won the event in Portugal. That has given us the big push towards Temenos’ clients and will hopefully be the start of a great partnership. Are there any markets you are specifically targeting? We are already speaking to banks around the world, so we have some activity in virtually every continent. Europe is one such target market, and we are already engaging with a number of banks there. We also have presence in the North American market, and there is a lot of activity currently going on in Asia and South America. Does PayKey have any key objectives for the next 12 months? There are two main goals for the business for the next year. The first is maturing our pipeline and rolling the product out in more locations. We have a great pipeline of banks we are already speaking to who can see the benefits of the product, our target now is to mature as many of these ongoing discussions so that we can launch our solution in as many markets as possible. The second objective is more focused on user engagement. Our work doesn’t end once we sign an agreement with a bank, in addition to integration we want to see usage of the product. We are going to develop as a company in these areas, including in what we can do to help the banks secure a higher conversation and usage rate. For example, we want to offer social services to the bank as part of our conversion strategy, and we are going to bring a suite of knowledge and ideas of how to push PayKey to the market through education. In terms of developing the product, we have ideas in this area too and you can expect to see more product functions available within the next 12 months. Alex Hammond was speaking with PayKey CMO Guy Talmi

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Features | B2B Payments

B2B payment innovations: The fourth industrial revolution beats a path to the treasury door The specific challenges of the corporate treasury have been sheltered from the impact of the fintech revolution until now. As the results from a new survey of finance and treasury teams reveal, businesses of all sizes are increasingly keen to understand how they can re-unite isolated pools of data distributed throughout the enterprise to drive treasury efficiency, improve automation and create value for the wider business

ew research, commissioned by Ixaris Technologies into the adoption of payment technologies among corporate treasurers, identifies growing interest in use of new products and services â&#x20AC;&#x201C; indicating that the long road of the digital revolution may finally have reached the door of the finance team. Initial results from the CFO Payment Pulse showed that testing new products and services â&#x20AC;&#x201C; including use of emerging payment technologies â&#x20AC;&#x201C; and increasing supplier collaboration are important objectives for treasury teams.

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Features | B2B Payments

Interviews carried out in preparation for the launch of the research bear out the survey findings. For Alan Hawkins, Head of Commercial Cards at ING, automation of commercial payments using new technologies represents “the biggest opportunity” for banks. A point underlined by Alex Mifsud, CEO, of Ixaris Technologies: “The opportunities to resolve the many intractable challenges of payments across the enterprise are enormous. Banks play an important role in this and are finding ways to partner with innovators and new entrants to deliver treasury innovation.” While the scale of the commercial payments opportunity is encouraging news for incumbent financial institutions it also highlights that banks and traditional providers have work to do to demonstrate the benefits of commercial payments products, particularly in the case of virtual cards where adoption remains relatively low. Among survey respondents, fewer than 20% currently use virtual cards or virtual accounts to settle their bills, By comparison direct debit and credit transfers are used by around 80% of respondents, and 54% use commercial payment cards. Positioning the opportunity As Hawkins remarked the challenge for banks is, “articulating that opportunity. Right now, this is still an immature market, with lots of innovation going on. Payment service providers need to be clear about the problems their clients have, and how their solution can help solve it. If payment systems providers want to be successful, they are going to have to identify specific sectors, and work with senior treasury executives at target clients to show how their solutions will solve problems.” Indeed, different sectors and different sized businesses have varying expectations and requirements from their payment services. The research reveals that commercial card use among large firms is likely to be double that of their smaller counterparts. Similarly, while risk mitigation is a priority for large firms for small and mid-sized businesses the role that payment services can bring in improving competitiveness is more important.

As proof of the challenge ahead, almost 65% of companies surveyed still use cheques – suggesting there’s considerable change to come as firms make the switch to electronic payments. 35% of respondents said they expect to reduce their use of cheques in the next year, citing a preference of cards, wire transfers or direct debit and contrasting with more than one in three respondents expecting to increase their commercial payment card spend by between 20% to 40%. Among electronic payment methods, direct debit and wire transfers are currently most used by respondents; wire transfers

