Fintech Jan 2018 by Lyonsdown

OUT OF AFRICA How Africa could host the first national cryptocurrency

BRANCHING OUT Why tomorrow’s banks need to combine the old with the new

FINTECH: THE MOVIE The thrilling world of financial technology, as adapted by Hollywood…

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AWARD-WINNING BUSINESS JOURNALISM • JANUARY 2018

Smashing the system

FINANCIAL TECHNOLOGY Why the open banking revolution will give companies and customers the power to decide how their money works

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News clippings Bitcoin mania has not only gripped investors, but also the press “What is bitcoin?” and “how to buy bitcoin?” were among Google’s most searched questions in 2017. And although the bubble hasn’t burst (yet), cryptocurrency is here to stay. Here are five articles that caught Business Reporter’s attention amid the bitcoin buzz

Bitcoin is a bubble, but the technology behind it could transform the world The Guardian Looking for a clear explanation of what bitcoin is? Want to know what the currency’s impact on our future will be? Look no further than this piece from The Guardian’s Will Hutton, who sees bitcoin not as money, but rather as a commodity that uses blockchain to make settlements faster. He predicts that every industry – from banking to health – will undergo similar transformations. http://bit.ly/2DFRTl9

Beyond the bitcoin bubble The New York Times Steve Johnson thinks something needs to be done about the internet. In this brilliant essay in The New York Times, he writes that he is not convinced bitcoin will survive as a currency, but he sees real value beyond the bubble. That value lies in the open-ledger system provided by blockchain, which, he argues,

has “the potential to break up large concentrations of power and explore less proprietary models of ownership.” Johnson gives an overview of the evolution of the internet and what allowed tech giants like Facebook and Amazon to monopolise the space. The ideas unleashed by bitcoin’s creator, Satoshi Nakamoto, pose the most significant challenge to the hegemony of internet titans, argues Johnson. “History is replete with stories of new technologies whose initial applications end up having little to do with their eventual use,” he says. Bitcoin may flop as a currency, but what it represents is crucial to the future of online culture. http://nyti.ms/2B4lZfD

scramble for bitcoin, you might want to research other cryptocurrencies on the market. Gizmodo outlines six alternatives you should know about. http://bit.ly/2n6QWvC

The hard math behind bitcoin’s global warming problem Wired

quietly, whereas now they pivot towards blockchain. The tendency is especially favoured among start-ups that “already employed a system of points or credits for transactions”. Griffith also notes how publicly traded companies are adding “bitcoin” and “blockchain” to their names – and seeing a spike in share value. http://bit.ly/2CLJFYM

Is your start-up stalled? Pivot to blockchain Wired How is the start-up world responding to bitcoin? Erin Griffith writes in Wired that traditionally, stalled start-ups disappeared

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Six bitcoin alternatives you should know about Gizmodo What do Cardano, Iota, Monero, Litecoin, Ether and Ripple have in common? With the recent frenzied

Bitcoin may be exciting, but how much energy does it actually consume? If you want to know more about the cryptocurrency’s impact on our environment, this article by Adam Robbins in Wired unveils some jaw-dropping truths about its energy consumption. One alarming statistic, taken from the cryptocurrency website Digiconomics, reports that worldwide bitcoin mining is using more electricity than the entirety of Serbia. Robbins has studied the maths, physics and economics and is not convinced of bitcoin’s sustainability, although he does see the rise of more energy efficient cryptocurrencies. http://bit.ly/2z2Ui5U

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How Africa could blaze a trail for the world’s first official cryptocurrency Cryptocurrencies have gone from dubious beginnings in the Dark Web to being considered a genuine alternative currency. Joanne Freason looks at how it could pose a perfect solution to Africa’s fractured financial landscape

ATE LAST year interest in cryptocurrencies skyrocketed after the price of bitcoin surged from only $1,000 in January to $20,000. Investors who bought in the early days have become instant millionaires. But it has been a volatile ride for those invested in cryptocurrencies. Prices can wildly fluctuate on a daily basis, and some countries, such as South Korea, have even been looking into banning them. Despite these concerns, it’s not all bad news for cryptocurrencies. There is a genuine belief that the blockchain technology behind them could prove to have some real benefits for countries in Africa wishing to use them as an alternative to cash. “There are reasons to believe that one of the African countries could [adopt cryptocurrencies],” says Sudhesh Giriyan, COO of Xpress Money. “Take, for example, the mobile wallet. No other part of the world has done this as well as some A frican countries.” In 2007, mobile phone-based money transfer facility M-Pesa was launched by Vodafone in Kenya to fill the gap left by the country’s faltering banking system. Now nearly every Kenyan uses M-Pesa to make insurance payments, and to pay for water, electricity and school fees. Giriyan says: “All their bill payments are available on the wallet. The usage of cash comes down drastically. It makes life very easy. You don’t have to go around with cash, which leads to safety issues.”

M-Pesa has been such a tremendous success in Kenya that it has now spread to Tanzania, Uganda and Ghana. Giriyan envisions that the same sort of thing could happen with a cryptocurrency. He says: “There has been so much adoption of technology in Africa. It makes me believe that if there is a reason for a country to adopt cryptocurrency, it could happen there.” But in the west, governments have looked at cracking down on cryptocurrency exchanges, raising questions about whether it is possible for a country to adopt one as its legal tender. “It has not been a consistent view,” Giriyan admits. “There has been some concern over some nations adopting it. The other day we heard that in Japan it is taking off, but in South Korea it is not. China has some resistance, the US has a huge resistance and Europe has some resistance.” However, Giriyan sees this only as a concern from the “developed world, not so much from developing countries”. He dismisses western criticisms of cryptocurrencies as

being too volatile to become an official currency as only a shortterm problem that is largely down to the technology still being in its infancy. “In just one month bitcoin prices went to an unbelievable level,” Giriyan says. “The pricing somewhere in the third week of October was about $6,200 and it shot to $19,600 – an increas of nearly three times the value. “Looking at that kind of price, that type of fluctuation, that made a lot of regulators react, a lot of countries react.” In Africa, he points out, the story is different. These nations have an interest in adopting new technologies as their existing banking infrastructure is poor. Financial inclusion is a big problem in Africa. Figures from the World Bank have shown that in Sub-Saharan Africa, only 34 per cent of adults had a bank account in 2014, with a large proportion of people still using cash to pay bills. Countries in Africa are looking for an alternative to using cash. Giriyan predicts that trade in cryptocurrencies will eventually become more stable. Once

Mobile money account ownership

million

East Asia & Pacific

SOURCE: THE WORLD BANK

million

South Asia

Sub-Saharan Africa

million

“There has been so much adoption of technology on the African side. It makes me believe that if there is a reason for a country to adopt cryptocurrency, it could happen in Africa.” – Sudhesh Giriyan, Xpress Money it does, he believes countries and regulators will become more accepting of them. Given the huge interest in cryptocurrencies in 2017, Giriyan is “sure in 2018 that some countries will start looking at seriously adopting cryptocurrencies and implementing them as a currency” – although he is not prepared to predict exactly which country will be the first to adopt. Indeed, for those hoping for an African nation to adopt an existing cryptocurrency there may be disappointment. “That remains to be seen,” Giriyan cautions. “Some of these countries are talking about having their own cryptocurrencies.” However, where, when and indeed if it does happen, he believes other countries in Africa will quickly follow suit, as they did with M-Pesa in Kenya. “In 2007, there were not too many countries wanting to experiment with that kind of technology (M-Pesa), but Kenya did and they are now in the forefront of technology adoption,” he says. “It is the same for cryptocurrencies – many countries today would like to wait and watch to see how it goes with one country

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first. If that country is able to adopt and execute it successfully, I am sure there will be others wanting to follow suit. “Once it has been implemented it will be seen as a true benefit. I am sure it will be replicated across the other countries.” Adopting a cryptocurrency in an African nation also has the

potential as a quick solution to problems in the banking system, such as fraud or the security problems of paying for everything in cash. He says: “It is a little early to predict, but I would say that compared to the current system, where cash is still being used, the chances of fraudulent transactions would be minimal.”

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Challenger banks are starting to carve a niche for themselves. Here’s how…

ESPITE HAVING several cards in their favour – such as loss of consumer trust in high-street banks following the financial crisis, the rise in smartphone and digital app usage and current account switching schemes – the challengers have largely failed to wean customers off big banks. The recent retail banking market investigation by the Competition and Markets Authority (CMA) revealed that 60 per cent of customers have been with the same bank for more than 10 years and that over 90 per cent of SMEs get their business loans from the bank where they have their current account. Inroads are being made, however, with a PwC report last year stating that challengers were driving innovation and improving customer service. They were also supplying 200,000 UK consumer mortgages and taking around a fifth of UK SME gross lending by 2015. “Challenger banks are one of the fastest-growing segments within the fintech sector,” says Devie Mohan, president and chief executive of Burnmark. “We have 42 challenger banks in the UK and

DAVID CRAIK

several more in the pipeline. Despite that we have not seen the big impact on consumers many expected a few years ago, as getting access to the high-street customers and offering current accounts, savings and loans has proven difficult. Challengers are instead offering B2B services to banks or looking to develop niche, untapped customer markets.” Mohan cites student lending as one example, as debt in this sector continues to grow. Mortgage lending is another option for challenger banks to target “unserved or underserved customer segments”. Digital-only challengers are also focusing on start-up and small businesses. “Banks have traditionally ignored SME lending. It is not exciting for them in terms of numbers,” Mohan says. “Challengers are starting to fill that gap with their technology and cost efficiencies.” One example is digital challenger Starling Bank, which is launching a mobile-only business banking service, including a current account and working capital loans to SMEs and small traders this spring. “The consumer current account we launched last year has signed

“We have had huge demand from SMEs for a business account. They want the ease and quickness our technology provides” – Devie Mohan, Burnmark

up to 100,000 customers to date,” explains founder and chief executive Anne Boden. “We have had huge demand from SMEs for a business account. They want the ease and quickness our technology provides to give them more time to concentrate on their business. Opening a business account can take many hours at a high-street bank and they are far too busy for that.” As well as payments and access to invoice and accounting partners, Boden says its SME customers will also benefit from data analysis. “We look at their transactions, purchase and payments data and help them buy the right financial products for their business,” she states. “As with

any new challenger brand, people have to get used to the new technology and way of doing business. But this launch will continue our aim of changing the way people interface with their bank. Banking was broken by the crisis and challengers are helping to change that.” Perhaps too many have this aim. Mohan believes it is getting increasingly difficult for challengers to stand out in the marketplace. “It’s too overcrowded at the moment as the challengers try and compete with each other and chase the same customers. We may see more challenger banks working together or consolidation in the months ahead,” she states.

