Traditional banks are lagging behind when it comes to technology and we are increasingly seeing non-financial services companies, like Facebook and Orange moving in into the territory of traditional banks. Below Daniel Kjellén, Co-Founder and CEO of Swedish fintech unicorn Tink, looks at how Facebook is currently adding P2P payments to their services.
You would have to have your head in the sand not to notice that huge change is afoot across the banking and personal finance sectors. Earlier this month, Facebook announced that it was making its first foray into finance in the UK, with the launch of a new service which will allow users to transfer cash with just a message.
Facebook is not the only tech giant moving in on the territory of traditional banks, with Apple also set to launch its own virtual cash payments system and telecoms behemoth Orange recently announcing the launch of its online banking platform. This is just the tip of the iceberg. Fintech firms like Mint, Moneybox and Tink are taking this concept beyond payments, creating a sophisticated consumer led money management ecosystem.
So why is this happening? The launch of Facebook’s P2P payments service is evidence of the wave of technological and legislative driven disruption sweeping toward the retail banking market that change the shape of the sector beyond recognition. Consumers in 2017 are platform agnostic and don’t care whether they manage their money through their bank or their phone company or social media account.
Across the world, we are witnessing a move to the model of ‘open banking’ which will blow open the retail banking sector and create competition in the form of tech firms, who are already making a play for the territory traditionally held by banks. This hasn’t happened in a vacuum, it is just one symptom of the enormous transformation the industry is undergoing.
The fintech invasion
The current wave of tech companies offering in-app personal finance capabilities is just the beginning. The success of fintechs such as Monzo and Transferwise has demonstrated beyond doubt that today’s consumers are looking beyond their bank to manage their finances.
Until recently, banks have enjoyed a monopoly over their customers’ data and have operated in a market which by design, discourages competition and transparency. The result has been a mismatch between people and products, with consumers having to settle for high cost, low quality financial services. It’s not surprising that nimble tech companies are moving in on the space previously occupied by the banks. So long as their investments in fintech yield results, these ambitious and visionary companies will continue to pioneer new solutions that transform our relationship with money.
Banks who don’t innovate and create customer led products, will risk losing their customers who, through tech solutions will automatically be filtered towards a smorgoesboard of banking products which suit their needs. Third party platforms will become the main interface for money management, regardless of who the consumer actually banks with.
A nudge in the right direction
Facebook’s mobile payments feature will be supported by M Suggestions, a virtual assistant which monitors Messenger chats and nudges consumers to use the payments feature whenever the subject of sending money comes up in conversation, aiming for a seamless integration between social interaction and finance. The smart technology which underpins Facebook’s virtual assistant is a glimpse of the future of personal money management.
Today’s apps are nudging consumers in their day-to-day choices, encouraging them to save a little every month, offering tailored advice based on their economic habits, pointing them towards better deals and products, helping them to prepare for life’s big financial commitments - all with the aim of improving users’ financial happiness.
Money on autopilot
Facebook’s payments service aims to remove friction from the transaction - friction in this case being the need to leave Messenger. We are witnessing increasing numbers of tech companies offering these in app capabilities, the ultimate aim of which is to allow users to do everything in one place.
PSD2, which comes into force in January, will open the floodgates for third parties to build financial services apps which aggregate, enabling consumers to do everything in-app from paying their bills to comparing how much they are paying for access to financial products like credit and mortgages.
Technology is ushering in a new era where money management is frictionless and simple. Many people today have a difficult or distant relationship with their finances. There is often a mismatch between people’s needs and the product they are offered by their bank. This means money management can often feel like a chore rather than a choice.
In-app personal finance services such as those offered by Facebook, Tink and Apple, will offer consumers the ability to effortlessly manage their personal finances while going about their daily business. People’s relationship with their money will become a lifestyle choice, with financial decisions being akin to the choices they make about their health or their hobbies. Eventually, money will be on autopilot.