are overwhelmingly popular for their perceived ease of use (75%), relatively low cost per transaction (42%), and wider supplier acceptance of wire transfer and direct debit (38%). The insights reveal that these preferences are not set in stone, however. Respondents say that they might change their payment technologies if they could see how new systems would help reduce costs, make savings, or automate processes. James Sykes, Head of Commercial Cards at Lloyds Banking Group, says these findings tally with his experience: “Encouraging the use of cards among clients is all about reducing costs and benefitting both your clients and their suppliers. To persuade clients, it’s essential to work with them to help them see the benefits card usage can bring to their business. Payments can sit in so many different places, so helping customers to see the benefits of cards and make the change from existing systems is the biggest challenge.” Automating the payment engine It’s around automation, however, where the survey indicates the most profound change is still to come to corporate payments. A change that might not be that far away. The research shows a clear, as-yet unanswered, need to improve payment processes including payment approvals, reconciliation, invoice approval and logging receipts – alongside integrating new solutions with existing banking and accounting systems. 65% of those polled said this was the most important factor in selecting a new payment system followed by reducing the number of manual processes required (56%), and improving the payment approvals process (53%). As Mifsud notes, while retailers have addressed many structural inefficiencies in payments, these inefficiencies have yet to be addressed by the corporate sector. According to Mifsud: “The introduction of machine-to-machine interfaces that reconcile transactions incurred with e-receipts and invoices could save businesses significant costs in terms of time and money.” Mifsud goes on to characterise the key areas of concern for corporate customers as being “cost, control and convenience” – that is, reducing cost, controlling data trails associated with transactions, and improving the user experience at every stage in the process. While high profile new entrants in the business-to-business payments sector are few – there is some early proof of what the new model treasury might look like. Currencycloud has developed a strong track record supplying large banks and institutions with currency and cross-border payments services. The company’s co-founder Stephen Lemon says: “There is an enormous opportunity in cross-border payments and currency transactions. Customer expectations are increasing dramatically. The key is to build relationships by responding to each customer’s specific needs. Lots of big corporate customers are on a mission to see what’s happening in fintech for treasury functions. This mission is borne of necessity given the pressure to cut costs and improve efficiency, especially when it comes to cash management and the movement of funds between corporates and their suppliers.” As traditional commercial payment operations follow the path of consumer fintech innovations – the cry for automation and unification of payment services is going to get louder. The CFO Payment Pulse 2017 survey was carried out by Ixaris Technologies, in partnership with PaymentEye and bobsguide

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Features | Emerging technology

Panel talk: The payments landscape in 2020 Leonie Mercedes asks four leaders on emerging tech’s front line which payments trends and technologies will have the biggest impact on the industry’s future

hree years is a long time in fintech. Innovations that may have seemed outlandish not long ago, for example paying your friends via emojis on social messaging services, are now a reality. However, human behaviours are less prone to change, and we’re not so keen to disrupt how we pay for our stuff – a routine activity we undertake numerous times a day. New innovations in payments, no matter how seemingly revolutionary, will succeed or fail depending on how seamlessly they fit into our everyday lives. By 2020, which payment innovations are most likely to be widely adopted, and which might be eaten by their own hype? We asked four fintech influencers and investors to predict the fortunes of some of the most significant payment innovations that have emerged in the last few decades, and what trends in payments they’re most excited about. P2P and social payments Year of release: unclear; Venmo founded 2009 Top providers: Venmo, Snapcash, Square Cash, XOPOTO Adoption rate: 743m active users projected by end of 2017 (Ovum)

On the panel

Liz Lumley noted fintech commentator Alain Falys Co-founder and CEO, Yoyo Wallet Matteo Rizzi Co-founder, FinTechStage @matteorizzi Sam Tidswell-Norrish Principal, Motive Partners

Alain Falys: [Peer-to-peer payments app Venmo] is unlikely to have the same success here in the UK because the way to pay each other in the UK electronically, even with the current system, is actually pretty efficient, which is not the case in the US. [In Europe], if someone is going to play a part [in social payments] then it’s going to be the incumbents, the banks, because in the context of PSD2, specifically, there will be a better technical environment, a regulatory environment, [that will allow people to] send money between users even though they only have traditional bank accounts. Liz Lumley: The most change and impact we’re seeing in social payments in from the US. But banks that ignore things like Facebook Messenger[’s social payment service], for example, do so at their peril. Sam Tidswell-Norrish: Banks could themselves be pushed further down the stack, becoming the piping of the industry rather than the interface owning the consumer relationship, I think that there’s a massive opportunity for traditional players to begin leveraging the open banking infrastructure to prevent this from happening. It’ll be a collaborate rather than compete culture that will enable the next

evolution for traditional players. Despite what happened in 2008, banks are still highly trusted brands with great distribution power, which is a big asset they can leverage. Blockchain Year of conception: 2008 Top companies harnessing the tech: Ethereum, Ripple, Dash Adoption rate: Approximately 300,000 blockchain transactions a day, predominantly in the US. LL: Blockchain is incredibly revolutionary, but I don’t think some [blockchain] startup’s going to come and revolutionise the industry. Banks and exchanges will slowly change their infrastructure in the backend, which is not necessarily something that consumers will even notice. However, SWIFT should be very nervous about blockchain. AF: Because of the legacy environment, blockchain will gradually be adopted by the more traditional players. Matteo Rizzi: The usage for blockchain and DLTs will not be in payments but rather in anything to do with [transactions in the] B2B stage, but not in the B2C or C2C, though it all depends on how