ICOs and investor protection: being transparent with the risks $4bn The total amount raised by ICOs globally passed $4bn in 2017

N ITS capacity as the financial watchdog, the FCA has made some public murmurs on its position in relation to the emerging cryptocurrency and initial coin offering (ICO) craze. But its statements have been surprisingly vague. As recently as September, it opined that “ICOs are very high-risk, speculative investments”, but also that “many ICOs will fall outside the regulated space”. At first instance, this may seem difficult to parse, leaving those considering launching ICOs and their advisers in the curious position of having to apply relatively archaic rules and laws to a new form of technology that just doesn’t seem to fit. When looking closer, it becomes apparent that the regulatory landscape, and therefore the FCA’s jurisdiction and mandate to protect consumers, is relatively narrow. For example, the summary definition of a transferable security provided by the applicable regulation (MiFID), is those securities “negotiable on the capital market” including “shares in companies” and their equivalents. If an ICO token is precluded by contract from being transferable (indeed, it is questionable whether a cryptocurrency exchange would even constitute a capital market) and does

not purport to give any equitable right over the future success of the issuing entity, then it becomes very difficult to conclude that the wider framework around transferable securities and other designated investments, as well as financial promotions rules, have relevance. Broadening the search for applicable definitions within the financial services industry, we see one in particular that stands out: “a way in which start-ups can raise money through online portals to finance their activities”, which the FCA warns that “investors should understand that they may

lose some or all of their money.” Now, this sounds much more like the ICO craze we are discussing! In fact, it is the FCA’s official commentary on crowdfunding, which is heavily regulated. Turning back to ICOs, it seems counterintuitive that a product so close to crowdfunding in terms of risks and ultimate purpose would circumvent the regulatory landscape on a legal technicality, potentially putting consumers’ savings at risk (doubly so given ICOs’ strict regulation in other jurisdictions, such as the US). In addition to the standard antimoney-laundering and data protection

measures, ICO issuers in the UK should also be considering what steps to put in place to protect and educate their investors (or customers), even if they are not legally dealing in securities. This is critical for the long-term health of the wider asset class and the reputation of the issuer, and may also serve to appease regulators should they deem any retrospective action appropriate once rules are tweaked or clarified to more clearly capture crypto-assets. There are any number of controls that can be implemented to achieve this and secure a good outcome for participants, f rom restricting initial access to sophisticated investors only to posing appropriateness-based questions as part of onboarding. Being transparent with the risks (as well as the possible rewards) is the surest way to achieve a good outcome for investors, with or without regulation. INDUSTRY VIEW

Calum McWhir (left) is compliance consultant at Thistle Initiatives 020 7436 0630 www.thistleinitiatives.co.uk

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Throwing open the vaults Open banking has opened up a whole new world for fintechs, but will it really improve competition and transparency in banking products? Joanne Frearson investigates

PEN BANKING under the Second Payment Services Directive (PSD2) will revolutionise banking as we

know it. The rules, which came into effect on January 13, are intended to open competition and innovation in the marketplace. Banks and payment companies are now forced to share customer data (subject to approval) with third parties. Data on how we spend our money, from where we shop to which electricity company we use, will now be shared to develop new products, giving consumers and businesses greater choice. Third parties also have the opportunity to take money directly from their bank accounts instead of going through a payment provider, opening the way for tech giants such as Facebook and Amazon to act like financial services companies. “Banks are losing the monopoly that they currently have and innovative players can use that information to consumer benefits,” says Christoph Rieche, co-founder and CEO of iwoca, a lending platform for SMEs. According to Rieche, the biggest difference open banking will make is in educating consumers and businesses about how various financial products compare. “As a society we have mostly underperformed in financial education, and open banking can be a huge step to alleviate that,” he says. “Over time, as these applications filter through and awareness of open banking improves, its benefits will really come to light. It will significantly increase the competition, because it will be easier to compare the value that the products provide.”

80% The share of the finance sector that traditional banks currently hold. This is expected to fall as the open banking initiative takes hold

In the past, Rieche explains, people have had reservations about financial players because fees surrounding products have not been transparent. But with open banking banks will have to adapt to a new world of transparency. Banks currently have an oligopoly, points out Rieche. “There are four or five banks in every country sharing 80 per cent of the entire banking industry,” he says. “Open banking is a way to remove the monopoly banks have over customer data. It will change product structures – competition will create a better outcome for consumers.” He points out that Facebook, for example, could take money out of one account and transfer it to another without the need to do it via bank transfer. “That is another exciting element of PSD2,” he says. But Rieche does not think this means the end for banks. He explains that although competition will slowly creep in from fintechs, banks still have a strong brand and relationship with the consumer. “At the end of the day they benefit very much from that legacy,” he says, adding that it will take time for consumers to discover the opportunities that come from open banking. Although, he says, while banks will still benefit over the next few years on the legacy that they have, they will still need to adapt to the changing landscape. “The question is, how many of the banks that are currently dominating will still be dominating in 10 years?” he asks – pointing out that their 80 per cent share of the market could drop to as little as 50 per cent. “It’s unlikely they will completely go out of business,” Rieche adds. “They will adapt

to change their product structures. Maybe they will find new ways to monetise their customers which are open to them as well.” The way Rieche sees banks evolving are to take more of a back-office role in financial services, while fintechs or other third parties will be taking care of the customer-facing aspect. “Through open banking the level

“Open banking is a way to remove the monopoly banks have over customer data.”

playing field in regards to data information is levelled,” Rieche explains. “We are at a disadvantage today, as we do not have this direct access to financial transactional data of small businesses.” Open banking, he believes, will cut out a lot of time-consuming processes. “For someone to get all their bank statements of the last few months together and then upload it to our system is a hurdle. There is a drop off which is costly to us. Also the information isn’t 100 per cent reliable – there is always a risk that people [will modify] their bank statements. Open banking can eliminate that risk of fraud because we see the same quality of information that currently banks have a monopoly on.” According to Rieche, companies will be able to see a much longer credit history of someone, as well as additional information that they are currently not able to access. “We get higher quality information and we get longer history and eventually more information, which leads to better credit

decisions at our end, which enables us to write better terms to customers,” he says. “We can also see the information on an ongoing basis, as long as the customer does not revoke the access to the information.” Companies no longer have to continually ask customers for additional information as they have it at their fingertips. Rieche says: “These are the hurdles that hopefully have been taken away, which enables us to compete much more head-to-head with banks than we could have in the past. It has the potential to be a real benefit for customers.” But, adds Rieche, open banking is still in its early days – and whether it will work as well as most fintechs are hoping is largely down to how accommodating the big banks intend to be. “We really hope banks are buying into this,” he says. “While the order from the Competition and Markets Authority is clear, it is very important, for example, that you can access information in a seamless and fast way.” Rieche is also concerned the outdated technology and legacy systems banks often rely on could make this information unreliable or slow to hand over. There is also a worry, he explains, that banks might “temporarily suspend access to the information because they are concerned of x, y, or z. If banks find a reason to suspend the access temporarily, that certainly would be a big blow.” It’s certainly early days for open banking, and although Rieche is hoping it will be a smooth transition, he expects the process won’t necessarily be as seamless as fintechs might like. Much still needs to be done for it to reach its full potential, but when the pieces fall into place, everyone could benefit.

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Harnessing the power of the chatbot

HATBOTS ARE increasingly part of the conversation when financial services firms look at how AI can help them win customers. A survey by Personetics revealed that over three quarters of financial institutions viewed chatbots – software either rulesbased or powered by AI that can talk to users and perform tasks – as a “viable commercial solution” now or within the next two years. Almost half already have an active chatbot project for customer conversations in place across mobile apps, web portals or Facebook Messenger. Finance likes them, Personetics added, because they are conversational and mean customers don’t need to learn new interfaces or navigate hidden menus. However, less positively, the research found that response time and quality when banks are contacted via Facebook Messenger “left a lot to be desired.” Less than 20 per cent of responses were received in less than 15 minutes, with 50 per cent being more than an hour. Fintech firms are racing to provide better service. One example is KAI Banking from Kasisto. Its AI chatbot helps customers manage money, track expenses, analyse spending and make payments using datadriven insights. Customers include DBS digibank and Standard Chartered utilising

“The AI can answer questions instantaneously because we have such a breadth of data and knowledge which is growing all the time.” – Zor Gorelov, Kasisto

82% The percentage of DBS digibank customer requests currently handled by chatbots

the chatbot on their mobile and online offerings. “It is about creating human-like, natural, friendly conversations. They are contextualised and personalised,” explains Zor Gorelov, chief executive of Kasisto. “With the chatbot we can interact with customers at a time and the channel of their choosing. The AI brain can answer their questions instantaneously because we have a breadth of data and knowledge that is growing all the time.” Gorelov says the system handles 82 per cent of all customers requests for DBS’s 1.5 million users, with the remainder being directed to live-chat sessions with human agents. “As Kai gets smarter, the amount of human intervention is declining, but the

system also develops a greater understanding of when agents need to get involved. DBS chose to escalate all questions about account fraud to a human agent. Also, if an upsale opportunity is spotted, then it will be handed off to humans,” he explains. Gorelov says this “hybrid” system between AI and humans will continue as the sector expands. “Chatbots will grow, helped by better customer education and smarter data, including from non-financial sources such as social networks,” he says. Peter Wannemacher, senior analyst at Forrester Research, also anticipates further growth, even though he declared in a report back in 2016 that “bots are not ready to be bankers”. “The technology has advanced

Putting the tech into fintech F INTECH IN the B2B space is not particularly new – in fact, it has been around since the 1970s. Consider Nasdaq, the first electronic stock market, which was launched in 1971, or payment card network Visa (1977) and financial services software provider Misys (1979). Then, as now, the aim of fintech was to use technology to make financial services more efficient. This means developing products and services that are more userfriendly, quicker and cheaper to deliver and optimised for digital channels. This is almost always invisible to the end business user, who can simply focus on their core business which is what they do best.

