Your gateway to the world of fintech and payments
Inside this issue:
Dr. Stornetta on Decentralized Finance Nexway Ecommerce Health-Check Open Finance vs Open Banking with Mark Boyd Next-gen Fraud Detection Transit Payment Revolution
Volume 6, Issue 3 September 2020
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Contents 10
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04 Letter from the Editor 06 Change Is Coming with Dr. Scott Stornetta 10 Global Impact Fintech 12 Open Finance vs Open Banking with Mark Boyd 16 Next-gen Fraud Detection 20 The Fintech Watchlist 23 Industry Events 24 Startup-Spotlight: Littlepay 26 Thought Leadership: Casey Potenzone 30 Agustin Rubini 1
LATEST NEWS: News shaping the world of finance, technology, and the global marketplace.
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Mastercard launches CBDC testing platform for central banks:
Singapore Exchange, HSBC, and Temasek complete digital bond issuance:
To support the efforts of central banks creating their digital currencies, Mastercard is looking to help by simulating issuance, exchange and distribution of CBDC’s between banks, financial service providers, consumers, and businesses. 40% of banks have moved on from research to experimenting with concept and design - read the full report by The Bank for International Settlements here
Utilising the smart contract language DAML of blockchain startup Digital Asset, SGX successfully replicated a $400 Million 5-year syndicated public bond issuance. The digital bond uses HSBC’s on-chain payments solution - which allows for seamless settlement in multiple currencies. Press release
Global Drive for Net-Zero:
SADC joins TCIB for remittance:
The Institutional Investors Group on Climate Change (IIGCC) - A European membership body for investor collaboration on climate change, have drafted an outline, together with 70 firms representing more than $17 trillion in assets, on how they aim to achieve net-zero globally by 2050. The appetite and potential for easy investment, alongside other platforms like Aspiration and Clim8, toward carbon neutrality, is rapidly growing.
Southern African Development Community (SADC) joins Transactions Cleared on an Immediate Basis (TCIB) in an attempt to mitigate the impact of the global pandemic on cross-border remittance - a significant avenue for migrant workers sending funds to their families. Vodacom, together with Safaricom, recently acquired Mpesa, which has over 40 million users across the continent - furthering inclusion by harmonising regulatory requirements for non-bank financial institutions. This is a significant step towards one of the United Nation’s Sustainable Development Goal’s - to reduce average global transaction costs to below 3%. Press release
Visa & PayPal expand their partnership: Expanding on PayPal’s instant transfer service, this expanded partnership with Visa allows direct and speedy cross-border digital payments for consumers and small businesses using Paypal, Venmo, or Xoom. Following a successful launch of the instant transfer service in North-America, select markets in APAC, and Europe, this service will be available as a global solution in the coming months. Press release
UnionPay launches digital global card: Furthering the drive for complete digitisation of the payment process, UnionPay now offers application and collection of digitally issued cards, which can be used across banking apps, digital wallets, and contactless payment methods. With the Token 2.0 framework payments can be made securely across different industries like public transport, ecommerce, e-wallets, and come with benefits furthering the interconnected digital payment ecosystem.
Netcetera and Mastercard launch 3DS testing platform for retailers: Merchants can do live testing using Netcetera’s 3DS access control server, right in their online shop, with dedicated Mastercard test cards - with 19 different test cases. Merchants need to be ready for the impending EMV(R) 3DS 2.0 SCA (Strong Customer Authentication) standard deadline on the 31st of December 2020 as set by the European Banking Authority.
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by Andries Van Der Westhuizen
Letter from the Editor: Digital sovereignty and the broader implications thereof is painting a stark backdrop for our seamless and unified financial future. How would, or could, the internet function without these independent networks using an open set of standards which ensure interoperability? Perhaps this is a product of the societal and SME outcry against giant tech monopolies igniting a cultural reaction, hopefully, towards a decentralised future. As the spending power of fiat currency is in constant flux, but always in continuous decline for the average saver - we are being presented here, and spurred on by global pandemic, with an opportunity to distance ourselves as individuals from political posturing and the reverberations thereof on international markets. How are you retaining and building on your hard-earned power?
The opportunities are far-reaching into emerging markets with inclusion, as covered by GIFT (Global Impact FinTech), being of supreme importance today, as new models and ease of access to financial services become available to an increasingly connected customer base - affording those great opportunities for socioeconomic upliftment. GIFT furthers the conversation - and to not get caught in the weeds of political discourse and regulations they’re working with governments and regulators, perhaps they also need you?
Scott Stornetta, one of the founding fathers of blockchain, may quell the panic for some intermediaries in the payment ecosystem in his macro-level consideration of blockchain and benefits thereof. With a clear message of impending disruption - those resistant to change, or those who change too slowly, will eventually find themselves on the wayside.
But where’s the money? Agustin Rubini from The Angel Investor School covers the venture capitalist perspective and how adaption caused some hesitation. However, VC’s are still willing to let their money do the work if you can walk the talk. Embodying this is Fraudio, a startup-spotlight on page 16, covering nextgen fraud-fighting plug and protect SaaS, followed by LittlePay on page 24 - who have revolutionised the modular architecture needed to render transport ‘covid secure’.
Mark Boyd furthers the conversation on change, and those who “cling to the old world order”...mostly banks, will begin to scramble to plug the holes in their boat where open finance and fintech are picking apart their customer relationship with deeper, mobile-first, data-driven insights and offerings. These insights and customer-centric models add to the bottom-line, there’s no denying that. 4
In closing, I want to thank all the contributors for their valued time and attention, and also the effort from PCN’s team in putting together this exciting issue. Let’s stay on the forefront of our industry and continually spearhead for not progress alone, but rather an evolution.
Guarding the world’s most valuable good. With the ability to bring massive insights into today’s world, nothing has more value than data security. As companies all over the world grow, they must look at cyber security to safeguard this commodity. Still, more than 4 million cyber security positions worldwide are unfulfilled. Sekura People is here to change that.
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CHANGE IS COMING There is an undeniable presence of looming disruption. As Richard Turrin beautifully articulated in the previous issue of this trade journal, China’s CBDC (Central Bank Digital Currency) is an example of a new technology coming to the financial payments system. The question is, what will the response of the payment’s community be to this coming change?
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About Dr. Scott Stornetta Dr. Stornetta is considered by many to be the co-inventor of the Blockchain. Dating back to 1991, his pioneering series of papers and patents helped lay the foundation for Bitcoin and other digital currencies. Dr. Stornetta consulted for many years, evaluating the commercial potential of emerging technologies on behalf of universities, commercial research labs, and venture capital interests. He is currently a partner and Chief Scientist at Yugen Partners.
C I do not claim to understand the payments and cards ecosystem in all of its details. But I do bring to bear expertise of a different kind. Long before the development of bitcoin, I, along with my colleague Stuart Haber, played a role in the early development of blockchain, or distributed ledger systems. In fact, many are surprised to learn that systems now identified as blockchains have been in continuous commercial operation since 1995.
The Emergence
So I bring a longer-term perspective to the underlying value creation of blockchains and their gradual adoption. In addition, I now work closely with technology startups seeking to disrupt existing players, as well as advise incumbents on strategies for responding to startups. It is from these vantage points that I offer some perspective about the impact of blockchains, or distributed ledgers, on the financial payments system, and how to respond to these challenges and opportunities.
