With abundant statistics that more and more young people are using mobile payments and that hardly any go without using social media, despite a disinterest in finance, there are still plenty of opportunities to invest in the future generations of banking. Finance Monthly here benefits from exclusive insight, authored by Kerim Derhalli, founder and CEO of invstr, into exactly why financial institutions and young people are ever more detached than ever, and how that can be changed.
Banking has an image problem.
Almost a decade on from the financial crash, the big institutions are finding that young people simply aren’t switching on to finance as a career or, for that matter, a passing interest.
The upheaval of financial institutions in the months and years since 2008 has meant that traditional talent pools have been dwindling, while hedge-funds, who tended to snap up the top bank-trained traders, have been left with next-to-nothing to pick from since the Dodd-Frank act came into place.
The industry still suffers from years of scandal and poor reputation which has caused young people to switch off.
Plus, notwithstanding the imminent and widespread deregulation being pushed forward by the newly-elected President Donald Trump, even a retracted Dodd-Frank would take years to have a positive effect on the talent pool.
Financial Times research into the changes in popularity of investment banking as a career option, among students at the top international business schools, shows that interest has plummeted – in some cases by more than 50%.
The banks represent the old way: untouchable institutions, unapproachable for those who aren’t in the right set.
As distrust in the markets has risen, popular interest has dwindled. It’s not just the professionals; where once it was the norm to invest in stocks, it has become a rarity among the person on the street.
In the UK, native individuals own just 12 per cent of shares in UK-listed and incorporated companies.
Mirroring the statistic across the pond, a report released by Gallup last year found that just 52 per cent of Americans now own stocks – that number drops to 38 per cent for those aged 18-34.
Yet, there are opportunities for upstart fintech disruptors to reenergise young people, and encourage a fresh enthusiasm for the markets and investing.
In consumer banking, digital-only start-ups such as Atom Bank are gaining traction – the UK-based challenger recently reported £100m equity investment – by providing a simple, mobile-based proposition which average people, particularly young ones, can identify with.
It may now seem obvious to raise social and mobile spheres as areas of opportunity, but both avenues remain largely untapped by the large banks.
The Office for National Statistics currently reports that the internet is used daily by 82% of Britain’s population, with 70% of adults accessing the web using a mobile or smartphone last year – up from 66% in 2015 and nearly double the 2011 estimate of 36%.
The same report also states that 63% of UK adults use social networks on a daily basis, with 91% of young adults (aged 16-24 years old) engaging in social networking in 2016.
The banks are missing a trick.
Despite massive spending and development power, they have been surprisingly lethargic when it comes to using technology to engage millennials, identify new talent pools and unearth the financiers of tomorrow.
Prompted by a need to identify new talent outside of traditional hiring pools of economics and finance graduates, it was as late as November 2016 when Deutsche Bank became the first major bank to use social media feeds to find promising candidates who may consider a career in finance.
This is where the innovative disruptors have stepped in and found their niche. We’ve seen through our work at invstr, the trading game app which is dedicated to engaging more people in the positive possibilities of savvy investing, that given the right tools, young adults will certainly show the enthusiasm in finance that the big institutions are trying to draw out.
Meeting those young people in the space that suits them – social and mobile – has been one of the key starting points. To date, the invstr app has been downloaded more than 200,000 times, with many of those being young people looking to discover more about finance without the fear of losing real-world money.
We’ve now taken that to the next level with the launch of the Student Investing Championship – a virtual trading tournament which directly engages students from business schools across the globe. The idea is simple: help students learn about the art of trading and investment in a competitive arena, developing the financiers of tomorrow.
invstr has also sought to bridge the gap between the finance employers and the extended talent pool of candidates, by introducing prizes such as access to internships at top companies in London and elsewhere, and connections with finance experts and training partners. The engaging, educational facet of the championship is a crucial theme for the industry to take note of.
The talent is certainly out there. We were impressed – yet not surprised – by the incredible trading talents of those taking part in the championship. For example, the top eight performers in the inaugural tournament in November turned over $13.5bn and made over 140,000 trading transactions in the four week competition period. The second iteration launched on February 6 and we’re excited to see bigger and better results.
Plus, having the possibility to engage business school students directly through seminars and presentations, without the burden of the reputation of the banking olde worlde, has provided invstr with an opportunity to excite young minds with the possibilities of the interwoven worlds of finance and technology.
It’s a beginning, but we’re just one fintech startup example that the big banks should learn from. At the moment, many appear to be running scared of the possibilities that new technology can offer; changing consumer trends could have as big a negative impact as they could have positive, and the public distrust in institutions as a whole (read Brexit and Trump), prompted by the social revolution, have meant that traditional banks have a lot of catching up to do in the reputation stakes.
There may be an image problem with finance at the moment, but with the help of the digital innovators, leading with direct engagement with young people through mobile and social, the industry’s reputation can be repaired and we can see a whole new generation of enthusiastic bankers, investors and financiers ensure its health into the future.
Authored by Grant Thomas, Head of Practices at BJSS, the below provides Finance Monthly with particular insight into the top trends and movements UK financial services organizations will encounter in 2017, and increasingly in the future.
Financial services have always been at the forefront of technology. The industry was amongst the first to invest in mainframe computing, while it pioneered complex integration points to global payment switches, and in 1967 Barclays introduced the concept of self-service with the world's first ATM.
Fintech takes this innovative spirit a step further, and in spite of operational challenges, is driving the development of pioneering ideas to improve customer experience, efficiency and security in the Financial Service sector.
One of the biggest questions to be answered this year is the extent to which Brexit will stifle Fintech innovation and if there will be an exodus towards competing financial centres such as Paris and Berlin.
At face value, things look challenging. Proposed restrictions to the free movement of talent may make it more complex and expensive to hire experienced staff. The process of securing VC funding is likely to become more rigorous as financiers look towards investing in less politically risky climates, but many opportunities still exist.