Back to front The right type of tech helps businesses think as well as act differently. It is this mindset that powers the fintech movement. But in the headlong rush to develop better customer experiences, perhaps firms have concentrated on the customer-facing front end at the expense of the back-end technology. “In 2018, businesses will find it is the back-end tech, as much as the front-end ‘fin’, that drives strategy forwards. After all, the back-end influences the types of propositions developed, but also speed-tomarket and the ability to innovate and

“The right tech helps businesses think as well as act differently”

iterate,” says Jonathan Bennett, CCO, CashFlows.

When change is the new normal… When everything is changing – technology, customer expectations, regulation – change becomes the new normal. The businesses best able to capitalise on an uncertain future invariably have three things in common, Bennett believes. Firstly, they align their technology behind their strategy. Irrespective of the markets or channels across which they trade, winning businesses are backed by their technology and can move forwards at pace.

Secondly, they can scale quickly as volumes increase, or with sudden trading spikes or seasonal peaks. With modern payments architecture, extra capacity comes from simply adding more modules rather than building a new mainframe. This supports day-to-day operations. It also helps efficient and cost-effective growth, plus cuts project risk and launch times. Thirdly, they have a “can-do” culture. Being liberated from legacy systems also means being liberated from legacy mindsets. It fosters an internal culture of innovation, or “intrepreneurship”, around new ideas, strategies and propositions. This in turn

positively since then. Chatbots have dramatically got better,” he states. “However, there are still questions around what value the customer gets out of them. Nobody’s experience with a chatbot is entirely frictionless.” He says chatbots either provide valuable customer insights on their finances but with little guidance on what action to take, or conversely, offer action with little insight. “There is no complete package,” he says. “Open banking will help as fintechs get hold of more customer data, but customers are yet to do a 180-degree turn and fully accept chatbot systems. Nobody is yet choosing a bank or a financial firm on the strength of their chatbot. We see solid rather than leaping growth.”

helps deliver a greater external culture of entrepreneurship.

Smart partnerships “Any business strategy has to be agile. So does a payments strategy and payments partner,” says Bennett. “So I always advise choosing the right payments technology provider for the longer term.” CashFlows is a fintech provider of multichannel payment solutions. Our technology and payments expertise allows European businesses to accept card payments from all major card schemes plus alternative payment methods through multiple sales channels. We also provide innovative payment solutions to merchants looking to reduce cost and improve payment success. Our modern, purpose-built technology stack allows us to make good on our promises from day one. We typically run development projects in three-week sprints. This generally means we’re only weeks away from scoping and pivoting towards customer requirements. We are the tech behind payment fintech. INDUSTRY VIEW

+44 (0)1223 550920 www.cashflows.com

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Inspector The Inspector sometimes needs to transfer money to his friends (cash deals in the park are a bit dangerous these days), and has recently discovered Plynk, Europe’s first money-messaging app. Linked to users’ Facebook accounts, Plynk lets users send money as a text message to a single contact or via group chats, instantly and with no fees. The Plynk app launched in January 2017 initially targeting the 18-25 market (although the Inspector’s own research also confirms significant dog uptake). “Sending a photo, video, or chat to a friend has become secondnature to students, graduates and young adults,” said Charles Dowd, CEO and co-founder of Plynk. “They have become accustomed to the free and instant transfer of data using purely mobile phones. This is the generation that can see when their friend is typing a message – no wonder they find it hard to fathom that a bank transfer can take days.” Currently the app is only available in the Republic of Ireland, but the Inspector is wagging his tail at the news that the company is soon to launch elsewhere in Europe, with Spain and Portugal next on the list. Dowd added: “Our growth plan is simple: become a verb, in every European language. Over 2017, we will use this secured funding to expand into new

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markets as well as add GBP to our platform.” A study by Juniper Research has found that roboadvisor platform revenues will reach $25billion by 2022, up from an estimated $1.7billion in 2017. The research showed that roboadvisors will make investments more compelling to HNWIs (High Net Worth Individuals) and those on lower incomes – with average fees estimated as low as 0.6 per cent of assets under management in 2022, thanks to disruption from

Dogberry

new players such as Moneybox and Nutmeg. Smartphone apps have been broadening the appeal of roboadvisors, especially for the millennial generation, as it makes the investment process far more convenient for them. The study found that this will likely drive total assets under management by roboadvisors upwards twelvefold, to $4.1trillion in 2022, from an estimated $330billion in 2017. NatWest customers with an iPhone X can now securely log-in to their bank accounts by having the phone recognise their face. Miguel Tatay, head of mobile at NatWest, said: “There has been a revolution in banking. More and more of our customers are using

digital platforms to bank with us. Over five million of them now regularly use our mobile banking apps. People tell us that they expect a bank to be innovative, digital and responsive to their needs, and adding Face ID to our app does just that – making it even easier and more convenient for customers with an iPhone X to access and manage their finances on the move.” NatWest customers are increasingly using digital technology, with 1.1 billion mobile and online transactions carried out in the first half of 2017, an increase of 41 per cent since 2014. UK financial technology firms attracted a record £1.34billion in VC funding in 2017, with major funding rounds for companies such as TransferWise (£211m), Funding Circle (£81.9m) and Monzo (£71m). London accounted for more than 90 per cent of all money raised by UK fintech firms last year. Eileen Burbidge, partner at Passion Capital, said: “The UK tech sector continues to produce companies that are leading in the development of cutting-edge technologies such as artificial intelligence and fintech. “This environment and ecosystem of innovation presents tremendous opportunities for investors, and will help attract global investment into the UK’s digital economy for many years to come.

BY CIARA LONG, ONLINE REPORTER

Next Money News

nextmoney.org/news

Next Money News is a network of fintech thought leaders who contribute their views on the sector from around the world. Its purpose is to promote positive change in financial services and build a collaborative community.

It has its own TV channel and podcasts as well as blogs and also holds conferences.

Jessica Ellerm

jessicaellerm.com

Jessica Ellerm is co-founder and CEO of Australian fintech wealth start-up Zuper. Her blog consists of research from her

Coinbase (iOS, Android) One of the most

downloaded apps on the App Store in 2017, this digital currency wallet and platform lets users trade in bitcoin, ethereum and litecoin.

Atom (iOS, Android) Built exclusively for

smartphones and tablets, Atom offers users savings accounts yielding up to 2.20 per cent AER. It is the UK’s first mobile only bank.

own personal experiences in the fintech industry, with posts focusing on what happens when fintech collides with the social, economic and cultural shifts which are going on around us.

ANUARY SAW the implementation of the Second Payment Services Directive (PSD2) and the introduction of open banking across the UK financial services sector to deliver better services that truly meet customers’ changing needs. This legislation forces banks to open their core systems to third parties, empowering customers – whether private and corporate – to choose who they want as their banking or payments provider, without having to change their bank. Fostering greater choice, PSD2 is designed to improve competition in the market and encourage a new generation of fintech companies, such as Paysafe.

Benef it ing merc ha nts and consumers

Finiculture

finiculture.com

This blog is written by Pascal Bouvier, a venture partner with Santander Innoventures who was was previously a general partner with Route 66 Ventures, where he built the firm’s venture arm into a top 20 global fintech investor. His latest posts cover his predictions on what will develop in the fintech sector over 2018, as well as his thoughts on cryptocurrencies.

Will open banking transform the way we pay?

Finance Magnates

www.financemagnates.com

Founded by Michael Greenberg in 2009, this blog covers the online global trading industry, providing news on the fintech sector as well as retail FX, institutional FX and cryptocurrency. One of its latest thought-leadership pieces is on whether initial coin offerings are stealing gold’s shine.

Open banking means that consumers holdi ng c ur rent accounts with one bank and sav ings accounts with a second will be able to view their entire transaction history in a single location. The changes also affect payment transactions. Fintechs and payments providers will be able to offer ever more seamless and frictionless user experiences, as they’ll no longer have to integ rate w it h legac y ba n k infrastructure.

In fact, one of our own innovations at Paysafe, Rapid Transfer, is designed in such a way. Freed from outdated banking technology, it offers an insta nt on line pay ment met hod t hat has direc t interfaces with banks across 13 countries. Wit h R apid Tra nsfer, consumers can pay for their shopping instantly using only their bank credentials. For a merchant, frictionless payments will improve sales conversion rates – particularly as interchange fees on bank transfers become a thing of the past.

A welcome change At Paysafe, we believe open banking is great news for everyone in the payments ecosystem, including merchants and consumers. Improving the user experience of payments processes is a goal Paysafe has long been committed to. Thanks to open banking, our solutions are well placed to reach endusers and provide them with the high-quality payment services they deserve. INDUSTRY VIEW

Andrea Dunlop (inset) is CEO, acquiring and card solutions, Paysafe Group europe-sales@paysafe.com www.paysafe.com

January 2018

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Branching out: why the next L generation of banking needs to combine the old with the new

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SPECIAL REPORT ANNA DELANEY

The future of payments will be shaped by consumers

Alternative thinking Wider selection means consumers are increasingly influential – they vote with their feet, using their preferred payment method at checkout. Payment is critical in a merchant-consumer relationship, so innovation must suit the customer above all. Preferences vary between countries. UK consumers now favour convenient card and cashless payments, while Chinese consumers have leapfrogged cards entirely, preferring eWallets. In Europe, open banking, driven by PSD2, will refresh the retail market with innovation, particularly in next-generation alternative payments like direct bank transfers and eWallets.

Looking to the future Consumers will spend how they want, and eventually won’t have to pay for the privilege through transaction fees. If consumers dislike a payment method – if it’s inflexible, hard to use, feels insecure, or is too slow – they won’t use it, and will abandon their transactions. Successful, dependable, innovative payments require having people in place who know what they’re doing, are unafraid to listen, and foster close relationships with merchants to deliver payments that help businesses grow.

