CityAM FOP September 2018 by Lyonsdown

THE MORAL MAZE Balancing business ethics with the bottom line

SHARE DEAL How to get a fair deal in the sharing economy

WHY PAYMENTS ARE PAYING OUT After an £8bn valuation for one fintech IPO, we look at what’s behind the sudden growth in the payments sector

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AWARD-WINNING BUSINESS JOURNALISM • SEPTEMBER 2018

Kicking down the payments barriers

FUTURE OF PAYMENTS How banks and fintechs are teaming up to open the doors to a better payments landscape DISTRIBUTED WITHIN CITY AM, PRODUCED AND PUBLISHED BY LYONSDOWN WHICH TAKES SOLE RESPONSIBILITY FOR THE CONTENTS

The future of payments – rise to the challenges with Serrala!

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News clippings Balancing the ethics of a successful business Ethics and morality in the workplace are important subjects CFOs need to address. We take a look at the latest articles on the matter

Financial data is worse off than a decade ago Forbes With the rise of smartphones and social media, much has changed since the 2008 financial crisis – we are now far more reliant on instant information than we ever were. But Roger Aitken’s Forbes article cautions that financial data is “worse off” than it was a decade ago. Citing a study by Comprend and Lundquist, which tracks how transparent communication is between large European companies and their shareholders, Aitken demonstrates that the transparency of financial information is far inferior to what it was in 2007. The article asks what this lack of transparency means for society in an era dominated by scandals such as the Panama and Paradise papers, where executive pay has gone up while average salaries have fallen. Joakim Lundquist, founder and managing director of Comprend and Lundquist, thinks this lack of transparency “should be an

element of greater concern” and believes not enough is being done. “The credibility of the financial markets goes hand in hand with the commitment of companies to provide high-quality and transparent first-hand information to regain trust in the market place,” he says. Although the study showed 90 per cent of financial stakeholders wanted companies to present their financial targets online, only 25 per cent of companies did so. bit.ly/2BZUvxw

Have executives lost their sense of purpose? Blackrock

“Where governments have failed, the private sector is increasingly being relied upon to deal with the challenges facing society”

Examining whether companies and governments are preparing properly for the future, BlackRock CEO Larry Fink thinks what is missing is a sense of purpose. Many governments, Fink writes in his annual letter, are failing to prepare for the future in nearly every area, from retirement and infrastructure to automation and worker retraining. Where

governments have failed, the private sector is increasingly being relied upon to take up the slack and deal with the challenges that face society. There is also a general demand for companies as well as governments serve a social purpose. “To prosper over time,” writes Fink, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Fink warns that both the public and private sectors have a big responsibility to deal with the issues that society faces, from inequality to climate change. Besides, he stresses, without this sense of purpose, companies will not achieve their full potential anyway. bit.ly/2p26QI3

Should businesses care if they are considered ethical or moral? Forbes Bruce Weinstein writes about whether there is a difference between ethics and morality in business, asking people on LinkedIn

for their reactions. The majority (76 per cent) said there was, the general consensus being that ethics were a set of rules and guidelines imposed as a code of conduct, whereas morals came from within. “In practical terms, if you use both ‘ethics’ and ‘morality’ in conversation, the people you are speaking with will probably take issue with how you are using these terms, even if they believe they are distinct in some way,” Weinstein says. He avoids using the word “ethics” in speeches, claiming the word can “strike fear into the heart of the listener, because it is usually linked with the word violation.” So should businesses be ethical or moral? Weinstein suggests that instead of wasting time worrying about what the words themselves mean, businesses would be better off thinking about what their meanings have in common and act positively on them – actions, as the saying goes, speaking louder than words. bit.ly/2wApLxd

Cashless payments may be on the up, but cash is still king when it comes to the consumer

ANY ECONOMISTS believe the world will someday be cashless. They point to India, which recently banned notes with lower denominations. So how long before the UK follows suit, asks Henley Business School Professor Dr Benjamin Laker. Consumers are embracing a wide array of payment options in today’s increasingly complex marketplaces. Cryptocurrency evangelists believe cash is a relic of the past but Mark Ridley, partner at global advisory firm Transform Performance International, believes that cash is “a symbol of the nation state. It will always be king.” He’s right. Contrary to widely held beliefs cash is not dying out, despite the increasing use of mobile phones and contactless payment for purchases. The Bank for International Settlements said in its latest report that the amount of cash in circulation rose from 7 per cent of global GDP in 2000 to 9 per cent in 2016. A cashless society therefore remains an elusive myth — both today and for the foreseeable future, with 79 per cent of US consumers in Cardtronics’ recent research claiming that they can’t imagine a world without cash. A full 83 per cent of respondents said they would miss cash if it went away, and 85 per

