Payments Review - Summer 2023

Artificial intelligence

Could machine learning replace the human in the payments transaction?

Banking crisis

Embedded finance

Will more banks collapse? The real winners are small businesses

P5 HSBC earnings triple following SVB acquisition

P7 How embedded finance is changing the face of the payments sector

P10 Five ways AI can help manage economic crime risk more effectively

P17 News in brief: The latest member updates and payment news

P26 Spotlight: BVNK’s Jonny Griffith speaks about his career in payments

P28 Data sharing tool: Just one piece of the puzzle to combat fraud

Editor’s Word

Anjana Haines, editorial director

Welcome to the third edition of Payments Review, now available free to everyone across the payments ecosystem.

A key theme in this issue is payments evolution. In an era of digital innovation, the landscape of payments is undergoing a profound transformation. Advancements in AI technology are revolutionising the way businesses conduct transactions and meet customer needs.

We look at how AI will be used to make more frictionless payments, analyse customer behaviours, and tackle financial crime.

With sustainability being such a hot topic at the moment, we also take a look at what merchants, banks and fintechs could do to reduce their carbon footprint and encourage consumers to make more eco-friendly choices when it comes to payments.

I hope you enjoy this edition of Payments Review. If you wish to contribute or share your ideas, please do not hesitate to get in touch.

P.S. We are embracing AI. This editorial was partially written by ChatGPT.

P31 Open banking: A bespoke solution for responsible iGaming

P34 How Credit as a Service could be the future of lending

P37 ESG and the risk of digitalisation

P40 Policy: How the UK can lead the way on crypto regulation

P42 PAY360: PSR roadmap will be available by June

P44 How businesses could receive payments faster

P46 Interview: Anant Patel on how virtual cards are evolving

P48 How fintech is closing the financial divide

P12 Driving change: Leveraging tech to becoming more sustainable P18 The banking crisis has only just begun

FROM THE COVER

P20 How artificial intelligence can make the customer journey frictionless

The team

Anjana Haines

Editorial director

Anjana.haines@thepaymentsassociation.org

Jyoti Rambhai

Editor

Jyoti.rambhai@thepaymentsassociation.org

Tony Craddock

Founder and director general

Ben Agnew

CEO

Mark Bethell

CFO

Emma Banymandhub

Events director

Maria Stavrou

Operations director

Tom McCormick

Sales director

Tom Brewin

Head of projects

Riccardo Tordera

Head of policy

Sophie Bossier

Head of membership engagement

Gavin Alexander

Content marketer

Tyler Smith

Projects and content co-ordinator

Jay Bennett

Projects assistant

Editorial board

Anant Patel

President of international markets, ConnexPay

David Monty

Co-founder, Tell Money

Joe Hurley

Chief commercial officer, Crown Agents Bank

Kai Zhang

Special counsel, K&L Gates

Khalid Talukder

Co-founder and CEO, DKK Partners

Kit Yarker

Director of product and propositions, EML Payments

Miranda McLean

Chief communications and sustainability officer, Banking Circle

Sarah Jordan

Director, Deloitte

Manish Garg

Investor and director, VE3

Annmarie Mahabir

VP - principal payments consultant, Endava

AI promises to revolutionise payments

Manish Garg, investor and director, VE3

The incorporation of artificial intelligence (AI) in the payments sector is experiencing rapid evolution and expansion. Leveraging AI technologies such as machine learning and natural language processing, the industry is witnessing significant enhancements in security measures, process efficiency, and customer experience.

One of the most promising applications of AI in payments is its role in fraud detection and prevention. As online transactions surge, fraud poses a significant concern for both consumers and businesses.

By training AI algorithms toidentify fraudulent patterns and behaviours in realtime, payment providers can swiftly act to halt such transactions from processing. Additionally, AI can help protect sensitive customer data by providing advanced encryption and authentication measures. In the near future, AI will play an even more prominent role in the realm of payments. With the growth of digital payments and the increasing adoption of mobile devices, AI-powered payment systems will become more widespread, allowing customers to conduct transactions swiftly and effortlessly without resorting to cash or cards. It will also deliver highly personalised and predictive experiences, empowering merchants to customise their offerings for each customer, taking into

account their unique purchasing history and behaviour.

Generative AI has already proven to be a transformative technology in many areas, and its potential impact on the payments industry is immense. As technology progresses, payment methods become increasingly complex, and consumers demand more personalised experiences, the adoption of generative AI will become paramount for businesses striving to maintain a competitive edge.

Another realm where AI is making a significant impact on payments is enhancing customer service. Utilising AIpowered chatbots and virtual assistants, businesses can deliver rapid, effective, and customised responses to customer enquiries and issues, thereby elevating the overall customer experience.

AI is also being leveraged to augment the speed and efficiency of payment processing, especially in cross-border transactions. Automating compliance and regulatory checks for such operations, AI significantly curtails the time and resources necessary for its completion.

Overall, the integration of AI into the payments industry holds the promise of revolutionising transaction processing and management. This innovation paves the way for faster, more secure, and highly customised payment experiences for consumers and businesses alike.

Payments Review is published by The Payments Association. Payments Review and The Payments Association does not necessarily agree with, nor guarantee the accuracy of the statements made by contributors or accept any responsibility for any statements, which are expressed in the publication. The content and materials featured or linked to are for your information and education only. They are not intended to address personal requirements and not does it constitute as financial or legal advice or recommendation. All rights reserved. Payments Review (and any part thereof) may not be reproduced, transmitted, or stored in print, electronic form (including, but not limited, to any online service, any database or any part of the internet), or in any other format without the prior written permission of The Payments Association. The Payments Association, its directors and employees have no contractual liability to any reader in respect of goods or services provided by a third-party supplier.

The Payments Association, Runway East, 20 St. Thomas Street, London SE1 9RS, Tel: 020 7378 9890

With technology advancing at a rapid rate, AI will play a prominent role in streamlining payment processes and offering a personalised experience for users in the near future.

HSBC earnings triple following SVB acquisition

Other

Banking giant HSBC has tripled its quarterly profits following the acquisition of Silicon Valley Bank (SVB) UK and hikes in interest rates.

The holding company published its quarterly earnings for Q1 2023 in May, which reported a US$12.9 billion profit before tax – more than three times the figure from Q1 2022, which came in at $4.2 billion.

The bank has attributed a “provisional gain of $1.5 billion” to acquiring the UK arm of SVB, which it purchased for £1 in March following its collapse in the US.

At the time of the deal, which was led by the Bank of England, HSBC Group CEO Noel Quinn said the acquisition strengthens its “commercial banking franchise and enhances our ability to service innovative and fast-growing firms”.

The figure surpassed financial market expectations, which had predicted profits to be closer to $8.7 billion.

The financial report also shows that between January and March this year, the banking group increased its revenue by two-thirds (64%) to $20.2 billion from $11.6 billion in the same period last year.

HSBC, Europe’s largest bank, says that this increase was driven by a spike in interest rates, which yielded “higher net interest income” in all its global businesses.

In addition, figures revealed that customer accounts increased by $34 billion in the quarter. The bank attributes $8 billion of this growth to its acquisition of SVB UK.

Commenting on the group’s earnings, Quinn says: “Our strong first quarter performance provides further evidence that our strategy is working. Our profits were spread across our major geographies, and all three global businesses performed well as we continued to meet our customers’ needs through our internationally connected franchises.

“We remain focused on continuing to improve our performance and maintaining tight cost discipline, but we also saw an opportunity to invest in SVB UK to accelerate our growth plans.”

“For 158 years, HSBC has banked the entrepreneurs who have created today’s industrial base. With the SVB UK acquisition, we have access to more of the entrepreneurs in the technology and life sciences sectors who will create the businesses of tomorrow. We believe they‘re a natural fit for HSBC, and that we‘re uniquely placed to take them global.”

Tony Craddock, director general at The Payments Association, adds: “Thank goodness the leadership at HSBC had the courage to take on SVB UK at a time of crisis. Without this, contagion would have spread like wildfire through banking, and we would have all suffered.

“As a result, HSBC is being rewarded with a $1.5 billion boost to its balance sheet and a phenomenal opportunity to overtake many other banks in serving the fintech sector. Fair play.”

HSBC is not the only bank to report better than expected profits for the first quarter. Lloyds Banking Group’s pre-tax profits jumped by almost half (46%) to £2.3 billion for the first three months of the year – up from £1.5 billion in the same period last year and higher than the £2 billion forecast.

NatWest group also recorded a 50% increase in pre-tax profits at £1.8 billion compared to Q1 2022, when the figure came in at £1.2 billion.

While Barclays reported its Q1 profits pre-tax at £2.6 billion, £2 million higher than predicted and £4 million more than the £2.2 billion figure reported in the same period in 2022.

Craddock adds: “We should celebrate a return to reasonable profitability for our leading banks. As HSBC has just rejected a shareholder revolt that attempted to split away its Asia business, we are seeing Barclays, NatWest and Lloyds all boosting profitability.

“This bodes well for the non-banking PSP and fintech sector, which has too often struggled to demonstrate positive cashflows and healthy profitability. If the banks are making good money, partnering with fintechs to secure greater distribution, enhanced efficiencies or improved compliance becomes even more attractive. A risking tide lifts all ships.”

UK banks also reporting higher than expected pre-tax profits for Q1 2023

Image credit: Victor Moussa / Shutterstock.com

Jyoti Rambhai

Online training courses

Get ahead in the payments industry with The Payments Association Payments 101, a virtual training course by Neira Jones.

Perfect for newcomers and seasoned professionals, this course provides a solid foundation in payments education, covering all aspects of the ecosystem.

Join us for the next Payments 101 on 17-18 October. Register now at thepaymentsassociation.org/training/

The Payments Association Regulations 101 is the perfect course to take your payment knowledge to the next level.

This live virtual event, delivered by Neira Jones, covers payment regulations and frameworks, as well as privacy and security standards and their potential overlap.

Next course takes place on 4-5 July. Register now at thepaymentsassociation.org/training/

Get a comprehensive overview of virtual, crypto, and decentralised payments with The Payments Association Crypto 101.

Drawing on real-life examples, the course covers underpinning principles, key stakeholders and regulations, and practical applications for all three.

Next course takes place on 19-20 September. Register now at thepaymentsassociation.org/training/

Are you up to date with payment compliance regulations? The Payments Association is proud to offer a comprehensive Payments Compliance training programme, free of charge, thanks to support from members Visa and fscom. Watch the 6, two-hour Advanced Payments Compliance Training webinars on demand now, and stay updated with payments compliance standards.

Don’t miss out on this opportunity to enhance your knowledge in the industry.

Embedded finance: What’s all the fuss about?

Financial services embedded into e-commerce accounted for $2.6 trillion in the US in 2021 (nearly 5% of total US financial transactions), according to consultancy firm Bain.

Such products could include payments, lending, insurance, or accounting, and together are referred to as embedded finance – an umbrella term for a financial service brought into an unrelated customer journey where they are expected to need it.

“Looking at both embedded finance services for consumers and small businesses, there’s been a huge shift in what’s offered and the level of adoption over the last decade and there’s much

more to come,” says Amelia Cox, senior director of enterprise strategy at FIS Global, a fintech firm.

Some of these offerings have been around for years. For example, for an airline’s customers booking a flight, it’s not unusual to be offered insurance products at the same time as booking the flight itself. The insurance offering is embedded into the flight ticket customer journey and means they do not have to separately look for insurance.

More recently, buy-now-pay-later (BNPL) – a form of embedded lending –has grown its presence in key markets like the UK with providers like Swedish

Embedded finance is changing the face of the fintech and payments industries, with transactions projected to exceed US$7 trillion by 2026, but the real winners will be small businesses.

Lucy Frost

Klarna becoming a household name and offered to customers as easily as payment through PayPal or entering card details.

Even though we’ve seen a variety of offerings in the space already, there’s still a lot of growth projected. According to Bain, embedded finance transactions in the US are set to exceed $7 trillion – more than 10% of the country’s total transaction value.

Unlike the previous bank-centric or insurance broker-centric landscapes of payments and lending, embedded finance comes with a whole new set of interested parties: the merchant who provides the distribution channels; the technology enabler; the financial services firm funding the product, as well as the customers and regulators. This long list of transaction participants means there are a lot of people to benefit from developments in the space.

Creating convenience

The benefits are clear, by providing a service to a consumer at the moment they need it, they’re most likely to use it and make the payment purely because of the convenience.

“Customers benefit from contextual, seamless experiences,” says Adam Davies, associate partner at Bain. “Platforms can unlock new use cases and often use proprietary customer data to improve financial access, while reducing costs for their end customers.”

For Davies, the ease for merchants is a huge benefit, especially in embedded payments. “Historically, merchants signed up for payment services via independent sales organisations to be approved by an acquiring bank — this is an arduous process that could take months.”

Now fintechs can underwrite merchants on the acquiring bank’s behalf, which streamlines the delivery of payment acceptance capabilities.