A new dawn The era of “one-size-fits-no-one” payments is finished. Intrapay is committed to listening to merchants, helping them meet consumer demand with secure payments that are seamless and easy to use. We’ll offer genuine choice and innovation in how to pay for goods and services – designed not for the sake of being new, but to deliver the best value-added experience for everyone. INDUSTRY VIEW

+44 (0) 844 2939 764 www.intrapay.com

How generations bank 100

56 Percentage

LOBAL PAYMENTS will change more in 2018 than they have in any single year prior. Growing choice at the checkout means instant feedback on what consumers really want, based on how they elect to pay. We will experience a real pushpull effect when it comes to consumer demand, and merchant success will depend even more on relationships with technology partners.

Fintechs have been gaining ground while traditional high-street banks tread water – but do younger customers want more than just bells and whistles?

62 52

29 66

48 38

16-24

25-34

35-44 Age

PC/Laptop SOURCE: GLOBALWEBINDEX

Mobile

45-54

55-64

AST YEAR, Bank of England Governor Mark Carney warned of the growing threat fintech companies posed to traditional banks, speculating that banking profitability could take a £1billion hit from increased competition. These fintech disruptors have struck a particular chord with millennials (those aged 24-35). According to accountancy firm Deloitte, “[Millennials] consider technology and online platforms an important aspect of financial advice – 57 per cent would even change their bank relationship for a better technology platform”. It seems millennials not only trust technology more than previous generations, they also want greater control over their finances. But what do millennials want, exactly, when it comes to banking? “Millennials only do pieces of their financial activity with a fintech,” independent fintech analyst Lisa Moyle tells Business Reporter. “They might use TransferWise to send money abroad, they might use crowdfunding for a particular project, they may consider taking out a loan through a peer-to-peer lending platform. But when it comes down to putting your paycheque into a bank account, they want to go to an insured institution.” Although fintechs offer up-to-date, agile technology which appeals to millennials, according to Moyle they are struggling with creating brand recognition and trust – particularly when it comes to basic banking activities concerning income and savings. “Banks sitting on a legacy of customer data have the brand recognition and don’t face those same challenges. They may not be liked, but they are still trusted to look after your money,” she explains. According to Moyle, this is where challenger fintechs are stepping up, focusing on trust-building as part of their strategy. “They hope that over time, as trust is built and they are more established, they will become the primary account,” she says. This has had an interesting impact on the relationship between established banks and fintechs as they recognise that they need each other, points out Moyle. Rather than competing directly, they are increasingly collaborating. Banks have been responding “quite aggressively to the competition posed by fintechs, through their own innovation,” Moyle says. These include incubation labs that they themselves are running. There have also been acquisitions and partnering with fintech companies. However, she adds: “the issues around legacy technology remain and [banks] have a big challenge in front of them.” Moyle advises that financial institutions look at new business models and focus on markets, products and services. “At the end of the day you are a business. Technology isn’t everything. It’s about how you leverage that and incorporate it in an effective institution,” she states.

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Millennials tend to be more experimental when it comes to managing their finances – but the stability of traditional banking still has its attractions

“Banks sitting on a legacy of customer information may not be liked, but they are still trusted to look after your money” – Lisa Moyle

“That said, established banks have responded on the front end. They are already creating apps – not just for millennials but those who’ve become used to tech,” she continues. Moyle explains: “Now everyone’s got a mobile, they’re improving some of the functionality and creating the channels that people clearly want to use to access financial services.” Moyle credits JPMorgan and Goldman Sachs for developing products designed to deliver loans to small businesses. These have proved popular among millennials – a group often labelled “millennipreneurs”, as they are more than twice as likely to found companies as baby boomers (2016 BNP Paribas Global Entrepreneur Report). Meanwhile, Barclays has impressed with its Techstars Accelerator programme, as has Spanish bank BVVA, with investment in fintechs and digital banking.

Citibank has also made progress with its Citi Mobile Challenge, which explores how the bank could leverage its internal resources and support local innovators to better serve clients’ needs. One such project was in Mexico, using local bodegas to enable people to set up basic bank accounts and then be able to access cash through local shops. This, Moyle points out, “has helped their reputation, as well as reaching clients who previously felt their needs were not met by the challenges of opening a fully-fledged

type bank account – they needed basic banking services.” The established banks may have made improvements at the front-end – however, they have not been as nimble at the backend. Moyle explains that traditional banks are very labour intensive, and that AI and machine learning will reduce costs and deliver processes at speed. This will result in job losses, she explains, but also “the nature of the skills that are needed will shift dramatically and this is where the issue around the digital skills gap arises”.

This is not limited to the UK – many developed economies will also need to focus on how to “create a pipeline of effective and suitably skilled labour to meet those needs,” she comments. There also needs to be a cultural shift, Moyle stresses – especially after the financial crisis which saw knocks to banks’ reputations, and that they now need to create “a more ethical, accountable culture within t h e i r i n s t it ut i o n s t h at e n a bl e s innovation”. Moyle admits these cultural shifts will come with challenges. “I think banks are well aware of the innovation mindset that you see within start-ups, the kind of culture that enables innovation,” she says. “However, it’s really hard to put in practice in large complex, regulated institutions.” Unless banks adapt fast, they will be the “dumb pipes; an infrastructure without the interesting stuff that the others do or they do with others in partnership,” she adds. Millennials are still relatively young – but their financial needs will evolve and become more complex as they get older, and Moyle cautions banks to take a “life-cycle” approach to this. She points to interesting developments in the propertytech and mortgagetech sub-sectors happening at the moment by way of example. “It’s really looking to that market that is just entering that cycle of buying homes, having children, planning for the future and ultimately preparing for retirement,” she advises.

How a hi-tech payments pipe is the future of transactions “As an industry we talk a good game about innovation, but for the most part we are shoehorning new technologies into an old way of doing things”

ONSUMERS WANT to buy and merchants want to sell – and no one really wants to pay. But a new reality is in the making: one that focuses on buying, where payments are simple, automated and just happen. The theory is simple – the execution is the hard part. The difficulty is that it requires replacement of decades of work, infrastructure and expertise. These things were useful in their time, but are now complicated at best – and prohibitive at worst. For the traditional payments industry to be part of the solution, we need to be as good at collaborating as we are at competing.

What degree of change can we expect? Technology has changed the way we live, the way we communicate and how we share. Take news consumption: mobile and social media hasn’t simply digitised the newspaper; the content we now consume is fragmented, on-demand and served to us by our peers. This is a fundamental reinvention of an entire industry model.

For our industry, technology-driven change has profound consequences. The plastic card was designed for a time when money was physical – a coin, a note or a passbook. Likewise, the current model was designed for a time when there was no direct technology link between merchants and consumers across channels and different payments platforms. Yet most innovations are built on top of these models instead of replacing them. I believe we need to be bolder and facilitate a reinvention of our industry.

We are innovating already, so what’s the big deal? Once we have decided to make a purchase we are faced with a range of decisions. Do we borrow or spend available funds? Use funds from Bank A or Bank B? Use Card X or Card Y? Wallet, phone, wearable? We do this systematically, based on the amount, where we buy it from and how close to pay day it is. But it’s always a manual process. As an industry, we talk a good game about innovation, but for the most part, we are shoehorning new technologies into an

old way of doing things. Moreover, we are creating an abundance of ways to pay that are almost entirely reliant on an old piece of plastic – even when that plastic is virtual. Yes, it is important that the funds can come from different sources, but consumers and merchants will benefit from reducing the number of payment decisions. That is the change we have to facilitate.

So what does the future of payments look like? Consumer brands are driving the discussion away from payments and towards enabling buying and selling. In addition, a plethora of new companies have emerged, each building niche innovations. Add new regulation, and we simply have to change as an industry.

Change will come in stages, but I believe the end game will leverage the increasingly direct relationship between consumer and merchant: there is communication, there is trust, there is infrastructure. Our job is to enable any payment to pass simply and frictionlessly through the pipe. Together, we need to create a simple new approach where the consumer decides how to pay, the merchant decides when they want to get paid and how, and we provide the infrastructure that allows that to happen. These are important questions that deserve more debate. Please join us in finding the answers! INDUSTRY VIEW

press@valitor.com www.valitor.com

January 2018

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Fintech: The Mo A

NY BANKER will tell you that working in the finance industry demands bravery and sacrifice – living in the trenches, battling against scammers and cyber-criminals while all around customers, regulators and innovators keep changing the state of the battlefield itself. It’s literally a war out there, with all the elements you’d expect of a big-budget Hollywood drama. So how come no one’s turned it into one yet? We decided to map out a storyboard for our own version, starring fraudsters, bankers, regulators, non-banking challengers, crypto-currencies, fintech start-ups and the whole cast of usual characters for an all-action conflict to bust box offices nationwide. Who knows, maybe it’ll do well enough for a sequel to get greenlit. But for the time being, here’s how we see the first instalment of the franchise panning out…

PROTAGONIST:

V ILLA IN: The Fr au

The Ban ker

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C H A L L EN GE #2: Bu reacrats

in the den se forest

Mea nwh il e, the F rau dster ha s heist. H is ju st score ev il lau g h d a nother ter reverb T he Ba n ker cybererates over batt les her the den se Eu rocrats way th rou forest tr y to block g h, when su dden ly th re her way w tape. Luck it h thei r lo ily for her e , some Bre n g, tr ick y w it h ma ss x it gobli n s red ive folders a lso tu rn of u norga n a fi g ht w it up ised paper h the Eu ro work to pic crats. Jess k ica escape s.

n MAGIC WEAPON #1: Blockchai

e mag ic weapon s have been The Hipster drones on: “…T hes hero to awa ken. That hero the waiting for a long time for lockers he keeps in a dark is you!” Openin g one of three in. “The Blockchain! It corner, he pul ls out a golden cha ey is com ing from – and mon the will always tell you where if you can trust it. Use it wisely.”

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: The CH A LLENGE #3

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M AGIC W EA PON #2

From the second locker th Second Payment Serv ices “T he giants of th e wa stela without financia l intermed opportun ity! The end of da shar in g data and knowled g also receive!”