The key opportunities are that the lower value of the pound has made UK providers more commercially attractive, allowing local firms to compete against their offshore rivals. Added to this, changes to the regulatory environment, and continued R&D in complementary technologies will mean that London will continue to play a leading role in Fintech.
The UK will be keen to remain an attractive financial destination, so the Bank of England will take a critical look at its regulatory environment, deciding on which financial regulations require tweaking, diluting or eradicating. The regulator will also look at introducing new financial products, as demonstrated by a recent announcement of its ambitions to launch a Bitcoin-rival cryptocurrency. As a result, Blockchain, which automates and adds transaction security, will continue to attract investment.
Also, evolving regulatory directives such as Open Banking and PSD2, will create an even more difficult operating environment for established players – there will be great demand for Fintech providers to help plug this gap.
According to Ofcom’s 2016 Communications Market Report, Smartphones are now our preferred channel for accessing online content. Now they are set to become the main way of managing personal finances. Already three out of every ten mobile internet users use their devices to access their bank accounts, while two out of every ten use their devices to complete electronic payment or transfer transactions.
While most consumers are already familiar with services such as Apple Pay, Android Pay and Samsung Pay, Fintech providers will exploit online as well as built-in NFR and biometric technologies to introduce peer-to-peer payments, digital-only banking, forex, and mobile wallet products.
But mobile is just one part of the future of Fintech, and the ability to crunch diverse and deep datasets will drive greater innovation.
Fintech providers will look at exploiting tools such as Hadoop, Python, NoSQL and Spark onto Private and Public Cloud services in order rapidly to deliver outcomes and to identify and understand customer behaviour and target markets.
Big Data will be combined with sophisticated machine-learning algorithms to upsell products and services based on key life milestones. This use of data science will proactively push financial products based on customer behaviours, instead of simply waiting for clients to submit product applications. Modern computing and advanced mathematical techniques enable personalisation, at any scale, and without human intervention.
AI technology presents a huge opportunity for Fintech providers because it combines the rules-based reality of computing, with a human interface. It enables providers to take quick, business-safe decisions while reducing the processing time of routine customer enquiries. The model can be adjusted to accommodate customer preferences, their demographics, and interests. Thanks to language interpretation, a customer will be able to ask a question, which will be processed and answered by a Bot either by through text to speech or instant messaging services.
AI has development commitment from the big players. Apple, Amazon, Google, Facebook, IBM, and Microsoft have partnered on a non-profit joint venture which aims to “conduct research, recommend best practices, and publish research under an open license". AI is becoming mainstream.
By adding machine learning to the mix, the accuracy of chatbot responses is improved. When combined with AI and superior user-driven service design, Fintech providers are able to provide compelling and personalised customer interaction products to improve reliability and customer satisfaction. Those Fintech providers who focus on using AI and machine learning will pioneer a customer experience revolution: CX2.0.
This will lead to the death of ‘off the shelf’ and proprietary one size fits all.
Wide-ranging standards such as Blockchain, mobile, Big Data, AI and machine learning preclude a single one size fits all “off the shelf” solution. Fintech providers with ambitious roadmaps will embrace low-latency products based on enterprise-grade Open Source which are proven and secure.
Also, given the speed at which this new technology is evolving, Fintech providers will adopt an Agile approach to building their products. The benefit of Agile is simple. It accelerates delivery processes, and through on-going planning and feedback, ensures that value is maximised. Crucially, Agile also supports continuous delivery, ensuring that quality is maintained and that any risk of failure is reduced. With Agile and continuous delivery, Fintech providers will be able to rapidly develop and refine their products to support an ambitious roadmap. They enable Fintech providers to ensure that the engineering of their products, integration, functional and non-functional tests, deployments and provisioning are catered for throughout.
Britain’s role in the Fintech space is secure and, thanks to a range of next generation technologies, coupled with an improving operating environment and Agile development processes, will provide compelling products and innovation that will boost service provision and reduce costs.
With fintech at the forefront of innovation in the financial services sector, Finance Monthly here benefits from an insightful outlook into the kinds of challenges fintech firms face, in the midst of growing competition and an ever-increasing customer base. Michael Quirke, Senior Strategist at Brand Union here provides the ultimate breakdown of priorities every fintech brand should be considering.
Financial technology (fintech) investment is forecast to grow beyond $150bn over the next few years, and many new market entrants are trying to get in on the game.
The challenge as this evolves is going to be how you stand out. People have to be able to remember your name and who you are. And not everyone can become the Monzo, Xero or TransferWise of this world.
Getting to that space requires a pragmatic approach to branding that takes consideration of the limited factors you have under your control: an often small marketing budget, primarily online touchpoints and (hopefully) an excited team who are eager to spread the word about the new platform. The worries then are consistent with any other company: how do I attract and retain the best talent? How do I meet my growth targets? How do I position this company to scale?
For more technically-minded companies, this ‘softer’ side of creating the brand that people remember can be a challenge. So from our work with Sonovate, a funding platform for recruitment agencies, we wanted to share a few principles from what we’ve learned.
One of the biggest challenges fintechs face is explaining a complex offer. It is very easy to get caught up in industry jargon, or hooked onto a functional sales playbook that served you in a rush when first starting out. People need to understand clearly who you are, what you offer and why they should care. And they’re not waiting to get to know you, so you need to be able to show that in under 3 seconds. Work on making as simple as possible who you are, what you do and why you’re here and you have a good platform for making that creative. Talk it to yourself. It’s healthy.
Another challenge - especially again for technically-minded companies - is thinking in benefits vs product features. You need to know who exactly your customer is and how what you’re pitching fits into their lives. For instance, for Monzo they are very humble and focused about what their product does. It’s there as a pre-pay card, they make it as easy as possible to manage on mobile, and they open up their product roadmap to their community of beta testers to add in feature suggestions as they go. The actual feature set is quite small, but they make the most out of each one by being very diligent in UX design and communicating it well. For them, it is a mass audience of (currently) dedicated tech fans and students, but for you it may be B2B or more niche B2C. Think how you can quickly get a ‘map’ of your audience’s life and world, and make sure all product decisions, features and communications are guided towards fitting in easily there.
