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September 2015 | business-reporter.co.uk

Technology

At last! No prejudice to social mobility

Why the bank of Jane Austen and Lord Byron is moving into the 21st century By Shane Richmond DISTRIBUTED WITHIN THE SUNDAY TELEGRAPH, PRODUCED AND PUBLISHED BY LYONSDOWN WHICH TAKES SOLE RESPONSIBILITY FOR THE CONTENTS

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Financial services technology

Opening shots Shane Richmond

LANS FOR a mobile app were announced this July by C Hoare. The name might not be familiar, but C Hoare & Co, founded in 1672 and still family owned, is Britain’s oldest bank and the fourth-oldest in the world. Jane Austen and Lord Byron were once customers. Alexander Hoare told customers that the bank was modernising “300 years of working practices”. The decision to enter the mobile age has come not a moment too soon, at least according to a report by Consult Hyperion, published last month on behalf of Payments UK. The consultancy said that within the next five years, mobile will become the leading payment platform. Consult Hyperion said that technology, regulations and consumer behaviour were together creating an ideal environment for mobile to flourish. It makes sense that these devices, which already contain our calendars, contacts and correspondence and are expanding to control our homes, wearables and other tech, should become our financial hub too. But are financial services companies ready for the shift? Simply having an app is not enough. If a small, private bank like C Hoare has one, a huge PLC has no excuse. The question is whether your app is any good. And that is an issue in two particular areas. First, Silicon Valley companies, with all their user experience expertise, are developing fintech apps and discovering that the industry is ripe

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If you don’t move your customers to mobile then somebody else will for disruption. The Consult Hyperion report highlights the threat represented by one very big tech company’s arrival in the payments space: “The emergence of Apple Pay provides an insight into how the world may develop; it is possible to conceive of a future in which banks are left simply holding customers’ accounts, and with no direct involvement in payments, and no involvement in the more profitable elements of their customers’ financial lives.” In short, the established players need to up their game, and quickly. The second issue is security. Trust is vital to the success of financial services companies and the connected world is full of risks. It seems customers will have good reason to be cautious about the security of banking apps. Researchers from the University of Florida tested “branchless banking” apps that are widely used in the developing world and found them lacking. Branchless banking is the name given to apps Twitter: @ aimed at people in parts of the world that lack shanerichmond

established banking infrastructure. Since mobile devices and a network are available, apps such as GCash, Airtel Money and MoneyOnMobile handle around 30 per cent of the GDP in some countries. But the researchers found the apps were often compromised by poor authentication and cryptography systems and information leakage. Of seven apps the team examined, they rated six as insecure. Only Zuum, built by MasterCard and Telefonica Brazil, passed the assessment. These apps often benefit from being the only option – or one of few – in the developing world but that won’t be the case as companies in Britain attempt to move their customers to mobile. Security concerns will be enough to make customers avoid an app. It’s impossible to say whether any of the new banks launching in the coming months will match the 300-year lifespan of C Hoare & Co, but one thing is certain – the next five years will be vital. If you don’t move your customers to mobile then somebody else will.

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INANCIAL TECHNOLOGY, or fintech as it has become known, is a rapidly growing industry and Europe is seeing more investment in the sector than any other part of the world. And with the continent’s major financial hub in London, the UK is leading the pack. Research by Accenture found investment in fintech ventures in Europe more than doubled between 2013 and 2014 to $1.48billion, with the UK and Ireland accounting for 42 per cent, or $623million. Some of these firms are directly offering financial products and services to consumers, while others might provide under-the-hood technology to help banks run their backoffice systems, but they all fall within the regulatory regime of the UK’s Financial Conduct Authority (FCA). While one might expect that the necessity of regulatory oversight would end up stifling some of the innovation coming out the sector, the FCA has tried to portray itself as being supportive of cutting-edge technological development. “The FCA has been vocal in its support for innovation in financial services,” says Neil Furnivall, associate director in financial business consulting at Grant Thornton UK. “[It] set up Project Innovate to encourage fintech innovation and I suspect the FCA’s support for fintech will only grow stronger in the months and years to come.” Project Innovate was announced in June last year to much fanfare and is the UK regulator’s vehicle for providing support to fintech businesses, but also to make sure they are well versed on their regulatory responsibilities. The hub provides businesses with a dedicated point of contact with the regulator and advises them on how the regulatory framework applies to them. But the FCA is keen for it to be seen as a two-way street, and will also use the connections it makes with innovating firms to identify areas where its framework needs to adapt to foster innovation that benefits consumers. “Project Innovate has been a really good initiative,” says Nick Hungerford (below), founder and CEO of Nutmeg, an online wealth manager. “One of the biggest issues for regulators is to understand the growth and challenges that face a fintech business.” But getting to grips with fintech isn’t quite as simple as it sounds, with a vast array of companies with roles that may not fit within existing financial regulation. For a firm like Nutmeg, which is providing traditional investment advice and wealth management services, albeit with a more modern take, the FCA would need to look at how its rules might be modified to account for consumers accessing these services over the internet. But other innovations, like cryptocurrencies or niche, superfast hardware for financial trading, may require a very different approach. “Fintech is a broad canvas that cuts across the remit of regulators,” explains Steve Davies, partner at PwC. “Not only do they have to deal with the sheer volume of start-up activity but they also need to remember they’re often dealing with firms made up of engineers and developers, not financiers.” It may be that in order to cut through the jargon and create dialogue between the regulator and technology companies the FCA may need to look beyond its traditional hiring practices, which often means its workforce is made up of

London leading the charge By Joanne Frearson

The UK is one of the world’s hottest destinations for financial technology start-ups. John Bakie reports on the FCA’s Project Innovate former finance professionals. “The FCA does engage in more dialogue with technology firms than it did in the past, but it may not always have people in-house that are familiar enough with the tech they’re trying to regulate,” says Cindy Dorrington, partner at City-based Bivonas Law. Davies agreed that regulators need to hire the right people in order to connect with innovative young fintech companies. “The FCA needs to augment its talent pool and make sure its teams are reflective of the the individuals working in the organisations it regulates,” he adds, which would mean hiring more technology specialists. And while Project Innovate has been largely welcomed by the fintech community, financial regulators may need to make more sweeping changes to truly accommodate the needs of the burgeoning sector. Nutmeg’s Hungerford is keen to praise the FCA’s “forward looking” nature compared with many of its peers, but some long-standing rules regarding how regulators interact with firms in the UK still need revising, he believes. “One issue we face is that we don’t have a dedicated account manager at the FCA. It’s frustrating because we want to work more closely, but the

rules prevent us from having an account manager. It would be good if some special factors could be taken into account to reflect the growing role of fintech firms,” he explains. As for the rules themselves, the FCA operates a “principles-based” approach to regulation which gives it a degree of flexibility in how firms operate provided they meet the core goals of protecting consumers and ensuring markets are stable. This will be helpful as fintech continues to evolve and innovate with completely new ways of providing financial services. That said, Davies believes there is room for improvement: “We need to reflect on the rulebook and refresh the principles, balancing around the need for safety and for competition.” The work done already with Project Innovate, which at little more than a year old is still in its early stages, is certainly encouraging and feedback from the industry has been largely positive. With the UK leading the way in fintech investment and innovation it is appropriate that its regulator is also among the most forward thinking about how it approaches the industry and bodes well for broader investment in the sector across Europe, where regulators have often followed London’s lead.