As well as the ease for merchants, this seamless experience comes through to the end consumer, and this can be beneficial for merchants too.

“Embedded finance products increase the lifetime value of a customer for a merchant,” says Cox. “The customers become more sticky, because you’re offering them all these valuable services in one convenient place and this loyalty, for firms that get embedded finance right, will be really important.”

For Cox, this turns into a virtuous cycle. “The more data a merchant can get on its customer, the more products you can make customised for their journey and the more likely they are to take them on.

“Then you’re giving them an additional service so they’re more likely to come back to your platform,” she adds.

Small business, big opportunity

All sorts of firms are expected to leverage embedded finance for growth, particularly those involved in e-commerce. According to FIS Global, 30% of financial services are investing in embedded finance to boost revenue, while 40% of non-financial services firms are developing embedded finance services for their customers.

But according to market participants, the real benefits are expected to come for small and medium enterprises (SMEs), as embedded finance can be used to streamline the finances for entrepreneurs and smaller business owners.

“Embedded finance can offer much faster loan turnaround for SMEs than conventional finance,” explains Fiona Henderson, senior associate at law firm CMS. “That’s a huge selling point, especially with the SME funding gap we’re currently facing.”

There’s an estimated £22 billion funding gap for SMEs in the UK, according to the Bank of England. Meanwhile, 25% of small businesses

that apply to banks have their loan applications rejected.

As embedded finance is heavily linked with automation, this approach to lending could reduce the number of loans rejected, because the automatic process would remove any potential bias in assessing applications.

Embedded loans aren’t the only type of embedded funding that could benefit the small business sector.

An example use case is for a small business using an accounting platform. Through embedded finance, that accounting platform could offer the organisation it serves a debit card to use for business expenses, which is then automatically fed back to the accounting platform. Added to that, it could then use the data insights from the card to provide other services to that small business.

Embedded finance products increase the lifetime value of a customer for a merchant.”

Trust and data concerns

Within the wealth of opportunity and large growth projections, there will also be some challenges to the industry, specifically around gaining consumer trust and balancing innovation with regulation.

“The biggest challenge for the industry will be customers trusting the psychological safety around brands as

it’s not how we’re used to accessing financial services just yet,” says Cox.

For Cox, this is likely to come with time and can be compared to customer hesitation to input card details online around a decade ago. Now, people are very used to this as a way to pay and a similar progression could be mapped to embedded financial products.

What may not be so well adjusted to is the data tracking that comes with embedded finance.

“The more data a company has on a small business, the more it can help them and embed something at the point of need,” adds Cox.

Leveraging data will be a huge marker of success in the embedded finance space. But at the same time, the general public is becoming more data privacy conscious, which could lead to a clash of interests down the line

Regulation is coming

While embedded finance is not currently regulated, developments in the space could pose a challenge for the market.

“Consumer-facing products are definitely under increased scrutiny at the moment,” explains Henderson.

A BNPL regulatory package is expected later this year in the UK, which the Financial Conduct Authority (FCA) has a consultation out on at the moment.

Similarly, the UK’s new Consumer Duty, described as being an overhaul to how banks and financial services institutions treat consumers, is also likely to pose a question for embedded finance providers that will need to ensure products are marketed and managed in line with the goals of the duty.

As many of the players in the space, such as BNPL provider Klarna, are unregulated, adapting to this new environment as the FCA expands the regulatory scope will come with its challenges.

And it won’t just be UK regulations that businesses should be aware of. If a fintech is looking to expand its embedded finance offering overseas, parties involved will need to review regulations there, even though there may not be as many rules in place.

In the EU, some European countries have already taken a firmer approach to these types of financial products. As overseas expansion is much easier for tech-first approach firms than traditional

financial services, this could be an issue many firms face.

Going forward

How the industry develops could be led by the embedded finance ventures of industry giants. Apple is trialling an embedded banking service, quite different to the conventional shape of the market. How it develops could shape the industry going forward.

“The development of Apple Pay will be very interesting to watch,” says Henderson. “Apple controls its own distribution channels so there’s fewer parties involved than in other embedded finance offerings.”

Embedded finance often requires a number of participants: the merchant which provides distribution channels; the tech provider; the loan provider; and the regulated financial institutions funding the providers. In Apple’s service, this number is greatly reduced because Apple provides both the technology to consumers and the banking platform.

The question is whether this will take off compared to the more staggered approach currently taken. If it does, it could lead to consolidation in the industry.

Another exciting area of development highlighted by market participants is how embedded finance can be used to further ESG objectives, according to Henderson. There have been a number of examples of this already, including Revolut’s credit card for under 16s, which includes financial education on budgeting and handling credit.

For other commentators, the key for the future will be how embedded finance impacts the traditional banking and financial services.

“Traditional financial services have reached an inflection point,” says Davies. “They face the threat of shifting economies and adverse selection. Yet they can still also tap tremendous growth potential, especially if they identify where to play across specific vertical segments.”

No matter what, the sector is not expected to look the same as it does now in 10 years time due to the highly innovative nature of technology companies leading the way by creating new products to meet different customer needs.

There’s an estimated £22 billion funding gap for SMEs in the UK.”

Five ways AI can help manage economic crime risk more effectively

Peter Harmston and Robert Dean at KPMG UK explore how AI can be adopted to have the biggest benefits for both business and customers.

In recent months, artificial intelligence (AI) and machine learning (ML) have been making headlines as people start to realise the potential of tools such as ChatGPT, DALL E and others in their personal and professional lives.

This new wave of innovation, driven by Large Language Models (LLMs)/ generative AI, has brought a renewed focus in organisations to leverage AI in a multitude of scenarios. One of the areas AI can have a significant impact is in tackling fraud and money laundering; the results of which can bring valued benefit to customers and enable regulatory compliance.

The true cost of fraud and anti-money laundering (AML) failure

It is a well-established fact that fraud is a significant problem in the world of payments. UK Finance estimated fraud losses across payment cards, remote banking, cheques and APP scams to be £1.3 billion in 2021.

Globally, it is estimated the amount of money laundered in one year is 2-5% of global GDP or between £650 billion –£1.7 trillion.

In addition, fines have increased more than 50%, totalling £4 billion in 2022 due to anti-money laundering infractions, breaching sanctions and failings in their know your customer (KYC) procedures, demonstrating the challenges financial institutions have in keeping up with criminals.

Moreover, the victims of financial crimes cross the full range of consumers from vulnerable individuals and small-

medium sized businesses to large public and private sector institutions. And the impact of this varies depending on the consumer with some of the most notable being financial, reputational, and psychological.

Against this backdrop, can financial institutions adopt AI and ML to better protect consumers from the harm caused by financial crime through improving their prevention and detection capabilities?

Where does AI have an impact?

AI and ML play a pivotal role in the detection of suspicious activity through pro-active identification of patterns, perpetual monitoring for anomalies, and prescriptive remediation. Above all, AI agility in data processing and profiling significantly increases speed, helping respective teams to quickly react to any threats.

There are five ways AI can help you manage economic crime risk more effectively.

1) Improved KYC/customer due diligence (CDD): Financial institutions have already made strides in automating and digitising their KYC/CDD processes, but they can be further enhanced with powerful machine learning algorithms. Techniques such as network analysis can enable financial institutions to better understand and develop deeper knowledge of the risk exposure of not only customers, but also their wider network, allowing for a better targeted approach to risk management.

2) Better customer product suitability assessment process: Complete and well-defined risk assessment policies and processes are a vital element in understanding risk exposure and applying controls in a risk-based manner.

AI is having an increasing impact on the assessment of risk, with financial institutions developing sophisticated models based on historic customer activity and known indicators of risk to better predict and define the risk posed.

The continued development of AI can only improve the definition of the risk faced by financial institutions, enabling a more mature application of risk management.

3) Identifying authentic consumers and financial institutions: As per the National Fraud Initiative report produced by the UK Government in 2022, fraud is estimated to account for 40% of all UK crime. The use of AI, such as the application of facial or voice recognition, is a key tool in the evolution of fraud prevention and is continuing to evolve with newer anomaly detection and behavioural algorithms.

AI can not only help detect where a fraudster is impersonating a customer, but also where they are imitating a bank or third party with the intention of requesting money as part of a scam. AI could pick up on behaviour akin to examples of fraud and warn the end user of any identified concern.

4) Spotting unusual activity and transactions: Alongside traditional rule-based transaction monitoring systems, which rely on static data sources, ML has become an increasingly popular method of both detection and post-alert management within transaction monitoring.

Financial institutions are now applying increased focus on the development of robust ML algorithms to address the challenges of AML/ Counter Terrorist Financing (CFT) as the regulatory bodies are encouraging the financial institutions to develop innovative solutions.

Within the 2022 report produced by the Bank of England (BoE) and the Financial Conduct Authority (FCA) on the use of ML, the FCA demonstrated its commitment to monitoring the state of ML deployment and the safe and responsible adoption of technology in UK financial services. This supports the continued development in AI/ML, with the use of deep learning and implementation of AI enabling the effective identification of unusual and/or suspicious activity.

5) More efficient operational enhancements: A significant proportion of the cost of a financial transaction can be linked to back-end exception management operations. Post-alert application of AI/ML techniques can better support AML/ CTF controls, ensuring resources are focused on the areas of greatest need and controls are applied in a

risk-based manner. An example of this is the application of ML models in transaction monitoring and analysis, including:

i) Rule refinement/ false positive reduction: identification of repeated false positives, or high spike periods, which could be indicative of an inefficient rule-base. Financial institutions are now adopting advanced techniques to identify common false positives to allow better focus of resources. Where common patterns are identified, this supports a rule-review process, applying the updated rule-base to better manage effective and efficient alerts.

ii) Post-alert classification: supervised ML models can be adopted post-alert generation to classify it into priority categories (for example; high, medium or low). These categories are typically used in case management systems to deploy resources on a risk-based basis while also enabling a targeted approach to alert investigations.

What are the benefits of adopting AI?

Financial institutions can reap the potential benefits that AI offers through increased operational efficiency, optimisation and better risk management. It can also better protect consumers from the harm caused by financial crime through improved prevention and detection.

As perpetrators become increasingly innovative, it is important that financial institutions stay one step ahead. Adopting AI can help tackle much of the fraud that happens today and could take place tomorrow, at the same time reducing costs and time, as well as improving both customer experience and protection.

Globally, it is estimated the amount of money laundered in one year is 2-5% of global GDP or between £650 billion –£1.7 trillion.”

Peter Harmston is head of payments consulting and Robert Dean is head of financial crime technology at KPMG UK.

Driving change: Leveraging tech to becoming more sustainable

empower consumers to choose eco-friendly payment options

Amanda Akien

Sustainability has become a hot topic in recent years as people become more aware of the impact human consumption inflicts on the planet. As a result, sustainability is becoming an increasingly important issue in the payments industry, with many companies taking steps to reduce their environmental impact and promote social responsibility.

The UK was the first major developed economy to pass legislation to achieve net-zero emissions by 2050. According to Mark Carney, the UN Special Envoy on Climate Finance (and former governor of the Bank of England), a sustainable financial system is being created.

Although achieving full sustainability remains a considerable challenge, the payments industry already appears to be striving towards higher levels of sustainability.

From merchants to banks, credit card companies to fintech, many are realising the opportunity to drive change. Ben Knight, head of environmental sustainability at GoCardless, says: “Payment providers have a huge opportunity to play in helping a vast number of customers and consumers take action too.”

Oli Cook, CEO and co-founder of digital payment provider

ekko, echoed Knight’s views, adding: “Leveraging payments with information allows us to empower consumers by giving them a choice, equipping them with sustainable options to drive positive climate outcomes. This offers an incredible opportunity for us to use our skills to make meaningful change.”

Empowering consumers

When it comes to sustainable initiatives, those that put the consumer at the forefront to enable them to make conscious purchasing decisions are leading the way.

Klarna recently launched a resell feature that enables consumers to extend the life of their products by making it easy to resell unwanted products through its app and retail partners.

To encourage consumers to shop secondhand and use repair services to extend the life of their products, it has Circular Collections, and to help consumers find more sustainable fashion, it introduced Conscious Collections.

Carbon offsetting

Carbon offsetting enables consumers to compensate for the

How the sector can

carbon emissions associated with their transactions. These apps enable people to track their own carbon footprint and make better sustainable financial decisions.

Algbra, the ethical and valuesfocused fintech, enables customers to use built-in carbon tracking and offsetting tools. It enables them to take direct climate action to minimise (or reverse) the carbon footprint caused by their spending from the app. Users can offset their footprint by supporting global projects that contribute to the UN Sustainable Development Goals (SDGs).

Klarna became the first fintech to join The Climate Pledge and Race to Zero. It has a carbon emissions tracker that enables consumers to track their carbon footprint. Users get tips on the

actions they can take to extend the life of their purchased products.