Monzo has bright orange debit cards that draw just the right amount of attention when flashed. TransferWise have their sharply designed ads and a pointedly anti-bank tone of voice. Citymapper (not a fintech, but useful analogy) has their “jetpack” or “catapult” ways of travelling in-app. Small touches of delight you add, on top of the basics, make your experience more memorable and, thereby, more sticky. Building stickiness or virality into the design of your products and onboarding experience has more power than any amount of content marketing.
As more technology companies spring up, covering a wide base of offers, becoming the preferred partner in your category is essential. This means cultivating a community and partnership strategy as soon as possible in your lifecycle - deciding which apps you are going to target to integrate with (see the Slack playbook), and how you are going to reward and engage users to keep them interested. Forming a community platform like Monzo’s has the added benefit of providing regular user feedback, that can feed into the product and brand. On B2B side, the community forum can be doubly effective in helping end-users quickly and elegantly fix issues with the platform; and pass on the experience to friends or family at other businesses.
Email marketing is a skill in itself, but an essential one to get right. However you contact users (whether in-app or on email), make sure that at all times you are a) putting in place a system to manage any concerns or feedback on new features, b) keeping in line with your core brand positioning and tone of voice (so as not to seem inconsistent or overly sales-y) and c) giving users the opportunity to input into the future of the platform. Whether working with B2C or B2B clients this is a huge advantage, and you can always filter and take your own opinion on responses as they come in.
Branding in the fintech age is a very different proposition from the suave logos and airport ads it used to be. But the same classic rules of knowing what you’re offering and why people should care apply. As long as you are clear enough on these things to let your teams get creative with them, you shouldn’t go far wrong. We look forward to seeing you on-stage at Finovate Europe 2018.
From chatbots to instant payment solutions, Finance Monthly has heard from Ralf Ohlhausen, Business Development Director at PPRO Group, who gives his top 10 on the ever-changing payments sphere, the fintech disruptions of 2017, and the latest regulatory updates for the coming year.
Payment methods need to become more user-friendly to appeal to various platforms of commerce from the till point to online, taking differing devices into consideration in order to stay competitive. This is especially important for providers of e-commerce payment methods who need to come up with optimised user experience and facilitate the growing trend of mobile payments.
SCA becomes a mandatory part of the Payment Services Directive 2 (PSD2), which will be implemented in the member states of the EU over the next two years. Unfortunately, the SCA’s increase in security will likely affect usability, which is completely contrary to what merchants and consumers want. New innovations around authentication methods may reduce the problem, but may also lead to more advanced concepts overall, making SCA obsolete.
Going forward, we will see increasing discrepancies between fast moving technology and slow moving regulatory changes - a difficult dilemma, which can only be overcome by fundamental changes in the regulatory approach. If you are impacted by SCA watch out for exemptions that might be granted and new authentication methods mitigating the adverse effect on usability.
There’s been some bad news for mobile-payment sceptics. According to the 2016 Visa Digital Payments Study, in just one year the number of European consumers using mobile payments has increased by 200%. Previous scepticism may have been prompted by the fact that it took mobile payments longer to take off than originally predicted. Bashing mobile-payments also became a favourite sport for some journalists. But that doesn’t change the fact that mobile has now reached its tipping point. And with companies such as Apple and Samsung now getting serious about mobile payments, it seems a fair bet that the pace of that change is about to accelerate.
ApplePay is now rolling out to most major markets. And it’s doing so, as it turns out, exactly as consumers are starting to accept mobile payments. Given how often Apple has got it right before, particularly in terms of user experience, there’s every reason to be optimistic this time too. That can only be a good thing both for mobile payments and for the alternative-payment market as a whole. On a more wide-ranging note, this is a lesson for all of us in the industry. New developments invariably go through the whole of the hype cycle — including what Gartner refers to as the “trough of disillusionment”, when everyone is pointing to early failures and disappointments and saying “it will never work.”
As an industry, we’ve got to get better at recognising this cycle for what it is. We need to stick with good ideas, even when they don’t seem to be fulfilling their early hype. Because good ideas don’t go away. And no one wants to be the late adopter when, suddenly, everything starts coming together at last.
The Euro Retail Payments Board (ERPB), a successor of the SEPA Council, is currently pushing very hard to make sure that SEPA is not falling behind the many national initiatives for implementing faster and even instant payments. The European Payments Council (EPC) just published their first rulebook for instant SEPA credit transfers (SCT Inst), which will bring down the crediting of the beneficiary’s account from one business day to a mere ten seconds. Similar instantaneous funds availability shall also come to SEPA Direct Debits, Cards and other payment methods. Implementation of SCT Inst will be optional for all the banks (at least for now) and may take some time, but the future of payments will be instant – just as it happened to messaging, the purchase of books or music and many other things of our daily lives already.
January marks one year until the Second Payment Services Directive compliance deadline, which will bring the new concept of “Access to Account” (XS2A) into the EU. Licensed Third Party Providers (TPPs) will be granted access any bank account in the EU to provide payment or account information services to their customers. 2017 will see increasing competition to the additional layers of value-added services (VAS) presented to banking customers.
At the beginning of 2016, internet giants rushed to incorporate an Application Programming Interface (API) into chat programs – also known as chatbots – for automated communication with customers. After a year of creating a firm presence in the UK, chatbots will become one of the biggest innovations in 2017 since the introduction of smartphones and it won’t take long until “chatbot payments” are the norm.