Financial services technology

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Financial services technology

head of Gartner Symposium/ITxpo 2015 in Barcelona, David Furlonger (pictured), Gartner vice president and fellow, is exploring the steps that banks’ business and IT leaders need to take to successfully drive digital transformation. Bank CEOs view digital transformation projects as a “team sport” that involves all C-level executives and requires them to become digital leaders. Most senior bank business and IT leaders understand that digital transformation is critical to the continuing success – even survival – of their institutions. However, bank CIOs do not fully understand that digital transformation represents a radical, all-encompassing cultural shift, so are unprepared for these changes. This narrow view increases the chance that bank transformation initiatives will fail. Gartner estimates that the overall failure rate for these projects is at least 50 per cent, and will reach 70 per cent by the end of 2017. Bank CIOs’ professional backgrounds, skill-sets and day-to-day operational management demands mean they are usually not best-suited to strategic leadership of initiatives around digital transformation, which goes beyond the operational or tactical technological concern. They must be prepared for new business processes and models that have shorter execution/timeto-market timescales, new compensation and performance structures and mandates, and new scale-sensitive initiatives to delivering competitive advantage. These changes will require bank CIOs to bring in technologies that are designed, developed and delivered with the view of collaborative and highly engaged employees.

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Bank CIOs facing severe challenges over digital transformation initiatives The workforce in banks has also changed dramatically. It is now common to see three generations of employees working together: “millennials,” midlife/mid-career workers and older workers. The greater diversity of today’s bank workforces will require bank CIOs to develop more flexible and agile management practices to accommodate, support and reward employees. They must show that contributions from all employees are valued. Above all, digital transformation requires creativity, so bank CIOs must be prepared to foster creative thinking in the IT organisation and creative technological solutions to problems outside the IT organisation.

The competition for talent is intensifying across virtually all industries, with financial services no exception. Bank CIOs supporting digital transformation will need to ensure that they constantly evolve along with their organisations’ business models and processes. They also need to understand their banks’ competitive objectives and the impact of those on the business and the IT organisation, as well as their customers’ willingness to accept technologically enabled innovations. We recommend that bank CIOs conduct a comprehensive gap analysis or enterprise personality profile to determine the bank’s digital transformation needs

and the skills available to support them. The digital transformation of banks will demand a radical approach to corporate culture, and bank CIOs need to embrace the challenge. The bank of the future will require a corporate culture that focuses on entrepreneurship, collaboration, agility and “fail fast” innovation. Above all, it will require a different style of leadership. David Furlonger will further discuss how to digitally remaster the financial services industry at the Gartner Symposium/ITxpo 2015, November 8-12, in Barcelona, Spain. www.gartner.com/eu/symposium

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Financial services technology

The inner geek

By Ciara Long, online reporter

Moz & Bradders

Contactless payments break £2.5bn barrier By Joanne Frearson

MORE THAN £2.5 billion has been spent using contactless cards in the first half of 2015, according to figures from the UK Cards Association, compared with £2.32billion for the whole of 2014. Given the rise in popularity of this type of technology for buying goods and services, the payment limit for contactless cards has also risen to £30 as the number of cards in circulation increases. The decision to raise the limit was taken collectively after extensive consultation with all of the parties in the cards payments industry. To accommodate the new limit, software across the country’s network of payment terminals is being upgraded. The average supermarket spend of £25 will now fall below the contactless limit, giving shoppers more choice about the way they can pay for their goods. The average card spend in pubs, cinemas, dry cleaners, gift shops and pet shops will also fall under the new £30 limit. Kevin Jenkins, managing director of UK & Ireland at Visa Europe, says: “Contactless is becoming the ‘new normal’ as Britons embrace the speed, convenience and safety of touchto-pay technology. We’ve seen unprecedented growth in this area, with the number of Visa contactless transactions more than trebling in the past year in the UK. “The increase to £30 gives consumers all the benefits of contactless across a broader range of daily activities, and we expect to see this momentum continue to build as more people adopt mobile and wearable payment technology.”

There are more than 69 million contactless payment cards in circulation, with more than 9.3 million contactless payment cards being issued to consumers between January and June 2015. Graham Peacop (below), c h i e f e xe c u t i ve officer of the UK Cards Association, says: “Contactless payments are fast, easy and secure. With more contactless cards in wallets than ever before and a growing number of retailers accepting contactless payments, we have seen a huge rise in the number of payments being made. “The growth in contactless payments shows people want to use contactless cards and increasing the limit gives customers even more opportunities to pay in this way.” This growth is expected to continue as consumers rely less on cash. As paying with contactless cards uses the same robust industry-standard secure encryption technology as Chip and PIN, buying goods and services is completely safe. Mark Barnett, president of MasterCard UK & Ireland, says: “Consumers enjoy the speed and convenience of tapping to pay. We expect this upward trend to persist with consumers continuing to migrate to contactless card payments and increasingly to mobile payments, as we work with partners such as Apple to enable more convenient ways to pay.”

Finextra hhttp://finextra.com Covering significant technology news in retail and wholesale banking, insurance and capital markets, this blog publishes research, features, white papers and case studies for financial services technology. Defining itself as an information resource for financial technology’s global community, the Finextra blog has almost 10,000 posts from FST experts. Daily Fintech http://dailyfintech.com This blog covers the digital side of transformation, including aspects relating to strategy, people, processes, customers, content, measurement and technology. Recent posts look at reasons why digital transformation initiatives fail and the impact digital is set to have on marketing partnerships over the next two years. Bobsguide www.bobsguide.com Providing financial tech news, RSS feeds, jobs and event announcements, Bobsguide looks at how financial IT suppliers from across the globe interact with professionals in IT, financial and treasury. Its product database catalogues over 7,700 products and is updated constantly. Finovate http://finovate.com/blog Finovate is a financial services technology firm running since 1995, when it was set up by exbanker Jim Bruene. The Finovate blog runs alongside conferences, demo videos and networking events and covers topics related to the future of payments, with a regular feature on mobile banking.