Cash still dominates person-to-person payments by 79 per cent. In specific scenarios, such as dining out, 55 per cent of consumers (including 47 per cent of millennials) still prefer to split the bill with cash. A separate study by the Federal Reserve Bank of San Francisco reached similar conclusions…

“A cashless society therefore remains an elusive myth – both today and for the foreseeable future”

• Cash continues to be the most frequently used consumer payment instrument. • C ash is widely used in a variety of circumstances • Cash dominates small-value transactions

cent believe cash will never go out of style. And while digital and mobile payment adoption is rising, a moderate pace of adoption indicates that consumers are complementing the use of cards and cash rather than replacing them large-scale. “Cash is often in the media spotlight,” said the Bank of England in a recent white paper. “While some predict its impending demise, most people continue to use banknotes in their day-to-day lives. Over the next few years, consumers are likely to use cash for a smaller proportion of the payments

they make, but cash is not likely to die out and aggregate demand for banknotes is increasing.” In research conducted by the US Federal Reserve Board in 2015, 32 per cent of all consumer transactions were made with cash, compared to 40 per cent in 2012. Growing consumer comfort with payment cards and the growth of online commerce, among other factors, contribute to this trend. Nonetheless, a broad range of results suggests that cash remains resilient and continues to play a key and unique role for consumers.

The third point is particularly troublesome for those pushing digital payments. Consumers see cash as the most convenient and efficient method for making small purchases – they feel it isn’t worth the “hassle” to take all the steps necessary to make a digital payment when they can just slap a note on the counter. For consumers to embrace digital payments, they not only need to be as fast and as simple as cash, but must be perceived as such. Until this happens, cash will remain king. It isn’t going away. Not now, nor anytime soon. INDUSTRY VIEW

@DrBenLaker www.transformperformance.com

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How to get a fair deal in the sharing economy Buying something directly from someone else is now easier than ever – but how do we know we are getting what we paid for?

HE SHARING economy has grown rapidly over the past number of years. Whether it’s looking for accommodation in someone else’s home via Airbnb or catching a ride in another person’s car through Uber, paying people rat her t han companies for goods and ser v ices is now commonplace. Indeed, a recent study conducted by Warwick University showed that the sharing economy grew by 60 per cent in the past 18 months, while PwC forecasts peer-to-peer transactions will hit £140billion by 2025, up from £13billion in 2016. But if the whole success of the sharing economy is based on trust, how do we know who to trust? “The whole trust issue is an interesting one,” says Euan Semple, author of Organisations Don’t Tweet People Do. “It is a question of who we trust to make it up on our behalf. Is it the guys in the suits, the banks, or could we cut the middleman out and trust each other?” What Semple thinks will help with this issue of trust is blockchain – the distributed ledger system where everything is permanently recorded, transparent and traceable. Nothing can be changed unless all of the computers in the network agree.

People can then buy and sell items with each other through a smart contract which sits on the blockchain. The contract outlines all the conditions that need to be met for the purchase to take place. There is no need to use a middlem a n, c ut t i ng out t he fe e s associated with these. “The big question is, is it better or worse than the current set up?” Semple says. “A lot of people are becoming interested in it as a value exchange as it can trace back the origins of ownership. “At the higher end a number of people have talked to me about high-net-worth individuals buying artefacts or works of art through smart contracts because they can offer proof of past ownership. They know it is a genuine piece.” But on the other hand, Semple points out, not everyone would feel comfortable with a degree of transparency that made it common knowledge that – for example – they owned an expensive piece of artwork. “At the moment it is a bit like the Wild West, or like the early days of the internet,” he says. Ultimately, Semple believes, it will have more potential than we realise, but things will depend on how the current incumbents wish to adopt the technology, and the problems it can solve for them.