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ovie

udster

With its established characters, mysterious disruptors and threats and opportunities, the world of finance is surely ripe for the Hollywood treatment. So, for your consideration, here is Business Reporter’s adaptation of the greatest fintech story ever told… friction omer ex perience st Cu T: N E D CI THE IN

e for the Fraudste r’s (Samuel , ha ck s, cracks an d indu stria l e ju st wa nts to wa tch the world ve tendencies mak e hi m the er and her clients.

e coffee when sh in g her mor ni ng pp un g si yo is A er e. nk bl ta Ba The from the next g in bl p, um m in s line ba nk g ap hears nervou log onto his on to t, ng en yi om tr m is at al th ated. At profession r’s ow and compl ic te sl ds is s au es Fr oc e pr th e t and th chan ge. Bu th in gs need to Jessica decides at ever y tu rn… s ow ad in the sh henchmen are

astela nd e unex plored w

THE NEW AGE : Meeti ng the mentor

how nobody knows nite hori zon… onomy, ec g lenders, gi gion of the P2P Goog le , on az ly is. Am ch en gi nes real y ry to conquer an ee giants hu ng r. d chase he ot the Ba nker an

2: The Keyset of PSD2

he Hipster pu lls a Keyset. “T he Di rective is com in g,” he wa rn s. and ca n now proc ess payments diar ies. You mu st see the at a monopoly is pa rt of a trend: ge. You do not on ly give, you

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The Ba nker fin ds refu ge in a remote, trendy Ea st London, w hut in here a w izened H ipster lives. the Ba nker ab He teaches out m illen nial s, P2P, the gi g en ga gement th economy, roug h social m ed ia and al l th tech nologies. e in su rgent “K now your cu stomer, you m the H ipster. “P ust,” warbles ersona lise your serv ices and off contex tual ex er them perience, you w ill.”

pass of AI MAGIC WEAPON #3: The Com

s. “Too much dat a is The third locker hides a compas a tsunami – you want a burden. You do not want a dat directions and immediate empowering knowledge, reliable do the dat a processing will action. Artifica l Intelligence adm in team cru nch ing le who a n tha for you much faster , this compass will!” spreadsheets. Show you the way

CH A LLENGE #1: Savi ng the futu re customer

Jessica’s first test is to negotiate th e Marsh of the M illen nials, a terr ible la ndscape fil led with shambli smar tphone-addi ng, cted zombies. Re ta ilers have lea rn to monetise the M ed illen nials with in st ant respon ses, entert ai ni ng conv ersations and sh are buttons – but in su rers, pension prov iders and ba nk s have so fa r fa to en ga ge with th iled ese lost souls.

tbot : The Cha K IC K E ID S

n in g w it h ent, retu r m e s a b is in you r into h best a lly isappea rs r d u o r y ve te s t, o ip T he H ays. “I ha e Chatb ers,” he s . “Meet th m id to o s r u d c n e a an futu r too…” tion s w it h conversa th in g else e m o s g in d r a u b e en g

THE FINAL APOCALYPTIC BATTLE

If fintech was really a Hollywood movie, there would now be a predictable 20-30 minute fight scene between the Protagonist and the Villain. Let’s jump to the final scene, when the Banker is triumphant and the Fraudster crushed. Exciting stuff, no?

The End

January 2018

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How simplicity is the future of payments

T A strategic shift towards strong authentications in 2018 Cyber-fraud is now costing businesses worldwide more than $500billion – but 3D facial biometry could help fill the cyber-security gap for consumers and digital service providers

$6tn The amount forecast to be lost by companies worldwide to cyber-crime by 2021

N THEIR quest for more convenient, frictionless and secure digital payments or services, consumers and sellers could both benefit from 3D facial biometry. In February 2015, OneVisage presented the first 3D facial authentication solution to run on a regular Android smartphone at Mobile World Congress. In June 2017, at Money 2020 Europe, OneVisage unveiled the first 3D facial biometric solution running on iPhone 5S, 6 and 7. And last September, Apple unveiled iPhone X and Face ID, scrapping its Touch ID technology and confirming that the next iPhones and iPads will only come with Face ID. So why the reasons for the move to 3D facial biometry? “From a mobile device manufacturer’s perspective, the decision of Apple and others to move to 3D facial biometry is not a big surprise,” says Christophe Remillet, CEO of OneVisage. “If you look for a superior level of security – more precisely, if you look for an authentication solution that can deliver a lower false match than current technologies – 3D facial biometry is the only one that can go far in terms of accuracy, while maintaining reasonable manufacturing costs. It would have been possible for Apple to develop a bigger Touch ID sensor to read more fingerprint data, but at what price?” “But 3D facial biometry also delivers superior spoof-proofing levels compared with other biometric means. By design, 3D facial biometry is totally spoof-proof to presentation attacks performed with pictures or video-replays, for the simple reason that the depth sensor – that is, the infrared camera – is seeing a flat object, not your face. 3D facial biometry is highly spoof-proof to mask presentation attacks as well. In the case of OneVisage’s technology, we observed that a majority of 3D mask presentation attacks

are rejected due to inaccurate shapes and mask geometry. From a fraud angle, conducting a 3D mask presentation attack in a very accurate manner requires solid expertise and a lot of effort and resources. And it will cost you a few thousand dollars minimum to print out a good 3D mask in silicone, as opposed to simply capturing a fingerprint on a glass or picture with a 30 megapixel resolution camera. I’m not sure you’ll continue saying hello with your hand on picture anymore.” But security is not the only reason for the growing adoption of 3D facial biometry. Camera manufacturers have made important progress in recent years, and 3D cameras can now be integrated in mobile devices as long as the sensor usage is properly managed to save battery life. “According to Yole Development, the percentage of smartphones with integrated 3D/depth cameras may grow to up to 45 per cent of market share by 2022,” continues Remillet. “Integration of front and rear depth cameras will surely open new possibilities and, alongside 3D facial biometry, open unexplored virtual reality use cases or application fields. As depth camera production increases and the number of applications grow, the cost of materials will drop, enabling mobile device manufacturers to build depth cameras into low-entry devices. Similarly, depth cameras will soon also appear on personal computers, laptops, ATMs, kiosks, interactive terminals or even cars as 3D facial authentication or identification becomes more widespread. In 10 years, it is likely that 3D cameras and facial biometry will be everywhere!” INDUSTRY VIEW

+41 21 566 70 55 www.onevisage.com

HE WORLD is changing. People expect life to be simple and convenient. Consumers want to buy goods and merchants want to sell them. Yet the current payments model is outdated, running counter to this demand and adding complexity at every stage of the process. So what needs to change?

Breaking down barriers The industry has to build a new model that breaks down these barriers – not only in individuals’ daily lives, but those in global commerce. Simplicity has to be the order of the day, and the PSD2 and Open Banking reforms are a step in the right direction in this regard. Not only will the regulation make it easier and more convenient to buy and sell goods, it will drive innovation as businesses are pushed to investigate new and more viable payment methods.

Decisions, decisions, decisions The fact is, people are faced with too many decisions when buying a product or service. Do you use a credit or debit card? Do you lose plastic altogether and pay with your phone? It is an experience that is becoming increasingly complicated, against the wishes of consumers. If the industry does not act as one now to deliver one high-tech payments pipe, a new competitor, unburdened by legacy systems, will fill the gap.

Kings of convenience The market is already naturally evolving. The rise of the GAFA banks (Google, Amazon, Facebook and Apple) has meant that convenience is now a basic expectation within the payments industry. These companies are already a permanent fixture in many aspects of our lives and their constant innovation will influence the future of the industry. What traditional players cannot afford to do is ignore this shift. Life can be simple and making buying and selling less complicated will be essential to reaching this goal. INDUSTRY VIEW

Vidar Thorkelsson is CEO of Valitor press@valitor.com www.valitor.com

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ITH GLOBAL e-commerce set to double by 2020 to £2.8trillion, there has never been a better time to trade internationally. Technology is breaking down physical borders and B2B trade across all industries is transitioning from bricks to clicks at lightning speed. But still, the age old problem of getting paid by overseas customers is one which unites businesses worldwide in frustration. In the UK alone, 70 per cent of SMEs worry about cashflow on a daily basis, with almost £45billion in late payments owed last year. Add cross-border trade to that mix and stress levels go through the roof, with almost 50 per cent of UK businesses receiving late payments from overseas customers. Compounding the issue is an overreliance on an antiquated correspondent banking system to make and receive payments. Funds can take up to five working days to reach their destination, with no transparency over delivery date or the amount to be received once intermediaries have been paid. In spite of this, banks still control 90 per cent of global B2B transfers, a market worth almost £190billion in revenue each year. Sinead Fitzmaurice of TransferMate understands these issues only too well, and has made it her mission to solve the pain points of international B2B transfers. Eight years ago, as financial controller of The Taxback Group, an international tax reclaim and working holiday visa company, she struggled daily with the opaque, costly and untimely international bank transfer process. “As an international business with customers, employees and suppliers all over the world, making and receiving international payments efficiently was necessary for our very survival.” “My job was to convert sales into cash as quickly as possible, make sure our customers were receiving reclaims on time, and keep our suppliers happy. But I felt like I was a slave to a broken international correspondent banking system. It was the bane of my working life. The system doesn’t work for businesses getting paid, customers paying them, or banks facilitating those payments.” Frustrated at the lack of options for making payments and getting paid in an increasingly global business environment, Fitzmaurice turned to her mentor and CEO of the Taxback Group, Terry Clune. “It was a lightbulb moment – we just knew something this fundamental to the normal course of business could be improved through technology and automation. We didn’t quite know how, but Terry’s unwavering belief in me and what we were seeking to achieve drove me on.” Fast forward to today, where TransferMate, born out of that mix of frustration and vision, has shifted the paradigm for making and receiving payments, processing in excess of £7billion in payments to date.