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Financial services technology

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How new a fintech

Improving the customer experience and preventing identity fraud

anks now face the same challenge that retailers have seen over the last 10 years. Consumers have chosen to shop online, thanks to the combination of better service with lower prices. Footfall on the high street is down, and digital channel interaction is on the rise. To be successful in this new environment, banks have started to introduce new apps and digital services. However, it’s important to rethink the whole process that banks take around identity. A customer’s interaction with their bank was based on the branch first, as they had to open their accounts in person in order to prevent identity fraud. Customers also had less choice over how to interact with their bank compared with now. The challenge for any bank is to work across multiple channels and improve the customer experience while also dealing with new kinds of identity fraud. Bank staff can make decisions around identity instantly based on comparing the person in front of them against other trusted forms of identity, such as a passport photo or ID card. However, banks need to ensure that their compliance and security processes are followed to reduce risk and demonstrate that they are meeting their regulatory obligations. So how can we combine the best of the new digital world, yet retain security? By making more use of real-time data, banks can ensure that the potential for fraud is reduced. Rather than relying on in-person form filling and laborious processes that turn away customers, new techniques like facial recognition can be used to speed up the assurance process. Using facial recognition in conjunction with

passport or ID card verification as part of a new customer sign-up can significantly improve banks’ ability to reduce identity theft and fraud. However, it can also improve the experience for customers. In turn, this can make those customers more valuable and increase their profitability. In order to deliver this service, Paycasso relies on DataStax Enterprise. Real-time mapping of facial features for analysis creates a huge amount of data that has to be used and analysed as it is created. DataStax meets this requirement with its secure always-on NoSQL database platform for transaction data. Using DataStax, Paycasso can scale and analyse data in real time, ensuring that a decision on identity risk can be made instantly. This approach ensures the bank follows its security and compliance best practices as well as delivering a better customer experience. As banks build out their digital multichannel initiatives and seek to increase profitability around customer services, the role of identity assurance has to change. Replacing in-person processes with use of new technologies like facial recognition and big data analysis not only reduces the risk of identity fraud, it ensures that more customers sign up to new services. Building up this bigger picture of customers is essential to remain competitive in the new digital market; however, it has to be based on the firm foundations of identity assurance. Russell S King (inset above) is chief executive officer, Paycasso Twitter: @Paycasso www.paycasso.com www.datastax.com

Are you interested in trade and risk management systems, AML or fraud management? DataStax will be hosting an event on October 6 at Canary Wharf in London Attend free of charge by registering here www.datastax.com/company/events

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By Joe McGrath

HE UK’S £126.9billion financial services industry is in the grip of a fundamental transformation, with technology companies changing the operating models of established businesses and impacting their market share. This so-called disruption is a global phenomenon and led to financial technology companies attracting investment of some $12.2billion in 2014, up from just $4.1billion in 2013, according to a July 2015 report from Accenture. But, after five years of steeply increasing fintech financing activity, investment is starting to increasingly concentrate in three sectors: financial advisory, reporting and trade analytics.

Automated advisory Sean Park (below right), founder and chief investment officer of venture investment firm Anthemis, is widely considered one of the most influential voices on fintech trends in Europe. He says one of the notable innovations currently being witnessed in the market is the growth of automated investment advisory solutions. He explains: “Companies like [automated investment firm] Betterment allow investors to set their own risk and investment parameters and use automation software to plan and manage their portfolios online, all at a lower cost to traditional advisory services. We believe that we are only at the beginning of a significant shift towards hyper-intelligent, data-driven investing.” As expertise in big data and crowd intelligence techniques improve, so too will the quality of retail investment advice, say proponents. Bernd Richter, partner at Capco, says new players have entered the market with concepts such as “robo-invest technology” – which use computer algorithms to manage money rather than humans. He adds: “In addition, existing platforms for retail investment advice such as Wealthfront, Betterment, Nutmeg, Wikinvest and Stockspot have received more attention and asset inflows. Further areas of innovation include the use of real-time reporting through smart device dashboards for institutional investors on discretionary mandates and social lending.” Richter’s final point shows how it is not just the investment marketplace that is being disrupted within financial advice circles. While previous generations may have consulted their independent financial adviser for investment planning or their borrowing requirements, today’s customers are increasingly looking online. Peer-to-peer lending platforms have grown in popularity and have thrived since the credit crisis, when many traditional specialist lenders were obliterated from the marketplace after their warehousing lines were cut off. Back then,

there were only a handful of social lenders, whereas today there are hundreds, with some now commanding interest from hedge funds and institutional investors.

Reporting for regulators In the institutional banking and asset management sectors, new regulations have meant that companies have had to invest in ways to better understand and analyse their risks after the financial crisis. This has led to an explosion of smaller fintech businesses that exist to analyse everything from capital commitments to research quality. With global regulators continuing to introduce more onerous rule-sets, this is a trend that does not look to be ending anytime soon. However, established institutional players with clunky legacy systems may well be at a disadvantage when it comes to adopting new systems, according to Park. He says: “Not only will increasingly powerful data analytics, machine learning and algorithms recast the competitive environment but many of

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Financial services technology

rules are driving investment wave

these tools and platforms will be widely available. The speed of change and adoption of this new paradigm will in fact tend to favour newer, smaller, more nimble players who are unencumbered by legacy technologies and mindsets.” One regulation in particular is seen as a key driver for fintech development in the year ahead – the second iteration of the Market in Financial Instruments Directive, or MIFID II. Hugh Cumberland, solution manager at Colt, says: “The year ahead will be dominated by MIFID II developments: everything from accuracy of time-stamping to management challenges around voice and electronic messaging recording. While this will be the focus, the industry should have its eyes further up the road ahead.”

Trade execution Linked to the reporting theme is the growth in the number of fintech businesses claiming to enhance trading for institutions or individuals. These can vary from new trading venues to companies, which specialise in the analysis of trade execution quality, based on historical data

sets, future predictions or real-time data. Matt Gibbs, product manager at Linedata, says the introduction of new trading venues for firms looking to enhance liquidity in both equity and bond markets has been a particular theme of note in the past 18 months. He says: “We have also seen the buy-side coming together to create more efficient workflows and potential liquidity enhancements. The scope is very broad and does not require a niche approach. We are seeing new entrants in large institutional trading/investment markets such as equities, investment grade and high-yield bonds.”

Unlikely funding sources While much has been made of the “disruption” to traditional financial services markets, it is perhaps surprising to learn that the backers of many of these start-ups are the banks themselves. Government adviser Louise Beaumont works for GLI Finance. She says in recent months, investment banks have either been investing

directly in fintech start-ups or launching their own accelerator programmes. She says: “Venture capital is the other obvious solution – however, in the UK it has not reached the level of ubiquity seen in Silicon Valley. Then, there are firms such as us that take the equity stakes and also provide liquidity to platforms.” Accelerator programmes run by large financial services companies are sometimes criticised by the fintech world due to some programmes focusing only on providing facilities and mentoring. Some critics even argue that they only exist so the large financial institutions can “steal” the ideas. However, Cumberland says many are still worth a closer look. “Angel and venture capital are obviously still very popular, but increasingly we’ll also see capital markets and financial services houses placing large bets on new technologies, either independently or in consortia. At the appropriate stage, IPOs on tech-friendly junior markets such as the Alternative Investment Market (AIM) will also play an important part.”