The underlying blockchain technology behind bitcoins will certainly make further headlines in 2017. Blockchain is a database where all bitcoin transactions are saved. It consists of a long chain of data blocks in which one or more transactions are being compiled, encrypted and securely stored. Transactions are very fast with blockchain, and although they are not made in real-time, they are very cheap. Ideas, where the blockchain technology might be used in the future, are only just being developed. Basically, however, it is already clear it could be beneficial for all transactions that are currently in need of a “trusted third party”. One example is smart contracts. Instead of solicitors, computers take over the contractual management, meaning that they are proofing all preconditions in live mode and are able to realise individual agreements automatically.
It has been much speculated whether the fifth Anti-money laundry directive (AML5) will actually come into play in 2017. If it does come in the form currently proposed by EU legislators, it will have a massive impact on e-money institutions. The already low limits for e-money usage without Know Your Customer (KYC) processes will be further decreased in a way e-money will lose its appeal over standard banking. That would through the baby out with the bathwater and could collapse the whole EMI industry.
Person-to-Person or Peer-to-Peer (P2P) payment solutions have been popping up across Europe and the rest of the World for quite some time, but we can expect 2017 to see the method to gain traction here in the UK. The European Retail Payments Board (ERPB) is working to facilitate the co-operation of existing and future P2P mobile payment solutions to ensure interoperability on a pan-European level. The vision is to provide any person with the ability to initiate a pan-European P2P mobile payment safely and securely. 2017 could finally see a standard brought into place which reaches a critical mass of people and enables P2P payments without the need for knowing lengthy bank account numbers.
Amazon recently unveiled plans to bring a chain of cashier-free stores to the UK next year. By using technology to track which items have been selected, the store will remove the need for products to be scanned or for customers to queue at a checkout as customers will be able to pay via smartphone as they exit the store. The introduction of such stores will accelerate the UK’s move towards a cashless and even encourage a card-less society in 2017.
Somewhere on every asset manager’s wishlist has been a FinTech solution that fosters a more direct connection to their end-users. After all, bankers have gotten big data and artificial intelligence tools, investment specialists have gotten robo-advisors, and compliance officers are getting plenty of RegTech offerings.
We are pleased to announce that a blockchain-driven product for fund managers has arrived. (A live demo was held in December 2016 on KPMG’s premises in Kirchberg, Luxembourg). The result of a collaboration between Fundsquare, InTech (subsidiary of POST Group) and KPMG Luxembourg, the platform will allow asset managers to sell funds directly to investors, which in turn will dramatically reduce the cost of administration and the time taken to process transactions.
Said Fihri, KPMG Leader on Digital Ledger Technology (Blockchain), explains:
“The platform, which could perhaps be better called an ecosystem, aims to streamline a whole range of fund administration and order-routing tasks by using blockchain to automate several processes in a secure manner. In other words, the messaging that must occur amongst the investor, the asset manager, the custodian bank, and the transfer agent is about to become much simpler. Whereas the time between an investor making a decision and a transfer agent executing it currently takes up to about six days, this new fund distribution product will do it in a couple of hours. And in the not-too-distant future, seconds.”
Naturally, these six days, and the money invested in them, is something that many fund managers and investors are eagerly looking forward to getting back.
Notably, unlike similar products recently launched, this fund platform will ease AML/KYC fund data look-through and MiFID verification by standardising it and allowing the factorisation of such repetitive tasks. These capabilities draw on smart contracts which are considered to be the utmost in cyber-secure transaction technology. This feature should answer one of asset managers’ main compliance bugaboos.
The dawn of an ecosystem
As a market infrastructure, Fundsquare is ideally placed to offer a fund blockchain for investment professionals. Olivier Portenseigne, Managing Director of Fundsquare, described the company’s role in administering the distributed ledger:
“Since blockchain’s original usage with Bitcoin, we have been wondering how we could unlock the technology’s potential for investment funds. We soon realised that it had the potential to revolutionise not only one part of the distribution process, but the entire supply chain—the difficulty, however, lay in turning the talk into action. This is how our small commando team was born. With InTech and KPMG Luxembourg, we were able to take a pragmatic approach to the project, and in doing so, speed up the development process. The live demo today is a real milestone in this process.”
InTech, a Luxembourg-based IT company, has been working on blockchain codes, smart contracts, and user interface. Fabrice Croiseaux, CEO of InTech, explained how the new product would revolutionise the industry:
“By combining our expertise around distributed ledger technologies, Fundsquare’s vision, and KPMG’s deep understanding of the fund market, we have been able to deliver the foundation of a new generation platform in a very short time. It is not only the investor and asset manager that can plug into the system: everyone in the fund distribution supply chain, from custodians, to transfer agents, to asset service providers, can benefit. It really aims to connect the dots, by harmonising a currently fragmented fund distribution process.”
KPMG Luxembourg, for its part, advises on user experience based on our knowledge of the asset management industry. We also wrote the business requirements for the development of the product. If the analogy can be forgiven, we are the glue combining the IT engineers and the order-routing specialists to ensure that the end product is exactly what asset managers want.
Luxembourg’s back-office crown
Naturally, the new product augurs a broader change in Luxembourg’s pool of expertise. Intermediaries like transfer agents have great stores of knowledge and are well placed to be an active part of the industry’s revolution. However, they also have the most at stake when it comes to the brand new world of digitalised fund distribution. We hope that transfer agents will work with us to build a new generation of back office technology.
Looking back on last year's FinTech predictions, not many commentators accurately predicted where we would be entering 2017. As a professional advising both established financial institutions and new entrants, Claire sees an exciting year ahead and shares her key predictions with us.
I believe that the UK will forge ahead as a global FinTech leader despite Brexit. Building on its sandbox initiative and the signature of several FinTech co-operation agreements with regulators in the Far-East, the FCA will continue to launch progressive initiatives and reach outwards. As it did in 2016, the FCA will continue to provide leadership on global regulatory thinking and initiatives.