Unlocking hidden cashflow in international receivables “The system doesn’t work for businesses getting paid, customers paying them or banks facilitiating those payments” – Sinead Fitzmaurice, TransferMate

“I knew that my experience was no different to anyone else trading internationally,” Fitzmaurice explains. “So I resolved to address the pain points as I saw them – delivery timeframe, transparency and affordability. The only way to do that was to control the transfer process from end to end.” Together, Clune and Fitzmaurice steadily built a proprietary payments platform, more than 200 proprietary local bank accounts, and a global licence footprint to seamlessly execute same-day cross border payments and receivables. Today, TransferMate is fully regulated to make and receive payments in more than 117 currencies in the EU, USA, Canada, Australia & New Zealand. And with 195 employees across 30 offices worldwide, the business is growing at breakneck speed. International same-day transfers are made between domestic accounts, with intermediary banks and costs removed from the process. The result is greater speed, transparency, and affordability, with more competitive rates and no international wire fees or receiver fees.

Navigating the international receivables challenges Although it was initially buyer-focused, the founders realised TransferMate was equally relevant for exporters seeking to remove cost and delays in converting international receivables to cash. Beneficiaries being paid through TransferMate began enquiring about

how they could use it to proactively manage their international receivables. Clune and Fitzmaurice quickly set about creating a dedicated receivables product for exporters, a previously untapped opportunity. The benefits to exporters of the receivables product are convincing. Exporters can bill in domestic or overseas currency, avoid receiver fees, improve cashflow through faster receipt of payment, and easily reconcile receivables back to invoice. Exporters can access one system for all international receivables, and use TransferMate to make international payments at competitive rates. TransferMate receivables also benefit exporters’ end-customers through reduced payment reconciliation queries, improving trading relationships.

Banking partnerships In November 2017, TransferMate secured a €30million minority investment and strategic partnership from Irish bank AIB, positioning the business to drive a step change in its land grab of the global B2B cross-border payments and receivables market. With the receivables product being a key factor in the investment decision, AIB’s strategic partnership provided a ringing endorsement as well as a large-scale proof of concept. The partnership also marked the beginning of a banking partnership distribution strategy for TransferMate receivables,

which Clune and Fitzmaurice are seeking to replicate in key markets. The AIB collaboration has drawn significant attention from international banks seeking to partner with fintechs capable of generating meaningful revenue streams. TransferMate is currently in discussions with a number of international banks with a view to replicating the partnership in key markets.

Future growth outlook The outlook for TransferMate is very positive, with growth expected to be delivered through a combination of direct and partnership strategies. Not limiting future collaborations to specific products, Clune sees an opportunity to partner with banks seeking genuine alternatives to correspondent banking infrastructure. “In 2018, I believe that banks will look to partner with fintechs, offering a meaningful alternative to the traditional B2B transfer system. This will enable banks to reduce their reliance on a costly and inefficient legacy system.” TransferMate is also in discussions with a number of global e-invoicing providers. They represent a natural fit, given their automation of the procure to invoice process and their captive international buyer-supplier networks. INDUSTRY VIEW

+44 (0)20 7659 9185 www.transfermate.com

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RGANISATIONS THE world over, facing disruption from greater global competition, changing market demands and accelerated technological advances, recognise the need for robust, customer-centric digital strategies. For many, these strategies hinge on digital transformation – the integration of digital technology to enhance the customer experience, improve organisational performance, and uncover new opportunities. Digital transformation can cover everything from updating IT systems to redesigning external user experience and internal processes and technologies. It is an important journey for organisations because it can “fundamentally change the way they will operate in the future to better serve their customers and better manage their employees and drive their organisation into a more effective, successful [one] in the future,” said senior partner at McKinsey & Company Anand Swaminathan, during an interview for an episode of Projectified with PMI. A recent Forbes Insights-Hitachi survey confirmed digital transformation is the top strategic priority for half of all top management. According to Accenture study Digital Transformation in the Age of the Customer, improving the overall customer experience is a top business priority for companies and a main driver behind digital transformation ambitions. “Our customers are the driving force behind our digital strategy,” confirms Alicia Aitken, who leads the transformation and change capability at ANZ, one of Australia’s leading banks and a Project Management Institute (PMI) partner using the institute’s approaches to organisational change. “Putting the customer at the heart of everything we do begins with understanding what our customers truly need and want not just today but tomorrow.”

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Leveraging project management for successful digital transformation

“Organisations must continue delivering to customers while making changes in real time”

Project waste It is no secret that strategies are implemented through sound portfolio, programme and project management processes. Yet research from PMI’s Pulse of the Profession global survey shows that on average, organisations waste 9.7 per cent – or £97million – for every £1billion invested in projects. Much of this waste is due to poor implementation rather than flawed strategy. A recent Brightline Initiative™ study, conducted by the Economist Intelligence Unit, showed that 59 per cent of senior executives admitted their organisations struggled to bridge the strategy implementation gap. The result: only one in 10 organisations successfully reach their strategic goals. Digital transformations present unique challenges. Large, global organisations such as banks and other financial services companies, among others, often have legacy technology, ingrained ways of doing business and third-party partners that add to their complexity, making them vulnerable to disruption by smaller, nimbler, digital-oriented startups. Such companies merely Mark A Langley

have to execute a digital strategy without the need to focus on a digital transformation. Adding to the challenge is that organisations must continue delivering to customers while making changes in real time, in customer-facing environments and activities. Leveraging project management can help increase the odds of success in digital transformation. Project management – the application of knowledge, skills, tools, and techniques to project activities to meet project requirements – brings rigour, discipline, standardised methodologies and a common language to complex change initiatives, ensuring organisations take the necessary steps to help effect desired results.

programme that enable organisations to identify expected benefits • Execution: Looking at practices that enable organisations to deliver the expected results • Sustainment: Looking at practices that enable organisations to sustain benefits and achieve strategic objectives Giving project, portfolio, and programme managers a sense of how their work impacts the strategy and the business helps them maintain the necessary focus on outcomes at all three stages of benefits realisation.

Adopt both ‘agile’ and ‘agility’ Focus on outcomes The complexity of digital transformation demands a strong focus on benefits realisation management: examining and capturing the value created by the successful implementation of projects and programmes. In organisations with high maturity in benefits realisation, 45 per cent more projects meet original goals, compared to organisations with low benefits realisation maturity. This translates to significantly less money wasted due to poor project performance – only 5 per cent in highly mature organisations when compared with 16.6 per cent in organisations with low maturity. But too few organisations have effective, if any, benefits realisation management processes in place. Benefits realisation management happens in three stages: identification, execution and sustainment. • Identification: Looking at the practices performed at the start of a project or

PMI research has shown that the use of agile approaches has been identified as a key reason for improved results with strategy implementation. Though the term “agile” has been used in project management for the past decade to refer to a series of specific practices and approaches, organisations now recognise more value when they think broadly of organisational agility as a strategic competence rather than a set of tools and templates. Agility is the capability to quickly sense and adapt to changes to deliver relevant results in a productive, cost-effective manner. Agile is a mindset based on a set of key principles designed to better enable collaborative work and deliver continuous value through a “people-first” orientation. Agile transformation is an ongoing, dynamic effort to develop an organisation’s ability to adapt rapidly within a fast-changing environment and achieve maximum business value by engaging people, improving processes, and enhancing culture. The most forward-thinking organisations are embracing a continuum

of practices that range from predictive to agile, well-defined to iterative, and more to less controlled. Agile approaches allow teams to deliver projects piece by piece and make rapid adjustments as needed – a necessity for digital transformation.

Maintain executive support Clear, transparent, frequent communication between the project management team and senior management is essential to establish the trust that will help ensure project success. Bad news should not be hidden but communicated as early as possible so the necessary adjustment to such factors as scope, budget, time constraints and expected outcomes can be made.

Adhere to the Brightline Principles The Brightline Initiative is a non-commercial coalition dedicated to helping organisations bridge the gap between strategy design and strategy delivery. Its 10 principles serve as a foundation for helping organisations improve results with strategy implementation. Finally, it’s also important to recognise that by their nature, digital transformations never truly end. The digital world is not static and demands both a cultural and an organisational structure that allows for the ability to be responsive to market needs. Says ANZ’s Aitken, “We will be constantly working with our customers to understand what their needs are so we can deliver the best outcome for them and as those needs change, we will continue to evolve our products, processes, and ways of working.” INDUSTRY VIEW

Mark A Langley is president and CEO, PMI www.pmi.org.uk

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What will the future of fintech look like? Vidar Thorkelsson

Noyan Nihat

CEO Valitor

Koen Vanpraet

CEO Transactive Systems

Gary Conroy

CEO Intrapay

Chief commercial officer TransferMate

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HE FUTURE of fintech will be centred around making life simple for consumers and businesses. For that, we will need to see changes in both technology and mindsets. The world of payments provides a perfect example. If you go into any high-street store or train carriage where someone is shopping online, you will find a common thread – consumers want to buy goods, businesses want to sell, but nobody really wants to “pay”. We expect payments to happen seamlessly and the current industry model only brings inconvenience for today’s consumer. The PSD2 and Open Banking reforms are pushing businesses in the right direction, providing a less complicated, more convenient service, yet the responsibility for driving innovation shouldn’t rest with regulators. Traditional industry stalwarts will need to work together where they once competed, to build the uniform high-tech payments pipe that will make buying and selling less complicated.

ITH PSD2 and the democratisation of banking services, the future of fintech will soon look very different. New developments in instant payments such as SEPA Instant, and the US Faster Payments mean that practically any stakeholder in payments, finance or commerce can dream up new ways to add value to the customer experience. Just in time to satisfy a growing demand for instant gratification, both domestic and cross-border payments will be faster and more accessible, with no impediment to offering users convenient options to send or receive funds. App developers will build streamlined payments into their bespoke mobile and web apps, enabling instant transfer of value between peers and businesses for a myriad of purposes. Compliance will also be streamlined, as licensed PSPs rush to provide businesses with access to the back-end banking services they need to offer unprecedented choice when it comes to ways to pay or be paid.