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H C R A M HE OF T

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CRYPTOCURR It’s all still relatively new, but cryptocurrency technology may yet revolutionise financial transactions, reports Jonathan Watkins

HE ARRIVAL of Bitcoin in 2009 set the world of cryptocurrencies in motion. Since then, hundreds of digital currencies have launched off the back of Bitcoin’s success, contributing to the digital currency revolution. While the world may be less familiar with the likes of Litecoin, Namecoin and Ripple than the originator of cryptocurrencies, they are part of a whole world of start-ups, innovators and fintech companies committed to growing and developing the space. Virtual currencies have been defined by their security, anonymity and the simplicity of transferring funds with minimal fees. Their decentralised nature means that no institution controls the currency and no third party is involved in the process. There are no prerequisites for using them, no limits and no restrictions on specific regions. These attributes have enabled the forms of digital payment to evolve and grow rapidly in their relatively short lifetime. Cryptocurrencies have encouraged fintech participation from the outset, providing opportunities for firms to streamline processes, analyse data and contribute to record keeping with the incentive of rewarding them with the digital currency. Bitcoin by no means intended to rule the digital currency world by itself and as a result there has been an explosion of fintech start-ups in the digital currency space. “Fintech start-up activity and innovation is a fairly recent phenomenon, with investment increasing from $3billion in 2013 to $12billion in 2014,” says Debby Hopkins (inset), chief innovation officer of Citi and CEO of Citi Ventures. “Many fintech start-ups and offerings improve user experience or interface while still relying on traditional financial infrastructure on the back-end.” One feature luring the fintech firms has been blockchain technology. Widely regarded as the defining innovation in cryptocurrencies, a blockchain is a chronological order of all Bitcoin transactions recorded in a public ledger. It’s a system that has allowed cryptocurrencies to maintain their anonymity, while also acting as a record-keeping tool and ensures that users aren’t spending the same Bitcoin multiple times. “It seems that now more than ever, big and small companies across all industries are starting to realise the enormous potential of the blockchain,” says Bernd Richter, partner at financial services consultancy Capco. “This is exactly why we’re now seeing the sudden excitement for blockchainbased applications.”

To add even more credibility to blockchain, its list of investors is long and distinguished. Goldman Sachs, Nasdaq and UBS are just some of the firms that have backed the innovation, but the list includes most major corporations. “Blockchain technology is making it interesting for new fintech start-ups to build processes and services that reimagine traditional infrastructure and build on this new platform,” adds Hopkins. “We are excited to see emerging applications from start-ups and to continue our own exploration of blockchain use cases in our innovation labs.” Former employees from NYSE, JP Morgan and Morgan Stanley have left their respective firms to pursue fintech start-ups, blockchain innovation labs, or to set up their own servers to experiment on. The mix of major institutions and start-ups continues to breathe life into the blockchain which exists through their input. It is becoming increasingly likely that blockchain technology will begin to be used in other aspects of the financial world, and revolutionise payments in the future. “This technology will start to gain mainstream traction, power new payment methods, be adopted by global financial institutions and start to massively democratise the global financial system,” says founder of fintech money transfer company Azimo, Michael Kent. The other innovation heralded within cryptocurrency circles is the process of mining. The two ways to obtain cryptocurrencies are either to buy them or mine them. Most experts are quick to remind the public that the average individual doesn’t possess the technical abilities to mine themselves, as the process is so complicated. However for many companies and fintech firms, this form of cryptocurrency extrusion has become lucrative. Mining both adds transactions to a blockchain and also allows new cryptocurrencies to be released. This is performed by computers and algorithms, which are incentivised to add transactions with rewards in the form of newly- issued crypto coins. “Probably the biggest impact of the cryptocurrency is substantial investment in Bitcoin mining,” says Ron Leven, head of FX pre-trade and economic strategy, Thomson Reuters. “Mining is a highly dataintense process and requires vast server farms to do the transactions.” The process has been an open invitation for fintech firms to apply their technologies to the space, to both grow it and make a profit for themselves. Due to the global nature of cryptocurrencies, start-ups have been springing

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RENCIES

Helping put the first Savlonic album out there gave me a thrill Keil Hubert

Trading in Bitcoin is surging, but the market is still highly volatile as the currency is not backed by any governments or banks

up all over the world to mine Bitcoin and its digital currency counterparts. Trading of cryptocurrencies has also taken off, with many questioning whether they can rival traditional currency trade patterns. Currency trading venues and websites have moved into the Bitcoin trading space, seeing a chance to capture investors looking to trade cryptocurrencies. As with the trading of traditional FX, there is now a whole world of exchanges, derivatives platforms and retail trading venues. While there are some similarities between regular currencies and digital ones, the major difference is that there is no government setting the price. As a result, the price of Bitcoin has been volatile and remains a small market in terms of trading volumes, from pennies to hundreds of pounds in value. Still in its infancy, there has been some demand from retail investors looking to move away from the traditional currency market. Some Forex brokers are offering Bitcoin as a tradable asset for contracts for difference and binary options trades. Hopk i n s from C it i Ventures believes it won’t have an effect on the global FX market though, which is expected to reach average daily volumes of $5.5trillion this year. In comparison, the total value of Bitcoins in circulation is approximately $4billion and daily transactions are around $60million. “Today, the trading volumes of digital currencies such as Bitcoin are too low to disrupt existing currency trade patterns in any significant way,” adds Hopkins. “Additionally, today’s digital currencies are not currently issued nor backed by governments or banks. As such, digital currencies are records in a distributed database that only have value if they can be valued and exchanged.” One thing is certain for the immediate future, and that is that investment will continue to flow. The potential for blockchain technology is so vast that most of its applications haven’t even been invented yet.

T’S NOW an accepted fact that the internet has given us an incredible new opportunity to discover communities of like-minded people from all over the world. It’s liberating to discover that you’re not the only person on Earth fascinated by your obscure hobby, and it’s even more thrilling to discover whole new iterations of, and variations on, the unique things that you’re passionate about. Pre- and post-mainstream internet culture has become a pop culture trope in and of itself. It’s also accepted that global information exchange has fundamentally changed business, from computerised equities trading to mobile-phone based microloans in developing countries. I submit that there’s another trend rising out of this movement that isn’t getting much attention – a trend that’s already starting to warp how creative business is conducted: the direct funding of projects by fans, without the involvement of traditional production entities. This is a very good thing. Here in the US, we’re a bit over the moon over crowdsourcing companies such as Kickstarter and PledgeMusic. Since I first learned about these outfits, I’ve backed four books, two music albums, two sculpture projects, and a videogame. I’ve never been a “patron of the arts” before – not until I experienced this stress-free democratisation of the patronage process. By going straight to the artists and writers that I’m already aware of and whose works I enjoy, I’ve been able to do my part to help ensure that they’re fully funded for their next projects – in exchange for being one of the first consumers to receive a copy of said projects once they’re finished. Usually, this means receiving a digital download (PDF or MP3) of a product immediately upon finalisation, long before the physical book or album ships. I appreciate that we’ve always been able to directly fund creative

types – in fact, if you personally know a starving artist, you probably get hit up for cash on an annoyingly regular basis. But what the web’s cloud services infrastructure has done for us is to fund those artists that we respect but who we don’t know and, let’s be realistic, could never meet. I can use an app on my smartphone to monitor my favourite writers and bands; once they announce a new project, I can donate to their cause immediately, safely, and painlessly. There’s no need for us to be introduced. The disruptive nature of these services is that they shorten the distance from creator to consumer. Personally, I wasn’t interested in funding a Veronica Mars movie; that’s fine, since 91,585 other people were interested and raised $5.7million to see it happen. The majority of those contributors didn’t help to producing the first Savlonic album. That’s fine too, since 1,320 of us were able to handle it ourselves. Each micro-patron gets to focus their funds on only those projects that most appeal to them. The crowdsourcing methodology is taking hold on an increasingly ambitious scale. What started with amateur arts and crafts projects is catching the attention of major manufacturers. When General Motors commits billions of dollars to develop a new car model, it has to forecast global sales on a staggering scale to make its investment worthwhile. With hyper-focused crowdsourcing, even manufacturing behemoths like GM can accurately gauge the demand for a new, niche product before committing to production – thereby guaranteeing the minimum take-rate needed to cover their expenses and ensure a hit in the market. This bodes very well for small and medium businesses that have to operate with thin margins and in risky market segments. Crowdsourcing has the potential to greatly increase both producer profitability and consumer satisfaction.