A bank by any other name
Today it is rare to find an individual who is loyal to their bank. With the ties between consumers and their bank becoming increasingly weak, smartphones will become the interface between people and their money. The entity sitting behind this engagement will become little more than an afterthought.
Tech companies who have built a strong consumer facing brand - underpinned by best in class technology - are waking up to the opportunity and are planting their roots in the fertile ground left wide open by the traditional banks. As the line between banks, fintech, social media and telecoms becomes blurred, the banking market as we know it will soon be unrecognisable. The banks who will survive and thrive are those who embrace the disruption and invest in the power to innovate through technology.
To learn all about Plutus - a mobile application for making contactless Bitcoin payments, this month Finance Monthly reached out to the company’s CEO - Danial Daychopan.
What is Plutus?
Plutus consists of two interconnected applications:
Plutus Tap & Pay is an Android and iOS app for paying with Bitcoin & Ethereum at any contactless-enabled debit card terminal already in use today. Additionally, every deposit you make rewards you in Pluton, a loyalty rebate token which can then be used to make further purchases without fees.
The PlutusDEX is a one-way peer-to-peer exchange (smart contract) that provides liquidity for the Tap & Pay app. The way this works is that PlutusDEX traders can escrow fiat currency such as GBP or EUR to purchase Bitcoin and Ethereum from the users of Tap & Pay mentioned above.
Our favorite aspect, however, is that the Bitcoin and Ethereum can be bought by other users with zero fees through the PlutusDEX. Our person-to-person system it much easier to add new currencies (both fiat and digital) depending on demand, and a 0% fee trading experience encourages exchanges and blockchain enterprises to use our API as well.
Tell us a bit about yourself. How did the idea about Plutus come about? What were some of the challenges that you faced when setting up the company?
My journey in FinTech began in 2013 when I first started one of the first licensed Bitcoin exchanges, followed by a cryptocurrency merchant payments platform called LazyPay.
Earlier that year, I had seen an invoice get filled within seconds across different timezones, all without the need for a centralised party. After this, I was immediately attracted to Bitcoin and fascinated by the features it had to offer.
At the time, there was already a growing niche of Bitcoin supporters and early adopters who wanted to spend the coins they had earned. However, merchant adoption proved far more challenging than anticipated, stalling due to the logistical and volatility issues. Even the largest Bitcoin companies couldn’t move it forward. Unswayed by rising hype, merchants decided that cash and debit cards worked just fine for them. It was and still is an uphill battle.
We were undeterred and still wanted to be able to spend our digital currencies wherever we wanted. And if possible, without having to get merchants involved altogether. After much deliberation, we finally found a way to do it.
In 2015, Plutus first set out to circumvent the issue of merchant adoption by connecting the blockchain to the Visa and MasterCard networks. This gateway makes digital currencies valid for payment at over 40 million debit-enabled points-of-sale worldwide.
This means that even though you are using digital currencies, the store owner or merchant will receive a bank transfer as usual and will not see any difference when compared to a regular debit card transaction.
What have been the company’s major achievements thus far?
Plutus has come a long way since our inception. When we began, we first wanted to gauge community demand. We knew that we needed the app we were making, but we didn’t know whether other people knew it too. From this idea forth, we decided to crowdfund the project. In a surprising result, we raised over 1 million USD from over 1000 users, and have grown to thousands of subscribers since.
We’ve also built an incredible team of tremendous people, from management to development, and entered into partnerships with leading service providers. Now we are right in the middle of the BETA programme, testing and tweaking our platform with the help of our community, drawing ever nearer to the first production-ready release of Plutus.
What kind of device is required to use Plutus? Do merchants need anything to accept Plutus payments or Plutons?
Pretty much all (relatively) new smartphone have built-in NFC. In fact, finding a smartphone without it
Is actually quite difficult nowadays.
To support Plutus, all merchants need is the regular contactless payment terminal that they most likely already have. This makes Plutus payments valid at over 40 million compatible points of sale in the world by default.