HE FUTURE of payments will be defined by customers. Internationalisation and a proliferation of different devices and payment methods mean consumers will become more influential, voting with their feet by picking their payments preference at checkout. What I’m passionate about is building a company fit for this future. One where dedicated people work together in harmony to develop innovative value-added payments that match the needs of businesses with the needs of their customers. As payment experts, we must help merchants meet consumer demand with secure payments processes that are seamless and easy to use, offering genuine choice and innovation in how they pay for goods and services. There is no value in designing new methods or technology for the sake of being new, so successful payment companies will be those who design the future of payments to deliver the best experience for all stakeholders.

E BELIEVE 2018 will be the year of collaboration between banks and fintechs in B2B cross-border payments. Faced with the mounting costs of maintaining international correspondent banking and the uphill battle of reforming it, banks will seek parallel alternative rails. API-driven interfaces with banks’ B2B customer base will not only enable seamless international transfers but also improve customer experience on a number of fronts. Bank and fintech partnerships will seek to solve other pain points such as supplier management and administrative burden. Fintechs will need to ensure they remain compliant as they expand across borders and share systems and customer data with banks. Fintechs with plug-and-play payments technology, integration with accounting and ERP systems and wider regulatory reach will be key. Banks will partner with commercially viable fintechs, who add tangible value to their business and end customers.

The emerging role of financial utilities $25-35 The cost of processing a single crossborder payment Source: McKinsey

S COMPANIES become more global, there is an increasing demand for corporates to transact across borders – without delay, without friction, and using only a handful of bank accounts to manage liquidity. The challenge is to do that competitively and profitably, because – despite the explosion of global trade enabled by the latest technology – borders still have a huge cost impact when it comes to making and handling international transactions. According to McKinsey, bank operating costs of processing a cross-border payment is somewhere between $25 and $35 per payment. With this operational cost base, it does not make sense for a financial institution to deliver that service as the cost passed on to the customer will be obstructively high.

Enter the ‘financial utility’ The solution is to strip out any unnecessary stages and associated costs of the payment process. In fact, according to the latest Banking Circle whitepaper, in order to remain competitive, banks’ back-office costs for international payments need to drop by an incredible 90 to 95 per cent. This is where financial utilities such as Saxo Payments Banking Circle come

in, enabling anybody in the financial space to provide a service which would not be viable for them to operate using in-house resources. Financial utilities handle core banking functions, such as payments outside of a financial institution’s domestic core, leaving them the time and resources to focus on the customer relationship. This goes to the heart of what merchants trading internationally are looking for.

A step-change for banking services Employing third parties – financial utilities – to deliver specific solutions is not a new idea but, to date, this concept has so far not extended far into banking, meaning many banks and even financial tech businesses have been missing a huge opportunity. Employing a financial utility enables financial institutions to address innovation and global expansion challenges, while focusing on the customer relationship. Financial institutions are looking beyond traditional routes to meet the evolving needs of their customers, including international payment requirements. And the emergence of financial utilities could be the answer to overcoming challenges such as high

operational costs and legacy systems that have not kept pace with customer expectations.

The Banking Circle Saxo Payments Banking Circle is a globalscale financial utility that gives banks and fintech businesses the ability to enhance their customer proposition. By leading the rise of a super-correspondent banking network, Banking Circle is helping financial institutions to provide customers with faster and cheaper cross-border banking services,

without the need to build their own infrastructure and correspondent banking partner network. As such, Banking Circle is empowering these organisations to support their customers’ international trading ambitions, without the need for multiple banking relationships while reducing risk and the operational cost of transactions. INDUSTRY VIEW

To find out more about Saxo Payments Banking Circle, visit www.bankingcircle.com

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The IT director will see you now… Patients, priorities, performance: How digital can transform the NHS

Digital visionaries: (left to right) Tim Moore, Simon Jones, Shauna McMahon, Karl Goatley, Nathan Marke, Stephen Docherty, Andy Dunn

CALE IS a concept the NHS has wrestled with since its birth. Today, more than 1.7million people work within it, making it the fifth-largest employer in the world. But with an ever-increasing demand on its services – aligned to intense pressure on its budget – crippling inefficiency, it seems, is an incurable ill. Scrub in for a technological opportunity – but not necessarily the devilishly difficult kind which once split the atom or decoded DNA. The real opportunities to positively disrupt the under-siege NHS are hiding in plain sight, and, according to the visionaries intent on leveraging them, they have the potential to revolutionise patient care. “The assumption for many is that money is the great change-blocker,” says Sussex Partnership NHS Foundation Trust IT director Karl Goatley. “Yes, there are overarching constraints and challenges, but we have to be smarter than that. We have to extract more value for our investment.” Goatley is already championing the power of digital in a specialist NHS mental health trust providing services across Sussex and Hampshire. There, community nurses connect to electronic patient records via iPads, and clinicians team up with police officers to deliver critical care to vulnerable patients in crisis. This “Street Triage Team” has secure, round-the clock, at-a-glance access to patient history, drug regimes, and risk assessment. And not only is on-the-spot delivery of care driving up the quality of clinical outcomes, but the patients in question frequently avoid an often-inappropriate encounter with the criminal justice system – ultimately saving the taxpayers’ purse. “This illustrates how digital technology can address the complexity of need and increased demand,” adds Goatley, who recently chaired a progressive discussion forum on the subject with like-minded peers and two of the largest enablers of digital Britain – end-to-end solutions and services provider Daisy Group, and global market leader in business communications, Mitel. But to deliver the kind of impactful reboot they all believe is essential, a crucial disconnect has to be resolved. “We have to separate digital transformation from the day-to-day IT function,” says Shauna McMahon, chief information management and technology officer at

Photo: Neil Atkinson

1.7m The number of people working in the NHS – making it the world’s fifth-largest employer

“The real opportunities to positively disrupt the under-siege NHS are hiding in plain sight”

Frimley Health NHS Foundation Trust. “We are no longer managing kit, but instead partnering with the business to find solutions that will enable change at the front face of care delivery.” “The NHS can’t allow risk-aversion to paralyse progress. We need to shift from old processes and adopt new ways of working,” she adds. “My Trust board is tuned into the digital opportunity, which will help us to use our finite funding in the best possible way.” The clock is ticking loudly, too. The government has already imposed a deadline of 2023 on fully digitising the NHS. In 2015, the government announced the establishment of Sustainability and Transformation Plans (STPs) to guide NHS Trusts. It is widely accepted that digital strategies must play a key role. But, most importantly, every stakeholder must be on board. “The STP is starting to bring people together,” says Stephen Docherty, chief information officer at South London and Maudsley NHS Foundation Trust and chair of the London CIO Council for Health Providers. “Digital enablement can’t be seen as the IT department managing bits of tin. We can add immense value by helping the adoption of technology by others. We have to show by example what the art of the possible looks like. And we have to raise – and in many cases change – the profile of the IT department whilst creating the right culture. “We recently rebranded ours to ‘Digital Services’. It cost pennies to design but the impact has been significant. The IT service desk was named Team of the Year

at our Trust’s annual internal awards; a great achievement when up against clinical teams. As South London and Maudsley is part of the Global Digital Exemplar (GDE) programme, we now have the opportunity to create the digital blueprints for others to adopt.” Tim Moore, head of digital at Horsham and Mid-Sussex CCG and a member of the NHS Digital Steering Group, agrees. “We are successfully raising the profile of digital transformation, but it’s taking time,” he says. “CIOs need a seat at Trust board tables; clinicians have to understand how we can positively impact patient care and budget control; there has to be a powerful business case.” Goatley goes further. “It’s as if the NHS is a disenfranchised franchise,” he says. “We do a lot of the same things in many different ways. That kind of unwanted variation wastes a lot of money. Digital can unify processes but everyone has to be on the same page: the clinicians, the enablers, the decision makers. The NHS is a vast team, and every player matters.” Simon Jones, head of public sector and healthcare at Mitel, concurs. “Our mission is to make communications seamless, simple and intuitive – empowering collaboration over any medium,” he says. “Unified communications technologies are the instruments of this change and huge drivers of productivity, but they are comparatively impotent if they are not aligned to an effective strategy with which the end-user is engaged. This is why it is so encouraging to hear that NHS Trusts are realising the importance of

shifting the attitudes towards digital transformation.” Daisy Group availability services director Andy Dunn works with organisations keen to go on that journey, but who are unable to reach their favoured destination alone. “Understanding the true potential of digital is still a challenge for many organisations,” he says. “There is still a gap between the aspiration and the deliverable. They need a guiding hand to hold.” It’s that current disconnect which Nathan Marke, chief digital officer at Daisy Group, is on a mission to resolve. “Digital does have the capability to transform budgetary control, staff efficiency, and productivity, while simultaneously improving patient care and clinical outcomes,” he says. “But, in order for that to happen, everyone playing a part in the wider piece has to adopt the technology. “Yes, that means giving them the essential digital foundations; yes, that means connecting them to a robust, secure and 24/7 network; yes, that means putting services and data in the cloud; and yes, that means putting a device in their hand or giving them a tutorial on how to use a key application. “But the real trick is enabling meaningful, practical adoption of those digital tools. The diagnosis is misguided resistance. The prognosis is optimistically healthy. The prescription is enthusiastic change.” INDUSTRY VIEW

www.daisygroup.com www.mitel.co.uk

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What healthtech can learn from fintech As people begin to manage their health like they do their finances, Anna Delaney asks whether healthtech and fintech have more in common than we might think

ANKING IS one of the world’s oldest businesses. Thirty years ago the thought of managing your bank account from a smartphone was unthinkable. Bank managers, accountants and financial advisors were the bastions of trust who handled our money. Now, not only can we check our accounts, manage funds and create portfolios online, we can do all of this without the help of a financier. Control has passed to the consumer, via the device in your pocket. While the demise of the bank as we know it is still far off, technology has not only disrupted the way we handle our finances, it has also impacted our relationship with the industry itself. Another industry undergoing transformation is healthcare. The sector has been markedly sluggish in its technological advancement, relying on legacy systems and inefficient methods of working. Even until recently, doctors still used pen and paper for patient files. However, things are set to change and healthtech has been touted as one of the tech trends to watch over 2018. CES (The International Consumer Electronics Show) in Las Vegas at the start of this year saw enthusiasm for tech related to self-care, elderly care, health monitoring, fitness and healthy living and sleep. A survey taken by M3 Global Research says that almost 26 per cent of doctors see that investment in self-diagnosis technology will have the most impact on patients over the next five years. A s this shif t develops, will people begin to manage their health like their finances, becoming increasingly independent from the doctors on whom they had been so reliant in the past? Josh Lachkovic, head of growth at online health screening service Thriva, puts the recent interest in healthtech down to “opportunity”. “This is a long-term trend which began with people taking a proactive interest in monitoring their health and fitness,” he tells Business Reporter. “It started with basic tracking tools and health monitoring, for

“We can learn a lot from fintech, mainly that we need to ensure that we develop trust” – Josh Lachkovic, Thriva

Above: the rise of fintech could prove a good template for developing and implementing healthcare technology

example with Fitbit, step counters and sleep monitors via apps and wearables but now we’re in the second wave. People are taking a more rigorous approach to monitoring and taking control of their health.” As tech advances in the health sector, Lachkovic thinks insight can be gained from fintech. “We see healthcare moving in much the same way, with people becoming increasingly comfortable managing their own health. We can learn a lot from fintech, namely that we need to ensure that we develop trust.” Lachkovic underlines the need to provide safe, reliable and effective products to nurture this trust, ensuring the medical side is under proper scrutiny by using NHStrained GPs and labs with recognisable accreditation (as with Thriva).