Now many say, “I have heard the hype about blockchain for years, and yet no real change has occurred. Why should I worry?” A fair question. The idea that nation-states would be toppled and that all of the current Internet giants, such as Facebook and Google, would simply be disintermediated, was never a plausible near-to-mid-term scenario. But just because initial blockchain enthusiasts had unrealistic expectations does not mean change is not coming. That is because the timing of change is dictated, not by the technology tempo, but rather by the years it takes to make legislative changes, overcome regulatory hurdles, and gradually develop viable business models. Near-instantaneous reconciliation and settlement, at very low cost, is all but inevitable. The real question is not if, but when?
A blockchain, or more particularly, a distributed ledger is a single record, jointly created and maintained, between two or more parties who have, typically, a business relationship. In the words of one thoughtful advocate, Richard Grendal Brown of R3, it is for situations “especially when those parties trust each other enough to trade but not enough to have their counterparty maintain all the records. This is in contrast to systems of accounts maintained separately by the various parties, and then reconciled after the fact. Instead, a blockchain allows the single shared record itself to constitute the primary record of accounts between multiple parties. This distributed ledger is thus a single shared database, available and trusted by all participants.
Why has it taken until now for CBDCs and other blockchain applications to emerge? The answer is two-fold. First, overall progress in connectivity and large-scale storage makes it possible to have a shared record on a vast scale. Second, blockchain techniques ensure the necessary integrity of the record and therefore confidence in it. As a result, the mechanisms of settlement and reconciliation of accounts, whether at the end of the day, month, or quarter, can be eliminated. With a distributed ledger, an atomic settlement is near-instantaneous and final. The operating costs are also minimal, at least for systems that have efficient consensus mechanisms, unlike bitcoin’s mining.
China’s CBDC is just the first of many changes affecting the world’s payment networks. This change might not come soon for the U.S. dollar, but other countries are likely to follow China’s path in short order. Soon, related projects will facilitate transfers between nations, such as project UBIN in Singapore, and the ripples from this will affect SWIFT as well. SWIFT can either adopt the more efficient single ledger or risk being bypassed by 7
“Even banks will not be immune to this inevitable change.�
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those who do, but one way or another, interbank payments will be transformed. And it will not stop there. Eventually, VISA and its kindred ilk will have to face the same dilemma as SWIFT: either adopt the single record and accept dramatically lower margins in their business model or risk being bypassed by those who build a viable low-margin business based on the single record. Whether the Facebook-affiliated Libra succeeds after its botched introduction is less significant than the fact that Libra-like systems of transfer will arise. Even banks will not be immune to this inevitable change. The irony is that commercial banks, warned about their downfall at the hands of crypto startups, could face their greatest competition from their heretofore trusted, reliable allies, the monetary authorities of the various countries. CBDCs open the way for individual citizens to have direct accounts with their respective national monetary authorities, potentially taking away the exclusivity commercial banks have had on personal bank accounts.
But it is not all gloom for those worried about their highermargin business being commoditized. Shared ledgers create opportunities for new value-creating services. This is a simple consequence of the fact that the shared records will be of substantially greater scale, and the records themselves will become standardized in format and widely accessible. Smart contracts are but one possible example of the new valueadded services. In summary, if you own the customer relationship, strengthen it. Be on the lookout for new, lower-cost intermediaries to manage transactions. If you are an intermediary, embrace a lower margin core business and look for value-added services to expand into. Disruption can be a bit of a bumpy ride, but you can prosper by understanding the forces driving it and the likely outcomes. But make no mistake: change is coming.
Preparation
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The concept of the single shared record among parties in an ecosystem will eventually touch every facet of payments and accounting. And so, the need arises to ask how best to prepare, both defensively and proactively, for coming challenges and opportunities this will create. In this regard, Brant Carson and others at McKinsey Consulting have framed a strategic response well worth reading. How companies should respond to this coming change depends on where their organizations fit in the ecosystem. Those who own the end-user customer relationship are in a relatively strong position. They are less likely to be disintermediated. These companies should remain actively attuned to the coming changes, on the lookout for new intermediaries who can work on behalf of their customers at substantially lower margins. For those that function as intermediaries, whether white-label or otherwise, they should actively ask how their systems can operate on larger scales and with lower margins.
About Yugen Partners: Yugen Partners is a venture capital firm focused on early-stage companies in the B2B enterprise blockchain space. They’re disciplined approach provides institutional clients with access to the emerging blockchain space via commingled and customized portfolio solutions.
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The location was Singapore. The eventConnecTech Asia. The venue: Marina Bay Sands. The year: June 2018.
GIFT Co-founder and Chairman, Malik Khan Kotadia
After an enriching panel discussion, the four panellists - Jeff Frey from Switzerland, Simon Wilson from Australia, Bettina Quimson from the Philippines and Sebastian Resano from Argentina, along with the moderator-Malik Khan Kotadia, sat together for dinner over the bay. Amidst the gentle breeze and the sights of the evening Singapore skyline, they brainstormed ways to continue the ‘dialogue’ and leverage this global expertise. Thus came about the idea of the Global Impact FinTech (GIFT) Forum, a platform to bring together key stakeholders in the Fintech ecosystem for inclusion and impact. This initiative has been recognized as being an “industry legend” by PCN in June 2020.
Global Impact Fintech Forum GIFTs Charter Global Impact FinTech (GIFT) claims to be the most diverse and inclusive FinTech forum globally, with members from 40+ countries across all regions. As a global nonprofit think tank, incorporated and headquartered in Singapore, GIFT’s goal is to work with varied stakeholders to help collectively find solutions to humanity’s critical challenges by leveraging disruptive tech, with a primary focus on innovation for impact and inclusion. The members include ecosystem leaders from Governments, Regulators, Multilateral Agencies, Industry, Banks, Fintech and Blockchain companies, Academia and thought leaders. GIFT Forum engages with policymakers and Fintech/Blockchain/Digital leaders for knowledge and best practice sharing, community building, collaboration, and ecosystem development. Talking to co-founder and Chairman Malik Khan Kotadia, we are certainly curious to find out more about GIFT.
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Q: “Looking back at that dinner in Singapore, how would you describe the subsequent ride?” A: “Even though our aim has always been to bring together thought leaders on a global scale, it isn’t a coincidence that our initiative has seen maximum traction in Asia so far, given the presence of emerging markets, where FinTech has the potential to be a game-changer in people’s lives. To facilitate inclusion is a key objective for us, especially post-pandemic. And in this regard, we want to ‘walk the talk’ - Malik. At the same time, as a non-profit forum, we work on GIFT in our spare time, driven by a joint vision: ‘to be the world’s most diverse, inclusive and impactful Fintech community, for thought leadership and ecosystem development’. It is incredibly inspiring and rewarding to engage with passionate FinTech professionals all over the globe, towards this shared vision and mission.
Guided by 4 pillars: To bring this vision to life, our key initiatives are guided by 4 pillars: Content, Community, Collaboration, and Causes.