What can you tell us about your in-app cryptocurrency called Pluton?
Our platform Plutus Tap & Pay has an in app token called “Pluton”, which act as loyalty reward points on the platform. However, it is important to note that this is not intended to be a competitor of Bitcoin or Ether.
Rather, Plutons (or PLU for short) are actually a cashback program similar to frequent flier miles. This means that they can be used to make purchases on our platform just like BTC and ETH, with the added advantage of faster deposits and absolutely zero fees. Every time you make a purchase with BTC or ETH, you get 1-3% of your purchase back in Plutons.
Could you tell us more about where you see blockchain technology in the future?
We believe there is huge potential in blockchain technology to positively disrupt our standard methods of payments, trading, and other aspects of our lives. The industry is rapidly growing with a never-ending drive towards more automation, more decentralisation, and less friction. Over the coming years, we believe the use case will reach mainstream products where consumers could have a better user experience without the need to understand or be aware that the blockchain was utilised.
However, that said, private blockchains do not rely on a peer-to-peer network but if an organisation intends to utilise the technology for improved governance, automation and transparency internally then it can work if done right – for now, we remain skeptical.
Do you look at others in the FinTech industry as competitors or do you take a different view?
I have a different view - they help push the industry forward and help us to learn from their mistakes. In many ways, we are doing something completely different.
When you charge your Plutus account with digital currencies, you are actually transferring them directly to a trader on the DEX who has created an order to purchase them in return. This means that our customers can sell and buy digital currencies directly to and from other customers. As a result, Plutus never stores any digital currencies on the platform.
And with recent security concerns on the rise, the benefits of not holding funds are becoming increasingly clear as the blockchain space develops.
What have been the biggest hurdles faced by the company?
Red tape and creating a winning team - both in development and in management. In the blockchain space everyone is competing for talent, while regulators are still very skeptical. This creates a challenging environment.
What is your vision for the future of Plutus? Where do you see the company in 2-3 years?
The aim is to enable users to pay using crypto currency directly with smartphones at any merchants of their choice. And lower the barrier of entry for anyone wanting to buy Pluton, Bitcoin and Ether. This is why we created Plutus Tap and Pay and the PlutusDEX. We also wanted to create decentralise loyalty reward system called Pluton that awards customers for every deposit, which they can then spend anywhere. In the future, we believe the platform will be one of the largest platforms that enables payments via the debit card network in the peer-to-peer market.
We also aim to enable users to make a direct deposit in their Plutus account, using direct bank transfer instead of crypto, who will also receive a reward in Pluton, introducing new users to the blockchain ecosystem.
Initially, we will be releasing physical debit cards, NFC stickers. Our main product will be an iOS and Android app for making contactless purchases, trading and managing your wallets. We plan to add online payments and other nifty features as well.
What are you currently working on?
We are currently working on Plutus Tap & Pay, and the PlutusDEX. Both parts are interconnected and fulfill important roles in our ecosystem. Currently, our live payment systems are already undergoing internal testing. Once the stress-tests have been completed, the PlutusDEX will be released, followed by shipment of the official Plutus Debit Cards.
We are also looking to grow Plutus with new members in key roles - we are currently hiring.
If you could share one piece of advice with young FinTech entrepreneurs, what would it be?
Don't be scared to fail and be prepared to live “the ramen life”.
Website: https://plutus.it
If helping test the platform and coordinating how the future of Plutus Tap & Pay and PlutusDEX will look, why not join the BETA waiting list? http://beta.plutus.it
For more information about Plutus’ long-term ideas, please take a look at “Slingshot from Orbit: The Future Vision of Plutus.it”: https://medium.com/@PlutusIT/slingshot-from-orbit-the-future-vision-of-plutus-it-cf7b69f827ef#.wajh88j3e
Case Study: An Interview with Plutus.it’s CCO - Filip Martinka
Recently, Plutus has been making rounds in London and Berlin, presenting their technology for instant, peer-to-peer, decentralized payment platform. The company’s CCO - Filip Martinka tells us about how the project is coming along.