10 · Business Technology · September 2015

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INSIDE TRACK How to ensure security and compliance is maintained when using Skype for Business

Emerging analytics tech brings increasing clairvoyance to the financial sector But with great insight comes great responsibility…

he financial sector has long been a voracious adopter of technology. Every transaction brings the potential for profit, with the profit today often hinging on sub-second optimisation of decision making. And where there’s a lot of money, there’s a lot of risk. And right behind optimising transaction flow is mitigating those risks. Fraudulent transactions, regulatory blunders, and “bad bets” can wipe those profits out, and occasionally put whole economies at risk. No wonder there’s a continuous drive to build a better mousetrap. Technology is always the proverbial double-edged sword. In the financial sector, improvements in real-time analytics have led to an explosion of transactions, with the ability to execute with sub-second speed. This explosion in transactions makes the markets more efficient, but also makes them more vulnerable. When things go wrong, they can go wrong in a big way very quickly. And the increased number of transactions provides

more places to hide for the bad guys. Big data analytics has been getting a lot of hype, and there have been some interesting applications in fintech. The last several years have focused primarily on leveraging structured data from business systems and high-volume machine or other log data, applying real-time streaming analytics, and driving decision making into real-time. Detecting fraud, making a trade, approving a loan… all done by algorithms. There are some emerging technologies that enable analytics to move beyond the structured business data and high-volume machine data, and incorporate human data like emails, chat logs, voice conversations, video and other sources. This ability to analyse all this data together and combine the analysis to gain greater context is leading to some fascinating applications. Detecting insider trading no longer needs to rely solely on patterns in the trading data, but can also be informed by communications between traders both in terms of the social network formed as well as the content of the messages. Institutions can not only listen to the voice of their customers, but also understand the voice of the market and the trading floor.

A big challenge lies in the often adversarial nature of the markets. Algorithms are built to beat the other institutions’ algorithms. Every transaction is suspected as potentially criminal. Every interest rate tries to encapsulate risk of default. And as we bring in the ability to not just analyse the transactions but also the communication surrounding the transactions, what is the standard for reasonable expectations of privacy? And can I use your communications (tweets, Facebook, emails, texts) to optimise how I trade against you? And what are the limits to using this type of information in approving loans, setting rates, or offering products to customers? Analytics continues to open up new sources of information, and every door opened brings serious implications. Privacy, data ownership, and regulatory enforcement need to be balanced with accelerating transactions and maximising profits. Our financial markets should continue to serve as a platform for economic health, and avoid devolving into a minefield of analytics-driven arbitrage. Charles Caldwell (left) is senior director, global solutions engineering, Logi Analytics +44 (0) 118 923 1020 LogiAnalytics.com

ncreasing customer expectations around trust, service and value coupled with complex regulations means the financial services sector is under growing pressure to deliver simultaneously for both customers and regulators. With continued concerns around security, businesses need simple solutions for these challenges. Although Skype for Business helps organisations to communicate, it does pose some challenges for the financial services sector, including security and FCA compliance. Our research highlighted three enhancements that financial services businesses require from Skype for Business: • Voice recording functionality for compliant voice as well as written communications • IVR functionality to assist with call traffic monitoring • Platform integration and data security With the introduction of cloud-based enhancements, customers can now record and store voice as well as written communications delivered via a flexible

architecture, that integrates existing infrastructure. This means that existing mobile and fixed-line calls can all be handled seamlessly, improving customer experience and employee productivity. Recording solutions can also incorporate additional tamper-proof recording technology often developed and delivered in-house without the need for thirdparty involvement. These solutions are designed to meet regulatory needs for tamper-evident call recording. At TeleWare, our passion is helping businesses grow through the power of better communications. We have a rich history of providing innovative solutions for the financial services market, including our Mobile Voice Recorder (MVR), which is the most popular SIM-based MVR in the world. In addition, TeleWare technology is used by one in three FTSE 100 financial services businesses. By working with Microsoft partners and resellers, we are able to combine our software expertise with partner knowledge of the market. To find out more visit www.telewarefinance.com or call our enquiries team on 01845 521 291

Business Technology · September 2015 · 11

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Decisive action needed to deliver a more competitive sector

echnology underpins every function across the financial system, from trades to payments into accounts. The challenge from new market entrants, armed with innovative technologies, the rising expectations of digital consumers, increasingly stringent regulatory requirements, and the pervasive threat of cyber-attack, means established financial institutions can no

longer ignore outdated legacy systems. Transformation is required at three distinct levels to deliver a more resilient, competitive and transparent sector. First, financial institutions must transform core systems to make better use of cloud technologies, allowing for an agile response to shifting consumer demand and regulatory requirements. Second, incumbents must use data and analytics

to enhance performance. Third, renewed emphasis on customer experience is needed to improve customer satisfaction. In order to realise transformation and compete with new market entrants, financial institutions should: move faster; strive for a more decisive and faster rate of change; embrace and accelerate the use of industry utilities; and build a more structured approach to technology renewal.

They must also work alongside regulators to realise the potential of new technologies. Only by doing this can they continue to compete with new market entrants and retain customer loyalty. Lisa Moyle is head of financial services and payments at techUK 020 7331 2000 info@techuk.org

Why hybrid cloud is the right investment for financial organisations

A Improving operational and technology efficiency while building cyber-resistance

he explosion in fintech start-ups promises to deliver innovation and efficiency to a market that is stultified by established players and legacy systems. Considerable opportunities exist for companies to use fintech solutions to address key operational and technology efficiency challenges, as well as increasing regulation, like the forthcoming revised EU Payment Services Directive (PSD2). But companies buying new fintech software and services must be wary of potential gaps in digital security. Most fintech start-ups are, quite rightly, focused on building something that works, something customers like, and that delivers value quickly. Start-ups rarely have the resources to build and maintain effective security in the early stages of development and commercialisation. In addition, companies that purchase fintech services need to consider the security of the underlying people, processes, software and, infrastructure, which is often cloud-based. Stroz Friedberg, a global risk management and cyber-security firm, has the expertise companies need to adopt innovative fintech rapidly and safely.