1. CONTENT Thought leadership and knowledge sharing by being at the cutting edge of the curve by leveraging the collective knowledge pool of members from over 40 countries.
3. COLLABORATION Among ecosystem stakeholders for deepening and widening the impact of the fintech space.
2. COMMUNITY Connections, communication, networking through an invite-only forum to (virtually) connect like-minded Fintech evangelists and enthusiasts coming from diverse backgrounds.
4. CAUSES Leverage technology for impact, inclusion, and upliftment.
‘Financial Inclusion’, ‘AI Ethics’, ‘RegTech’ and ‘CBDC’ have been set up, with members from all over the globe. At the same time, the first Regional chapter of GIFT was established in South Asia covering 7 countries in July Malik is hugely enthused by this launch “It is an amazing example of what we can achieve together”.
GIFT ExCo, Jeroen van Dijk
Malik is joined by Jeroen van Dijk, a GIFT ExCo member from Amsterdam, who nominated the forum ‘as our legend’. Jeroen: “In the summer of 2019 I attended Seamless Asia in Singapore, looking for inspiration and a different perspective on FinTech. The event was hosted by Malik and attended by some of his fellow GIFT members. The thing I remember most is the relevance and impact of FinTech innovation in Asia. Next to making a business digital, efficient, user friendly etc. the topic of inclusion is always top of mind. Inclusion means making a significant impact on people’s lives, offering them chances to build a small business, a living, a future. In short, I was inspired by my change of perspective, and as an active and enthusiastic participant, I was nominated to join the Forum -which I consider to be a true gift”. Malik and Jeroen continue to talk about how GIFT is gradually organizing itself to start making the difference they are aspiring towards. The Forum has a marquee and diverse Board of Directors, supported by a Global Exco and Advisory Board, all pro bono. To drive key initiatives across regions and verticals, working groups for
Jeroen adds: “who could have thought I would participate in the panel discussion celebrating this launch? What a privilege to talk with thought leaders from our industry. I remember our moderator Syed Musheer Ahmed summarizing the discussion ‘spot on’ as follows: ‘We need Trust, followed by Sharing and Collaboration to stimulate the inclusion of Thought, Technology and Growth’. Well, how about that!” When asked about other significant GIFT milestones, Malik needs no time to think. “GIFT has partnered with the Cambridge Judge School Center for Alternative Finance (CCAF), to support their joint Covid-19 impact study for the Fintech sector with the World Economic Forum and World Bank. We are also in discussions with the UN Secretary General’s task force report on Digital Finance, and how we can support it.” Looking ahead GIFT wants to grow as a Forum, attracting more like-minded FinTech professionals by invitation only and building strong relationships with FinTechs, Financial Institutions, (semi-) Governments and Regulators, Academic Institutions and Students. Malik: “Launching more regional chapters will be our next step. We have plans for South-East Asia (ASEAN) by end 2020, and Northern Europe and Eastern Europe/ Central Asia by H1 2021” Malik adds, “We want to be the Fintech ecosystem catalyst for impact across the globe. Thus we welcome the support of Financial institutions, Associations and Fintechs, and welcome new, likeminded members.
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About the Author Writer and analyst Mark Boyd founded Platformable, a startup focused on helping businesses and governments measure the value of their ecosystems. He documents trends in open banking and open finance through Platformable’s Open Banking Quarterly Trends reports.
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Open Finance Steps Up Where Open Banking Fails to Tread Financial services are a paradox. On the one hand, they are increasingly ubiquitous: able to be accessed anywhere, whenever we need them. On the other hand, they are fading into the background so that we don’t directly deal with them in their own right. We can easily see this in action. Whenever we make a large purchase online, we may be offered a plan (that is, an ‘instant credit’ financial service) to pay for our purchase in instalments. Delivery is also arranged, and maybe we are even offered insurance at the point of sale. So we end up dealing with the retailer and multiple financial services all from the shopping cart, without having to engage with each business individually. This sort of experience in which financial services are provided within our main activity process is becoming the norm, thanks to application programming interfaces (APIs) coupled with an increasing demand for remote and mobile digital engagement. Even when we do access a digital financial service directly, it takes on three or four functions at once and does much of the legwork for us.
As a result, a new wave of customer-focused services are currently being implemented or are on the horizon: • •
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When you book travel accommodation, you can already arrange car rental, travel insurance, and even pay for additional event tickets at once. If you lease an electric vehicle, your car app could automatically book your service maintenance, copy the nearest EV charging stations into your maps and GPS, and even track your usage to recommend the optimal time to renew your lease.
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If you use a budget app, you could be told when to apply available coupons and discount offers, access cashbacks, or be switched to cheaper service providers automatically. For your small business, your accounting software can help you make sure you have the necessary paperwork to meet tax obligations and even submit your quarterly tax returns automatically for you.
APIs make these joined-up services possible by exposing the functionalities from each provider in a way that makes it possible to extend the customer value chain. This allows customers to personalise their experiences so they can pick and choose the elements that they need. But this also means that the service providers need new business models to work in an ecosystem approach. If you are a credit provider, do you give the retailer a revenue share if they introduce you to a new loan applicant? If you are a budget app, can you sell the anonymised, aggregated data of all your users to an enterprise that wants to study consumer buying habits, while also entering into a partnership deal to ensure your app users get a cashback or discount offer? Financial services infrastructure providers can be the conduit for these new business models. They offer various functionalities that can be plugged into the online experience. Often these can be provided within a digital service offering: a marketplace, softwareas-a-service, an app’s integration services, or so on. The financial services provider can be the innovator that identifies the new business models and works with partners to share revenue in ways that grow the opportunity for all stakeholders. This type of digital financial service delivery is often referred to as
‘open finance’, although newer terms like ‘embedded payments’ are also being used to describe the platform partnerships that are emerging to create end customer benefits in a more modular, personalised value chain. Open finance requires a new management mindset and new business models in order to be beneficial for service providers. Businesses need to accept that they are working in partnership with other providers. This is more challenging than it sounds. We are often used to the idea of a business being in competition with others and therefore, as we move towards data-driven, digital systems, more traditional businesses are inclined to protect their data and their customer base lest they lose business intelligence or consumers to competitors.
One of the sectors most belligerent in accepting the world of open finance is banking. New regulatory measures have been introduced globally (see Diagram 1) to ensure that banks leverage open APIs to expose core functionalities like accounts information and payments. Using open banking APIs, digital service providers and fintech startups can request consent from customers and link directly to their bank accounts. This is what makes the budget apps possible, and can allow customers to make purchases directly from their bank accounts, which in turn enables some merchants to avoid paying high card processing fees.
The open finance value chain. Icons made by freepik from flaticon.com
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Banks Reluctant But to date, banks are reluctant to give up the transactional business models that have served them well for over a hundred years. Banks often still want to own the customer relationship in its entirety and build all the financial services products for customers themselves. In some regulatory markets, they have successfully collaborated to block progress towards open finance. In Canada and Australia, they have been able to slow down regulatory changes. In Europe, they have reduced the standardised aspect of regulatory changes so that fintech still have to invest heavily in integrating each bank’s APIs in order to build a marketable solution (and even then, the data they receive via the API might only have 40% of the information they need to create a useful service for their customers). This combative model hasn’t helped to serve banks all that much. They may have slowed down some new fintech players who wanted to enter the market. Now those new startups need to integrate individually with each bank, which creates some scalability challenges and additional early startup costs. But banks also lose out. By making it difficult for fintech to connect, banks don’t get to see the number of API calls that fintech are making, so they can’t collect any data about what products are delighting customers and driving demand. So the banks don’t get to start thinking about what new business models might look like where they share bundled APIs with fintech partners to keep customers and reach new market segments.