Jonathan Tyrell, head of general operations at allpay, believes that the payments industry can “leverage their position as intermediaries between consumers and merchants to drive sustainable purchasing habits and promote environmental awareness”. This can include supporting certain initiatives such as tree-planting programmes or partnering with organisations that promote sustainability.

Mastercard established the Priceless Planet Coalition with more than 100 of their financial, corporate, and merchant partners to support their pledge to plant 100 million trees by 2025.

And companies like Carma enable sellers to turn their “e-comms into tree-

Only when green banking is the norm can it have the impact at scale that’s needed to address environmental challenges and social issues.”

comms” by adding an easy-to-use app to their checkout to enable customers to plant trees with their purchases.

“Creating easy-to-integrate solutions has been key to Carma partnering with progressive organisations such as GoCardless, and we are striving to drive the power of climate value further into the payments industry,” says Jim Holland, co-founder and CEO of Carma.

Payments providers can also participate in industry coalitions that promote green payments, such as the Green Payments Coalition or the European Payments Initiative (EPI).

Marten Möller, ESG lead at Algbra, says: “Only when green banking is the norm can it have the impact at scale that’s needed to address environmental challenges and social issues, too.”

Better business

Möller believes that while financial institutions need to prioritise their fiduciary duty to their customers, they also play an essential role in creating a more sustainable society.

“The good news is that these are by no means mutually exclusive; in fact, sustainability is also good for the bottom line,” he says.

It is estimated that a US$1 investment in a green economy returns an average of $4 in benefits. Besides cost savings, other business benefits to becoming more sustainable include improved reputation and customer loyalty, as well as reduced regulatory and legal risks.

These benefits are driving companies in the payments industry to adopt more sustainable practices. But, according to Cook from ekko: “We aren’t doing enough to drive the changes we need to see. We all have a responsibility to do more as individuals and business leaders in this thriving industry.”

Holland adds: “Increasingly, companies are under pressure to tangibly demonstrate ways in which they are positively impacting the environment, unfortunately, this isn’t always easy to achieve.”

Klarna’s head of sustainability, Salah Said, says: “Beyond nudging consumers towards better choices, we aim to be a leader in sustainability, inspiring our retail partners and other tech companies to follow suit. The opportunities are endless, with massive untapped potential.”

Fintech is one of the industries pushing forward sustainability and “payments and fintech are one of the most impactful areas in supporting people and businesses to become more sustainable”, Cooks explains.

“It evokes the question of how this technology could be used to have a positive impact on our climate and global sustainability.”

Fintechs are creating digital solutions to tackle global environmental issues and industry leaders are keen to invest in green initiatives such as renewable energy. In 2022, these investments reached $495 billion globally, according to data from Statista.

Möller believes that promoting “more sustainable consumption will be a key objective for reaching our climate goals”

He says that the payments industry should focus on increasing and facilitating sustainable investments “into sectors like renewable energy and sustainable infrastructure and providing loans to environmentally conscious businesses”.

Banks can also support the transition to a low-carbon economy by facilitating green financing and investing, such as issuing green bonds, providing green loans, or enabling carbon trading. Payments providers can also align their strategies and operations with the UN Sustainable Development Goals and the Paris Agreement on climate change

Embracing new technologies

“Businesses should assess where they can have the most impact and start there. What’s important is that companies really tackle sustainability with a default towards action,” says Said.

While Cook adds: “Ultimately, all customers, shareholders, employees and stakeholders will be demanding more sustainable outcomes from every brand and company they associate with. It’s not a question of whether we should drive change, it’s a question of how quickly we can help.”

New technology such as biometrics, blockchain, cloud computing, and artificial intelligence (AI), enable faster, cheaper, and more secure payments. But it also helps reduce the environmental impact of payments by optimising data storage, processing, and transmission.

“The payments industry already has more environmentally conscious technology; it’s just a matter of making them more well known to businesses and consumers,” says Knight.

An example is account-to-account (A2A) payments, which moves money directly from one bank account to another.

A report by GoCardless – titled ‘Payments, plastics, people and the planet’ – found that the eight stages in a typical card transaction use four times more emissions than A2A payments.

“In the UK most, if not all of us, already use a tried and trusted form of this today: direct debit,” explains Knight.

“A2A payments will only grow as the volume of open banking payments continues to rise. If more of us replaced our card transactions with A2A payments, we’d help reduce the energy used – and potentially the associated CO2 emissions.”

The payments industry can promote digital payments, which have a lower environmental impact compared to traditional payment methods. Digital payments can reduce paper usage, transportation emissions and energy consumption associated with processing physical payments.

Möller believes that there are still many sustainability improvements that can be made to further reduce the environmental impact of cashless payments. He says the industry should encourage cardless payments, “such as by promoting Google and Apple Pay and to source more sustainable cards such as those made from recovered ocean plastics or those that are biodegradable”.

Research by GoCardless and YouGov revealed that over half of consumers would be open to switching from their current preferred payment method to another one if it meant they could reduce their environmental impact. And one in six would be willing to give up paying with plastic cards.

No more plastic

Each year, three billion payment cards are produced worldwide, and these are often made from polyvinyl chloride acetate (PVC), a study by Mastercard showed. According to Forbes, the average

lifespan of a card is three years.

“Physical cards have an environmental impact from the manufacture and at the end of their life. They are difficult to recycle, so they often end up in landfills,” says Knight.

Some banks use biodegradable or recycled materials for their cards, such as wood, metal, or ocean plastic. And recently, Mastercard announced that from 2028, all new cards produced on its network would be made from more sustainable materials. But more needs to be done.

“Card manufacturing and data centres are particularly harmful. That is why it is important to source environmentally friendly cloud computing and to offset any residual impact that is unavoidable,” Möller says.

Data centres are a major consumer of energy, and companies within the payments industry need to invest in energy-efficient places to reduce their carbon footprint

Educating customers

The payments industry needs to educate customers on the environmental benefits of digital payments and encourage them to adopt sustainable practices. This includes promoting e-billing or paperless statements, and offering incentives for customers who choose digital payments over paper-based methods.

One thing is certain: sustainability is complex. It is clear that it cannot be solved by a handful of metrics and a boxticking approach. Alone, innovations like carbon offsetting apps are powerful. But the real power lies when these are applied alongside other initiatives.

The payments industry has a significant role to play in creating a more sustainable future for finance. By promoting sustainable payment methods, encouraging responsible consumption and production, and adopting environmentally friendly practices, the industry can drive positive change towards a more sustainable and equitable future.

The payments industry already has more environmentally conscious technology; it’s just a matter of making them more well-known to businesses and consumers.”

Navigating t he FCA’s Consumer Du t y

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Noda’s ladies join Women in Open Banking initiative

Open banking solutions platform Noda takes step towards being more inclusive.

The financial industry has been traditionally dominated by men, but in recent years, there has been a push to increase gender diversity and promote equal opportunities for women.

One of those initiatives is Women in Open Banking, launched by Open Banking Expo in partnership with American Express.

“What can be more beautiful than women having each other’s backs in the finance sector,” says Dana Lihotina, head of PR at Noda.

“Being confident in terms of your profession and also having an opportunity to share it is an amazing feeling.”

Rise in cyberattacks sees banks opt for better security

Fraud cost UK financial institutions £305.2 million in the first half of 2022, yet just half (51%) of customers are worried about it when shopping online, a survey by Entersekt found.

The majority (74%) reported feeling secure about using a mobile app for online banking and 72% said they used their banking app several times a week.

With the rise of sophisticated cyberattacks, the report – titled ‘Fighting back against mobile banking and payments Fraud in Europe’ – highlighted that many financial institutions are leaning towards increased security over user experience.

However, banks should be ensuring the user experience is simple and incorporates the latest technology for better security.

The full report is available at info.entersekt.com.

New technology settles payments in real-time

ConnexPay has partnered with Payouts Network to launch a push-to-card function to enable payments.

Push-to-card payouts are initiated by the payer, who ‘pushes’ funds to a payee’s account through an eligible Visa or Mastercard debit card or reloadable prepaid card.

Unlike traditional bank-to-bank transfers, push-to-card payouts are settled in real time and need only the payee’s name and email to be set up.

The payee’s card information is then captured on the initial payment through a quick and easy, white-labelled flow and stored for future payments; there is no need to collect banking information.

The new functionality is available to all ConnexPay customers in the US. However, both ConnexPay and Payouts Network are looking at ways to expand this to other markets.

Paytech firm secures UK EMI licence

PingPong Payments has been awarded an Electronic Money Institution (EMI) licence from the FCA.

The approval means the US-based cross-border payments firm will be able to offer its services to customers in the UK and Europe.

This includes cross-border payments, VAT payments, accounts payable and receivable management solutions, virtual credit cards and more.

PingPong, which provides a payments network covering over 200 markets, has received regulatory approvals from the US, mainland China, Hong Kong, Australia, Japan, India and Luxembourg

Australia tops the table with the world’s most gender- equal bills

Five of the nine people featured on Australia’s banknotes are women, making it one of the few nations to achieve gender parity on its currency, a study found.

An analysis of all the world’s banknotes in circulation found that just 80 feature depictions of women.

Australia, Sweden and Denmark were the

only major economies to have at least 50% of their banknotes featuring women, according to the study by Ubuy South Africa – a cross-border retail platform.

Australia was the only country that had a woman on every one of its banknotes; 60% of bills issued in Sweden depicted a woman; and 50% in Denmark.

Scotland also made the top list with four out of five featuring women, who had made significant contributions to society: Nan Shepherd, Mary Somerville, Elsie Inglis and Mary Slessor.

In England, although Queen Elizabeth II featured on all banknotes, it did not have any other women. To address the under-representation of women on its currency, the

Bank of England decided to replace Charles Darwin with Jane Austen on the £10 note in 2017.

Queen Elizabeth II also appears on 19 different banknotes across various countries.

Among the larger economies in the world, the US, Russia, China, India, South Africa and North Korea do not feature any women on their banknotes.

The banking crisis has only just begun

By Matthew Lynn, Financial columnist for The Telegraph and The Spectator

It started with Silicon Valley Bank (SVB), crossed the Atlantic for the final downfall of Credit Suisse, and then switched back to California with the demise of Federal Republic.

Compared to some of the crashes of the past, the banking crisis of 2023 is playing out in slow motion, spread out over several weeks. And yet, that doesn’t mean it is any less deadly, or won’t end up causing just as much damage to the global economy, because right now it looks like the crisis has only just begun.

When SVB ran into trouble and had to be wound up by the Federal Reserve, back in March, it was possible to argue that it was simply an isolated incident. After all, banks run into trouble all the time, and it was so focused on the tech community clustered around San Francisco that it was not likely to bring down the rest of the global financial system.

The trouble was, it did not stop there. Within weeks, Credit Suisse had been

hustled into a hastily arranged merger with its rival UBS after confidence in the scandal-plagued bank collapsed over the course of a few days.

Once that was done with, by the start of May, First Republic, the eleventh largest bank in the US, was forced to throw in the towel, and had to be bailed out by the Federal Deposit Insurance Corporation, before being sold off to JP Morgan.

Will it stop there? Right now, that does not seem very likely. No sooner was the Federal Republic rescued, share prices in a series of equally vulnerable regional American banks were also under attack. In reality, there are three big reasons why this banking crash could run on for many more months.

First, interest rates may still rise a lot higher than they already have. In the US, the assumption is now that the hiking cycle has come to an end, and the next moves in rates will be downwards. If so, that will certainly ease the pressure on

the banks. And yet, it won’t necessarily play out like that.

Inflation is still above 6% in the US; in the UK, it is still stubbornly high at above 10%; and in the Euro-zone, it climbed again in April, going above 7%. In real terms, interest rates are still negative in most major economies, and in the past that has never been enough to bring prices under control.

If inflation starts to edge up again, interest rates will have to climb a lot higher (after all, in the 1970s and 1980s they hit 16% in the US and 17% in the UK). The results of that are not hard to predict. Many more banks will be in deep trouble.

Next, property values still look very vulnerable to further falls. Banks are the main source of finance for real estate development, especially for commercial property, with huge amounts of money advanced on new building projects.

With many offices still empty as staff continue to work part of the week from home, and with companies gradually extricating themselves from long leases, values are still falling sharply. As that continues, the potential losses will start to frighten depositors, and trigger a rush for the exit.

Finally, as an academic study of SVB has already shown, social media has made bank runs a lot easier. There was a huge increase in speculation about its solvency on Twitter in the weeks leading up to its demise. On the internet, rumours can spread very fast, and without any form of verification. The trouble is, social media isn’t going away, and can’t be controlled. The result? Most banks are just one rogue tweet away from calamity.

In the UK, the new generation of appbased challenger banks look especially vulnerable to a sudden collapse of confidence. Very few of them are profitable, and none of them could be

described as ‘too big to fail’. The appbased banks in particular make it very easy to move money, which is great most of the time, but will make it all too easy for a digital bank run to get started.