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Features | Emerging technology

much companies like Ripple will succeed and scale. ST-N: The consumer applications for blockchain are there but we’ll see it in financial services for everything, from post-trade settlement technologies all the way through to peer-to-peer lending. There are many great fintech firms already successfully using distributed ledger technology, like Cobalt DL and the blockchain consortium innovators R3. Peer-to-peer lending is a high-yield investment product at the moment, it’s exceptionally likely that we’ll see blockchain disrupt it, lowering costs and removing intermediaries. Mobile-only banking / neobanks Year of release: Mid-2010s Top providers: Monzo, Atom Bank, Starling Bank, Fidor, N26 Adoption rate: 100,000 Monzo users (Jan 2017), 300,000 N26 users (Mar 2017) LL: The challenger banks, the app-only banks, are interesting. Because they have a lot smaller customer base, they’re much more customer-focused. In my opinion, we’re going to see some consolidation and fragmentation in this area – I think we’ll see a big bank buy a Monzo, like how BBVA bought Simple in 2014. One of the most likely scenarios is that several [of the neobanks] will be bought by a big organisation, which might not even be a bank, it might be Google. ST-N: I don’t think there’s going to be an Uber moment [with neobanks]. There could well be some mass consolidation in the market between some of the smaller brands, led either by new foreign players wanting to enter the market, or by the core banking players who want to end up wanting ‘more eyeball’ ahead of open banking. This couldn’t be a more opportune moment for the neobanks, because of the emergence of open banking. AF: [The most successful neobank] will be the one that combines better user experience effectively with a range of banking products that are very traditional, because a bank is a bank, right? It’s about accessing money, paying, borrowing, that sort of stuff. It’s not just the interface of mobile banking though that is a very important aspect of it – it’s going to be how quickly do I get access to a credit line or overdraft, how quickly do I get access to the

mortgage facility and so on. And of course, if you attract Millennials in the early days, and you start to offer them things that make sense to them as they grow in life, you’re going to be a winner. MR: What we’re talking about is [neobanks] breaking into a huge chunk of what we call the ‘underbanked’ today. Neobanks will bring people who are not in the online and card business because they can’t afford it into the market, and that will be significant. E-wallets Year of release: Late-1990s (PayPal’s predecessor, Confinity, launched in 1998) Top providers: Apple Pay, Samsung Pay, Google Wallet, Android Pay Adoption rate: 150 million Samsung Pay, Apple Pay, Android Pay users by end of 2017 (Juniper Research, 2017). Paypal has 179 million active accounts (Time, 2016) LL: E-wallets didn’t really seem to catch on with consumers. Any new solution you launch to consumers shouldn’t have a learning curve, and there’s a huge learning curve for e-wallets. [For any new payments innovation,] you need to have the merchants on board, and putting in a POS terminal is expensive. That disjointed customer experience depending on where you go is really killing the customer experience with things like e-wallets. You need to have a standard system, kind of like what happened with the credit card scheme, when Visa and Mastercard got together and launched a global standard. You can’t have competing e-wallets – it’s just not going to work for consumers. AF: What the industry call colloquially the ‘Pays’ – Apple Pay, Samsung Pay, Google Pay, Chase Pay – all they’ve effectively done is shift from a contactless card experience to a phone-based experience. These payment systems, mobile or not payments, are not solving any particular problem as they are. Retailers get paid anyway. The adoption of mobile-based payments will be driven by personalised loyalty, personalised marketing, and not by the payment system alone. The payment is the means to an end but it’s not the means itself. MR: People associate the way they pay with a bank they belong to. Apple Pay remains a geek thing. For it to become mass market, I think there is some cultural step that needs to happen that hasn’t