“Ensuring innovative new fintech doesn’t become a major weak link in a company’s cyber-security posture isn’t possible with a check-box, thirdparty assurance exercise,” according to Simon Viney, a director in Stroz Friedberg’s cyber-security consulting practice. “Companies need to be confident they fully understand the security of a fintech solution they adopt. They must consider how the fintech service or software fits into their overall operations and IT architecture, and ensure existing security processes will effectively mitigate security risks.” Viney advises that another key requirement is to understand the threats. “What do the bad guys want? Why do they want it? How might they attempt to acquire it? Only when armed with this knowledge can companies work out how to prevent a breach from occurring, or respond effectively should a breach occur,” he added. Stroz Friedberg’s experience securing fintech solutions is among the most potent tools businesses can employ to address and respond to this type of cyber-risk. “We recently helped a financial services firm address the risk by moving to a ‘DevOps’ model,”

said Phil Huggins, a vice president in Stroz Friedberg’s cyber-security consulting practice. “We developed a modern, secure software development lifecycle for our client, and empowered their development teams to identify, understand and address security i ssues themselves. This provided security assurance from multiple vendors that was automated, independent and efficiently integrated into the client’s operational environment. Ultimately, this delivered a security function that supported increased agility and a plan to scale.” Use of fintech presents an opportunity to dramatically increase business and IT agility. Stroz Friedberg can help companies buying fintech software or services, understand how a fintech solution will affect cyber-risk and establish a posture that allows for rapid and securely managed innovation. The result: improved operational and technology efficiency while building cyber-resilience and achieving many of the goals regulators are laying out for financial firms. Phil Huggins (left) is vice president at Stroz Friedberg +44 (0)20 7061 2299 phuggins@strozfriedberg.co.uk www.strozfriedberg.com

s financial organisations continue on their digital journeys, one of the biggest challenges is the need to access and manage large volumes of data while meeting an increasing number of regulations. The cloud infrastructure on which digitisation is built is crucial in ensuring its success. But is private or public the best way to go? Actually, the answer is hybrid. Public cloud is certainly now mainstream in financial services: according to a study by VCE, EMC and VMware, 92 per cent of UK financial institutions are using some form of public cloud, citing affordability, ease of use and meeting client needs as the technology’s key benefits. Yet many of these organisations are running serious risks in procuring public cloud infrastructure – almost half (44 per cent) of these have bypassed the IT department to do so, usually keeping it within the business unit. Given the intense scrutiny – from both regulators and customers – under which the industry operates, this secretive behaviour carries a large risk. The consequences of compromised data integrity could extend to losses of hundreds of millions of

pounds, from the costs of managing damage to contractual compensation. For that reason, if any part of the business needs public cloud services, it’s imperative that IT is involved from the start of the process. They’re the ones who know the potential risks and advantages of each solution and what will work best for overall business needs. This is where a hybrid cloud approach offers the best of both worlds to financial services organisations. The combination of the private and public cloud, which is seamlessly connected, means businesscritical applications remain in-house, while additional public cloud resource can instantly be provisioned to handle new requirements when needed by the lines of business – and all controlled by IT. With a more collaborative approach, based on a hybrid cloud, financial organisations can better meet the needs of their customers, industry regulators and their business as a whole, at a time when this has never been more important. Richard Munro (inset) is chief technologist, vCloud Air, VMware EMEA Twitter: @RikMunro www.vmware.com/uk/ cloud

12 · Business Technology · September 2015

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Take control of your cash flow in time for Christmas with Tungsten Early Payment Register your interest by visiting tungsten-network.com/earlypayment or call 020 7280 7846 for a no-obligation chat • Peace of mind Choose individual invoices for early payment and decide when to get paid • Clear pricing The charge displayed against the invoice is the only amount you will pay • No minimum usage It’s up to you if you want to take Early Payment now, later, or not at all • Paid in full We advance 100 per cent of the invoice, within a business day (less the charge) • Confidential financing Your customer will not know if you choose to take early payment • Quick and easy registration Register in five simple steps, all online

ungsten is transforming the world’s supply chains by connecting buyers and suppliers through its global electronic invoicing network, enabling better buying decisions through line-level spend analysis, and facilitating better cash-flow management through invoice financing. Thousands of forwardthinking companies of all sizes use it to streamline their invoice process, which saves time, money and paper. E-invoicing through Tungsten Network enables quick, guaranteed invoice delivery, online status tracking, and timely payment. Say goodbye to antiquated accounting processes and hello to a more efficient – and paperless – future.

Benefits for corporates/buyers Invoice validation and compliance Tungsten enables straight-through processing by translating, enriching and validating your suppliers’ invoice data to create a legally compliant invoice. Inaccuracies are immediately flagged, and we digitally sign all invoices and enable you to comply with local regulation. Reduce accounts payable inquiries by up to 60 per cent Tungsten’s Invoice Status Service generates automated updates on invoice status for suppliers. With online tracking of the invoice cycle from receipt to payment, your suppliers won’t need to call or email your accounts payable department with invoice queries, and you can reduce unnecessary costs.

E-invoicing – the smart move for any business Supplier engagement Supplier participation is essential to the success of your e-invoicing project, and Tungsten’s dedicated enrolment teams are there to get your suppliers on board and transacting. With years of best-practice experience, we have a proven methodology to engage your suppliers and propel your e-invoicing project forward. And, once registered, suppliers have access to everything they need online.

Benefits for SMEs and suppliers Prompt and guaranteed delivery Invoices are validated and delivered electronically to your customers’ accounts payable department, meaning no more delays due to invoices lost in the post, missing information or landing on the wrong desk.

Quick and easy set-up Send and receive invoice data in any format with no software or hardware to install. Tungsten makes it easy for you to get paid, so you can concentrate on growing your business. On-time or early payment You’re more likely to be paid on time because of swift invoice delivery and a shorter process cycle. Suppliers on Tungsten’s e-invoicing network may also be eligible for Tungsten Early Payment, which enables you to take control of your cash flow by taking early payment on approved-to-pay invoices at the click of a button, less a small discount charge. Henning Holter (left) is head of business development, Tungsten Network info@tungsten-network.com www.tungsten-network.com

Business Technology · September 2015 · 13

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UK start-ups benefit from hands-on tech support at new Loft in London Free advice – and coffee! – at Amazon Web Services Pop-up Loft