This is obvious when looking at open banking platforms around the globe. By the end of June 2020, there were 293 open banking platforms globally, collectively releasing 2,029 API products. While regulations in the UK, Europe, Australia and Singapore require banks to open up payments and account information, banks are doing what they must, instead of bundling these functionalities in ways that could spark new ecosystems of providers around their banking services.
Customer-Centricity and Revenue
The low number of API products in areas such as credit scoring and loan pre-approvals, data products and loyalty/rewards (all together accounting for just 8% of the global API products available) demonstrate that banks aren’t yet in a headspace where they are thinking about what banking capabilities third parties could make use of to build new digital products and services.
Meanwhile, those companies that have embraced open finance and that aren’t reliant on banking APIs are seeing increased revenue opportunities. For one, businesses are able to offer a wider range of customer services without actually having to build it themselves. Merchants can offer instalment plans without taking on the credit risk, for example. This makes the offer more appealing to consumers. So the sales volume goes up. Those merchants able to offer these financial services increase their transaction volume. Platforms and marketplaces that make the financial services available to the merchants generate revenue through processing fees on the sales volume (just like with payments services). The ecommerce platform Shopify is a good example. They had substantial revenue growth in the first half of 2020 as more consumers moved to online shopping. Shopify increased the number of merchants as a result (and therefore increased sales volume). But the real revenue growth for Shopify was from offering “Merchant Solutions” (that is, financial services) to businesses on their platform. Payments processing, instalment services, and drop-shipping all helped accelerate Shopify’s merchant solutions growth to $USD517.9 million revenue in the second quarter of 2020. Analysts like Andressen Horowitz estimate that this type of embedded, open finance can help online services increase revenue by 2-5 times per customer. When software services are coupled with financial services, value to the end customer multiplies. According to Simon Torrance, from the World Economic Forum, embedded payments (just one type of these embedded finance services) are expected to account for 40% of the payments market within 10-12 years.
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Banks could easily dominate this market. After all, they have the functionalities already built and have even undertaken vast digitisation processes over recent years which would allow them to package up many of their functionalities as APIs that could be embedded into third-party providers. But they often lack the vision to take this advantage: they are so fearful of losing their exclusive relationship with the customer that they are unable to embrace a platform mindset.
Over the past five years, new market entrants have created vast opportunities for themselves. Stripe, for example, offers payment services via APIs. Their whole business is built on a functionality banks could have offered. Instead, Stripe is valued at $36 billion today. Some banks are catching on: Permata Bank in Indonesia, ABN AMRO in The Netherlands, BBVA in Spain, Commerzbank in Germany, Goldman Sachs in the United States, Erste Group in Eastern Europe, and both OCBC and DBS in Singapore all stand out as examples of banks keen to open up their payments and other functionalities and work with external partners to ensure financial services are available wherever consumers need them.
Emerging Markets But in many emerging markets, banks are completely missing from the open finance conversation, leaving payments providers to lead on sparking the platform economy. Adyen in Latin America, Flutterwave’s operations in parts of Africa, and Paystack in India all demonstrate how payments infrastructure providers are embracing the opportunities of open finance. Adyen - which operates directly in US & Canada, Brazil, Europe and parts of Asia - has already built the sort of payments infrastructure that would enable another Shopify or marketplace provider to share revenue models between themselves, SaaS offerings and the financial services providers. Adyen for Platforms describes itself as “an end-to-end payment solution for peer-topeer marketplaces, on-demand services, crowdfunding platforms, and any other platform business models.”
Flutterwave, which operates in US and has grown a large footprint across most of Africa, started with traditional payments services but now offers business invoicing and virtual card issuing. Their most recent product offering is a Store service aimed at helping small business and individual merchants transition to digital channels in a time of COVID-19. Users can sign up for an account, create a store and immediately start selling products and offerings. The store service integrates with ecommerce platforms and links to delivery options so that merchants can ship their sales immediately. There are even automatic price setting tools available so new merchants can set pricing that matches market standards. Setu, based in India, is a more recent offering that started with a bill payments service. They have built out payment links so that billers can offer their customers QR codes and whatsapp links to pay bills directly via social media and mobile. They have now onboarded tool operators so that users can pay tolls directly from their mobile, and have created a range of “whatsapp banking” services so that customers can apply for loans direct via text. They are currently working on new digital credit, account budgeting and investment management APIs to extend their digital offerings. Setu’s competitors like Open Bank are following a similar trajectory to replace traditional banks with a suite of connectable financial services that, at the end of the day, integrate to the user’s bank account to move money, but all of the value
between the customer and the services they use is generated on the fintech platform, relegating the bank to being little more than the backend infrastructure. Open finance and payments infrastructure are moving fast to be everywhere that the customer needs them. They are working out how to partner with the sorts of services and platforms that the customers want to use, and then offering their financial services during that value chain rather than as a separate process. This is how open finance is sweeping the banks aside. Already in emerging markets, it is clear that open finance has the upper hand in engaging with the 2 billion users who have been poorly serviced by banks in the past. But now, with COVID-19, digital channels are becoming the primary channel. With mobile and online business engagement, customers expect a more seamless flow and when that happens, sales volume goes up and the generated revenue can be shared between all players that made the transaction possible. Payments providers understand the platform mindset. They are perfectly positioned to innovate and expand their financial services offerings now, while banks still cling to an old world order.
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Startup-Spotlight
Fraudio is a fintech startup based in Amsterdam that focuses on helping companies in the payment ecosystem fight payment fraud and financial crime utilising artificial intelligence, machine learning, and multi dataset network effects. Fraudio’s mission is to connect merchants, payment service providers, merchant acquirers, card issuers and other players in the payments chain to a powerful centralized AI / smart brain that prevents, detects, and fights fraud in real-time, via fully-managed API - and without charges for professional services, creating unrivalled value. Fraudio is backed by ING, Payvision and Viva Wallet.
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Next Generation Fraud Detection Fraudio boasts a proprietary plug & protect centralised artificial intelligence brain. This brain does not require costly configuration, facilitates easy integration and continually learns from all transactions. This makes Fraudio a Generation 3 provider - implementing a disruptive leap from rules-based and machine learning-based solutions trained on individual customer’s data. Fraudio sets no barrier to entry: our accessible, democratic solution is on a pay-per-use basis only. Thanks to the patent-pending technology behind our smart brain, we can disrupt the payments fraud industry by moving away from a professional service approach and into a modern SaaS solution - to the benefit of consumers’ overall payment experience and our customers’ bottom-line results. Fraudio gives access to a top-performing, top quality, yet deceptively simple fraud detection and prevention API that, within real-time, returns advanced fraud-related AI insights about customers transactions. This allows every one of our customers to maintain conversion rates while reducing the direct and indirect cost of fraud - maximising revenue.