Why use Bitcoin over Ethereum?
We believe that there are useful aspects to both. The main reason we are using Bitcoin is for its already widespread usage, and Ethereum - for its ability to automate business logic. We want be able to adapt based on demand. Fortunately there are many other projects on the horizon that aim to be natively compatible with the Ethereum virtual machine, so porting the platform may be possible as well.
Why should more merchants accept Bitcoin as payment? What about Ethereum?
We believe that at such an early stage of Bitcoin’s development, convincing merchants is quite challenging. This is why our app is mainly intended for Bitcoin and Ethereum users who are tired of waiting for merchants to accept digital currencies and want to wield the ability to pay regardless of whether the merchant is involved.
Are you planning to integrate with other Decentralized Exchanges?
Initially, our platform will launch with an open API, meaning that 3rd party applications can interface with some features of our system. At the present moment, our development team is focused on finalizing our product. However, once we have a production-ready release, we will look into available options to expand our cooperation with other exchanges, developers and SaaS providers.
What is the reason, in your opinion, that merchant adoption of Bitcoin and cryptocurrencies has been so slow?
It appears that mass adoption is a slow process, and not necessarily a straight line.
Accepting digital currencies still takes a lot of effort, involves friction and regulation, and is often cost intensive. The main problem is that it is not possible for merchants to accurately predict how many Bitcoin purchases they will get in the early stages of adoption. Many get discouraged when they get none, or remove Bitcoin as a payment option for a combination of reasons including training expenses, fees, or technical difficulties.
What can Status do for Plutus?
We appreciate integration into any 3rd party apps, exchanges, or services. All we want is for our users to have optimum interoperability with platforms, and liquidity for our traders. If you have other suggestions please let us know.
How does Plutus benefit from the use of Ethereum?
Our one-way trading gateway integrates an Ethereum smart contract, which makes our platform more transparent and decentralized. Over time, we want to optimize costs, reduce friction, and make the platform more autonomous.
What is the goal you’re hoping to achieve with Plutus?
We want Ethereum, Bitcoin, and other digital currencies to become regular payment options in daily life.
Which other DApps do you think Plutus can benefit the most from?
Exchanges can plug into our platform as well. It will be interesting to see the result.
What do you see as the biggest hurdle(s) in gaining a critical mass for Plutus?
We have to wait for society to get more familiar with digital currencies - until it becomes a topic one can talk about without getting weird looks from strangers. In the beginning, people who earn their income online will be the first to fully adapt to digital currencies. But we believe that this will take less time than most people think.
How do you see Plutus helping people's lives?
Our main goal has always been to provide a convenient payment method, and an easy and affordable way to buy digital currencies.
Is there a level of technical knowledge required by the end-user in order to use Plutus?
Ideally, there will not be more than few clicks required to use any feature. Our team is always thinking of new ways to make Plutus easier to use and navigate.
What is the most exciting feature of Plutus in your opinion?
How it all comes together. The Tap & Pay users deposit Bitcoin and Ethereum, while traders purchase them on the PlutusDEX, and the merchants receive their usual payment from the traders. This makes it possible to add currencies based on demand, and connect other platforms.
What do you think is the most important factor that differentiates Plutus from the non-blockchain(/Ethereum) applications in your field?
The fact that Plutus does not hold any digital currencies, and simply acts as a gateway to connect users with each other and match their trades. This makes the platform more secure and adaptable. And in some ways, the peer-to-peer nature of our exchange makes it more like “localbitcoins” for example, rather than a regular centralized exchange.
What can people in the Ethereum community do to help Plutus?
The main thing would obviously be to use our app, or to purchase digital currencies through our gateway. If you are a developer or entrepreneur, note that our decentralized exchange will have an open API and 0% trading fees for buying any digital currencies, making it ideal for integration in 3rd party software.