Likewise, many of the giants of the Euro-zone look risky. There has already been speculation about the stability of Deutsche Bank and some of the French, Italian and Spanish giants could be next in line.

True, the crisis has been contained so far. Central banks and regulators in the US and Switzerland have stepped in to make sure rescues are orderly and comprehensive, which has helped to contain the crisis and stop it spreading from one country to the next, as it did during the collapse of 2008 and 2009.

And yet that does not mean the issues have been fixed. One thing is certain. The crisis is not over yet. And we will see several more collapses before it is over.

Image credit: Diego Thomazini / Shutterstock.com

Most banks are just one rogue tweet away from calamity.”

“Central banks and regulators in the US and Switzerland have stepped in to make sure rescues are orderly and comprehensive, which has helped to contain the crisis.”

Artificial intelligence at the heart of payments industry innovation Making the customer journey frictionless

Joe Stanley-Smith

Artificial intelligence (AI) has already had a transformative affect on the payments industry, particularly in bolstering antifraud efforts. Next in bosses’ sights are initiatives enhancing their customers’ experience.

Consumers face a cost-of-living crisis in much of the developed world, meaning a tougher retail environment where payment friction can be the difference between a conversion and a lost sale.

“Where people are trying to use AI is focusing on user experience, because the boom days of the Covid era for e-commerce are kind of the past,” says Craig Savage, cofounder of FERO Payment Science.

New regulations mean more useable data are kick-starting development in this area, with payment service providers increasingly looking to use the technology to make customers’ lives easier when paying.

“We’re incredibly excited by the potential of AI and machine learning in financial services,” says Nick Kerigan, managing director and head of innovation at Swift. “We think it could be transformative for how the industry works.”

Tough retail environment

Over half of consumers are now holding back on non-essential spending, and 96% intend to adopt cost-saving behaviours, shows research from PwC. And yet, getting back to pre-Covid behaviours, people are also booking holidays and visiting shops. Online retail’s slice of the pie is still growing, but the growth has slowed.

A Shopify/Ipsos Commerce Trends study shows that offering more payment methods is the fourth most common strategy that small and medium businesses are seeking to increase customer acquisition and retention.

“Everyone’s struggling, there’s a tightening of the purse strings, especially over here in Europe,” says Savage, who is based in the Netherlands. “So, getting more out of what you’ve got – of your customer base you’ve already managed to acquire – is now more important than ever.”

With 38% of customers, per PwC, visiting multiple websites to check for availability of products they want, a failed payment authentication – referred to by some as payment friction – often spells lost income for the website where it occurs.

“Everyone in the payment journey wants as many payments going through as possible,” says Savage. “Improving authentication rates is how we can maybe do that.”

Fraud versus friction

Buying online for delivery, or click-and-collect, offers a few points of friction. Items being out of stock, not arriving as advertised, substitutions, and more all irritate customers – but nothing pours cold water on a sale like your card being declined. And there is no form of feedback more galling for a business than an abandoned shopping cart that would’ve netted significant profit.

“The formula for customer satisfaction is quite simple: make sure customer expectations are less than or equal to the actual experience delivered,” says Amas Tenumah, customer service expert and author of Waiting for Service.

“If the objective experience is better than expectation then people are happy, if they are worse, then people are unhappy.”

Tenumah says the push to digital often made customers less happy because companies over-promised by claiming to offer instant support or extra-fast service. Thus, when customers face more friction and end up working harder, they often become dissatisfied.

When payments are declined too often, or people

asked to repeatedly prove their identities leading to them giving up on paying, e-commerce platforms or other sellers can end up questioning the payment service provider (PSP).

“When it comes to the merchant, who are they going to get most upset with, in my experience, is the PSP,” says Savage. “It’s like, ‘wait a minute, you’re declining way too many transactions’.”

Despite the ever-growing prevalence of online shopping, payment friction is growing as well. The reason? Payment service providers are implementing the requirements of the revised Payments Services Directive, known in the industry as PSD2.

PSD2 aimed to improve online security by, among other things, introducing

a requirement for banks to use strong customer authentication, under which customers must prove their identity in two of three ways. This could be something they know, like a password or pin; something they have, like a phone; or something they are, like through a fingerprint scan or facial recognition.

“During the Covid years was when PSD2 was released and brought in this authentication friction,” says Savage, who during the pandemic was working as data science lead for Mastercard.

Now that the Covid-induced e-commerce spike has come down, retailers are realising that conversion rates are actually lower than they were before the pandemic – despite swathes of previously online-sceptical

How Swift is using artificial intelligence

Nick

Swift has heavily invested in a high-scale AI platform. The member-owned cooperative partnered with companies including:

• C3.ai. a company owned by billionaire technologist Tom Siebel.

• Red Hat, which makes open-source technology for businesses.

• Cove, a fintech which is helping Swift improve AI memory performance.

shoppers getting an involuntary crash-course in digital transactions due to stay-athome orders in many countries.

“Hidden within that perfect bubble, actually there was a big fundamental change in the online world,” says Savage of PSD2.

Redeploying resources

Despite the friction it has introduced, PSD2 is serving its purpose. Payment fraud, while unlikely to ever be vanquished, is for the time being less prevalent around the EU, according to Savage. And for some companies, that means they can pour more resources into improving the customer experience.

“When it comes to user experience, that’s the big push in payments now,” says Savage.

“We’ve been focusing on how to manage instantaneous payments across the globe, whether we can get all our payment networks to talk to each other to process all these transactions. From an engineering standpoint, I personally think we’ve got there on that. The focus now is how do we just make that better.”

Kerigan: “We want to see AI making a real impact.”

The next phase [in customer service] is not about reversing the push to digital, but focusing it on using digital to make human-to-human better. Then eventually replace the human.”

Tenumah adds: “The next phase [in customer service] is not about reversing the push to digital but focusing it on using digital to make human-to-human better. Then eventually replace the human.”

Regulation drives innovation

While regulation is onerous for the industry, many if not most insiders acknowledge its effect on spurring innovation. Another big change is ISO 20022.

ISO 20022 is a multifaceted attempt at calibrating the way financial services operators deal with data, written by the International Organization for Standardization, an umbrella NGO with a membership of 168 national standards bodies.

The standard came into effect in March and is now in a co-existence period. By November 2025, all financial institutions should have switched to the new system.

For payment service providers, it’s revolutionary –and opens up more avenues for AI to use the data.

“The level of information coming through is so much better,” says Savage. “From a data perspective, that just helps no end in terms of understanding the journey that transaction’s been on, where it’s going, and where it’s from.”

Kerigan, who works at Swift which is implementing ISO 20022 for cross-border payments, gave an example of one way the richer data exchanges under it improve payment authentication.

“Imagine I’m trying to make a payment to a friend and they work for my client, which happens to be called Cuba Libre Bar and Grill. In the current world of payment messages that would be a long narrative stream.

“What would happen is

that the bank’s engine, looking at sanctions compliance, could pick up the word ‘Cuba’ was there and therefore direct that off to be manually checked.”

Cuba has been under sanctions and a trade embargo from the US since the 1960s, as the country aimed to destabilise the Cuban government. The ongoing situation puts legal responsibilities onto payment providers.

“What happens in this new world of ISO 20022 is that the data is structured, so ‘Cuba Libre Bar and Grill’ goes in the name field, and the country field is the United Kingdom,” Kerigan continues. “Therefore, it’s much more likely that that payment will go through instantly and frictionlessly.”

But this is just the start of ISO 20022’s potential impact on customers. This richer, more structured data is a perfect playground for AI.

Savage says: “What that really means from an AI perspective is we’re getting far more data coming down the pipeline, far more clear messaging in terms of the full journey: requests for payment authentication, how it all went through, the description about the items that are being bought.

“Data’s getting better, things are getting faster. We’re able to make more

The author’s experience

Joe

Stanley-Smith

AI’s applications in journalism are dubious. When I asked a similar generative AI – Jenni. ai – to write this article for me it rambled for hundreds of words, repeated itself, made up citations and studies and misunderstood most of what I asked of it.

Publications will doubtless find ways to use generative AI to push out low-quality articles which generate clicks, though.

decisions; we’re able to learn in real time and really focus on user experience as opposed to traditional fraud.”

Kerigan says he already sees numerous institutions, including leading banks, taking advantage of the power of the new standard.

Reinforcement learning

What particularly excites Savage is the potential for reinforcement learning to improve the way PSPs help customers navigate their payment journeys with less friction.

“When we tackle fraud, it takes 60-90 days for us to learn that it was fraud: for that customer to say, ‘hey, what is this charge my credit card?’ and that to go to the credit card company and feedback.

“What that means is when we’re learning, we have a lag,” he explains. “But when we focus on user experience, and our priority becomes changing the journey for a particular customer –that’s instantaneous in terms of a learning if we were successful or not. Did that customer make that payment, yes or no?

“That means we can now start doing reinforcement learning, where AI is basically learning itself trying different

things and then seeing how that interacts in real time and then modifying the journey.”

Reinforcement learning is one of three main subcategories of machine learning. The other two are supervised learning (where machines are trained using organised data) and unsupervised learning (where algorithms cluster up data sets and find patterns within them).

“As we get ISO 20022 richer, more structured data, the performance of those AI and machine learning models is only going to improve, because you’ll be able to be more accurate and targeted in terms of the fields that you’re looking at,” says Kerigan.

Unlike in supervised and unsupervised learning, with reinforcement learning, AI learns by trial and error through its own experience.

Given how measurable the outcome of a payment is – successful or not – it’s a rich area for reinforcement learning.

“Reinforcement learning will try different segments of the population with different payment methods and then it can look instantaneously in terms of ‘okay this is a percentage of conversion rates’. Then it can learn, and tweak and we can apply that to more and more of the

population,” explains Savage.

So, when a customer has a checkout journey where authentication friction is applied, for example, a customer is asked to authenticate with a selfie from their phone when they’re paying on their computer and they terminate the payment process. The algorithm deduces this as a bad result and looks for ways to do things differently in future.

The problem is, not everybody is the same. Payment or authentication methods which work for one person may not work for another.

The algorithm could note the prevalence of such eventualities among certain demographics and make adjustments to the type of payment journey it offers to people based on its findings.

For example, it may find that selfie authentication is largely successful with 25-yearolds using Apple Pay on their phones and offer it to them over other methods. However, through trial and error it may learn to push 70-year-olds using desktop computers to different authentication methods.

But that’s not all. Not only are people not all the same, nor are all transactions.

“You can’t just do a one size fits all approach,” says Savage. “Some customers prefer some friction.

“If I’m on a questionable website that I don’t recognise, I get more comfort from having to go to my banking app and confirm this is a real payment. Whereas with others like Amazon I don’t want to have to go to my bank app and verify that purchase. I love the fact I can just swipe and pay.

“But Amazon recognises me and knows about me,” he caveats. “If you’re a new user to Amazon that they don’t recognise, or go into a different shipping address, it will then apply that friction. Because again, it thinks: ‘This doesn’t seem quite legit. Not sure on this customer. Let’s try a bit more.’

“More and more companies are getting a bit more tailored into that,” he adds.

Kerigan says that one of the first places SWIFT’s customers could see obvious AI influence is in its payment controls service.

“We’re looking at how we can take that from a kind of current, rules-based approach to a machine learning approach and improve the performance of that product for our customers.”

He adds that introducing AI and machine learning into SWIFT’s pre-validation service, it would be able to give financial institutions a ‘risk score’ around a payment before it is made.

“What’s really powerful

about the platform that we have is that we can also explain to them why it’s got a higher risk score as well,” he says. “Because it’s lovely to give aggregate scores, but it’s much more powerful if you can actually explain to the institution the reasons behind that risk score.

“That’s a really key part of the way we think about using AI and machine learning. We’ve established what we call five key responsible AI principles. One of those principles is explainability. So, helping the users understand and interpret the results.”

ChatGPT and LLMs

While AI has been used in payments for many years, public awareness of its uses has exploded in recent months due to the release of ChatGPT in late 2022, and popularised use through the early part of 2023.

ChatGPT is a generative AI which uses a large language model, or LLM. In layman’s terms it reads huge amounts of information and then, when asked questions, uses this knowledge to spit out responses it thinks are correct.

Generative AI’s potential applications in payments are much more promising. And this ties back into the better quality of data that’s now available to payment service providers due to ISO 20022.

“Now we can segment and group up statement lines or descriptions around the transactions into far better, clearer buckets, because we can decipher language far quicker,” says Savage.

There are also anti-fraud applications for generative AI, which Savage suggests could be used to target address tumbling.

Address tumbling is a strategy whereby fraudsters will order many products to the same address but write that address slightly differently each time to avoid detection by programs which run to detect such behaviour.

The drive to reduce payment friction is even more important given an intercontinental context. There is a push to introduce 3D Secure 2.0 (a protocol for payment authentication which meets the strong customer authentication standard under PSD2) in the US, Australia and New Zealand.