Is the sharing economy taking over the old rental business model? PwC estimates that during the next decade, shared assets will gradually replace more traditional business models (such as car and tool rental and hotels)

£300bn £275bn £250bn £225bn £200bn £175bn £150bn £125bn

“As with any technology it has to solve a problem,” Semple says. And the area in which he thinks blockchain will turn out to be particularly useful is where goods have to pass through multiple national boundaries, perhaps in developing countries with little infrastructure. It removes the friction in transfer. According to Semple, blockchain has the potential to shake

up society and shift the balance of power from big institutions to the everyday consumer, as there is no need for the middleman. “There are a lot of interesting prospects in the sharing economy, and as people get less willing to put up with the siphoning of vast amounts of money into small groups of people’s pockets something is going to have to change,” Semple concludes.

£100bn £75bn £50bn £25bn

2013 Sharing Traditional model SOURCE: PWC ANALYSIS

2025 (estimated)

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Why retailers need to connect better to free themselves from cart abandonment

RITISH RETAIL habits are shifting. The well-documented trend towards online shopping, as evidenced by the demise of bricks-and-mortar brands and the rise of digital challengers such as ASOS, has seen us become a nation of click-happy shoppers. From fast fashion to furniture, we turn to e-commerce outlets to service an ever-expanding gamut of consumer needs. Yet a less-discussed trend is the growing role of “almost shopping”. The practice of browsing online, adding items to your basket, heading to the payment page, then just… stopping there. A staggering 96.7 per cent of visits to e-commerce sites end before purchase, creating a headache for retailers and breeding a nation of basket-drop-aholics. It’s no surprise that an increasing number of retailers are exploring new forms of technology and innovation to improve the shopping experience. This includes reducing friction at payments points, helping enhance the process for the 18.6 per cent of people who find this element too complicated to bother with. It’s becoming increasingly common that payment providers are considered a consultant to drop this drop-out rate. Once, you’d just take your three lines of code, integrate your

payment provider as a necessity and move on with your day, but times have shifted. Now payment providers are considered as valuable as a company’s lawyer or accountant, provided you pick the right one. If you can’t convert your customer at that final stage, when they are in the basket and ready to buy, because your checkout process is overcomplicated or because you’re not offering integration with the right payment method, then frankly, your previous efforts are lost. There are multiple tips and tricks to increase your conversion from basket to payment. Some are simpler – don’t redirect your customer to an unrelated URL to take their payment as it breaks their trust. Some are more complex – how do you run a global business across multiple markets, each with their own rules and regulations on how to orchestrate payments? PSPs can help. Local currencies, payment methods, local banks and financial legislation, languages… they understand it all. For example, in Germany, card penetration is low, so to make a profitable company you need to offer as many local payment methods as you can, provided they are applicable for your industry. In France, meanwhile, a local acquirer is better than a global acquirer because

you get higher acceptance rates. In Brazil, there’s a wealth of different alternative payment methods to consider. You may not need them all – it depends, of course, on the needs of your customer. In a global retail market where we have the world at our fingertips, it’s incumbent upon retailers to get savvier when it comes to providing the best shopping experience in the digital sphere. Using innovative marketing strategies to get shoppers onto their sites is one thing, but converting them into customers is another

Cash or card – what is your currency of convenience? T “We regularly hear predictions about when the UK will become cashless, but cash should not be underestimated” – Colin Close, Elavon

HE PAYMENT experience is changing for all of us, irrespective of our demographic or geography. We can now pay by card, cash, phone, e-wallets, apps, barcodes, smart watches and soon even with our sunglasses. Consumers have traditionally worried about the safety of electronic transactions, but today global standards, platformbased technology, sophisticated security and increased consumer confidence are breaking down these barriers. In the UK we are very card-centric – so much so that this year debit card payments overtook the use of cash for the first time. This phenomenal growth is primarily driven by contactless payments, which are encouraging the use of cards and pushing down the use of cash. Contactless payments have grown by nearly 20 times in the three years to June 2017 (UK Finance 2018). This is not surprising as contactless has made small payments far easier for both consumers and businesses, cutting queues at tills and making everything from taking the bus to buying a coffee more convenient. In contrast, cash use is falling and is expected to continue to decline over the coming decade. Experts predict that cash will only account for 16 per cent of all transactions made by 2027 (UK Finance). It is already common to find outlets that no longer take cash and for consumers to no longer carry it as they rely on alternative payment methods. Cash is now seen by some as cumbersome, heavy and clunky to carry around and no longer an efficient payment method.