London: leading from the centre? T

his is London, the greatest city in the world. And this is Fintech Week, so you’ll be expecting me to tell you that London is the fintech capital of the world too. It isn’t, not yet. But it’s working on it. In my view – formed at 30,000 feet as I shuttle over the Atlantic between the two – London’s fintech ecosystem is within one round of IPOs and exits – perhaps within three to five years – from having the sort of selfrenewing ecosystem that New York enjoys. London, of course, sits in the middle of everyone’s day. The City has always thrived from working in New York’s morning and Tokyo’s afternoon. That’s why so many of the main players in retail banking globally locate strategic functions the Square Mile and Canary Wharf. London’s fintech community has a strong market on its doorstep. So London is particularly strong in enterprise, b2b software, such as trading platforms as well as the more commonly understood facets of fintech, such as alternative finance (crowdfunding with debt and equity) and payment systems. And the entrepreneurial community that sustains the community is large and growing too. A lot more venture capital is flowing into fintech, not only from Europe but increasingly from the US. Much of my day job is helping connect US money with British enterprise, and vice-versa. London’s culture is changing, too. Something of the American can-do spirit is wafting in with the red-eye. Launching a start-up is seen as the way to go for the bright graduates who might, even only 10 years ago, have looked at investment banking, law or the accountancy firms as being the only respectable outlets for their talents. Increasingly, the brightest and the best

are to be found in Shoreditch lofts, not City towers. There are a huge number of earlystage companies bursting with ideas and innovation. In both ambition and energy, London and New York are neck and neck. Where New York pulls away, though, is at the next stage of a company’s life. Put simply, New York has many more people who’ve been there, done that, made their money and are ready to invest in and guide the next generation. It has more angels, more non-execs, a much deeper and broader pool of expertise and capital on which infant companies can draw. That’s why London needs to get some more deals away, to float (or sell at a hefty premium) a phalanx of fintech ventures. That’s when the system will replicate itself and grow to maturity. Even then, both cities may never catch Silicon Valley, the third point of my personal transatlantic triangle. Take bitcoin: the Valley has (from what I’ve seen) at least 10 times more money invested in the technology, and thus a proportionate amount of the global blockchain talent. It’s building the best consumer-facing fintech companies in the world. London, though, has its own strong, collaborative community. It’s stronger in fintech than any other sector. As Singapore and other locations start to ramp up, it remains a world leader, and the most exciting place to work. Richard Goold (left) is head of the FinTech Accelerator at Wragge Lawrence Graham & Co (WLG). WLG and Gowlings, a leading Canadian law firm, are joining forces to create new international law firm Gowling WLG in mid-January 2016 0870 730 2798 richard.goold @wragge-law.com

mazon Web Services (AWS), known for giving start-ups a helping hand, is giving British entrepreneurs an even bigger boost by bringing a Pop-up Loft to London. Located in Moorgate, the AWS Pop-up Loft is a space where start-ups are invited to stop by, hang out, and receive free, in-person AWS technical guidance from expert AWS solution architects, engineers, product managers, support, and thought leaders. But the Loft isn’t just for start-ups. It will also act as a source of information for larger customers whose development teams are using the opportunity to get trained up and familiar with AWS and to learn from and share best practice with the start-up community. The London Loft will run until October 29. Ian Massingham, technical evangelist at AWS, says: “It is an extension of something we have done in San Francisco and New York. It turned out to be incredibly popular with customers in San Francisco so went from a pop-up to a permanent fixture. “We want to make sure there is a really broad set of content offerings. If you are a founder that needs technical help, we want to try to fulfil that. But if you are running a start-up and want to learn more about how to access venture-capital funding, then we will have our experts on hand to help with that too.” AWS has a lot of experience at helping companies deliver reliable, secure, scalable

and cost-efficient computing solutions through the cloud. Starting in 2006, AWS is used by more than a million customers in 190 countries, including some of the most well-known start-ups like JustEat, Spotify, Shazam, Zoopla and Hailo. The Pop-up Loft will also be an opportunity for some of these successful start-ups to share their story with others about how cloud has helped them grow. Feidhlim O’Neill, VP of platform & technical operations at Hailo, says: “We built our business on AWS and everything we do is in the cloud. “We look forward to presenting at the AWS Pop-up Loft, sharing some of our experiences of growing an international business on AWS and some of the advice we would give to other start-ups on the same journey we were on only a few years ago.” Massingham says: “It is about sharing the expertise that we have access to both through Amazon and the rest of the ecosystem. We are offering some formal education activities. We are going to have a regular hands-on drop-in lab which will guide you through usage scenarios for the technology.” This will include boot camps and a oneday courses. Topics will cover anything from building applications in the cloud to cyber-security and big data analytics. By using the cloud companies no longer need to build expensive infrastructure. Wellknown start-ups like Hailo have been able to revolutionise entire industries, challenge the big industry players and launch innovative products cost-efficiently through the cloud. For up and coming start-ups, the Loft will be there to help them also get that boost. Twitter: @AWS_UKI awsloft.london

Business Zone

14 · Business Technology · September 2015

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The future

elivering an exceptional customer experience (CX) today can often feel like riding a rollercoaster at the nearest amusement park. One moment, you’re charging towards the summit and the next you’re plummeting down, hanging on tightly. Meeting customer expectations also requires constant, high-velocity change, which is very challenging. The speed of innovation can be the fastest route to a CX that differentiates a company or the shortest path to derailing the company’s reputation. “The ability to rapidly and continuously innovate is critical in today’s omni-channel world,” says Alok Kulkarni, CEO of Cyara, the market-leading provider of an automated CX testing and monitoring platform, as well as a Gartner 2015 Cool Vendor. The Cyara Platform focuses on helping customers transform their CX, and Kulkarni thinks there are three CX trends that point to the value Cyara brings to its customers.

Riding the customer G experience rollercoaster

Customer experience is the new differentiator Price is no longer a competitive advantage. A 2013 report on global contact centres by Deloitte showed that 62 per cent of organisations view customer experience as the competitive differentiator.

Customers want choice Enabling customers to engage using the channel of their choice and a CX that seamlessly spans these channels is a necessity. In the same Deloitte survey, 92 per cent of the organisations that believe customer experience is a differentiator offer multiple contact channels.

Customers are often QA testers A contact centre change can produce hundreds of test cases, but companies that test manually execute only about 20 per cent of these. This leaves an 80 per cent chance of a defect being discovered by customers. And, let’s face it: customer experience is a differentiator only when it works to make customer engagement easier.

Cyara’s value proposition By comparison, Cyara customers consistently innovate 40 to 70 per cent faster, reduce project timelines by up to 20 per cent, and spend 70 per cent less time in defect. These are significant Customer Experience Innovation Lifecycle (CXIL) benefits that can get any organisation off of the rollercoaster and confidently coping with today’s rapid pace of innovation.

CX drives business Cyara’s customers in the UK include leading banks, utilities companies, and telecommunications providers. Industry studies show that companies who get the CX right outperform their competition. So, how’s your CX? www.cyara.com

In focus Building loyalty by knowing your customer

M Video special

Around 5 per cent of global business turnover is lost to fraud, equating to around $3.7trillion every year. But too many organisations still treat the issue as a departmental responsibility. Find out more at http://bit.ly/1i0OdhW

any banks have been working hard at improving their customer experience to help build loyalty to their brand. Loyalty programmes are one of the few areas where banks can truly differentiate, engage existing customers, attract new ones, reduce churn, increase retention and improve customer lifetime value and profitability. It can be a good strategy for growth. The more a bank can personalise its loyalty programmes and give customers compelling real-time offers, the better chance they have at retaining that customer.

Avoid a security breach, getting back to basics

However, the most common loyalty programmes being offered tend to be tedious for the customer to manage, offer little or no capability for customer personalisation and don’t help the customer build a connection to the bank’s brand. But, technological advancement is changing

this. Banks can now offer customers a more personal targeted service by evaluating their recent purchase behaviour and showing ads which are only relevant to them via their mobile. It also gives merchants a new channel to get their message in front of active buyers.