happened yet, like associating Apple with a bank rather than a form of payment. I don’t think that the mindset of the masses is ready yet to bank with Apple. ST-N: There are many different descriptions, definitions, functionalities and capabilities these wallets have tried to tackle. I think that Apple’s is as close as we’ll get to e-wallets, and it’s provided through our phone provider – you can see it in your front screen now. Outside of that, mobile banking through the open banking standard and PSD2 may provide very similar services. Mobile banking apps are now commonplace, everyone has one on their phone, and I think that they’ve superseded the e-wallet. Looking forward LL: I love my phone, but I don’t like the idea that mobile means a phone. I think a mobile should mean you are mobile, so when you put applications on a phone you’re designing for the device and not for the customer and I would love to see ways to pay that aren’t completely constrained by the phone. If having payments is more about you being mobile than about some device you might [carry], then you own your digital identity. AF: I’m excited by the fact that in 2020, in urban areas, people will be able to come out of their office at lunchtime, or out of their homes at the weekend, with just their phone. Everyday retail outlets out there will accept any mobile-based form of payment. The precondition for that, though, is having an advantage beyond the act of payment, otherwise we will not see a major difference between 2017 and 2020. MR: I am most interested in identity management, and the consequences of having a widely adopted digital identity system like the state-governed Aadhaar in India, which has issued IDs to one billion people. I am excited by the opportunities that having people digitally identified, and mixing that up with some biometric form of identification [to enable payments]. ST-N: Seeing how parties collaborate, work together to create economies of scale and share best practice, will be interesting. The next three, five or ten years are going to see a lot of change, possible creation of new utilities and more efficient ways of doing things for consumers and customers alike.

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Events | Money20/20 Europe

Five sessions you can’t afford to miss at Money20/20 Europe 2017 I

t’s almost time for Europe’s largest fintech event, and the agenda has now been released. Once again, the event, which welcomed more than 3,500 attendees from 1,500 companies and 70 countries in its first year, will bring together European fintech’s most influential stakeholders and most innovative businesses for three days. With more than 70 sessions across five tracks, it may prove difficult to choose where to spend your time at the conference this year in between catching up with colleagues, and of course, taking in the sights of Copenhagen. But we’ve done the hard work for you, hand picking the five talks you simply can’t afford to miss, from APIs via cyber security to social commerce.

We hope to see you there. Monday 26th June - Adventures in AI: Use cases in financial services (11.00 - 11.55, Track 4) According to PwC, some financial institutions have been investing in AI for years, while others are beginning to catch up due to advances in bid data, open-source software, cloud computing, and faster processing speeds. But what potential does this exciting technology hold for the sector? In one of the first sessions of the conference, speakers including David Sosna, co-founder and CEO of Personetics, a firm that uses AI to offer customers personalised insights and advice about their finances, and Jason Mars, chief executive of Clinc, a developer of wealth management solutions powered by AI, will discuss the use cases of AI in financial services. Tuesday 27th June - The growth of in-app payments & social commerce (10.00 - 10.50, Track 1) Social payments take the inconvenience out of settling a bill with colleagues, or sending money to friends overseas. With the launch of Circle in Europe last year, adoption is set to accelerate in the region. In this session, moderated by Reetika Grewal of Silicon Valley Bank, Arlette Broex, managing director of MyOrder, an app that allows users to pay for goods and services with their smartphone at more than 14,500 locations in the Netherlands, Ryan Stanley, founder of Bloombees, a platform that lets people sell their products through their social media channels, and Cooper Harris, founder and chief executive of Klickly, a California-based start-up that embeds the checkout into online ads, will discuss the fortunes

of in-app payments and social commerce in a world obsessed with convenience. The future of payments & banking: rethinking how to bring customer benefits and ensure profitability (11.20 - 12.10, Track 2) As payment innovations continue to evolve at break-neck speed, what will determine which services have the most staying power in a crowded market? Stefan Dab, senior partner and managing director of the Boston Consulting Group, will moderate this session which brings together panellists including Derek White, global head of customer solutions at BBVA, Jesper Nielsen, Head of Personal Banking at Danske Bank, Marc-Henri Desportes, General Manager at Worldline, and Adyen Chief Executive Pieter van der Does to discuss what will soon emerge as a key differentiator among finance businesses: customer satisfaction. API deep dive: Who will thrive in an open banking world? (16.50 - 17.40, Track 2) As PSD2 ushers in a world where open banking is the standard, application programming interfaces, or APIs, will be the lingua franca. In one of the closing sessions of day 2 at the conference, panellists including Fidor Bank CEO Matthias Kröner, Token CEO Steve Kirsch, and vice chairman of WorldPay Ron Kalifa, will discuss who the winners will be in this new world. Wednesday 28th June - Cybersecurity: Evolving threats to the global financial stage (15.50 - 16.40, Track 2) Many of the financial technologies of the future will rely on data sharing, which inevitably brings up the issue of security. With stories of high-profile breaches still fresh in the memory, there’s never been a better time to have a conversation about cybersecurity. In this session, chief innovation officer of IRC Advisory Kirsten Trusko will moderate a discussion among security experts including EUROPOL’s head of European Cybercrime Centre Steven Wilson, chief executive of Cyber Defense Alliance Maria Vello, and managing director of UBS Switzerland Andreas Kubli. All information correct at the time of publication.