We regularly hear predictions about when the UK will become cashless, but cash should not be underestimated as it continues to play an important part in the lives of many. People understand cash and can easily manage it, as it has boundaries. Small amounts of cash are still carried by a large percentage of the population, but it is rarely used as the main form of payment these days. Cash is now used as more of a safety option when other payment methods are not accepted. There is no doubt that the UK is transforming into an economy where the use of cash is reducing, but I believe cash still has and will have a place in society as it moves from a currency of convenience to one of insurance. It is also worth bearing in mind that, while cards and contactless are the current payment methods favoured by consumers, payment trends change very quickly. With new technologies like biometrics, artificial intelligence and blockchain already established the whole payment ecosystem will change again. So long as these new technologies embrace the changing needs of the customer and offer additional flexibility without compromising security, the industry will continue to see innovation. INDUSTRY VIEW

Colin Close (inset, left) is managing director, UK and international corporate, Elavon www.elavon.co.uk

feat entirely. And that is why businesses opt for a payments partner, not a payment provider. And for consumers, perhaps retailers upping their pay ment game will save us from ourselves, allowing us to ditch our addiction to maybe-shopping and instead leave with what we came for. INDUSTRY VIEW

lucy@judopayments.com www.judopay.com

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Inside the big payments payout In June payment platform Adyen became Europe’s largest technology IPO, valued at $8billion. Joanne Frearson finds out what’s behind such sudden growth in the payments sector

AYMENT PLATFORM Adyen was founded in 2006 to modernise outdated systems, giving both consumers greater flexibility in how they pay and merchants insight into how their customers like to shop. Since then the company has boomed, catering to demands in the retail sector to provide customers with an omnicha nel experience as new regulations allow g reater competition in t he marketplace. “The market is ripe for disruption,” Myles Dawson, UK country manager at Adyen tells Business Reporter. “There is so much change and so much disruption going on that there is a lot of opportunity to be a part of that.” Regulations such as the Payment Services Directive have given new players opportunities to provide services to consumers in a sector which was previously dominated by the banks. Over recent years a new breed of fintechs has emerged. Money transfer service TransferWise, the digital banking alternative Revolut and mobile-only bank Monzo have all raised millions from investors wanting to capitalise on the new products and services they offer. What these new entrants are doing is improving the payment experience for customers. “It is all about removing friction,” Dawson says. “You want to capture someone’s card details as quickly and efficiently as possible and then never ask them again.” A couple of years ago, Dawson explains, video streaming giant Netflix had poor results because customers were leaving when their payment card expired, as updating the card numbers was too much of a hassle. Now Visa and Mastercard have invented products which allow the card details held by subscription services such as Netflix to automatically update if the customer gets a new one, thus sidestepping the problem.

Dawson looks to Uber, however, as the perfect example of a frictionless payment experience. “You don’t even know you are paying,” he says. “You book a taxi and the payment happens behind that.” Uber is one of Adyen’s customers. Adyen has also been working with retailers such as footwear outlet Schuh to make payments easier for customers. At Schuh the focus has been on mobile point of sale (mPOS) to let shoppers pay anywhere on the shop floor – now 80 per cent of sales at its busiest London store are made this way. A recent sur vey by the payment company found that an estimated £12billion of potential sales was lost in the UK due to long queues at checkouts. Dawson points out a lot of retailers are struggling to make things convenient for their customers to pay quickly when they feel like it. “A lot of retailers are failing at the moment,” he says. “It is a common thing. There is no real experience for customers. You go into their stores and they are quite stale. We are seeing a lot of retailers look at how they can differentiate the store experience.” Retailers want to know everything about their customer through the one platform, he explains. They want technolog y that can provide them w it h data about t heir customer ’s preferences as well as software that can give them information about stock and a system. At Schuh the shop assistants have an app which can tell a customer if they