3D Secure 2.0’s own website acknowledges that its earlier iteration, 3DS1, was “ridiculously non-user-friendly”, which was plagued with compatibility issues, slow page loading speeds, customers not trusting the windows which popped up, and generally finding the process irritating. All of these consequences often led to people abandoning their shopping journey.

If 3D Secure 2.0 is expanded to the US – a country which lags severely on payment technology –“there’ll be a lot of customers struggling with that extra step”, says Savage.

“The necessity to improve that customer journey, to make that as frictionless as possible, is going to be huge for the industry,” he adds. “The US is a big market for everyone.”

The formula for customer satisfaction is quite simple: make sure customer expectations are less than or equal to the actual experience delivered.”

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‘Payments is a fragmented and complex market globally’

With over 20 years in the payments sector, Jonny Griffith, head of partnerships at BVNK, speaks to Jyoti Rambhai about his experience and the challenges facing the industry.

Tell us about your career path?

I was fortunate to get into the crossborder payment space at the very start of this industry working for HiFX, which was bought by Euronet Worldwide and now called XE.com. I spent seven years there building a partnership network. I then did the same at Moneycorp and then Currencies Direct for a similar length of time at each.

During these 20 plus years we’d continuously turned away payment opportunities involving emerging market countries – Africa, Southeast Asia, Latin America – as these were outside the risk appetite for our banking partners.

Now in my current role at BVNK, we specialise in these markets leveraging the benefits of blockchain technology for super-fast settlement. I get to add value to a large number of the traditional cross-border businesses who don’t have the technology and aren’t able to support these clients.

What challenges have you faced?

I think competition has been a key challenge in the traditional, non-blockchain/ DLT cross-border payments space.

In addition, particularly in the UK, there has also been a roll out of white label offerings from Currency Cloud, GC partners, Ebury and Equals Connect adding several hundred more businesses into the sector. The main outcome for providers being some margin erosion and the need to build out online platform offerings to compete with some of the major disruptions like Wise and Revolut.

What has been your biggest achievement?

Building large partnerships networks and seeing the accelerated growth it has given all these companies has been my greatest achievement.

What are the biggest changes you’ve seen in the payments industry?

I’ve been in the industry for a long time, so I’d say two things:

1) The creation of digital wallets and platforms for clients to book their own trades and process their own payments. When I started everything was executed manually with telephone instruction.

2) The use of digital currencies. I’m proud to work for a business that utilises blockchain/DLT technology, it really is the future of payments. At BVNK our mission is to make payments as accessible and resilient as the internet, using DLT to build the modern rails for money movement creating a financial system that is available to everyone, anywhere in the world, 24/7.

What challenges do you think the payments industry is facing?

Payments is a very fragmented and complex market globally, holding back businesses and excluding millions, especially in emerging markets. A lot of players are adapting old technologies, leveraging bank rails, and innovating on the edges rather than solving the core infrastructure issues.

Number one pain point that we see and that resonates with almost all clients remains the effect payment processing issues can have on cash flow. Cash flow is the life blood of any growing business. With lengthy settlement windows, fraud and chargeback issues a business

Jonny Griffith, BVNK

can run into significant cash flow issues trying to navigate the current payments landscape. This is why at BVNK we are using distributed ledger technology to upgrade old payment rails and drive instant payments.

What trends are you seeing emerging in payments?

An increase in blockchain payment solutions, particularly stablecoin and the adoption is growing despite market volatility. We are seeing a large amount of end user adoption of crypto payments specifically in the gaming and FX platform space, where people are topping up accounts.

Stablecoin settlement reached approximately $8 trillion in 2022, surpassing volumes of major card networks like Mastercard and American Express. In 2023, it’s expected that onchain stablecoin volumes will surpass Visa volumes, the world’s largest card network.

What would you like the payments industry to achieve?

At BVNK, we see an opportunity to make things simpler, focusing on delivering programmable, cheap, frictionless global money movement. Two things I’d love to see are:

• Faster payments: The demand for faster payments is increasing, with businesses seeking near real-time

Spotlight features successful CEOs, rising stars and other notable excellence across the payments industry. It is a platform for the best individuals across the sector, sharing their insights and what they think about the latest trends. Know someone that deserves to be featured in Spotlight?

Get in touch with the Editor Jyoti Rambhai.

settlement to improve cash flow and reduce costs associated with delayed transactions.

• Greater transparency: Businesses want more transparency in the payments industry, especially regarding fees, charges, and settlement times. They need clear and concise communication from payment service providers regarding transaction costs, chargebacks, refunds, and other fees.

What would be your advice to someone coming into the industry?

• Learn the basics: Start by learning the fundamentals of payments processing, including the different types of payments, payment networks, and the parties involved in a payment transaction. This will help you understand the workings of the payments industry.

• Focus on customer needs: The payments industry is ultimately about providing value to customers, so focus on understanding their needs and providing solutions that meet those needs.

• Network: Attend industry events and conferences to connect with industry professionals, gain new insights, and build relationships. Join online communities and forums to stay connected with other professionals in the industry.

“Cash flow is the life blood of any growing business.”

Data sharing tool: Just one piece of the puzzle to combat fraud

Financial institutions must collaborate and see the bigger picture to prevent fraudsters taking advantage of the fragmented payments sector.

Joseph Stanley-Smith

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Companies must forge a data sharing mechanism in order to tackle payment-related financial crime, a white paper from The Payments Association says.

Fraudsters are becoming more sophisticated and taking advantage of the increasingly fragmented payments sector, piling costs onto companies. Financial crime compliance costs hit £32.4 billion in 2023, up 19% from two years earlier, according to the report published in April.

Data sharing is a key weapon to prevent criminals exploiting the gaps in the payments infrastructure, but companies’ ability to share data is hampered by legislation designed to protect consumers that in fact makes anti-fraud cooperation more difficult.

One solution, which may be made easier by new rules in the UK, is to create mechanisms that enable data sharing partnerships, says Nick Fleetwood, head of data services at Form3. These mechanisms “need to be specific in terms of the problem they solve, the data required, the standards that need to be applied to that data and how the data will be handled, protected and stored”.

The problem

The payments sector is going through a period of disruption and innovation, with people able to choose from a wider range of products and providers than ever before.

“This offers clear benefits to consumers but makes it even more difficult for a single institution to detect bad behaviour,” says Kathryn Westmore, senior research fellow at the Royal United Services Institute, a military and security think tank funded by members, companies and non-UK governments.

Retailers and telecommunications companies involved in payments are particularly reticent with customer data, The Payment Association’s white paper notes.

Financial institutions will only see its own part of the picture, which can be as little as 15-25% of its own customers’ activity, states the white paper. This makes it harder to spot fraud – either by or against consumers – and also carries institutional risk.

“There is also an obligation to identify unusual transactions and if a financial institution only sees a fraction of a customer’s activity, it has no baseline to judge what is ‘usual’ activity,” the white paper adds.

The solution

The best way to stop criminals exploiting the fragmentation and lack of information is to share data.

Data sharing to prevent economic crime

Why you can now share data with confidence. Supported

thepaymentsassociation.org/portfolio/project-financial-crime

“We need to see collaboration between financial institutions to make sure we’re stopping scams at their source and catching the criminals who are committing fraud,” says Aaron Elliott-Gross, group head of financial crime and fraud at Revolut.

Data sharing can be particularly helpful in the areas of customer identification, transaction monitoring, sanctions, risk and business relationship management, as well as beneficial ownership identification, the white paper says.

In addition, better informed companies can help companies identify different types of crime and cooperate with inquiries from the intelligence services.

But at present, companies are hesitant to share data with competitors, even when the data concerns suspicious parties, victims or even proven criminals.

“There are not sufficient incentives to share data with other payment companies,” says the report’s executive summary.

New legislation

Data protection is companies’ biggest concern around sharing more data, with around eight out of 10 respondents to The Payment Association’s February/March survey listing it as a concern when asked.

The UK’s upcoming Data Protection and Digital Information Bill recognises preventing crime as a ‘legitimate interest’ for companies, cutting out various paperwork steps that are currently necessary to share data for anti-fraud purposes “where the processing is necessary for the purposes of (a) detecting, investigating or preventing crime, or (b) apprehending or prosecuting offenders”, the white paper highlights.

If the government passes the proposed legislation as it currently stands, it will largely – though not completely – address data protection fears, leaving financial institutions free to overcome other obstacles.

Katie Hewson and Chloe Kite of Stephenson Harwood LLP note that firms will still feel “some nervousness” about data sharing, and that “data protection hurdles remain”.

We need to see collaboration between financial institutions to make sure we’re stopping scams at their source and catching the criminals who are committing fraud.”

Yet the direction of travel is towards giving firms more leeway to share data.

The government also paid lip service to greater collaboration in its second Economic Crime Plan, published in March this year, which covers 2023-2026.

And the Economic Crime and Corporate Transparency Bill, which passed the House of Commons in January 2023, recognises that regulated firms struggle to share data and proposes allowing firms to voluntarily share customer information under some circumstances.

Technological promise

Another development that can help allay data-sharing concerns is the emergence and proliferation of privacy-enhancing technologies (PETs) like homomorphic encryption, where data is encrypted in such a way that it can still be run through formulae.

While some of these technologies are in their infancy or haven’t yet proven their robustness against sophisticated cyberattacks, they show promise for the future.

The White House Office of Science & Technology and Innovate UK ran a research challenge on designing PETs for preventing economic crime in September 2022.

New tool to fight fraud

It’s against this legislative and technological backdrop that The Payment Association issues its call for a data sharing mechanism.

Financial institutions are bad at sharing data. So bad, in fact, that in December last year, Santander UK was fined for not sharing data – with itself. It had been worried it would be fined for the opposite.

Current processes for sharing information are largely ad hoc and inefficient, says the white paper. They also tend to focus on investigating crimes that have already happened, rather than on prevention.

While many firms are open to sharing data under certain circumstances and for specific reasons, these circumstances and reasons are often unaligned. The solution is a mechanism which aligns the purpose, format and processes for sharing data, argues the white paper.

“Standardising the data that is sent between organisations (such as agreeing a predefined structure and definition) can help unlock many of the technical barriers associated with slow information exchange, allowing for quicker detection of suspicious payments,” says David Heron, head of standards at Pay.UK.

This data could then be held in a centralised repository which appropriate authorities could access – an approach that fourfifths of respondents to two separate polls by The Payments Association favoured.

The white paper suggests a new mechanism could target onboarding and offboarding of customers.

“Now is the time to build a robust, data-driven, interoperable and centralised mechanism that enables effective data sharing through a public-private partnership,” the report concludes.

Open banking: A bespoke solution for responsible iGaming

The iGaming sector, which covers any form of online wagering, despite being a relatively young industry, has snowballed over almost 20 years of existence. A study conducted by Statista reported that in 2021, the global online gambling and betting industry was valued at US$61.5 billion and is expected to rise to $114.4 billion by 2028.

This growth is primarily due to the rising popularity of mobile devices and the availability of internet access across the world. Additionally, the introduction of new payment methods has made it easier for players to access and engage with online gaming and gambling platforms.

As technologies develop, preferences shift, and new tools emerge, the iGaming industry constantly evolves. Open banking has proved to be a transformational force for a broad range of sectors and iGaming is no exception.

By using open banking, operators are given a better understanding of players’ affordability and their financial situation on the basis of bank records, income and credit reports, and other consented data. Thus, increasing trust between operators and players while also providing an easy and secure payment method.

Open banking also creates a more transparent environment, allowing

operators to keep track of their customers’ financial transactions and ensure that they are compliant with local laws and regulations.

An important aspect of a safe environment is affordability, or how much a player can afford to spend on gambling. This level of transparency can reduce fraudulent activities, as well as provide operators with valuable insights into customer preferences, which can be used to provide better services and an enhanced customer experience.

How to comply with strict regulations? Safe online gaming benefits both

Open finance provider Salt Edge delves into the challenges facing the iGaming sector and how technology could help improve customer experience, increase security and bring in new revenue streams.

players and operators, but it’s also their responsibility to keep this space safe. In aiming to establish this trustworthy environment, there are strict laws governing the handling of customer data and financial transactions within the industry.

Regulatory bodies and rules differ from country to country. In the UK, it is the Gambling Commission, which grants licenses, supervises, advises, and guides gambling businesses and individuals.

In 2022, the commission updated the remote customer interaction requirements and guidance. The amended rules, which came into force in September 2022, are more robust and more prescriptive, requiring operators to:

• Monitor a specific range of indicators, as a minimum, to identify gambling harm;

• Flag indicators of harm and take action promptly;

• Implement automated processes for strong indicators of harm;

• Prevent marketing and the take-up of new bonuses for at-risk customers;

• Evaluate their interactions and ensure they interact with consumers at least at the level of problem gambling for the relevant activity;

• Report customer interaction evaluation to the Gambling Commission during routine casework; and

• Comply with these requirements at all times, including ensuring the compliance of third-party providers.