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The Problem: Fraud is rising, and fines for poor risk management are consequently growing. Financial institutions, especially in Europe, are under increasing scrutiny. This problem impacts all institutions touching payments, with more than 80% of organizations affected by payment fraud. Merchants lose up to 1.8% of revenue to fraud and spend up to 23% of operational budgets on managing it. Payment Service Providers (PSPs) are in a race to zero on transaction processing fees and subsequently need to offer customers ancillary services. In an increasingly competitive marketplace, and rapidly developing ecommerce marketplaces, all contribute to the rising tide of fraud. Licenses to operate can be lost if fraud ratios become too high. Acquiring Banks can be fined by the Card Schemes and regulators if they don’t control and actively mitigate the prevalence of fraud.
Additionally, money laundering by micromerchants and instant onboarding results in $350bn laundered per year, with easy digital onboarding increasing merchant fraud and scams at the expense of acquirers. Issuing banks and lender customers face increasingly sophisticated fraud and scam attacks. Money Laundering is crucial for EU regulators as banks have extensive and expensive teams working with outdated techniques and technology. Existing solution providers in the transaction fraud and money laundering spaces have some degree of efficacy but are hugely inefficient: The implementation process is long and unnecessarily expensive, resulting in an under and poorly-served market. The existing professional service-based business model means vendor’s businesses scale poorly - these current business models require replication of technical teams and are consequently unaffordable to small/medium players. They take a long time to produce models and results for their customers, with proof-ofconcept (PoCs) that take six months and cost around six figures - the industry norm.
Usually, the steps of professional services based integration of detection systems include at least: •• Historical data transfer; customer collects and transfers historical data to the vendor. •• Data science teams assigned to work with that customer’s data. •• Custom product development, training and optimizing, customized machine learning models, and often also rulesetting to further try to improve protective measures. •• Localised product testing, problem-solving, and refinement. •• Deployment and hosting of the customers, non-transferable, tailored solution.
Fraud analysts were initially performing manual fraud analysis and using rule-based systems. With improving and maturing of technologies, top-tier vendors began to offer fraud detection systems that use artificial intelligence. These systems were created to facilitate analysis and to automate decision making. The application and use of artificial intelligence effectively improved the accuracy of fraud detection and systems - now detecting larger fractions of fraudulent transactions than ever before. Fraud detection sophistication increasingly determined a company’s value proposition and therefore became proprietary technology isolated within banks, credit card networks or schemes, and payment service providers. These professional services based on proprietary fraud detection systems provided a negligible network effect. Credit and debit card transaction records, though collected by everyone, have no unifying standard, making this data highly diverse. This diversity reinforces already secluded data silos within each company and prevents aggregation, thereby failing to leverage the totality of this data. Take, for instance, a card issuing bank. A vendor processing their transactions will have access to every payment that this bank’s cards make. The typical vendor will produce machine learning models that will learn from behaviours and patterns specific to this bank’s customers. Suppose the same vendor also processes transactions from another bank, in the same country. In that case, it will isolate the data sets from these two customers and produce individual machine learning models - the opportunity to produce stronger insights by aggregating data from the same segments is lost. Often this forced segregation is not able to capture underlying patterns and behaviours that are customer independent and that occur homogeneously across one specific segment. Incumbent vendors, using this siloed data approach, therefore need to start from scratch for each new project. They need to go through lengthy data exploration processes and adapt their complex machine learning pipelines for each new customer. Because of this cumbersome and highly inefficient business model, their customers are forced to sign multi-year contracts with exorbitant setup costs and annual fees (up to €2m).
“machine learning models that will learn from behaviours and patterns specific to this bank’s customers”
João Moura
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Bio: The CEO and co-founder of Fraudio has vast experience in academia and across several industries ranging from Telcos to Cyber Security and Payments. His expertise in AI was acquired during his PhD studies and cemented over 15 years of using AI in products. He is an avid Data Scientist and is currently completing his MBA. 17
Fraudio’s Next Generation Solution Fraudio has applied for a patent on a state-of-the-art method for applying a centralised artificial intelligence system for fraud detection. The AI brain is trained in batch using a centralised data set, with a known and very well understood data schema, to score events from multiple streams of data in real real-time (<100ms on average), i.e., to streams of card payment transactions from diverse customers. Data sets are aggregated into one single extensive data set using advanced data transformation techniques to map these new data streams into our central data schema. In a nutshell, each inbound stream of card payment transactions has its data language as spoken by that specific customer’s systems. Upon integrating with Fraudio’s API, each of those streams are instantly translated into the same data language spoken by Fraudio’s Artificial Intelligence brain. This is a novel and disruptive approach to the problem of fraud detection in payment transactions, as it is opposed to having different artificial intelligence models specifically - and laboriously trained for each stream of payment transactions.
But what value does this bring for our customers? Fraud detection SaaS with simple and easy API integration & pay-for-use pricing Because of this technological leap forward, we can significantly lower the barrier to entry into the realm of top tier fraud detection through accessing Fraudio’s high-end fraud-fighting power via a developer-friendly API - fully hosted in the cloud.
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We have three products which can be connected to in days, not months: 1. Credit/debit card transaction fraud scoring. 2. Merchant fraud/scam monitoring. 3. Money Laundering detection.
Our USPs •• No integration/setup costs vs competitors six-figure demands. •• Fraud scores from day zero, with responses below 100ms on average. •• Reduce false positives and maximise conversion while cutting operational costs of fraud management. •• Machine learning capabilities continue to drive improvements for all customers, allowing them to benefit from our strong network effect.
Proof points: We’re a team of experts from the payment industry, backed by ING bank, Payvision and Viva Wallet. Our products are powered by ever-improving centralised models trained on a proprietary dataset of over 1B transactions. Together with the largest card issuer in Portugal, we have proven to make 15 times fewer false positives than the fraud detection system from one of the largest card schemes. We make 30 times fewer false positives than custom made ML models for a leading German PSP and deliver 40% fewer false positives than one of the top 3 market leaders who serves a Dutch merchant acquirer.
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The Fintech Watchlist: Companies making waves in our industry with unique and disruptive solutions.