Research is showing card-linked marketing programmes result in a twoto-three-times increase in card revenue versus bank’s points programmes, and the number of purchases at cardlinked marketing merchants increased by 5.57 times. In 2014, more than 500,000 cardholders were invited by a European bank to participate in a card-linked marketing programme and 90 per cent of them made purchases within a five-month period. Total card revenue increased by more than 14 per cent. +43 1 9195041 www.smartengine.at

iven that it’s where the money resides, it’s no surprise that finance organisations are targeted more often and with more sophisticated attacks than any other industry worldwide. While that statistic is not news, the emergence of high profile “celebrity vulnerabilities”, such as Shellshock, hitting the mainstream press since 2014 has raised the level of cyber-security consciousness in consumers and businesses more than ever. There is no doubt that sophisticated cyber-attacks are rising and personally identifiable information harvests are at an all-time high. This increased awareness is a major step forward; in general, consumers are more conscious of the threats and cyber-security is higher on the agenda in the boardroom. However, while there is a need to focus on emerging threats, the reality is that many of the breaches taking place could have been avoided if basic and bestpractice security was being managed effectively. Weak passwords, deficient access control and failing to keep up with the latest versions of software are mainly responsible for these breaches being able to take place. These are old problems, so why are these breaches still occurring? The threats are evolving faster than ever and the organisations most under attack are challenged to prioritise which threat or vulnerability to address next – try to keep the bad guys out, or minimise the damage they cause if they do breach the castle walls? Sapphire believes that reviewing the basics isn’t a bad place to start. Annabel Berry is CEO, Sapphire Twitter: @sapphiredotnet www.sapphire.net/sip

Business Technology · September 2015 · 15

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The debate How is fintech changing the ways financial institutions operate?

Charles Caldwell

Phil Huggins Vice president Stroz Friedberg

Respond product director Aptean

Managing director NetPay Merchant Services Limited

Head of business development Tungsten Network

Tech in the financial sector has been applied to just about everything, and for a long time now. These days, “robots” do a lot of the trading. In fact, the markets have additional technologies to recognise when the algorithms are at war, and close things down until their electronic fervour cools. With big data technologies emerging, I am seeing increasing applications beyond traditional structured business data. There is a lot of value in combining that business data with high-volume machine data and unstructured human data. As an example, I’ve seen applications that use traditional trading and other financial data combined with analysis of email, call centre and other voice or text data to improve the detection of insider trading, or be able to better forecast market moves. We’re moving beyond simple time series and transaction pattern matching to be able to understand literally what the market is saying in real time.

Financial services companies are rapidly adopting new fintech solutions to address operations and technology inefficiencies that have been a feature of the industry for decades, as well as emerging regulation. This trend has the potential to drive innovation, efficiency, and increased competition in a market that is stultified by established players and legacy systems. Highly tailored products and services, significantly faster decisioning, and meaningful analytics are just a few of the benefits that consumers and businesses are already enjoying. But fintech also opens FIs up to a host of security issues that are inherent in new technology. FIs will need to rethink how they approach procurement and integration of new fintech to be able to adopt innovative software and services quickly, while maintaining the very high levels of security demanded by clients and regulators alike.

+44 (0) 118 923 1020 LogiAnalytics.com

+44 (0)20 7061 2299 phuggins@strozfriedberg.co.uk

Fintech meets the needs for customer centricity and regulatory compliance, while also treating the software solution as a capital investment with an ROI, and not simply an obligatory burden. The regulatory landscape has morphed since the launch of the FCA: “soft touch” regulation is out; accountability and transparency are in. The high costs of remaining compliant are concerning financial institutions, coupled with added risks from redress when it comes to complaints management. Fintech solutions such as Aptean’s Respond are supporting financial companies as they navigate this challenging new environment, which includes the coming changes to complaints-handling regulation, as outlined in PS15/19. This means firms publishing data about every complaint they receive, and sending FOS appeals information to every legitimate complainant: a big ask, which is made easier with fintech. The right fintech improves customer satisfaction and retention thanks to more responsive service, and drives new operational efficiencies by fixing problems as they arise.

The rise in fintech businesses and the technology that they operate has proved to be a major disrupter and challenger to the traditional banking and financial institutions. These types of businesses are nimble, visionary and quick to respond to the changing demands of their customers. They are not dogged by legacy banking platforms, hierarchies and do not typically have to contend with the challenges of internal politics. Where the traditional banking institutions have been focusing on the aftermath of the financial crisis, these new businesses have flourished, embracing new technologies and feeding customer demand. With our increased dependency on our smartphones and the growth of the wearable technology sector, the way customers interact with financial institutions is changing. We interact more through mobile, online and social media platforms so it seems natural and sensible that new fintech innovators would look to add value and seize opportunity by offering payment services and driving customer loyalty through these mediums.

Technology has fundamentally changed how we distribute and deliver services to customers. We now reach audiences quicker, have greater flexibility and a more targeted, relevant message. Furthermore, our customers can now access more features to make their businesses more efficient. Traditional banks are hampered by legacy IT systems that can’t match the flexibility of alternative lenders. The interaction between lenders and customers is shifting, and those who adapt will win. Alternative lenders use technology to offer benefits that go beyond maximising cashflow. For example, Tungsten’s electronic invoicing service streamlines invoice processing, helps businesses get paid on time, allows vendors to track payment status as you’d track a parcel, and enables eligible users to release working capital by taking early payment from Tungsten on approved invoices. Traditional lenders are just not equipped to offer this range of services, especially for SMEs, and the established banks are being overtaken by a new wave of technologically agile providers.

enquiries@aptean.com www.aptean.co.uk

0333 311 0200 www.netpay.co.uk

Senior director, global solutions engineering, Logi Analytics

Duane George

Carl Churchill

Spotlight Bridging the gap between start-ups and SMEs

tart-ups should be using methods of alternative funding such as market invoicing and crowdfunding built on financial services technology platforms rather than larger institutions. Luis Carranza, founder of Fintech Week and digital innovations director at BD Network, says: “The real challenge in financial services technology is to get more start-ups to become small and medium-sized enterprises (SMEs). It is about bridging the gap from start-up to SMEs. “The government in the UK is doing the right thing by having tax incentives for start-ups, as well as referring SMEs which get turned down for traditional loans to

alternative lenders, such as equity crowdfunding.” According to Carranza, these alternative funding technology platforms, such as market-invoicing and crowdfunding, can really help start-ups become more sustainable, generate their own income and grow at their own pace, as they usually do not have to give away a large equity stake of the business. He explains that if a start-up gets a big funding round from a large financial institution, they have to release some of the equity of their business in return, which could potentially set them up for failure if they do not to produce the revenue that their investors demand.

“When a company is self-sustained that means they are generating their own revenue – they have their own customer base and can grow at the pace that they want to,” he says. “If more start-ups became SMEs the consumer would benefit. The more self-sustained you are, the more likely you are to give back to the community.” Carranza also believes accelerator programmes are a great way for businesses to learn how to be sustainable, while events like Fintech Week can help the start-up community connect to a network of people in the industry and learn how to grow. @fintechweek www.fintechweek.com

Henning Holter

info@tungsten-network.com