Lachkovic points out that fintech is no flash in the pan, and offers customers genuine value. “This is not technology for technology’s sake,” he says. “It is disrupting and improving current services, working with existing bodies to provide the best service for customers.” This, he believes, is a good model for healthcare tech to follow. “Collaboration between start-ups and existing healthcare providers will be key to establishing trust and unlocking better products for people in the future,” he adds. Lachkovic feels that in many ways, people taking control of their health is not just down to recent technological progress, but part of a bigger behavioural shift, which has seen people take an interest and manage their personal information.

“Combine this with the rise of apps and on-demand services and you start to see the natural progression towards people managing their own health with technology,” he says. “People are used to digitally-enabled, streamlined services at their fingertips and this is as true for managing your finances as it is for ordering a taxi or monitoring your health.” Lachkovic believes that the rise in innovation in healthcare and the move towards preventative care is a vital solution to help support the struggling healthcare system. “There’s no silver bullet but at the moment our NHS is a sick-care service, not a health service,” he says. “We’re facing an ageing population, funding cuts and complex problems that the current system is not set up for, financially or culturally. The CEO of the NHS, Simon Stephens, has said that we need to ‘pull out all the stops on prevention, or face the music’. “If we can offer patients the responsibility and control to keep themselves healthy and out of doctors’ surgeries and hospitals, then of course that’s going to have a positive impact on the care we can offer across the board, and hopefully it will also start to shift behaviours on a deeper level and ensure we all stay healthier for longer.” Lachkovic singles out London-based Babylon, which is working with the NHS on GP at Hand, the health service’s 24/7 video-enabled smartphone GP service. “If the healthcare system works with technology companies, that’s where we will start to see the real benefits,” he adds. Lachkovic rejects the notion that these trends in healthcare are mere hype. “Absolutely not. This is a trend that has been developing over many years and is still in its infancy,” he points out. So what does the future look like? “We’re going to see much greater shifts in consumer behaviour, with people moving their trust away from institutions and taking a proactive interest in managing their own data and health. More investment in the space is going to boost innovation and the quality of the services we can offer. That said, this is a decades-long trend, not a flash in the pan.” The potential for what big data, machine learning and AI can do for our lives is enormous and we will inevitably see more and more start-ups develop tech to prevent, monitor, diagnose and cure both physical and mental conditions. However, whether we are talking health or finance, at the heart of this transformation are people – crucial to unlocking the value and ensuring trust.

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From risk to compliance in the fintech sector

regulatory requirements. In addition to this, to secure relationships with banks, fintechs must meet the compliance standards set out by the banking institutions. The report also revealed a rise in low-to-medium-risk impacts, from 63 per cent in 2016 to 81 per cent in 2017. This most likely reflects the greater degree of scrutiny that is being applied by compliance officers, as opposed to poor practices and procedures. This, of course, presents itself as a positive implication. The report findings denote a revolution within the financial industry in relation to compliance. The overall severity of issues has decreased significantly from 2016 to 2017, as the number of high-risk issues have halved. This provides an insightful reflection on how fintechs are beginning to place compliance at the forefront of business development strategies. With almost £6billion forecast to pour into fintech firms by 2018, compliance is critical to the growth of the fintech sector. Companies attempting to outplay this line of regulation risk substantial regulatory penalties, along with severe reputational damage that will turn away investors and potentially result in a detrimental decline in business. Seeking expert advice on meeting regulatory obligations is key to success in the fintech space. fscom is the UK’s leading fintech compliance consultancy, successfully assisting Europe’s leading fintechs to build compliance into the fabric of their core business model. As a result, fscom has established a reputation in financial services regulation for its diligent, detailed and commercially insightful compliance advice. INDUSTRY VIEW

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The future is instant

High-risk issues decline as compliance plays a bigger role, fscom report finds

NNOVATION EXISTS at the heart of fintech, but how does this coexist with the necessity for regulatory compliance? Fintech companies are recognised for their exciting use of new technology and innovations to create products that provide a glimpse into the future of finance. Until now, the issue of compliance has often been caught up in this whirlwind of innovation, where dealing with regulatory obligations was deemed another onerous task by most. However, the Payment Services Industry Compliance Report 2017, carried out by fscom, specialists in providing fintechs with regulatory compliance services, has made some noteworthy revelations. The report revealed that almost concurrent with the emergence of new financial technology has been the rise of compliance. Fintech companies are ostensibly placing a great deal of attention on the role of compliance and how this impacts their operations. The motivation behind the rise in compliance has been powered by increasing regulatory scrutiny of financial firms, particularly in post-financial crisis eras. This is also met with increased complexity within the market and associated regulatory frameworks. Evidence of this exists within the report, which revealed that while there were more risk issues found in 2017, the issues were on average less severe. Most notably, there was a significant decline in the number of high-risk issues facing fintech companies, with high-risk issues decreasing from 37 per cent in 2016 to 18.6 per cent in 2017. This demonstrates an overall greater willingness to invest in proper compliance frameworks and procedures. The business development lifecycle of a fintech relies heavily on the implementation of compliance frameworks and procedures. For a fintech to achieve authorisation and therefore attract investors, the company must meet the FCA’s

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£725bn The amount of forecast annual instant payment transactions for e-commerce and point-of-sale by the end of 2027 Source: Ovum

IRST MOVERS won the right to brag last November as they rolled out with Instant SEPA Credit Transfers (also known as SCT INST), a payment type that has the potential to change the way businesses interact with their customers and suppliers in Europe. Under the previous SEPA scheme, cross-border European payments are processed in batches, and payments reach their destination by the next day. With SEPA Instant Credit Transfers, transactions can affordably be processed 365 days per year, and reach their destination in less than 10 seconds. But they are not ubiquitous. According to PYMNTS.com, the transfers are currently available at banks and through PSPs in Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands and Spain. How fast will the trend grow? Seven countries are expected to join over the next year, with the rest yet to name their date. However, it is expected to grow quickly. More than 150 million Faster Payments were processed through the UK’s domestic instant payment scheme in December, according to the Faster Payments organisation, an increase of 20 per c e n t o v e r D e c e m b e r 2 016 . And that number could easily be eclipsed by SEPA Instant because of a larger potential market and its cross-border functionality. The ability to instantly send payments from any country to any bank account in the 34 SEPA countries will be a game changer. Providing instant payment capability across Europe will affect more than just the speed at which payments are delivered. There will be knock-on effects. Subsequent expectations around instant delivery of value are going to change the way companies

compete. Vincent Brennan, head of group operations & payments at Bank of Ireland, and deputy chairman of the Euro Banking Association explains the necessary mindset in the paper Speeding Up The Payments Landscape: “The business case isn’t in the act of speeding up the movement of money, nor even in basic propositions such as P2P pay ments. The business case is a broader strategic one, around enabling contextual propositions for customers.” Tom Kelleher, commercial director, of Icon, says: “SCT Inst is, above all, an opportunity for early adopters to launch game-changing products with value-added services to grow new business and revenues.” It can also lead to competitive disruption within the industry. “Today, people are digital natives and expect every financial service they use to be digital,” notes Michael Kent, CEO and founder of Azimo. “Consumers demand payments to keep up with the speed of service in other areas.” Noyan Nihat, CEO of Transactive, one of the early adopters of SEPA Instant Credit Transfers, believes there is significant opportunity to create competitive advantage through better customer experience and the logical innovations that will follow. “Businesses and institutions that make the conceptual leap from realtime payments across borders to new ways to provide instant value globally are in a prime position to capitalise on the instant payments revolution. Never before has there been such opportunity for meaningful innovation in multinational business platforms.” INDUSTRY VIEW

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Are you a technological W doughnut?

When it comes to digital banking, society can be divided into two tribes: those who love it, and those who lag behind. Find out which one you are with our easy-to-use flowchart! ITH ALL the talk of Millennials disrupting the consumer landscape, earlier, crankier, less technologically minded generations tend to get left out of the equation. Your 12-year-old nephew has probably built a new website or app from scratch in the time it takes you to read this paragraph, deploying mobile middleware (whatever

that is) and augmented realities. But you’re stuck in the downward spiral of a digital identity crisis – you understand the concepts, but you can’t quite get a handle on how it all works in real life. Like a bagel (stay with us here…), you can’t decide whether you’re a doughnut or a roll. Doughnuts can’t get used to the logic of fresh applications. They stare at flashy

screens and the smart online solutions banks want us to use, to no avail. Whereas rolls think these same solutions too ponderous, becoming frustrated when repeatedly asked to approve this or that. Doughnuts live in constant fear because a security expert said they could fall prey to cyber-predators. Rolls are fresh and trendy – they adapt, and learn how to build new websites, deploy mobile middleware, and augment reality. The bagel generation is spectacularly divided. This is how…

YOU ROLL

YOU’RE A DOUGHNUT