Moteefe
Focusing on emerging markets in Africa and Asia, Bima provides access to micro-health and life insurance products. The €30 million raise is geared towards efforts to expand the health services in the wake of the global pandemic and surge in demand for the mobile-first platform, catering to the underserved segments without access to these services - 75% of Bima’s customers are accessing insurance services for the first time. — bimamobile.com
A UK based ecommerce and global fulfilment platform recently secured €11 million in series B funding - hot on the tail of the first raise of €5 million in February of 2020. The platform has expanded into Australia and South-America. It boasts a 150% growth, shipping to over 166 countries through partnerships with 20 production and fulfilment partners across Europe, USA, Canada, Australia and Brazil. — moteefe.com
AfterPay The Australian fintech forked out €50M to expand into Europe through acquiring the Spanish fintech Pagantis. Available in the UK as a subsidiary under the ClearPay brand, the acquisition affords AfterPay a jump-start into the under catered EU buy-now-pay-later market. Sights are set, under the ClearPay brand, to expand into Spain, Portugal, France, and Italy. — afterpay.com
Mollie The latest €90 million raise propels the Amsterdam-based payment service provider into the realm of fintech unicorns valued over €1 billion. They are servicing SME’s by integrating with all online shopping platforms and ecommerce providers in the most seamless and effortless way possible. Founded in 2004, the latest round of funding is aimed squarely at expansion efforts into new markets with a unique and local approach for their customers. — mollie.com
With the insurance penetration rate in the ASEAN region only being 3.6%, the Indonesian InsureTech startup raised a Series B totalling €54 million to develop its AI-based claims automation platform. With over 35 million policies sold ranging from micro and up - serving individual customers, SME’s, and Gojek drivers for - as an example, as little as $4 USD a year. PasarPolis is poised to gobble up the market with their customer-centric approach. — pasarpolis.io
Vena Solutions €25 million growth capital raise from CIBC Innovation Banking to grow the reach of the cloud-based financial planning and accounting software platform headquartered in Toronto. Integrating with an excel interface - Vena delivers a streamlined and easily scalable process covering budgeting, forecasting, scenario analysis, reporting, financial consolidation and more. — venasolutions.com 20
The Crypto exchange spawned a bank “Kraken Financial” after receiving a Special Purpose Depository Institution (SPDI) charter from the Wyoming Banking Board. Kraken can now operate as a fully-fledged digital asset-backed bank in the US, it does, however, need to retain 100% of its reserves - meaning it can’t lend out deposits to other customers as a means to accumulate revenue. Read the full press release here. — kraken.com
Descartes Underwriting Secured $18.5 million investment to develop its parametric insurance products further. The InsureTech deploy’s climate risk modelling and data-driven risk transfer to offer bespoke and thereby more affordable insurance based on probabilities of a pre-defined event occurring. In practicality, this means claims can be paid out in hours instead of days or weeks. — descartesunderwriting.com
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Startup-Spotlight
Front runners in the evolution of transit payments How can we make transit payments simple? That was the question that sparked Littlepay. We founded our company in 2016 when the migration to a cashless economy was well underway in many countries. Transit, the largest micropayments vertical, was shifting away from cash toward contact-free payment methods, and we saw an opportunity to be instrumental to that movement. Transport for London’s contactless payment system was the success story everyone was talking about. Passengers had been quick to switch to using contactless bank cards to pay for travel instead of paper tickets or Oyster cards. They found it easy to reach for their card and enjoyed spending less time queuing for tickets or top-ups. Driven by convenience, the habit of tapping to pay, not just across the capital’s transport network, but also in shops and cafes, was taking root. We set out to create a platform that offers the same seamless payment experience as Transport for London’s system without the need for hefty investment. Our solution is a cloud-based payment gateway that handles the intricacies of payment processing in a secure environment, connecting to a range of card reading devices to offer transit agencies flexible options. The modular architecture makes Littlepay cost-effective and faster to deploy than bespoke alternatives. We knew we had a great product, but it has still been satisfying and humbling to receive such a positive response from transit agencies and ticketing technology providers. In 2017, working with our partner Ticketer to provide tap-to-pay solutions, we onboarded our first 24
Littlepay merchants. In our first two years, we rolled out contactless across nearly 10,000 buses in the UK. We now provide contactless payment processing to almost 200 agencies and operators in Europe, and we have multiple international projects launching in the coming months.
Keeping it simple When you tap-to-pay for travel, it feels effortless. You wave your card and board a vehicle, and later you see a payment taken from your account. In the cloud, our payment gateway manages a complex process, which might include verification and authorisation, price calculation with an external fare engine, deny list management, aggregation, capping adjustment and settlement. The only aspect our customers have to handle themselves is settingup fare structures using Littlepay Control, our merchant portal. We’ve made sure that it’s simple to configure and test product rules and monitor transaction data. Many operators use fare aggregation and capping as a way to reduce their card scheme fees for payment processing. Passengers benefit from this, too, paying a single fare for travel within the capping period, often saving money.
This year, we added a feature called ‘multi-operator capping’ to our platform, which allows fare caps to be applied over several agencies’ fare structures. This means that passengers using cooperating services can tap on and off as they board and exit vehicles, automatically paying the best price for the journeys they take. The technology can be used to create ticketing schemes involving a range of transit modes, including bus, metro, light rail and ferry.
Startup in transit Although we are a young business, we’re entering our adolescent phase. We still have the startup drive to develop and grow apace, but we are also setting our sights on long-term goals and strategic alliances that will move us towards them.
Our business relies on fare payments being processed, so the dip in passengers had an immediate impact. However, on the flipside, we’ve seen demand for contactless payments sharply increase. The provision of tap-to-pay has become an essential part of the effort to make public transport ‘covid secure’, alongside stringent sanitisation practises and compulsory face masks. As a result, our team has been working hard to onboard 40 operators since March. Things will only get better, with research by Visa showing that public transit ridership increased globally by 200% in the second quarter of 2020. In tandem, the escalated use of contactless and digital wallets is unlikely to abate, with payments behaviour permanently changed. This is indeed the case in the US, which was previously slow to adopt contactless. A combination of germaphobia and widespread contactless card issuance is driving many more consumers to experience the primary benefits of tap-to-pay: convenience and speed.
Staying focused on our goals We started with a mission to simplify transit payments, and that is still what motivates us every day. The next stop on our product roadmap, becoming an omni-channel payment gateway, opens up the potential for us to support a variety of mobility-as-a-service experiences. We’re excited by the prospect of venturing into new transit and mobility-related verticals. Cities around the world are reeling from the impact of the pandemic, rethinking the way people live, work and move around. Our partnerships will be our strength as we make the most of this fertile ground for innovation. Working together, we can get closer to the ideal of seamless travel. We have a growing network of partners across the payments and ticketing ecosystem, including ticketing technology hardware and software providers, financial institutions and major Card Schemes. With new integrations added regularly, our solution is increasingly customisable and can be tailored to meet customers’ needs. If a transit operator wants to work with a specific ticketing technology provider, for instance, there’s a strong chance we already have an API connection. If we don’t, our development team can respond quickly to build one. With Littlepay Contactless now established and gaining momentum, we are almost ready to launch our next big thing: Littlepay Checkout. This is an e-commerce payment gateway that processes transit payments made using an operator’s app or website.
Data-led ticketing Transit agencies using Littlepay to process both cEMV and e-commerce payments will have an ace up their sleeve: a unified view of passenger transactions through our merchant portal. They can compare sales, refunds, declines and debts made through both channels side-by-side.
Amin Shayan Amin was part of Littlepay’s founding team, becoming CEO in 2017. Before joining Littlepay, he worked in investment banking in New York and London. He describes his move from the financial sector to a fintech startup as “leaving the dark side to join the rebellion”
Data analysis and reporting tools are available via the portal, and we also offer an opt-in data feeds service to deliver more in-depth insights. Harvesting and organising transaction data in this way will be a game-changer for operators looking to optimise customeroriented services.
Looking to the future It’s an understatement to say this year has been challenging for the transit sector. Governments’ advice at the start of the pandemic to avoid public transport caused ridership to plummet by as much as 95% in some cases. Operators could not contract their workforces, as key workers needed services. Revenue took a hit and is only beginning to recover - six months later.