Below: Adyen’s Myles Dawson

“It is very clear that the retailers delivering a seamless omnichannel experience are the ones that are winning” – Myles Dawson, Adyen

have their shoe size in stock immediately – if not, they can order it for the next day. “It is very clear that the retailers delivering a very seamless omnichannel experience are the ones that are winning,” Dawson says. For example, Brompton Bikes has been working with Adyen to pair payment data with other types of data to better understand its customers. Adyen is using this insight to make better internal strategic decisions and give better service to Brompton’s customers. Another big thing companies want from a payment company, explains Dawson, is one that can support them internationally. He says: “What we increasingly see is retailers going global. They want to give their customers a seamless, consistent experience wherever they shop. Most tech companies or retailers now are born with global ambitions. They don’t want to be on a few high streets. They really want to think about how they can expand into Europe or the US or Asia.” Each country has its preferred methods of paying – Alipay and WeChat Pay in Asia, while contactless is a big thing in the UK – and Adyen is ensuring retailers

are equipped to adapt to the local market. In the UK luxury sector, Dawson has been seeing interest in Chinese payment methods. They have been popular for buying luxury goods in China and UK retailers now also want to integrate Alipay and WeChat Pay in their systems to cater for customers who want to buy this way. Dawson believes one of the reasons Adyen has done so well is because of this customer-centric approach and its culture of innovation. “We listen to what our customers are looking for and where they want to go next,” Dawson says. “We build in line with that.” Dawson thinks future growth in the industry will remain focused towards making things seamless. “We will continue to see the friction disappear from the payment landscape in whatever format it takes,” Dawson says. He sees an eventual end to clunky card terminals in stores and a move towards using mobile tablets as payment devices. Shoppers will be able to pay for things when they want and how they want. “It has got to end up like you feel like you are shoplifting,” Dawson says. “You pick up the five things you want. You walk out. The technology knows you and you get charged. It de-tags the security element.” In the future Dawson believes radiofrequency identification (RFID) will enable this to happen. “The payment capabilities are already there,” he says. “It is just about retailers pulling all of those capabilities together to enable you to do that.”

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Why the future of payments will no longer just be about payments $503bn In-store mobile payments are predicted to reach $503billion by 2020

HEN WE talk about the future of payments, we usually focus on the forms of the payments themselves – whether they are cash, card, different types of mobile payments or even crypto-payments. But a key question constantly overlooked in the industry is: will the future of payment solutions still serve the same purpose as we understand it today, a solution with the sole purpose of paying someone? Payment as a standalone industry has existed for centuries. It started with cash, then cheques, and now card payment being the mainstream. We have seen a recent upward trend in mobile payments, with providers such as Apple Pay and Google Pay competing for millennial adoption. Although offering a variety of ways to pay, current payment solutions are almost entirely isolated from other financial solutions. As banking solutions and investment solutions move towards mobile, we are now living in an age in which we see the three financial industries merge into the mobile platform.

Currently, there are certain common mindsets in Europe – for example, people who use cards to pay but manage their money in a bank, or those who set aside money in a bank account for daily spending, as their investment funds are illiquid and volatile. In fact, your payment tool can also be your money transfer and financial budgeting tool, and your daily expenses could in fact be coming from your investment funds, investments which don’t have to be high volatility or low liquidity. After all, if we have payment, banking and investment apps all on the same mobile platform, what stops them from integrating into one? Haven’t Alipay and Wechat Pay in Asia already led the way for this integrated trend?

What does this mean for the future of payments? The inevitable trend is that payments will no longer remain isolated from other financial activities, such as banking and investing. To enable consumers to get returns from their daily spending money, financial players will have to

work together to lay the foundation for such an ecosystem. The future of the payment industry inevitably overlaps with the future of the banking industry and the investment industry, spheres that will collaborate within one ecosystem for every customer. Motivated by the prospect of making returns on their savings, as well as the ease of daily use, 21st century consumers will favour only an integrated p a y m e n t- b a n k i n g- i n v e s t m e n t solution. By combining daily expense and investment money together, this will create a reciprocal effect: while your investment money will serve your everyday spending, the easy access to investment funds for daily use will in return drive more demand in investment funds. The future of payments will no longer be just payments themselves. It will be a solution that integrates all financial services into one. INDUSTRY VIEW

frank.zhou@zeux.com www.zeux.com

How the robot revolution will be a team effort

RTIFICIAL INTELLIGENCE is becoming more and more prevalent in our lives each day. In their current applications, AI agents can learn and predict people’s behavior, helping them with useful suggestions, and autonomously completing tasks assigned to them. At Silicon Valley’s AI Incorporated, they can now also form teams. “We have developed collaborative AI agents that are open to teamwork and see other agents as potential collaborators,” says Ali Afrouzi, AI Incorporated’s CEO. Artificial intelligence works based on a reward system, which corresponds to a higher accuracy and efficiency in its performance. In environments crowded with traditional AI agents, such as the internet, each agent competes with other agents to maximise its own reward, thus maximising its own performance. Thus, a group of self-driving cars in a garage would compete with one another to exit first. But this does not always lead to the maximisation of overall efficiency. Just as cases where, in crowded human environments, collaboration yields better results, machines may become better off if they collaborate with each other. This becomes