The growing trend of collaboration between FinTechs and incumbents will intensify in 2017. Due to a more challenging landscape for those looking to raise capital in Europe and the US, FinTechs will be increasingly willing to partner with incumbents in return for funding and market access, which will drive increased M&A activity. On the global stage, the explosion of Chinese FinTech activity and investment seen in 2016 will continue and Chinese FinTech will keep on dominating.
We will begin to see the impact of the regulatory initiatives designed to open up retail banking and payment services such as the EU's second Payment Services Directive ("PSD 2") and the UK open banking initiative. Several new intermediaries will enter the market, not just in payment services, but also across the spectrum of comparison sites and personalised financial management services. Some interesting business models and collaborations between banks and intermediaries will emerge as intermediaries own more consumer relationships.
The rise of APIs will bring increased threat of fraud and potential data breaches. The ability for consumers to share retail banking transaction data history with third parties via open APIs from January 2018 (as part of the open banking initiative) aims to stimulate competition for the benefit of consumers, but many will need comfort around security and potential for unauthorised use. Technical solutions for control of on-line use of personal data by the consumer (possibly blockchain-based) will gain traction.
Regulation of peer-to-peer lending will be tightened, impacting the existing business models and practices of some players. This, combined with a changing economic landscape, will result in casualties, but tightened regulation will also increase consumer confidence and pave the way for sustainable businesses as the market matures. One of the newly authorised UK challenger banks will team up with a peer-to-peer lender.
2017 will be the year in which Bitcoin achieves legitimacy. Overall global economic uncertainty will drive investors to look at Bitcoin as an alternative safe haven investment. The resulting increase in Bitcoin activity will in turn drive adoption, with more retailers willing to accept it and transaction volumes significantly increasing. This will move regulation of crypto-currencies up the agenda and we will see developing regulatory frameworks contributing to the legitimisation of Bitcoin and cryptocurrencies as a new asset class.
The proliferation of blockchain applications being piloted by the banks will encounter a wave of realism as the scale of the challenge of moving from testing to real life deployment becomes apparent. The hype will subside as projects stall but investment will continue and more clarity will emerge on the applications of the technology likely to succeed and the platforms which will dominate. One of the key issues for blockchain in 2017 will be how far trust has been affected by last year's "hack" of The DAO – a crowdfunded investment community built on the Ethereum blockchain platform.
AI and Machine Learning will be big FinTech trends in 2017, encompassing everything from algorithimic trading to personal finance bots. There will be more scrutiny from regulators on how investment decisions are being made as AI and deep learning play a greater role in investment systems. 2017 will also see banks responding to rising demand from the Gen Z and millennial cohort for chatbots (most likely through integration with existing social chat channels or smart assistants).
All in all, I believe that 2017 will mark a further leap in the evolution of FinTech and the world of financial services will continue to undergo a major technology-driven change.
This month’s Executive Insight section features Aaakash Moondhra - the Chief Financial Officer at PayU, a leading payment services provider. PayU capitalises on its payments heritage and expertise to deliver financial services in high growth markets, supporting over 200,000 merchants with over 250 payments methods and reaching a potential consumer base of nearly 2.3 billion people. What sets the company apart is that it builds FinTech services around the unique local conditions the company finds in its target markets. By making payments and other FinTech solutions as easy as possible for local populations, PayU hopes to have a real impact on the growth ambitions of its customers.
In his 20-year career, Aakash has worked in range of financial and other roles at companies as diverse as Snapdeal, Andersen Consulting and AT&T, Bharti Airtel Group and Baring Private Equity. Here he tells us more about his role as a CFO and his achievements, while also offering a valuable insight into the FinTech industry.
You joined PayU in September 2015 - how would you evaluate your role over the last year? How has it impacted the company and its performance in 2016?
It has been an extremely interesting journey and there hasn’t been a dull moment yet. On a tactical level, there’s been the daily cut and thrust of working with the wider company to beat our monthly financial targets.
At a corporate level, one of my main responsibilities is to help set the strategic direction of PayU. Over the past year, I’ve worked on several major initiatives which have put us in a good position to deliver on our growth goals. For instance, putting in place a unique, centralised and federated operating model across our existing disparate technology platforms, which will enable us to scale rapidly while also benefitting from cost efficiencies.
I’ve also supported the strategic growth of PayU through important acquisitions, such as Citrus Pay in India, which are critical to our move from being a payments business to delivering FinTech services across the growth markets we operate in.
Finally, one of my main tasks since I started at PayU has been to establish an even stronger operating discipline and to build a very objective and deadlines-driven culture. The project management mindset I’ve helped instil across the organisation puts us in a great place for 2017.
What is the achievement from the past twelve months that you are most proud of?
In September, we acquired Citrus Pay, the Indian payments business. This is the largest all-cash acquisition in India’s FinTech history ($130m), making us India’s largest e-commerce payment process company; something we’re all very proud of. The deal is hugely important to growing our footprint in India, which is one of the most innovative FinTech markets in the world and one of our key focus markets.
On a personal level, I’m very proud of the role I’ve played in the transaction. This, of course, included financial and due diligence activities, integration of the two companies, developing a joint business plan and developing a process to support future growth; I also played a part in the relationship side of the deal, working closely with my counterparts at Citrus Pay to ensure it went smoothly.
Aside from that, my other achievements this year have been around enhancing our workforce. I’ve helped put in place a more focused culture and encouraged every member of the finance team to consider PayU as if it were their own business. The idea is to get everyone thinking like an entrepreneur to drive innovation and growth. This has been augmented by some great hires within finance across different regions.
What would you say are some of the challenges of being the CFO of a fast-growing company?
The great thing about being in a fast-growing company is that every challenge is also an opportunity. There will always be barriers, but it is our role to convert these challenges into opportunities.
The main task is to get the balance of priorities exactly right. There are trade-offs to be made – high-growth against risk management for example, or investment against cash flow – but these can all be managed with the right strategic vision for the company.