The authority also specifies that it’s the licensee’s duty to implement processes and systems, which incorporate that understanding of risk, so they are prepared to act immediately when identified to minimise harm.

There are several factors that make an individual prone to experiencing gambling-related harm which operators should monitor and address. Such factors are described in the guidance to the new rules, as part of know your customer (KYC) and developing customer interaction policies and procedures.

Among them is the ‘situational factor’ that should be considered by operators when checking the gambler, such as: “If the individual is experiencing financial difficulties, is homeless, is suffering from domestic or financial abuse, has caring responsibilities, experiences a life change or sudden change in circumstances,” the guidance states.

There is no doubt that regulators’ focus revolves around grasping a player’s affordability and intervening to protect it. A one-size-fits-all approach fails to recognise that players have different levels of disposable income and different individual risks associated with their gambling habits.

As a result, some players may be more vulnerable to financial harm than others. Plus, often the disposable income is not that easy to determine.

Another challenge the operators may encounter with the updated gambling rules is the obligation to conduct customer due diligence – verifying the customer’s identity and sources of funds to detect unauthorised activities like identity theft, impersonation, or money laundering.

Throughout the licensees’ interaction with their customers, a range of methods can be used to reveal potential risks related to a person, including video checks, document verification, digital footprint evaluation, sanctions lists, public data, or private data.

These procedures can be timeconsuming and sometimes inefficient. To combat this, streamlining and automation are key strategies to help reduce time and energy spent.

Stephen Winyard, CSO at Salt Edge, says: “Open banking solutions, such as account information services facilitate secure and instant access to a player’s bank account data, solely under the user’s consent, and enable operators to better assess a customer’s financial situation and their ability to sustain gambling operations.

“The enriched data, which provides meaningful insights into the customer’s financial behaviour, allows for greater detection of suspicious activities, such as when a person regularly transfers large amounts to multiple gambling accounts, or the funds’ origin is unclear.

“With transaction categorisation, all incomes and their sources (main and secondary sources and their regularity, bonuses, freelance, transfers between own accounts, etc.) can be identified instantly. Moreover, the account information service ensures a high level of accuracy in the identity verification process, since it comes from a trustworthy source – the bank.”

He stresses that: “Technologies that eliminate all the burdensome procedures of operators from the equation and enable access to categorised, enriched bank data from all accounts in a unified, easy-toread format should be welcomed.”

What about other countries?

European countries are a big market for iGaming as well, but complying with regulations can be a challenge. Aside from being one of the strictest in the world, the region is also home to over a dozen different regulatory bodies. Even though EU laws encompass many states, many of them have their own regulations that differ from others.

The one thing in common is that operating companies must ensure that they have robust systems in place, including identity verification, money laundering procedures, and detailed databases.

What to expect in terms of regulations in the future

The British government is planning on updating the UK Gambling white paper. Its ultimate goal is to foster greater fairness

Open banking is a one-stop shop that cuts costs and streamlines workflows for operators, as well as removing friction for gambling users.”

and transparency across UK gambling. The publication was launched in April 2020 and last updated in September 2020, and with its upcoming update, the government is striving to make gambling regulations more secure and robust.

Both operators and players are likely to be impacted by the white paper, which will bring significant changes to the field. One of the main expectations from the updated regulations is implementing affordability checks – operators having to request bank statements or payslips from anyone losing between £100 and £500 per month.

“Evaluating a customer’s financial situation, relying solely on payslips and bank statements provided by the player, adds more friction to the experience and doesn’t adequately determine affordability when there are instances of significant losses,” explains Winyard.

“There are other ways to determine someone’s affordability, with more accuracy and precision using open banking.”

He adds: “With open bankingpowered services, like secure account information access, operators can quickly and easily make decisions about players’ affordability without the need for large teams and slow manual processes.

“Hundreds of sophisticated recognition and machine learning algorithms run over 12 months of transaction history are identifying red flags instantly and helping prevent potential fraud or money laundering.

“This also allows for continual assessment, ensuring that spending limits are up-to-date with a customer’s financial situation changing.”

Seamless payments with open banking Global consumer behaviour is currently undergoing profound changes. People expect seamless, secure, and digital transactions across all aspects of their lives.

To meet these expectations, businesses must adjust their strategies to keep up with changing consumer behaviour. The only organisations that will last in the long run are those that adapt to the latest technology. The same is true in the world of iGaming.

“Besides using open banking data to comply with strict gambling rules, operators can also enhance their payment processing and revamp their online offerings,” says Winyard.

“Through open banking payments, operators can accept payments directly from their players’ bank accounts and enable secure payments for their customers to any other account in seconds.

“Open banking is a one-stop shop that cuts costs and streamlines workflows for operators, as well as removing friction for gambling users.”

Here are two ways iGaming operators can make use of open banking technology.

• Easy, safe and cost-effective account funding and withdrawals: Due to payment initiation when players fund their gambling accounts, they’re no longer transferred to another interface, instead, they can continue the transaction without leaving the operator’s platform.

Gambling users can execute easy, seamless account-toaccount payments and expect instant deposits. The same is true for payouts. Whenever a player withdraws winnings, operators can instantly transfer funds to any account the same way they funded it.

• Identify and mitigate fraud risk: Moving money involves a lot of security concerns. Reducing fraud and security breaches is the mission of Strong Customer Authentication (SCA) – an EU requirement for online and contactless offline payments. When making account-to-account transfers through open banking, the user passes the SCA. Transactions are then protected by an additional security layer, which ensures the player’s safety and the operator’s compliance with customer risk assessment guidelines.

“Payment methods in iGaming are one of the main risk factors mentioned in the recent EU guidelines on fighting money laundering and terrorist financing. Since certain payment methods allow customers to conceal their identity and source of funding, such as pre-paid vouchers for player deposits, some payment methods are more vulnerable to criminal exploitation,” explains Winyard.

“[…] The power of open banking is evident here. By leveraging open banking payment initiation service, where users must go through strong customer identification, operators can identify fraudsters and ensure compliance with regulations.”

Improved customer satisfaction, streamlined payment processing, superior security, and costeffectiveness are just some of the hallmarks of open banking over other checkout methods.

Open banking is quickly becoming the preferred payment method for businesses of all sizes. The iGaming industry can and should make use of real-time data to get a more comprehensive view of affordability, enhance user experience and stay compliant.

The use of such a rich set of banking data enabled by open banking will more accurately reflect the customer’s financial circumstances and their ability to gamble and help gambling operators meet safeguarding requirements more effectively

This article was originally published by Salt Edge and recently featured in Payments: Unpacked from Mike Chambers – subscribe at paymentsunpacked.com

Enriched data provides insights into the customer’s financial behaviour, allowing for greater detection of suspicious activities.”

How Credit as a Service could be the future for lending

While central banks are using interest rate hikes to tackle inflation, it is retail banks and fintech service providers that are at the forefront of addressing the painful cost-of-living crisis affecting millions across the UK.

The pain is sharp: according to the latest data from the Office of Budget Responsibility (OBR), there was a significant decrease in RHDI (a gauge of living standards) by 4.3% during 2022-23, marking the most substantial decline since the beginning of ONS records.

This makes the fresh wave of innovative credit products on offer more relevant than ever, making it timely to examine the future of Credit as a Service (CaaS).

Fintech is enabling credit

This year, we’re already seeing fintechs doubling down on advancing payment products that support consumers through new lending solutions, such as the most recent launch of Apple Pay Later. Research forecasts that this type of credit could deliver a revenue increase of

between 5% and 15% through higher acceptance rates, lower cost of acquisition, and better customer experience.

More alternative solutions, such as combining revolving credit accounts for day-today spending and instalment accounts to spread the cost of larger purchases, will provide individuals with innovative products to help them better manage their finances.

Another recent offering in the burgeoning buy-now-paylater (BNPL) space is Monzo Flex, which enables the consumer to spread the cost of purchases over several instalments, interest-free, or over six or 12 instalments at 24% APR representative (variable). Consumers can use it online and in-store to pay for, in Monzo’s words, “pretty much anything”.

The combo card that is gaining popularity from various players, also offers the convenience of a debit card with the added benefit of a credit balance, making it an attractive option for consumers who want to have both types of accounts in one.

Meanwhile, long-standing players are also stepping up

their game. Mastercard and Visa Instalment Payment Services mean cardholders can break the cost of big purchases into bite-size monthly chunks, heralding a new era of flexible credit as the norm.

As part of the services, an embedded calculation engine provides consumers with an instalment amount at the terminal or during online checkout, and with flexible fee calculations, the fee can be added before or after APR is calculated.

The fact that industry giants are prioritising these sorts of offerings is a signal that the future could result in blurred lines between loans and credit cards, making larger purchases possible over time. Customers will have access to financial services and products that are more convenient, transparent, and personalised than ever before.

The use of artificial intelligence and machine learning algorithms will enable lenders to track consumer behaviour, analyse data in real time, and adjust their offerings

accordingly. If a customer is experiencing financial difficulties, the lending system may automatically adjust the repayment plan or offer alternative financing solutions.

Unique credit products are a hot need

The hot demand for modern credit card processing and innovative credit products, such as the combo card that links a credit balance to a debit card, is increasing in the issuing market due to a couple of factors.

Firstly, banks are eager to upgrade their credit card platforms, as many require modernisation. Secondly, fintech companies are searching for new and more profitable products as traditional debit cards alone may not offer high enough profit margins.

This demand for modernisation and innovation in the credit industry is driven by the need to stay competitive and meet the changing demands of consumers. With technology evolving rapidly, banks and fintech companies must adapt

Paymentology’s Martin Heraghty explores how the lending landscape is changing and what this means for consumers.

quickly to offer convenient and efficient credit products that meet the expectations of customers today.

By investing in modern credit card processing and developing unique credit products, financial institutions can attract and retain customers while also improving their bottom line.

Responsible lending is paramount

Hyper-personalisation is a benefit for the consumer as it gives them a payment method that is easy to use and enables better budget control – as well as fitting their most pressing needs. A person who needs to finance a home renovation project may require a different type of credit to someone who needs to purchase a new car.

An Accenture study has also shown that 91% of consumers are more likely to purchase when they are provided with relevant offers and recommendations.

However, along with these new opportunities comes new responsibilities for lenders. In this new lending landscape, customers interact with a fintech lending offering that seamlessly integrates into their daily lives. This creates a more convenient and efficient borrowing experience. Yet when this process becomes

too smooth, there is a danger that customers may go too far in accessing credit they can then no longer repay.

The Consumer Financial Protection Bureau (CFPB) showed that between 2019 and 2021, BNPL loans originated in the US by the top five lenders increased by 970%, with the dollar volume of such loans rising from $2 billion to $24.2 billion.

Two-thirds of consumers now see BNPL schemes as ‘financially risky’ as they can cause them to overspend and shepherd them into a debt spiral.

It’s paramount that responsible lending is embedded into the future of CaaS: it is not only morally the best way to proceed, but also ensures longevity and credibility in the decades to come. It can help prevent financial crises on a collective level and protects consumers from unsustainable debt burdens.

Overall, the shift towards digital lending platforms seamlessly integrating into customers’ daily lives represents a significant change in the lending landscape. It offers greater convenience, efficiency, and personalisation, which can benefit both customers and lending platforms. But it also offers new opportunities for forward-thinking firms to lend in a responsible and sustainable manner.

Martin Heraghty is regional director, Europe at Paymentology.

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ESG and the risks of digitalisation

The technology industry has developed in broadly three phases to date. The era of the nerds, the reverence, and now the tech-lash.

But first, let’s rewind to an earlier simpler time. In the days of cheque books and ZipZap machines (credit card imprinters – does anyone remember those?) tech leaders didn’t get a seat at the top table.

To the extent that companies had technology departments, it was to streamline correspondence, for the implementation of efficient accounting systems, and for the management of administrative tasks such as those in HR.

A company might have had a head of technology, but they certainly wouldn’t have been consulted for strategic decisions, nor would they have been invited to play a role in product design or innovation. The techie nerds were

cast in the same light as others who literally ‘keep the lights on’: facilities management, janitorial staff, and maintenance. IT governance was similarly not a board level matter. It was simply the domain of the RAG report.

The worldwide web changed everything. Within a decade of Tim Berners-Lee’s gift to humanity, the nerds had moved from a position of derision to one of exultation. The .com boom of the late 90s suddenly had not just made tech respectable, but for the first time: cool.

A quarter century later we still talk about digital transformation and digital strategy, but really all we’re talking about is finally completing the dreams and visions that were created a generation ago, when many of us were embarking first in our careers.

Yet, while tech became a strategic differentiator, the governance of technology

Charles Radclyffe explores why technology might not be the universal force for good it has always assumed to be and why the sector should be thinking about technology governance to mitigate and manage potential harms.

didn’t shift up the same gear. RAG reports were still de rigeur, and tech delivery was seen only in terms of opportunity cost, not in terms of corporate risk.