“Our robots can work together to maximise their individual and collective performance” – Ali Afrouzi, AI Incorporated exceedingly important if the machines are working on behalf their human owners, as is the case in the example of autonomous cars. AI Incorporated’s Collaborative Artificial Intelligence Technology (CAIT) is a new technological frontier that tackles this issue. “Our robots can work together to maximise their individual and collective performance through teamwork. They can form groups, share information, build tasks and even transfer their skills to one another.” Afrouzi says. In addition to its patented Collective Artificial Intelligence Technology, AI

Incorporated is the first company that works on Quantum SLAM in the field of mobile robotics. Simultaneous Localisation and Mapping, or SLAM, is a technology that allows robots to perceive their physical location in their surrounding environment. Quantum SLAM considers the complete state of the mechanical system at a given time, encoded as a phase point or a pure quantum state vector along with an equation of motion which carries the state forward in time. Afrouzi is also the CEO of Bobsweep, a company specialising in cleaning robots which has sold hundreds of thousands

household robots since 2011. The company boasts six models in its portfolio as of now and plans to launch its most disruptive model in January 2019. “It is very AI-rich, but its revolutionary features will be disclosed once the product is released,” says Afrouzi about Bobsweep’s newest model. In explaining his vision for smart cities of the future, Afrouzi envisions Passenger Pod as the system of transportation, a hybrid between an autonomous vehicle and ridesharing system. “It uses the best of both worlds: pods are owned by passengers and are available in a variety of shapes and sizes,” Afrouzi explains. “Unlike the other driverless cars, for this one you don’t have to worry about charging the battery, maintenance, or even a high price tag, since the pod does not have locomotion components. The chassis is a separate interchangeable and and can be shared among pod owners. Each chassis unit knows about the exact location of all the others and all the pods, which makes things so much easier.” INDUSTRY VIEW

twitter.com/bobsweep www.aiincorporated.com

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How start-ups are making life easier for the big banks Once upon a time small, agile fintechs were poised to pose a major disruptive threat to the traditional banking industry. So what happened?

“Start-ups and banks are not just taking their inspiration from the payments space. They are also building products based on how other industries are digitally transforming”

P UNTIL recently, the big banks were the undisputed kings of the payments jungle – until a few plucky upstart startups emerged to defy the traditional order, creating new products to make buying things quicker and more convenient for consumers. From mobile banking apps to lending platforms, these new disruptors have been shaking up the market to the shock of the big beasts grown complacent on their own dominance. Or at least, that was the official narrative. But instead of seeing these new entrants as unwelcome competition, the banks have been turning towards these new players, collaborating with them and absorb their new approaches.

The mobile consumer

Breaking new grounds Barclays has been at the forefront of these newfound partnerships, launching its own fintech start-up hub, Rise, which already has offices worldwide, from London, New York and Tel Aviv to Mumbai, Vilnius and Cape Town. “We are very positive about working with startups,” Nick Kerigan, managing director of future of payments at Barclaycard, tells Business Reporter over the phone from the Rise Shoreditch office in London. “The incumbent’s attitudes towards start-ups are changing. “If you back track 24, 36 months ago the narrative was [fintechs were] going to disrupt all of the established banks [who felt they didn’t] need to work with these fintechs. The narrative is very different now. Banks have acknowledged that fintechs are able to spot opportunity and create solutions quickly with new technology. “They are able to explore things that sometimes a bank does not have the bandwidth to do. Equally, fintechs have acknowledged and identified an opportunity to work with established banks because they have a trusted brand.” Fintechs have also been benefitting from the sheer scale of the traditional players, Kerigan explains. They have millions of customers which start-ups can gain access to through partnerships. Banks also know the compliance and regulatory landscape very well. Payments have been a big focus for start-ups as customer’s expectations have evolved. Kerigan estimates that about two-thirds of venture capital funding over the past two years invested in fintechs has gone into payments.

that receipt you got six months ago. It is much easier to digitise. “Equally for the merchant – they hate having all this paper in terms of receipt roll and reconciling. At the end of day it is a pain – and when you think about the environment […] and the number of trees used in receipts that are just thrown away. “We got quite excited by Flux – the proof of concept we ran was successful. We are now rolling out a much larger commercial pilot in partnership with them.” The start-up receipt service is now part of Barclays Launchpad, an app that has 20,000 customers who volunteer to test out new services. Flux has also recently announced a new partnership with Costa Coffee.