Then there’s inorganic growth. Acquisitions are important for companies with big ambitions, but there’s a danger that M&A activity can get out of hand and deals are made for the sake of making deals. The CFO is essential here; taking a dispassionate view of every transaction and only allowing those with real strategic merit to proceed.
High-growth businesses also need to be nimble. In practice this means we must be able to zoom in and zoom out at the same time. Some issues demand a detailed examination, while most can be viewed from 60,000 feet. It’s exactly this requirement that makes working for a high-growth company so interesting; and if the skill can be mastered it provides an agility around decision-making that can help drive growth.
How is the role of CFO changing in fast-moving organisations?
In recent years, the role of the CFO has started to transform. In the past, the CFO’s primary role was to help balance the books and ensure compliance. Today, the role is far more strategic; the CFO is tasked with keeping an eye on the macroeconomic environment and charting a course through turbulent markets.
Historically, the CFO’s relationship with business partners was ambivalent, particularly if financial considerations meant that the CFO had to block a project. Today, the CFO is seen as an enabler to innovation, working closely with every function to ensure the company is moving with speed. The CFO’s relationship with the CEO is also evolving. While still reporting in to the CEO, the CFO is also becoming a sounding board for the CEO’s ideas, and a good CFO will look to voice a different view to encourage debate.
That’s not to say the old duties have gone away. Indeed, in a world where business fraud feels like it’s growing and corporate hubris appears to be on the rise, it’s more essential than ever that the CFO is a beacon of fiscal responsibility.
How do you overcome the challenges presented by the ever-changing nature of the sector?
The FinTech sector is a dynamic sector, and it can sometime be hard to know what’s around the next bend. Fortunately, most of the challenges we encounter can be overcome with common sense.
For example, as we operate in a wide range of geographies and markets it makes sense to have the right internal controls, processes, policies and communication channels in place. Similarly, it’s vital to stay on top of what’s happening in the markets in which you operate; being ready to make quick changes when required. It goes without saying that monitoring risk should be one of the key concerns of the CFO and a task carried out regularly and rigorously.
In my view, the CFO role is more about people management than it used to be. CFOs need to oversee talent, ensuring they have the right people in their team and then working to keep them engaged and motivated. The CFO also needs to ‘muck in’ with the business when numbers are in danger of not being met, and be ready to have those difficult conversations when business people sandbag their numbers. Concurrently, CFOs need to establish themselves as figures of trust and respect within the organisation. It’s a fine balance, but one any good CFO should be able to make.
Finally, let’s not forget the ‘KISS principle’ – many times we see issues that are made out to be more complex than what they really are. I constantly remind myself of the ‘Keep It Simple Stupid’ principle to make sure I get to the heart of issues quickly.
What do you anticipate for the global FinTech industry in 2017?
In 2017 we will see growing levels of payments innovation coming from all corners of the globe, challenging that of the most developed markets.
At PayU we have first-hand experience of high-growth markets such as India, Latin America and Eastern Europe, and we are already starting to witness impressive payments innovation as governments and entrepreneurs capitalise on the smartphone revolution in these regions and citizens’ increasing access to digital channels.
That is one of the most thrilling things about my industry today: the continually shifting focus of innovation.
Financial technology has seen significant growth over the last few years, with organisations seeking to meet customers’ growing demands for more digital and mobile services. FinTech solutions that enable anytime, anywhere and any type of transacting have definitely come a long way but there’s still room to grow.
As we start off 2017, our discussions with customers and prospects, as well as our general observations suggest a few trends for the year.
Digital customer onboarding will be a top priority
Customer onboarding remains one of the few business processes yet to be fully digitised. Some financial organisations have already tried digital onboarding with low value, high volume use cases, but we are now seeing growing interest for mobile onboarding around high value transactions – typically mediated scenarios with more complex workflows. It’s because of the emergence of onboarding platforms like e-signatures that can handle sophisticated workflows and transactions, and provide the ability to connect to popular back-end technology systems, that we are seeing the shift to automate more complex onboarding scenarios.
According to Forrester Research, “Banks like Bank of America, Royal Bank of Canada, and U.S. Bank are now digitally verifying a customer’s identity and using electronic signatures to provide an instant decision on certain retail products within minutes; they are also issuing the account number in real time.”
Cyber security will be at the heart of digital transactions
Recent high-profile data breaches have focused many financial organisations on where their weaknesses lie, especially with regard to security. Organisations are reconsidering the security around each process or transaction they are taking digital. A DDoS attack in October highlighted how fragile digital transacting can be, with security often added after a hack or breach rather than upfront.
As a result, we are going to see a shift to digital processes that is rooted in transaction security. The concept of a digital trust chain that links technologies together to provide a secure transaction from end-to-end will be at the heart of digital transformation.
Mobile-first will finally become mobile-first
Mobile technology is more ubiquitous and secure than ever, and financial organisations are hard pressed to ignore the need to provide services designed primarily with the consumer’s mobile experience in mind. That’s why this will be the year that mobile-first initiatives will actually be put first.
It’s well-documented that mobile device use is on the rise, which is fuelling the need for mobile apps – to date, there are over 5 million apps available that people rely on every day, and according to Yahoo’s Flurry Analytics, 90 percent of a consumer’s mobile time is spent in apps. This staggering statistic is the driving force behind organisations’ development of mobile apps of their websites and web applications.
For financial organisations, offering a mobile-first experience also means errors can be minimized and processes can be compressed from days to single sessions. It’s all about speed, less manual work, tighter compliance and meeting expectations for a modern experience.
Artificial Intelligence will emerge but will not dominate
In its current form, artificial intelligence offers somewhat limited applications for financial services. It can easily deal with queries such as ‘How can I make a transfer between accounts’ and ‘How long does it take to process a payment’ but more detailed queries still require human interaction. However, we can already see some of benefits AI offers, namely efficiency and a more seamless user experience. For example, Swedbank’s web assistant, Nina achieved an average of 30,000 conversations per month and first-contact resolution of 78% in its first three months. Nina can handle over 350 different customer questions and answers. As the technology evolves, AI will take on more functionalities that will broaden its scope.