Littlepay specialises in payment processing for the transit and mobility industries. Around 200 transit operators use Littlepay to take payments made using a contactless EMV bank card or a digital wallet, and the gateway has processed over 120 million transactions. Littlepay will soon be launching an e-commerce payment gateway for web and mobile checkouts.
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Casey Potenzone Chief Strategy Officer, Nexway Casey joined Nexway in 2014 and currently serves as Chief Strategy Officer and a member of the companyâ&#x20AC;&#x2122;s executive team. A seasoned technologist with a history of developing new applications and business models around innovative technology, he has been awarded multiple patents. Prior to joining Nexway, Casey previously worked for Arvato, Uniloc, Avangate and MTV.
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Thought Leadership
How eCommerce Can Save the Neighborhood E-commerce and payments leader Nexway sees geographic expansion driving the future of online sales as digital solutions bring down barriers. The year 2020 has brought radical changes to lifestyle and work habits that nobody could have predicted, and one thing we can say for certain is the demand for e-commerce has never been greater. Previously held beliefs about the limits of online shopping versus the in-store experience are fading as customers of various generations in search of different product types suddenly get more comfortable with the idea of digital shopping. In response, companies are reconsidering opportunities to expand their global reach to new foreign markets in places where the return on investment in the past seemed too low.
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E-commerce is growing, and with it comes an increasing demand for third-party Merchant of Record services. A Merchant of Record (MoR) can be an entity that operates a webstore or platform to manage interactions with its customers, sellers (sub-merchants) or suppliers. MoRs provide due diligence and oversight over all commercial activity that happens on that platform, including managing transactions and refunds, maintaining a direct relationship with payment service providers and providing billing-related customer support. As a result, companies now have the unique opportunity to expand into markets which have previously been too expensive, unknown, or complicated. Incremental expansion to high-potential markets like Brazil and China, when done right, can contribute significantly to the bottom line.
Today’s Market Realities In the context of the unprecedented health and economic crises caused by the COVID-19 global pandemic in 2020, Nexway wanted to better understand the impact the crisis is having on e-commerce and payment priorities for the rest of 2020 and beyond. We surveyed our customers, prospects and partners to conduct a health check of today’s market.
Using Technology to Get Closer to Your Customer When it comes to geographic expansion, a combination of technology and human touch come together to provide a virtual presence. Companies need a partner who knows the ins and outs of the local payment providers, tax regulations.
What we learned is that e-commerce decision-makers have had wildly different experiences, good, bad and indifferent. But regardless of the impact, they are rethinking their sales model and future-proofing against a second wave, or worse.
Nexway’s research found that businesses are grappling with many issues related to how they sell and distribute products to customers. In many instances, technology plays a crucial role in helping them tackle these challenges and prepare for whatever the future may hold.
A digital dominant model is now of primary importance, whether that means finally putting one in place, or improving on what you already have. Moreover, a digital dominant strategy can be focused on customer interaction and experience and fully leverage existing stores and infrastructure. Examples include Best Buy seeing 41% of their online sales being store driven and Target realizing 90% ecommerce growth during Q2 of 2020 being interconnected with their stores. These two examples demonstrate the benefits of successful ecommerce programs to the broader company infrastructure.
Distance Experience That Feels Local
Our proprietary research also revealed that the top priorities for e-commerce and payment deciders for the months ahead are: Payment Management, Customer Experience and Customer Care - Indicating that the customer is very much front and centre when considering how to improve your business. Furthermore, companies are hungry for continually improving their technology solutions to help improve these human interactions, and are relying on digital solutions more and more to drive them.
A local approach to customer care ensures that the payment service is just like going to the local store, in your language, making the online, at a distance experience feel local. Applying that local approach through the customer journey, including; communications, look & feel, email language, and friendlier feeling license contracts, can all help create the same online experience as customers have in store - even if it’s on the other side of the planet.
Don’t Go It Alone The right payment partner can help a business take a small footprint and make it bigger by helping secure a foothold for strategic expansion in targeted geographies. A payment partner with a local presence in a new market can help businesses start selling locally even when they are not physically present yet.
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Getting Started
Future Proofing
For companies getting started, we recommend these tips for planning your approach. •• Get clear on your top priorities and focus on the most strategically beneficial markets. Start with just one or two. It’s OK to start small, adjust and learn, and build from there – but a strong return must be a viable option or it’s not worth pursuing. •• Assess payment providers and find a partner who truly knows your desired market, has expertise in their particularities in payment options, understands tax regulations, consumer behaviour, and language requirements. •• Consider customer service at the outset, not just post-sales support, but as a key lever in your customer acquisition. Global expansion not only means getting your goods across borders but connecting with individual consumers in a different cultural context. Your online shopping experience needs to connect with their unique expectations.
KEY CONCERNS “Create the same online experience as in-store” “Balancing ease of use with safety and risk” “Product delivery and customer support” “How to be best in class” “Finding new software and IT solutions”
CHALLENGES WITH CURRENT SALES MODEL “Addressing customer safety concerns” “Final customer facing finacial presence”
“Global expansion not only means getting your goods across borders but connecting with individual consumers”
“Not automated enough” “An emphasis on improving a digital presence” “No in-person meetings”
About Nexway: Nexway is a software and service company for e-commerce and payment. We expand the sales potential of software, retail, and services companies across 140 countries. Our customers rely on Nexway to power their subscription models, manage local payment methods, prevent fraud, engage resellers, deliver key customer insights, and beyond.
www.nexway.com
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Where is Fintech Investment going with the pandemic? The pandemic of 2020 has brought changes that nobody was expecting. There are certainly some winners and many losers under the new environment, and what is clear is that some trends will not reverse. One aspect to consider is the change in the nature of the investment process - using video conferences as a new tool. It is also clear that early-stage investment has decreased considerably. Payments have thrived as ecommerce grew in the new lockdown conditions. Banking has been turning to online tools more and more to increase efficiency and improve customer service. Alternative lending has experienced a surge in demand as have payday solutions - relieving cash-flow woes for many. 30
Banking has been turning to online tools more and more to increase efficiency and improve customer service...
Agustin Rubini Agustin is a multiple award-winning fintech expert that often speaks and writes about the future of banking and financial services. Agustin enjoys discussing the evolving fintech landscape and the disruptive effect of technology on the financial services industry. He has published the best-selling books Fintech in a Flash and Fintech Founders. He’s also hosting the Angel Investor School digital event from October 1st - 5th - sign up here!
fspal.com
Zoom investing
Early-stage investment down
Venture capitalists had to learn the intricacies of using video conferencing for meeting entrepreneurs and investing. This has indeed provided a better work-life balance, avoiding long trips and time in the office, but at the same time, it has removed some information they generally use to make decisions. Many angels and VCs whom I’ve consulted, have mentioned that body language signals and team dynamics are challenging to convey when not in-person - and looking at you through a camera. Team energy, initiative, and ambition can’t be assessed in the same way as before as people are engaging from different places and through new mediums. Moreover, it is not easy to evaluate the real knowledge of a particular person answering a question on camera; they could even be coached by somebody else also listening to the meeting!