“We have seen dramatic changes,” he explains. “I have seen more changes in payments – certainly in the UK – in the last 10 years that we have seen in the previous thousand,” Kerigan says. But figuring out what to bet on can be quite challenging, cautions Kerigan. Its Rise accelerator programme is a method for Barclays to identify start-ups that understand that the business model in payments is two-sided. Kerigan says: “If you are creating innovation then you need to figure out a benefit for the consumer, but also figure one for the merchant because it is usually the retailer that will be paying for that service. “They need to be able to see the commercial benefit in adopting a new way of taking payments [and] if it is going to increase the volume of sales they make or improve their efficiency. “That means there has to be a win-win on both sides. There also needs to be a win for whoever is providing that service, otherwise the

service can’t be sustainable. Without that it is hard to scale a solution in payments, with payments being essentially a highly scaled business.”

In Flux One start-up which Barclays thinks can deliver this business model is digital receipt firm Flux. Barclays sponsored Flux, which was founded by the early employees of digital banking alternative Revolut, bringing into the Rise accelerator programme last year. The bank also funded a proof of concept with sandwich company Eat which ran through the later parts of last year and early this year, where customers buying a sandwich at Eat receive a digital receipt that appears in their banking app. “There are many benefits to that from the consumer side as there is no paper – you don’t have to carry around the receipts,” Kerigan says. “If something goes wrong you don’t have to find

Kerigan sees demand for mobile payments only increasing. “Consumers like the fact that they are able to make payments through using their smart phones,” he says. “Around 85 per cent of us now have a smartphone – and we are more likely to take it out of the house than our wallet. “[That makes it] convenient to make payments through your mobile phone. Mobile offers a benefit over those contactless cards, for example – the ability to identify where you are when you are making a payment. That is a useful piece of information that you can pull into your app.” Dawson forsees a world where payments will run in the background, with consumers only being notified when the payments happen. There will be no need for customers to struggle with credit cards or cash and payments will occur automatically. Barclaycard has been building invisible payment solutions Dine & Dash and launched partnerships with restaurants such as Prezzo, where diners can pay for meals with mobile apps, with payments automatically deducted from the customer’s bank account when they leave. These changes are in response to recognised consumer demand for easier payment methods. “The main thing that is driving this is the consumer and their expectations around the services experience,” Kerigan says. “Consumers increasingly expect experiences that are convenient.” Start-ups and banks are not just taking their inspiration from the payment space. They are also building products based on how other industries are digitally transforming to improve the customer experience. “What we have noticed is that when consumers have expectations for one service they transfer that expectation to another service,” Kerigan says. “For example, if electricity companies can deliver bills electronically and let [consumers] control the heating remotely, they’ll start to take those expectations into financial services. “You have this virtuous circle of payment innovation. It is about giving the consumer choice and new ways to pay.”