The rise of artificial intelligence will likely have widespread applications in financial services in future, but for now humans or a hybrid approach between automated and mediated transactions are better designed to provide the best service in most cases, something financial services organizations should remember when considering how to invest in artificial intelligence.
A simplified approach to digital transformation
Digital transformation implies that an organization needs to undertake a massive project, which can be intimidating and a potential roadblock to starting the digitisation process. However, it doesn’t have to be so complicated – digital transformation can be as simple as digitising one process or transaction across one line of business.
The best thing financial organisations can do is choose technology for digital transformation initiatives that can be built as enterprise solutions and reused across all lines of business and processes, essentially a “build once, deploy anywhere” model. This simplified approach allows businesses to take on digital transformation at a pace that works for them.
Here to talk about his Chairman role, his leadership in the financial services sector and notable achievements is Jerry Lees, the founder of Linear Investments Ltd. Throughout his career, Jerry has been an active entrepreneur in the success of multiple technology and financial businesses. Prior to founding Linear, he was the Head of alternative execution at CA Cheuvreux and has extensive experience in providing cost effective solutions to incubate and nurture emerging and acceleration stage hedge funds. He is expert in reducing the regulatory and operational burdens which have continued to grow following the global financial crisis of 2009.
Finance Monthly hears from Jerry on the challenges and complexities involved in managing a successful business and on the future goals and prospects of his company.
What have been your biggest accomplishments? What are you most proud of?
In my late twenties, I set up a business called Northgate, which is still functioning as a company. My partner and I established the company in 1983. By the time we sold the business to McDonnell Douglas Information Systems MDIS and Hoskyns (CAP Gemini Sogetti), we had just under 1000 people working for us. We managed to achieve this in 5 years, while operating in multiple environments and creating opportunities for a large number of people. We trained people who were at that time inexperienced and knowing that these people are still operating within the sector, is the biggest reward for me. Setting up this company and managing it was definitely a lot of hard work, but at the end of the day, it was also a fulfilling experience that I am proud of.
In recent years, I am also very proud of my current business – Linear. Many people keep on telling me that we are now “in the right place at the right time” while I keep on saying that it took us 2 or 3 years of planning and 5 years of work, so yes, after 8 years, I would say that we are in the right place.
How did your career path lead you to this area of specialism?
After completing a degree in Economics and South East Asian Studies at the University of Hull, I travelled and did various different things for a year. Following this, I went into finance and banking and then ended up trading bonds for what is now the London Clearing House (LCH). I started to look at patterns of clients behavior and tried to track what happened in the previous 5 years to see if I could find a pattern of trading. I started to analyse the data, which was all manual back in the day, until I realized that we had a significant computer resource in our office which made me wonder if there’s any way that this technology could help me to track 5-6 years of historical data. Corporate computers were still quite rare at the time. Eventually, we completed the analysis and we improved the performance of this particular strategy. Working on this project made me think that computing was all actually quite interesting, which led me to taking the time to learn how to program. After learning a number of programing languages, I decided to move to a technology company. I started working for Xerox – the company that invented the Ethernet and Windows, not many people realise their contribution. This experience helped me form this blend of financial expertise mixed with an understanding of technology, the combination of knowledge which helped me set up my first company and has helped ever since. At Linear we built a complex IT business in 1983, which happened to be where a lot of people nowadays
aim to be.
What goals did you arrive with as a Chairman of Linear Investments?
I found the company and initially, I started off as a CEO and I brought in various different partners. I moved to the Chairman role more recently - my CEO Paul Kelly is driving the business operationally day-to-day while I’m trying to build the strategic goals of the company. Our initial aim when founding the company was to build a complete and fully-functionalprime brokerage business with a very technology- driven infrastructure. We wanted to be capable of doing anything that any prime brokerage does in the marketplace, combined with a state of the art technology. Many prime brokers in this business have massive legacy systemsand vertical strategies, while we built all of this from scratch with the advantage of new technologies. And I believe that we built a great model which is now very attractive to our clients. Linear Investments is now expanding internationally – we are starting joint venture operations in Hong Kong, following our expansion into Hamburg, Germany, so I could confidently say that the business is currently going in the right direction.
What motivates you most about your role?
Challenge, innovation, dealing with exciting people.
I believe that being occupied with activities and projects that are interesting and challenging is what makes life worth living.
What does 2017 hold for Linear Investments?
We’ve been going through building our infrastructure and we have invested a huge amount of money in technology in the last two years. We went through the Brexit turmoil which I think has not been particularly helpful for our business.
Going forward, we are now in the process of finalising additional financing, while as previously mentioned, Linear Investments is going to significantly expand in 2017. We are looking to capitalise our investments made in in the last 2-3 years. We have also adjusted to operating in a world where Brexit has to be dealt with and we have to make sure that we make the most of the current situation.
Overall, we are looking at many new exciting opportunities at the moment and I believe that both 2017 and 2018 will be very successful years for Linear Investments’ growth and expansion.
Anything else?
Our business strategically is placed to deal with the impact that Basel III is having on bulge bracket banks and hedge funds and their prime brokerage operations.
The prime brokerage landscape has been undergoing significant changes recently. However, I believe that we fulfil a very useful role in our field and that what we’re doing in the prime brokerage sector –supporting new hedge funds and people with exciting ideas, is going to be critical in the next few years.
Xero today announced the integration of Apple Pay through Stripe, making it even faster and easier for customers to get paid. Xero’s 862,000 subscribers can now offer their customers the ability to view and pay an invoice using Apple Pay through Stripe. Invoices paid with a payment service get paid almost 80 per cent faster than invoices that don’t offer a payment service. This new feature is available automatically to everyone on Xero using Stripe where Apple Pay is available.