The high watermark in the rising tide of importance of the nerds probably came in the form of Mark Zuckerberg’s award as Time Person of the Year in 2010. This was the year that the iPad was released, and consequently the era of the app was born.

Yet eight short years later, Zuckerberg had been hauled in front of Congress to answer questions about the Cambridge Analytica controversy, where Facebook was accused of colluding with a start-up allegedly paid to manipulate voters leading to potentially change the outcome of elections around the world. Most notably, the election of President Trump in the US, and the winning Leave campaign for the Brexit referendum in the UK in the same year.

For big tech, 2016 might be the equivalent to 1985 for heavy industry: the year the ozone layer hole was discovered and the truth that the industrial era wasn’t without existential consequence was revealed to us all. This is perhaps what’s most troubling about describing our own times as the ‘fourth industrial revolution’: doing so simultaneously evokes images of not just incredible shifts in wealth and prosperity, but inequality, exploitation, and environmental destruction.

The social harms of big tech are, thanks to the Cambridge Analytica controversy, clear – but what of the environmental harms? And is digitalisation really an ESG factor?

Although ESG has only been widely written and spoken about in recent years, the discipline began a quarter century ago as some investors started to realise that while taking shortcuts on corporate governance might convey short-term benefits, it was a practice that in the long-term was highly destructive of capital value.

Similarly, it was realised that firms who factored in environmental harms and mitigated them, outperformed their peers, as did those who had a strong sense of social justice integrated within their operations.

This is the origin of so-called materiality assessments – the extent to which an organisation is exposed to risk by a particular factor. An example would be a casino operator on the Miami shoreline compared to its equivalent in central Paris. If ocean levels were to rise by half a meter in Florida, it might have some impact on footfall – but at two meters greater, it would be existential.

For the Parisian operator – neither scenarios would have much consequence.

However, this singular understanding of materiality is problematic – it doesn’t account for the harm caused by the company. Consider another example: a chemical company and the issue of river pollution.

While dead fish might not be a financial factor that the chemical company needs to consider in its input workings, if you consider the risk of the chemical company causing pollution – then indeed it might be a highly material factor, and financially too, if you consider the risk of litigation and regulatory intervention.

So, this is the crux of ESG: what are the external factors (broadly laid out along lines of environment, social, and governance), which need to be layered on top of the company’s financial reports and projections to better model its future performance.

And of course, this is not just data that investors need to make more informed decisions, but companies also need it to understand their operational risks stemming from their supply chain.

Perhaps, most importantly, it’s data that all of us care about (although are unlikely to pay for) to understand the alignment of organisations to causes we follow, whether that be environmental harm mitigation, the promotion of social justice, or the implementation of best-practice towards corporate governance.

With this in mind, what are the ESG risks of digitalisation? Well, for Facebook (now Meta – a business about the monetisation of metadata), the initial impact of Cambridge Analytica, according to Bloomberg, was 15% in the short-term and 58% over a long-term view. Highly material for investors, in other words.

‘But Facebook’s business model isn’t our business model,’ I hear you cry. Yes, but this category of harm applies across all companies embarking on digitalisation –as evidenced by International Distribution Services plc (aka Royal Mail) who were unable to provide any international distribution services over the 2022/23 New Year owing to a cyber-attack; or British Airways, which negotiated down a record GDPR fine for data privacy violations in 2018; or TSB’s £48 million fine for IT system failures (on top of nearly £300 million of losses relating to an outage in 2018).

And now, with the advent of artificial intelligence (AI), the EU is poised to introduce a regulation, which will consider

It was realised that firms who factored in environmental harms and mitigated them, outperformed their peers, as did those who had a strong sense of social justice integrated within their operations.”

the high-risk impacts of algorithmic systems such as in creditscoring and HR.

Every company has an HR system that is likely to use algorithms either in performance reviews, or for hiring. But how misogynist or racist are such algorithms? That’s an ESG risk that your investors and customers will be trying to assess.

Also, the EU’s Circular Economy Action Plan is evidence that e-waste is rising up the agenda, so that questions such as which devices does your app support, and thus the role you play towards planned obsolescence come into focus.

This is on top of questions such as the efficiency of your code from an electricity usage perspective. We all know the debate about proof-of-work versus proof-of-stake in relation to blockchain consensus mechanisms, but did you know that a

recent study found that using Microsoft Teams was 2.5 times less efficient than an equivalent call in Zoom? And that virtual backgrounds would use up to 18% more energy than simply tidying your bookcase?

But finally, for fintechs – surely its corporate governance that once again is the biggest ESG factor – taking this whole subject full circle. In recent years, the boring stuff of corporate governance has been largely overshadowed by the positive virtual signalling of the ‘E’ and the ‘S’.

Yet, all the while it’s been once again proven that taking shortcuts in corporate governance is disastrous from a capital value perspective – to name Wirecard and FTX as just two examples. While these were examples of companies being badly run, not necessarily technology being badly implemented, what they did reveal was how many ESG analysts simply overlooked the risks because they were tech companies. And that is a risk to us all, just because we’re in tech, doesn’t mean we’re green.

Charles Radclyffe is CEO at EthicsGrade and a member of Project ESG at The Payments Association.

A company might have had a head of technology, but they certainly wouldn’t have been consulted for strategic decisions.”

How the UK can lead the way on crypto regulation

The Payments Association submitted its response to the Treasury’s future financial services regulatory regime for cryptoassets consultation and call for evidence at the end of April.

The consultation is important not just for our members, but the payments sector too, especially if the UK wants to be a cryptoassets hub on the global stage. It is why we support HMT’s view of: “Taking proactive steps to harness the opportunities of new financial technologies…[to] strengthen our position as a world-leader in fintech, unlock growth and boost innovation.”

For this to be achieved, “clear, effective, timely regulation and proactive engagement with industry” is required.

We cannot forget that the above is important in order to fulfil the treasury’s four overarching policy objectives of:

a) Encouraging growth, innovation and competition;

b) Enabling consumers to make well informed decisions;

c) Protecting UK financial stability; and

d) Protecting UK market integrity. This is well reflected in the treasury’s

With the rapid pace of innovation in the cryptoasset ecosystem, Ricardo Tordera discusses why regulation is now more paramount than ever and not just in the UK.

current approach when it highlights how the future financial services regulation on cryptoassets will have to work around some core design principles such as ‘same risk, same regulatory outcome’, be ‘proportionate and focused’, as well as ‘agile and flexible’.

This is a welcome step towards establishing regulatory clarity for cryptoassets in the UK. The rapid innovation taking place across the cryptoasset ecosystem is creating exciting opportunities, but it also involves serious risks.

Crypto-asset businesses would generally benefit from regulation, as their growth and safety depend on clearer standards.

Thoughtfully applied, these frameworks will accelerate the adoption of socially beneficial innovation, while reducing both criminal and financial risks.

In addition, with a more holistic view of the regulation on a global perspective, it is necessary to look at harmonisation with other regulatory regimes. Hence, any legislative proposal directed towards cryptoassets should specifically take into account the inter-linked economics between the UK and EU through many years of working together.

Therefore, many companies are either already operating both in the UK and EU markets; or it would be both in the interest of the EU and UK to want them to operate on both markets due to the economic value generated.

Any legislative proposals should also consider the regulatory landscape where the companies are operating as well as other territories such as the US, South America, Asia-Pacific, Africa and the Middle East.

Considering the economic impact and possibilities around the UK’s proposal for the financial services’ regulatory regime for cryptoassets, it would make sense for the regulatory regime to harmonise, to the extent reasonably possible, to allow as seamless cross-jurisdictional operation as possible.

Impact of MiCA

Although the UK proposals have a significant overlap with the EU’s Markets in Crypotassets Regulation (MiCA), there are also important differences between the two regimes, which clearly makes it difficult for affected companies to work in both regulatory environments.

Companies that provide affected cryptoasset services in the UK and EU will need to evaluate and analyse differences between the UK proposal and the requirements of MiCA and figure out how to satisfy both.

For example, the UK’s proposal differs in its approach to lending activities (cryptoasset lending platforms) and NFTs; whereby MiCA does not address those and it falls outside of its scope.

Also, fundamental effects can come from the approach to regulatory oversight and licensing. MiCA allows certain authorised companies, such as credit institutions, to conduct cryptoasset activities based on existing licenses.

However, under the UK’s proposal, companies that are already authorised, would need to apply for a variation of their license and the authorisation is not granted automatically. Therefore, aligning around fundamentals would benefit both the EU and the UK businesses.

Having said that, a similar approach would be sensible with other regulatory regimes to the extent that businesses are operating between those territories and the core regulatory approaches are similar.

Finally, but certainly not least, the UK needs to look at providing ‘best of breed’ regulation for the world to follow and stand us apart to create that fertile bed for businesses to thrive and grow.

We can learn from those that have gone before us and avoid unintended consequences learning from the development and pitfalls from the e-money and payment services regimes that build some of the best fintech businesses in the UK.

What’s next?

The UK seems to have fallen asleep a bit on its ambition of leading the fintech revolution, which was announced by David Cameron, when he was prime minister. Nonetheless, throughout Brexit, the industry has kept working hard, despite the difficulties related to a new relationship with the EU and a lack of attention from the government to push forward the industry demands.

In 2020 though, HMT had commissioned the Kalifa Review, to revitalise the sector. The review, published in 2021, highlights how the UK should have become a global hub for crypto and explored CBDCs.

The government seems now committed to deliver on the Kalifa Review’s suggestions. Despite being a second mover after the EU, it has the ability to be agile and flexible enough to accelerate this by creating secondary legislation as soon as the Financial Services and Markets Bill is approved, most likely over summer.

If this happens, the UK will be able to capitalise on MiCA, by going beyond that and making the most of its ability to craft a future ecosystem where alignment with relevant jurisdictions (and not just simply the EU), can coexist with some regulatory arbitrage.

Christine Lagarde said a few months ago that MiCA will need a MiCA 2 quite soon; but MiCA will only come into force next year, and it took three years to be approved. The hope is that the UK could have its own rules in place, combining MiCA 1 and 2 much sooner.

Although the UK proposals have a significant overlap with the EU’s Markets in Crypotassets Regulation (MiCA), there are also important differences between the two regimes.”

‘PSR roadmap will be available by June’

Hemsley, managing director of the Payment Services Regulator (PSR),

Chris

says the watchdog’s plan will be published by the end of June 2023.

Speaking at PAY360, The Payments Association’s flagship conference, on 21 March, Chris Hemsley said the regulators have been losing quite a lot of sleep over preparing the roadmap but promises that it’s “not that far away”.

“A draft copy is in the bag,” he told attendees at the two-day event. “There’s a lot of work going on with the FCA, treasury and the CMA.”

He added that the objective is to progress to the next stage of open banking. So far, open banking has been a competition remedy for years and it has achieved a lot, involving a lot of cost and time.

“We now want it to be a growth and innovation story,” said Hemsley.

To do that, he explained that the regulators need to make a number of quite important changes, both to the central governance – the Open Banking Implementation Entity (OBIE) replacement and how that evolves in the nearer term into a longer-term model –and then start to fix some of the other problems such as dispute resolution, the commercial model, consumer protection and fraud prevention.

“What you can expect is a document [that] will be setting out a series of actions across those problems,” said Hemsley. “So, what does the new future entity need to look like? What kind of

features will it have, [Will it] tee us up to then work through all those other problems, at pace?”

Hemsley acknowledged that these points have been debated for quite some time, but there’s still a need to dive deeper into that conversation to understand what the economic commercial model would mean in open banking. “There aren’t that many options so if we just write them down and debate them, then maybe we’ll be able to inject more pace into this,” he explained.

Hemsley also discussed how innovation will be key part to some of the actions that are required to fix issues.

He said: “From my perspective, we want to innovate, and we want to go into new things […] and I think that is where we can get better. A lot of us [in the payments sector] are focused on removing thought from the ecosystem.

“We are all adopting real-time payments. And faster payments are becoming part of the day-to-day interactions with individuals. We’ve seen that rise significantly over the last couple of

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How businesses could receive payments faster

With inflation at record levels, sky rocketing interest rates and general economic uncertainty, there is an argument to say that “we’re in a global recession”, claims Norman Marraccini, global head of B2B commercial and retail solutions at FIS. And in a recession, businesses want access to “their cash faster”.

Marraccini, alongside Mike Shields, global leader of receivables and Daniel Hurst, head of Europe B2B payments and money movements at the fintech giant, sat down with Tony Craddock, The Payments Association’s director general, to discuss what possible solutions there are

for businesses to receive payments faster.

Currently in the US, FIS offers its corporate clients’ software that helps manage cash flow, assess risk and essentially “collect their debt faster”. It does this by using artificial intelligence to “queue up accounts for collection activities based upon workflow” data, explains Shields.

Low risk invoices – those where the client is likely to pay – are automated; and high cash risk, those that are likely to be disputed or not be paid, are “put in front of someone to gain a human interaction”, adds Shields.