September 2018

AN INDEPENDENT REPORT FROM LYONSDOWN, DISTRIBUTED WITH CITY AM

business-reporter.co.uk

Business Reporter UK

@biznessreporter

The future lies in a new universe of payments D

IGITISATION, FAST payments, fraud, blockchain and regulations such as PSD2 are key developments that significantly influence how companies and banks manage payments today and in the future. It is essential for companies to manage their payments as efficiently and transparently as possible. Efficient payments processes help maintain full control over cash flows and costs, prevent the ever increasing risk of fraud, and ensure compliance with legal requirements as well as internal policies. Digitising and automating processes and adopting new technology are, therefore, high priorities for many companies, as revealed by a recent survey on the future of finance by global fintech provider Serrala. Companies are open to innovation, with 77 per cent of global finance leaders surveyed saying they expected financial departments to be fully digitised within the next five years. A whopping 98 per cent of respondents named increasing automation as the top priority for finance processes in scope of this digitisation. But where are they at and how can they improve? For banks, the key challenge today is to respond to growing competition from fintech companies, such as PayPal or Google Pay, offering new payment technologies. These companies have already lured consumers away from banks, and banks must find a way to compete if they want to maintain their leading position in the global payments ecosystem. Today’s CFOs and treasurers are looking for alternative payment channels that are faster, more secure and more efficient. The EU’s PSD2 regulation, which came into effect in January, has delivered a further blow by requiring banks to provide open application programming interfaces (API) and open up their previously proprietary technology. Now banks will need to share banking data with third parties, provided the customer has given permission. As banking becomes more open, new actors will emerge in the global payment ecosystem, creating an entirely different interaction between companies, banks and third parties. So what role will banks play in this future? “Companies and banks will need to rise to their respective challenges. Familiar connections of many years of undisturbed global transaction banking and often slow payment processes will be a thing of the past,” says Sven Lindemann, CEO of Serrala. “Instead, companies, banks and third parties will form new networks in which connectivity and efficient portals will play a key role in everyday business.” He continues: “Realising this early on, Serrala has established a unique offering

“Companies, banks and other stakeholders form part of a global network and a universe of payments. They all need solutions that help them connect easily and securely with each other”

to optimise global inbound and outbound payments processes in an integrated manner. As an experienced financial technology company supporting more than 2,500 organisations globally, we understand the whole payment ecosystem and the implications of new trends for managing global payment and related finance processes. We pick up on trends and provide the software solutions to address them.” Digitisation offers the chance to make a great leap forwards, yet few organisations have fully digitised and automated their processing of inbound and outbound payments and related transactions. According to Serrala’s survey, only 9 per cent of respondents have fully automated their processes. This explains why many inefficiencies still remain. The World Payments Report 2017 of BNP Paribas and Capgemini indicates these inefficiencies include a lack of standardisation of messages and data capture, and lack of synchronisation between receivables and payables, manual processes,

lack of integration between multi-ERP systems and in-house ERP systems. Lindemann agrees. “Serrala’s uniquely comprehensive portfolio of financial process solutions helps organisations benefit from digitisation so they can achieve their goals of greater efficiency, transparency, compliance and fraud prevention,” he says. “Our solutions offer intelligent automation that is based on the logic of AI and machine learning. These technologies take away a lot of the manual burden from the finance departments so they can automate 98 per cent of their inbound payment processing and 100 per cent of their invoice data capture. Our end-to-end solution models mean companies can achieve a fully automated, no-touch process all the way through, from the receipt of an invoice to validating, compliance checking, processing, approving and executing the correspondent payment. Our solutions are diverse, just like our customers. They are modular and can be tailored to unique business requirements.

They also support all types of enterprise systems – from on-premises systems to cloud and hybrid solutions. We also have a new managed services’ offering which provides companies with the possibility to outsource several operational tasks around payments – a unique offering in the global market.” Banks continue to be the sole provider of financial transaction services for many companies, but are challenged by new players, new regulations such as PDS2 and other developments. Plus, companies are increasingly looking to centralise the management and oversight of multiple bank accounts, reduce transaction fees, simplify bank communications, and support blockchain initiatives. However, they are also looking for broader solutions that will provide them with greater control and visibility across inbound and outbound payments and their cash. While many banks are responding to these demands by modernising their corporate banking services, the process can be challenging and slow thanks to legacy IT infrastructures and complex organisational structures. This is where fintech companies come into play – not just as a competitor, but as a supporter for banks. In fact, they can provide banks with the technology and capabilities they need to provide faster, more convenient services in a matter of weeks. Bank can quickly implement proven cloud-based banking solutions with a wide range of banking services and roll them out to corporations and individuals, faster than they could build a custom solution with in-house resources. Serrala has worked closely with banks for many years and has developed BCrest, a set of cloud solutions that help banks expand their customer offerings. Our innovative solutions help banks keep the cost of innovation low, and maintain their existing customer relationships and their established role as trusted advisors. With such a strong extended technology offering that customers are willing to pay for, banks are even able to generate an additional revenue stream and transform their cost centers into profit centres. Companies, banks and other stakeholders form part of a global network and a universe of payments. They all need solutions that help them connect easily and securely with each other and automate their processes to enhance efficiency, transparency, and compliance. And as Serrala’s survey has shown, global financial leaders embrace change and expect their payments and related finance processes to be fully digitised in the next five years. INDUSTRY VIEW