Small business owners consistently point to delays in getting paid as one of their biggest pain points, which puts a strain on cash flow. Xero customers sent 15 million invoices globally in the last 30 days alone. And based on our current data, over 60 percent of those invoices will be paid late. Xero’s connection to the payment services of Stripe and Apple Pay will help address this concern for small businesses owners and help businesses get paid faster.
“Mobile payments are the way of the future,” said Craig Walker, Xero Chief Technology Officer. “Attaching a payment option to online invoices helps Xero customers get paid almost 80% faster than invoices that don’t use a payment service - so they spend less time chasing unpaid invoices for a more productive and cash healthy business.”
“By enabling these connections with payment services, small businesses are able to offer multiple payment options on an invoice, giving them and their customers choice of payment and also the ability to pay the invoice as soon as it arrives, ensuring they get paid faster,” Walker said.
Currently businesses that want to pay an invoice via credit card need to enter their credit card details to complete the payment. Credit card payments via Stripe mean that customers can confirm payment with Apple Pay using their fingerprint ID on their Apple device to confirm the payment quickly. Businesses who take payments via Stripe and Apple Pay also have an extra level of security. All payments made require a fingerprint or passcode, decreasing fraud, and with it, chargebacks.
"Almost a fifth of online commerce in the United States now happens on mobile devices,” said Cristina Cordova, Head of Business Development at Stripe. “We’re excited to work closely with Xero to help hundreds of thousands of businesses use Apple Pay to get their invoices paid with little more than a fingerprint.”
By connecting Xero users with Apple Pay transactions will be automatically entered and matched against invoices in Xero. Automating the invoicing reconciliation process makes accounting easier for small businesses.
"I advise my clients on the amazing ability Xero has of linking to online payment providers like Paypal and Stripe,” said Brad Sewitz, Logicca Chartered Accountants. “These services have changed the way my clients operate their business, reducing the unnecessary burden of data capturing and positively impacting their cash flow, allowing them to focus solely on what they do best - running their business."
“The small businesses we work with get paid quicker and have greater visibility into their receivables by using Xero invoices with an online payment provider like Stripe and Paypal, Mike Castle at Bond, Andiola & Company.
“With Xero, my clients reduce their dependency on paper checks and, in some cases, save themselves fees associated with having check scanners.”
(Source: Xero)
CPRAS are the UK’s pre-eminent payment processing consultancy. They have designed and delivered Europe’s first Payment Services Framework to be available not just for governments but for private sector enterprises as well. In this interview with Finance Monthly, Andy Flavell (CPRAS’ Partnerships Director) explains how their vision for local councils and trade associations is changing the UK payments landscape.
There is a lot of talk about the CPRAS Payment Service Framework. I know that, in most interviews, you like to focus on the innovative aspects of the Framework which allow the public sector to effectively remove themselves from PCI DSS compliance, but could you tell us more about how and why you set up a Public Sector Framework with a Private Sector mirror image?
The payments industry tends to surround itself in mystique, but under the surface it’s just like any other. If you are a massive client placing a huge order, then you can negotiate better quality and price deals than the small business can ever hope to get.
When we were building the PSF, we were actually putting together probably the biggest tender for payment services in EU history. We knew that we would get the best value service packages ever seen in the Public Sector and it seemed obvious to create the mechanisms that would allow Private Sector businesses to access these market-beating packages.
And what are those mechanisms?
We call it the Optimiser. Essentially, it’s an app which cuts through all the complexity around payment services.
The problem is that there is a very real difference between providing payment processing services to a business than to a government office. Processing payments carries risk – for example, a furniture business could close after taking deposits but before delivering the goods. In that case, the processor would have to repay the business’ debts. Risk costs – more “risky” processing will always be more expensive.
In the PSF, we asked the service providers to give a cost matrix for every type and size of business. In fact, the PSF had over 200,000 cost input options.
When we give an Optimiser to a Local Council, they can use it to identify and introduce the best payment processing rates and service packages available for any local business, from a corner shop to a global corporation. The Optimiser provides that business with a detailed breakdown of all the savings that they could achieve.
It’s all risk-free, but when businesses select a PSF service package, the provider will pay the Local Council a small % of the processing fee – for every transaction processed. Everyone wins: The Council has more profitable local businesses which recognise the additional help they have provided. The business benefits from service packages that have been based on one of the largest tenders in history. Even the service provider benefits, as they get new customers across a broad range of risk profiles.
So businesses should ask their local council if they have a CPRAS Optimiser?
Yes, or they could ask us who has an Optimiser that they could use. We are providing Optimisers to accountancy firms, Trade Associations and business support organisations.
The payments industry seems to be changing far more rapidly than ever before. Obviously CPRAS are right at the front of this FinTech explosion so what’s next on the horizon for you?
Christmas.
Commenting on the Chancellor’s package of measures to support UK fintech, including a £500,000 a year investment for fintech specialists, Warren Mead, Global Co-lead Fintech, KPMG, comments:
“The UK is a leading global force in fintech but we’re losing power to China rapidly and the announcements in the Autumn Statement will struggle to reverse the trend.
“UK fintech investment has seen a considerable decline throughout 2016 as investors keep a keen eye on the aftermath of the EU referendum and the UK’s changing relationship with America. In fact Europe has not registered a single mega-round (US$50m+ ) in 2016 while Asia has registered 12.* The rise of China is indisputable and picking up pace, four of the top five spots on this year’s top 100 fintech firms were held by Chinese companies.
“Across financial services we’re hearing people talk about technology investment but change is happening too slowly. If we look at banks, they invest just 1-2 percent of their revenue into research and development whilst in technology firms it’s more like 10-20 percent. When one of the technology giants like Google turn their attention to fintech in a serious way we will see dramatic change and it will happen fast. The question is whether Asia will be first? With the diversity of investments and widespread support for the growth of fintech hubs in the region, it’s a very distinct possibility.”
(Source: KPMG)