Global venture funding is down in H1 2020 by 6%, compared to 2019, according to Crunchbase. Later stage funding grew from 59% to 66%, showing that early-stage investments are being left behind. Seed/Angel deals saw the largest decline since Q2 2019. Sequoia, 500 startups, Ribbit Capital, Accel, and GFC have been the most active VCs in the first half of the year.
There are suitable coping mechanisms during periods of lockdown, to keep investing which include spending more time evaluating the startups, relying on founders you have connections to, and considering investments that are geographically further away from your comfort zone. For the long term, I see a hybrid model developing for investment and startup dynamics. On the investment side, video conferencing will be used as an early filter, and only the best firms will achieve face to face meetings. In a startup organisation, I see dispersed teams becoming increasingly natural as opposed to the prior industry norms.
When investing in startups, venture capital firms and business angels need to understand that they are in it for the long run, so a change that affects the world for a year or two shouldn’t be discouraging them from investing in a company if the fundamentals are sound. However, venturing into tiny businesses has implications, and many investors are instead deciding to stockpile cash to reinvest in their existing portfolio of startups, in case these need to weather a storm - this is what the numbers are showing.
Fintech volumes recovering When looking specifically at fintech, we can see a recovery from Q1 to Q2 on investment volume, even though the number of deals continued to fall. The trend is to see re-investment in VC backed companies, and to leave early-stage behind. What is interesting is the total funding deployed by later stage firms, which demonstrates a highly mature market. Bigger rounds of over $100 million have reached a record, and in H1 2020 there have been 42 of these. This makes sense when considering there are currently 66 unicorns around the world, which together are valued at almost $250 billion. Stripe and Robinhood (with $600 million each) have raised the largest rounds. Furthermore, fintech companies are increasingly showcasing an appetite for IPOs again. Companies such as Lemonade, nCino, Shift4Payments and SelectQuote have gone public with quite good subscriptions, and Chinese giant Ant Group (previously Ant Financial) has announced a mega IPO. 31
Payment fintechs thrive
Banking Dynamics
As the physical world came to a halt, people still needed to make payments for all of their consumption. Thereby the process of making payments simpler has been an important priority, as less experienced buyers need to use online services. US ecommerce penetration has grown from 16% to 27% in 2020, and Bank of Americaâ&#x20AC;&#x2122;s data has shown an increase in online commerce of around 80%. This became an opportunity for fintechs that are specialised in payments, and funding to this sub-sector clearly shows it, as investors were optimistic about these. The growth of ecommerce has helped fintech specialists grow their revenues. Firms that can improve retail checkout have jumped into the foreground delivering services like cashier-less checkouts, NFC devices, selfcheckout, scan-to-pay, and biometric IDs. Some interesting firms to look at in this space are Tabby who specialised in PoS lending, Chargeback covering credit card fraud, both of whom recently received funding.
COVID19 and lockdown have highlighted the need for digital banking, evidenced by a high number of branch closures. Challenger banks tap into the socio-economic improvements made possible by modern financial technologies and the agility it affords. Venture capitalists have a keen eye for founders in this booming regional sphere.
Emerging markets such as Africa have shown a significant appetite for mobile money, and several early-stage firms have been looking at taking on this complicated space. The big technology firms are trying to capitalise these opportunities by offering payment services such as WhatsApp pay and Amazon Pay, and telco providers such as Vodafone also want a piece of the pie, for example through the expansion of mPesa.
The big technology firms are trying to capitalise on these opportunities by offering payment services such as WhatsApp pay and Amazon Pay, and telco providers such as Vodafone also want a piece of the pie...
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The number of deals in banking has decreased, and this space is currently set for consolidation and acquisition, with several fintechs having a strong cash position. Monzo, N26, Nu Bank and Varo, together have received funding of more than half a billion dollars and are hungry for acquisitions that can improve their offerings and their competitive positions. Startups have worked in developing specific offers that support banksâ&#x20AC;&#x2122; automation in their front offices (onboarding, virtual assistants), middle offices (fraud, compliance) and back offices (RPA, BaaS). In emerging markets like Latin America, several firms have been developing offers to enable open banking, which can enable building modern banks. Examples of startups recently funded include BeeTech in Brazil, Minka in Colombia and Belvo in Mexico.
Borrowing needed The pandemic has left many people unemployed and needing to borrow or freeze paying their loans. Alternative lending has grown in deals and volume, with Nubank taking the top spot in fundraising. Payday loan and payment advance firms have gained popularity, especially amongst the underbanked, as well as buy now / pay later services. The much-needed support governments have been providing for people and businesses has prevented many crashes in this financial category
In summary As we move closer to a vaccine and a new normal, fintech plays an essential role in our lives and has rapidly adapted and expanded to the new conditions. For the near future and 2021, I expect more unicorns to go public, and most of the investment funds to go into mega-rounds that support the top firms. Early-stage will have to wait and weather the economic storm before investments pick up, even though the best startups will always have opportunities to gain and grow interest, funding, and traction.
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Unfiltered Opinion: A place for those in the industry trenches to share their experiential knowledge on key topics prevalent in our industry today.
Open Banking Education If you ask the experts, only a minority will call open banking a success, at the 1st birth of the open banking provisions of PSD2. Most cited reasons are, amongst others, the lack of standardisation and the fragmentation of services providers and oversight measures, or banks that haven’t done their jobs correctly. There is something else I would like to touch on as a fundamental hurdle for open banking to be successful Trust.
Consumers and businesses must be aware that these open banking provisions are there to protect their financial data. Today that is not the case.
YTS recently conducted a study and concluded that 25% of the respondents defined open banking as “legislation allowing any company to access an individual’s financial information, regardless of consent”. These respondents work in the industry and don’t know the essentials of open banking. These respondents, experts in banking, investments, lending, or PFM, see open banking as an opportunity to gather data, whereas it should be about protecting data, and making better use of it in a protected and consensual way.
Open banking will not be successful if the industry cannot ensure a trusted ecosystem for consumers and businesses. It takes time to create comfort in a new way of banking, it takes time to ensure trust. That is why open banking education is so important and it must be taken care of, on an industry level. It should be a mission of every person involved in open banking, to make sure all their friends and family see open banking as a trusted way to manage their financial data better, and to have a financially healthier life. Making that happen requires more than just technology solutions. It requires one additional ingredient:
With such a high level of confusion within the industry, what do you think the end-customer missed to adopt open banking on a massive scale? Trust. Looking further into the detail, it was striking that in a ‘screen-scrape -heavy’ country like the UK, the confusion over consent was twice as high as in the Netherlands, a country that is and has been an API-first for many years, with initiatives like iDeal.
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They must know what measures are in place to guarantee this protection. Today that is not the case.
Trust. Opinion by: Rik Coeckelbergs
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Singapore
Sales Director & Country Head (Big Data Consultancy)
Hong Kong
Business Development Manager (PayTech)
Find out more at: teampcn.com 35
Your next opportunity, is just a phone call away. The future of payments lies in the fintech industry and it is bigger than ever. We want to help you find your place in it. Our dedicated team of international professionals will keep you up to date and guide you to the next step in your fintech career. Get in touch with us to see how we can help you move your career forward. m +31 203 030 257 Find out more at: teampcn.com 36