FIS works directly with banks so the process from invoice to payment and

access to cash is seamless, which Craddock describes as “embedding payments into the consumers everyday behaviour”.

“We have a fantastic reseller network established in the States [US] and our banks have done a nice job at accepting the software,” says Marranccini, who is based in New Jersey, US. “Our goal now is to figure out how to get better here in the EU and the UK.”

However, the US model cannot be directly applied to the UK, primarily because on this side of the pond there are just four major banking groups – HSBC, Barclays, Lloyds Banking Group and Royal Bank of Scotland Group – compared to more than 6,000 in the US.

“They [the UK banking groups] are truly in their own market,” explains Marranccini. “In the US, we have banks ranging from $100 million to $100 billion trillion in assets. So we can play a $50-100 billion size bank up by saying you can compete with the top 10 banks in the country by offering this service.

“When bringing this to the Europe vertical, it is looking at how we take payables and receivables and bring those products together.”

And there is a market for this in the UK, because the “advantage banks have here is they are serving tens of thousands of corporations and retailers as well as smaller organisations, who

The Payments Association’s Tony Craddock sits down with FIS to discuss how the threat of a recession is driving a need for quicker and easier access to cash for organisations.

Jyoti Rambhai

are all interested in access to cash,” explains Hurst.

Businesses want things to be simpler and “not worry about payments”. So, if banks can “automate that process and give them the capability to collect the cash sooner, then they can also start thinking about their additional products such as credit or financing”.

Hurst adds: “A lot of smaller businesses are starved of cash at the moment. The link here is banks then say, ‘we know this set of invoices is good to go, why don’t I finance that for you and give you the money now’.

“This is called a working capital solutions for corporations and there is a real need for this. The big guys (HSBC, Lloyds, NatWest)

definitely have the financing capabilities and this is a real opportunity for them to step in and give those automation solutions to those companies.”

While there are many fintech applications already in the market that automate payment processes for businesses, many still rely on the customers’ banks to make or receive the payment, and that’s associated with time, cost, and convenience issues.

Therefore, at a time of real global economic uncertainty, “cash is now back to being king”, Marranccini concludes, which means there is a real need to implement a solution that enables customers to make and receive payments faster “with as little friction as possible”.

The US model cannot be directly applied to the UK, primarily because there are just four major bankings groups here.”

‘AI potential of virtual cards could boost efficiencies’

Anant Patel, president of international markets at ConnexPay, talks to Anjana Haines, The Payments Association’s editorial director, about why virtual cards are growing in global popularity, particularly among corporations, and how the payment method will evolve to utilise AI technology.

Virtual cards have been growing in popularity. What’s their potential?

Virtual cards have significant advantages over traditional payment methods. They can be created quickly and easily, used for one-time or multiple purchases, offer increased security, and handle high volume business payments. But they also reduce risk and fraud.

Talking about the popularity of virtual cards, I would go as far as saying that we’re probably in the realm of over U$100 billion a year of virtual cards being used globally.

In its true sense, when you make a transaction online you are making a virtual

payment transaction. What we find is that the popularity is growing because companies like ConnexPay are removing the friction.

Another benefit is they’re easily integrated into digital wallets and digital payments – the younger generation don’t utilise any other forms of payment. So, digital payments are growing in popularity and virtual cards are a part of that.

Finally, there are significant amounts of controls you can put on virtual cards like one-time use only, allowing the card to be live only on a certain date, only using it at a certain merchant, or in a specific currency for a certain amount.

So, people are finding that it’s ultimately reducing risk, therefore the popularity is increasing because people feel safer using them. We can do high volumes of transactions and it is fitting into the digital wallet.

Virtual cards are popular worldwide and I have seen it accelerate and grow by hundreds of percents yearover-year. We’re seeing huge adoption within travel, as well as hospitality and e-commerce. It’s going to continue to grow globally.

So, what you’re finding is it’s a secure way of doing payments and people are far more excited, accepting and receptive of it.

A significant growth area for virtual cards has been among corporations. Do you see this trend continuing?

Yes, I do. Businesses are there to make profit and add significant value to their customers and their shareholders and there are many ways of doing that.

One of the ways that our customers are doing that is by driving out the pain in their payments process [and] creating more efficiency. When you drive more efficiency, you can pass on that benefit to consumers and grow your business.

What we’re finding is that

businesses are the biggest adopter of virtual cards in mass. For example, there are global travel companies that are producing multiple virtual cards per second to pay hotels or airlines or ground transportation – to the tune of billions of dollars a year. I don’t see that slowing down in corporates – I see that growing.

Mastercard said the size of the B2B market is over $130 trillion globally and growing at significant pace. With that in mind, we’re only scratching the surface with a virtual card, which is an efficient way of paying. We want to drive out inefficiencies for the businesses we serve and simply connect payments, reduce costs, make it more efficient and help grow their business.

How popular are virtual cards among retailers?

The way I look at this is the benefits of issuing, paying and receiving a virtual card outweigh the costs related to it.

There is a huge amount of fraud that we know happens globally and companies are trying to drive fraud out of everything because it affects their bottom line. So, we’re finding that we’re having a major impact on reducing fraud because of all the benefits, such as having one-time use only cards, set values, currencies and activity periods on the cards.

If retailers accept virtual cards, they will grow their revenues because more people will buy from them, as well as reduce fraud. It also increases their cash flow. For example, a lot of retailers wait for payments to settle over a period of days, but virtual cards allow these retailers to receive their money quicker, creating a positive impact on cash flow.

What about the future of virtual cards? How could they work with crypto assets, Web3, or the metaverse?

Our virtual cards can work with crypto assets, Web3 and the metaverse.

On crypto assets, we can link a virtual card with a crypto wallet. When we link to a crypto or a decentralised finance platform, we allow that card to be stored and you can trade and transfer cryptocurrencies. The connection allows users to convert crypto assets to fiat currencies.

It can work with Web3 applications as well, which are decentralised applications that operate on blockchainbased platforms and it allows users to earn crypto assets and then, by completing tasks, they can use a virtual card to spend those assets. We can see that happening online a lot.

Virtual cards can also be used to make payments in the metaverse – a fictional world that operates on a blockchain platform or blockchain-based platform – to purchase virtual goods, services and assets.

Ultimately, a virtual card acts as the bridge between the traditional finance systems that we know, and the new blockchain-based ecosystems. Things are evolving.

How could virtual cards work with AI?

We are looking into what AI can do for us and [how] virtual cards could coexist with it.

One way is just to analyse spending patterns. So, I spend most of my money at food places –the AI could provide a list of recommendations on restaurants based on where I’ve eaten.

The other thing AI can do is help with the security

features of virtual cards, because being able to learn, detect and prevent fraudulent transactions in real time would help reduce fraud. Sometimes it takes a few times before fraud is caught but if you’re able to reduce it, even by one transaction, you’re saving significant money.

Then, there’s automatic expense tracking. We’ve been able to use AI in a transaction and populate expense systems with the information that’s pushed through.

I believe that integrating AI and virtual cards can provide significant financial solutions, but also add value to the whole ecosystem of payments around reducing fraud and making things faster.

As an organisation, we’re always thinking about what the future holds. We talk about our vision being simply connecting payments and we do that through virtual cards.

There are global travel companies who are producing multiple virtual cards per second to pay hotels or airlines or ground transportation – to the tune of billions of dollars a year. I don’t see that slowing down in corporates.”

How fintech is closing the financial divide

Nikulipe’s Frank Breuss discusses the correlation between a country’s GDP and its accessibility to digital financial services, which suggests fintechs are key to financial inclusion in emerging markets.

More than 1.4 billion adults around the world still lack access to formal financial services, which includes savings accounts, loans, and insurance, according to the World Bank, Although many can take it for granted, having a bank account means participating in the formal financial system and benefiting from the opportunities it provides for individuals and businesses.

A bank account allows a person not only to make and receive payments, but also to save money and have a recorded financial history that enables its possessor to get insurance, a loan or credit. That said, back in 2011, only 51% of the global population had access to bank accounts; 10 years later this number was cut by half to around 24%, which is still a significant number of those unbanked.

The progress in account ownership has been significant and could be attributed to the emergence of digital financial services enabled by fintech.

Still, financial access distribution is extremely uneven: countries like Denmark and Iceland have 100% bank account coverage, while Afghanistan and Guinea have 9.65% and 13.77% coverage, respectively. As the world becomes increasingly interconnected and technology advances at an unprecedented rate, digital financial inclusion remains a critical issue that requires urgent attention.

From mobile banking apps to online payment platforms, fintech has enabled millions of people to access financial services that were previously out of reach. Let’s see in detail how fintech innovation has been changing the way people pay and receive money in largely unbanked markets while transforming those societies.

Providing more secure and affordable payments

The lack of easy access to and the high costs of traditional banking services can lead individuals to resort to informal financial services like moneylenders or borrowing from family and friends. These options can be expensive, risky, and not always accessible, leaving many without reliable financial options.

Fortunately, the internet and mobile devices infrastructure has spurred the development of cheaper and more secure technological innovation, leading to increasingly accessible financial services in developing economies.

Various local payment methods (LPMs), such as mobile money solutions and wallets, have emerged that have been touted as revolutionary for their role in expanding access to financial services in lower-income countries.

For instance, the introduction of mobile money services like M-Pesa in 2007 has revolutionised the financial landscape in Kenya. M-Pesa and other mobile platforms have increased financial inclusion in the country dramatically, from 27% of the population having access to formal financial services in 2006 to 84% in 2021.

Such innovations not only benefit people in fast-growing and emerging markets by offering a much cheaper alternative to traditional bank accounts; it also empowers these often young and booming societies to participate in the global economy by creating new economic opportunities.

To close the gap of financial inclusion even further, emerging markets need additional opportunities that connect these local payment methods to the larger global economy. At Nikulipe, one of our overarching goals is to empower consumers from fast-growing and emerging markets to take part in global e-commerce.

We facilitate access to local payment methods for fintechs, PSPs and their merchants and open doors to previously

inaccessible markets. This, in turn, will create new opportunities for millions of people by connecting them with global merchants.

Improving financial literacy

Another noteworthy barrier is the lack of financial literacy that prevents individuals from accessing these services. Financial literacy is the ability to understand and effectively manage personal finances by making informed decisions about spending, saving, investing, and managing debt.

Fintechs positively affect the level of financial education directly and indirectly.

For instance, Nequi, a Columbian digital bank, began a revolution of digital financial inclusion in the country, which together with other government initiatives helped increase the banking population in four years from 49% to nearly 90%.

It made digital banking and other financial services accessible and affordable to people that were previously excluded from formal banking; it reached people in remote areas and low-income communities; and enabled customers to send and receive money without additional fees.

Additionally, a financial education platform called Nequi Academy was offered to educate the population on budgeting, saving, and investing.

A low level of financial literacy obstructs the use of financial products, but fintechs have emerged as new means for the unbanked to use a familiar tool — a phone or smartphone — to manage finances.

Fortunately, the internet and mobile devices infrastructure has spurred the development of cheaper and more secure technological innovation, leading to increasingly accessible financial services in developing economies.”

Among the unbanked and financially excluded, women are often disadvantaged when it comes to accessing financial services due to barriers to education (including financial literacy), cultural norms, and reduced mobility.

Fintech solutions such as mobile money that have a simple registration process compared to that of the traditional bank account enable women to manage their finances and, as a result, strengthen their financial independence and enable economic empowerment. For instance, the gender gap in account ownership across developing economies has fallen from 9% to 6% points, where it stayed for many years and is largely attributed to more diverse digital financial solutions.

Increased availability of financial products

From mobile money solutions to online payment platforms, fintech has enabled millions of people to access financial services that were previously out of reach. For instance, mobile banking solutions allow people to open bank accounts,

make transactions, and even access credit without having to physically visit a bank branch.

This is particularly crucial in areas where traditional banks are not accessible or where people cannot afford to maintain a minimum balance in their accounts (typically a precondition to get an account in the first place).

In 2011, only 46% of the Chinese population had a bank account, which left a significant portion without access to formal financial services. Particularly acute in rural areas, where people had limited access to banks and other financial institutions.

The introduction of Alipay and other wallet solutions provided an alternative way to access financial services and products. These platforms have made it easier for people to make transactions and access a range of financial services, such as wealth management and insurance, without the need for a traditional bank account.

As a result, the adoption of mobile payments has grown rapidly in China,

and by 2020, it was estimated that over 89% of the adult population in the country had a bank or bank-like account. This growth has helped to promote financial inclusion and has provided a low-cost way for small businesses to accept digital payments.

Fintechs have become an essential enabler of financial inclusion. Still, around 1.4 billion people need access to financial services, and universal financial access remains a goal to be achieved.

Governments, regulators, and financial institutions must work together to create an enabling environment for fintech innovation to thrive, while also ensuring that consumers are protected from fraud and abuse.

Frank Breuss is the CEO and cofounder of Nikulipe.

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