Here John Milliken, Chief Operating Officer at Infomedia, delves into the statistics and facts of online, mobile and digital payments, how they differ between regions, and why.
According to a report by UNCTAD - the United Nations body on international trade and development - online, mobile and digital currency payment systems are set to overtake credit and debit cards as the most popular ways to pay in e-commerce worldwide by 2019. The research suggests that the share of credit and debit cards in global payments will drop to 46% by 2019 from the 51% forecasted three years ago.
Last year, China’s mobile revenue hit $5.5 trillion, a figure that is 50 times more than the size of America’s $112 billion market, according to consulting firm iResearch. Similarly, in the last year alone, Japan’s e-commerce market was valued at $89 billion, with half of that coming from mobile.
By comparison, in the UK and US, many brands, from retailers to publishers, continue to struggle to deliver a mobile experience that enables a convenient and simple payment method and encourages consumers to spend. As a result, despite the fact that mobile devices have consistently driven the highest levels of engagement compared to any other platform, it continues to experience the lowest conversion rates.
So, what is it the East is doing differently to the West that has caused mobile revenue to sky rocket?
The Asian Mobile Market
The Asian technology industry - particularly mobile - has pulled ahead of what we’ve seen in the West. China and Japan, like many other developing markets, have not followed the pattern of the West in going from physical shops to PC to laptop to smartphone. Instead many consumers are going straight to smartphones without previously owning a fixed internet connection.
According to Zenith’s Mobile Advertising Forecasts for 2017, mobile accounts for 73% of time spent using the internet globally, however in the UK this figure is just 57%. By comparison, in China, internet users reached 668 million in June 2015, and 549 million of those users (almost 90%) access the internet primarily via their mobile devices. In other words, the number of internet users in China is more than twice the population of the US and almost the population of Europe, and most of those individuals are walking around with a smartphone.
With these figures in mind, it’s clear that mobile is prevalent in China - it’s a way of life, not just a medium of communication. On mobile, consumers talk, text, shop, order food, hail taxis, book travel, pay for products and services, deposit money into their bank or transfer money, amongst other things. Most Chinese companies have recognised this, and build their advertising and marketing, customer communication, shopping, purchasing, and even their payment programmes around mobile. In fact, about half of all e-commerce in China happens on mobile, compared to just over a fifth in the US and around a third in the UK.
As a result, rather than focusing on card payments, merchants and mobile operators in China and Japan have worked together to develop truly frictionless mobile payment processes. In China in particular, much of this is driven by mobile payment services via social messaging service WeChat and AliPay, its paypal equivalent. In fact, Alipay recently signed with Starbucks to enable e-payment at all 2,800 Starbucks locations, while at a KFC, diners can pay via Alipay using facial recognition technology. In Japan however, DCB is the most popular payment method accounting for more than 50% of all ‘online’ transactions - a number that has risen consistently over the past five years as more consumers move away from card payments.
It is clear there is an opportunity for brands to deliver the same conversion rates on mobile seen in Japan and China if they are able to adapt to behavioural change. And although the Chinese market appears to be different to the West, it has actually just reached the predicted next stage for all markets quicker. By acknowledging that consumers want the quickest and easiest payment processes, we can also deliver an experience that is frictionless and encourages customers to convert from browsing to spending on mobile. In summary, it is only when brands begin to deliver and offer a mobile first experience that they too, will be able to maximise on the mobile opportunity.
Ray Dalio, the founder of the largest hedge fund in the world, told Henry Blodget that investors should have 5% to 10% of their portfolio in gold. During that same interview, Dalio called bitcoin a "speculative bubble" and said "bitcoin is not an effective medium exchange by and large" and "it's not easy to buy things with the bitcoin."
Dalio isn't the only one asking these questions about bitcoin. If bitcoin really is a currency, then it is important that you can buy things with it. But this may not be a fair argument. We all seem to accept gold as a storehold of wealth and as an alternative currency even though you really can't make purchases with gold.