Money20/20 Europe takes place in Copenhagen from June 26 to 28 2017. For more information, visit www.money2020europe.com

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Events | Money 20/20

Dan Schulman and Frank Abagnale amongst speakers announced for Money20/20 The PayPal CEO and Catch Me If You Can inspiration are just two of the speakers who will be on stage at Money20/20, taking place in Las Vegas in October. Here are our top picks for who to hear present at the show Brett King, CEO and Founder of Moven Brett King is an author, keynote speaker, radio host and the founder and CEO of digital banking app Moven. With a wealth of experience in the fintech industry, Brett understands what banks need and when they need it. His areas of expertise include innovation, technology disruption and customer experience. When he’s not running Moven’s New York office, he can be found hosting his radio show on Breaking Banks Radio (an internet talk-radio network with over nine million monthly listeners). His first book BANK 2.0 was published in 2010, and has since topped Amazon’s banking bestsellers in countries including the US, UK and Japan, spending more than two years in the global top ten charts. Dan Schulman, President and CEO at PayPal With his intensive experience in payments and mobile technology, Dan is currently leading PayPal to reimagine how people move and manage money, and how merchants and consumers interact and transact. Prior to PayPal, Dan served as group president of Enterprise Growth at American Express, where he led the global strategy to expand the company’s online and mobile payment services. Prior to joining American Express, Dan has held leadership roles at Virgin Mobile USA, Priceline and AT&T. Julie Sweet, CEO, Accenture - North America Julie Sweet leads Accenture’s business in the US, the company’s largest market, and Canada. Before assuming the role of chief executive, Sweet served as a general counsel for the business, which gave her ultimate responsibility for all legal support to Accenture, including leading the company’s legal department. Before joining Accenture, Sweet was a partner in the corporate

department for Cravath, Swaine & Moore LLP for ten years, which involved representing underwriters, private equity funds and corporate clients in public and private financings, and advising on mergers and acquisitions. In 2016, she was named on FORTUNE’s list of “Most Powerful Women”. Denise Pickett, President, US Consumer Products & Services, American Express Denise Pickett has served as president of American Express’ US Consumer Products & Services arm since the autumn of 2015, and is also president of American Express OPEN, a funding platform and forum for business owners to share insights, make connections and get exposure. Pickett has been with American Express for more than 20 years, during which she has served as executive vice president and CEO for US Loyalty, as well as senior vice president & country manager for American Express Canada. She is also a board member of Hudson’s Bay Company, a Canadian retail group that can trace its origins back to 1670, and operates stores including Lord & Taylor and Saks Fifth Avenue. Frank Abagnale, lecturer and consultant, author of Catch Me If You Can and Founder of Abagnale & Associates Subject of the book, movie, and Broadway play Catch Me If You Can, Frank Abagnale is one of the world’s most respected authorities on forgery, embezzlement, and secure documents, having advised hundreds of financial institutions, corporations and government agencies over more than 40 years. He now lectures extensively at the FBI Academy and for the field offices of the FBI, and is a faculty member at the National Advocacy Center, operated by the Department of Justice, Executive Office for United States Attorneys. More than 14,000 financial institutions, corporations and law enforcement agencies use Abagnale’s fraud prevention programmes.

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Transact Payments Limited (TPL) is a licensed European e-money Institution providing payment solutions to partners across the world and from different industries and sectors. TPL is a regulated and authorised by the Gibraltar Financial Services Commission and is a Principal Member of both MastercardÂŽand VisaÂŽ providing European BIN sponsorship and modular payment, debit and prepaid services. Our licenses have been successfully Passported into EU and EEA member states enabling the issuance of prepaid card programs across Europe. We offer secure, creative and innovative payment and card solutions. Transact Payments Limited is authorised and regulated as an e-money issuer by the Gibraltar Financial Service Commissio. Registered Office: Unit 4A, Leisure Island Business Centre, 23 OceanVillage Promenade, Gibraltar. Registered No. 108217. Transact Payments Limited is a Principal Member with both Mastercard and Visa. Mastercard is a registered trademark of Mastercard International Incorporated. Visa is a registered trademark od Visa International