So in an effort to fairly compare gold and bitcoin in this vein, we went out into the world to see how easy it was to spend both in everyday transactions. It turns out it isn't easy to spend either. The only person we could find who accepted gold in New York City was Donald Trump in 2011.
Bitcoin is slightly easier to spend. We couldn't use our bitcoin at Subway, which is on a few lists of retailers that accept bitcoin. Le Village, a restaurant in New York's East Village that many have reported accepts bitcoin, was closed down when we tried to eat there. But we did have some luck spending bitcoin.
We found that it was easy to use bitcoin on Overstock.com. Also, my daughter's preschool accepts bitcoin for tuition payments. But if you really want to use bitcoin in everyday transactions, you can get a debit card that allows you to spend bitcoin easily. But maybe we are simply using the wrong words when we talk about bitcoin.
As Adam Ludwin, the founder and CEO of Chain, says in his open letter to Jamie Dimon, "since this isn't about cryptocurrencies vs. fiat currencies let's stop using the word currency." He goes on to say that he prefers to think of them as "crypto assets."
According to ONS’ most recent crime report, “Bank and credit account fraud” was the most common type of fraud experienced (2.5 million incidents or 75% of total fraud) in the UK, followed by “consumer and retail fraud” 6– such as fraud related to online shopping or fraudulent computer service calls (0.7 million incidents or 22% of total fraud). More than half (1.9 million incidents or 57%) were cyber-related.
Below Sundeep Tengur, Banking Fraud Solutions Manager, SAS UK & Ireland, comments on the progress that FS organisations are making on tackling fraud.
“It’s encouraging to see that the financial services industry is starting to give fraud the attention it deserves.
“With increasing instances of the misuse of alternative currencies like Bitcoin and difficulty in securing the electronic payments industry, the financial sector is rising to the occasion. But there is still plenty of work to be done as fraudsters continue to adapt their tactics.
“Whether it is against low-level bank account and card fraud or more serious attacks on organisations, financial services can’t afford to leave their doors open to fraud. They must continue to tighten defences and improve their capabilities to detect and resolve instances of fraudulent activity.
“To stay secure and instate confidence, organisations must derive actionable intelligence from the information available. Spotting the tell-tale signs of improper payments and transactions means they can get one step ahead and stop any financial or personal assets being compromised.
“Advanced analytics will be at the core of these efforts, crucial for helping firms mine their ever-increasing datasets for these invaluable insights. At the same time, artificial intelligence and machine learning will prove to be just as beneficial as more and more financial institutions are automating the process of fraud detection, improving the speed and efficiency of their response.
“The fraud factor is never going to go away. Yet those businesses that are proactively interrogating data will have a better chance of preventing fraud’s most devastating effects.”
A recent study from Forex Bonuses finds the countries among the 20 largest economies who are adapting quickest to using cashless systems like phones and contactless cards – revealing that Canada narrowly edges out Sweden for the top position.
The economies adopting the most cashless technology have been revealed in new research from global trading site Forex Bonuses.
Investigating twenty of the world’s most significant markets, the study looks into contactless card saturation, number of debit and credit cards issued per capita, usage of cashless methods, growth of these cashless payments, and the proportion of people who are aware of which mobile payment services are available. From these six metrics an overall ranking was calculated.
Cashless Economies
The top position has gone to Canada, who, while only having contactless functionality in 26% of their cards (compared to 41% in the UK and 56% in China) and the lowest number of debit cards per capita included in the research (0.7), were found to have over two credit cards per person, a figure only exceeded by their neighbours in the US, who had just under three.
Likewise, the majority of their payments were made using cashless means at 57% of transactions, outmatched only by 2% in both Sweden and France. The UK reached 52% on this scale, while China, despite the majority of cards being contactless, used cashless methods in only 10% of transactions. China were also the most educated on mobile payment services, with 77% of survey respondents claiming they were aware of the options available to them in this regard. In comparison, only 47% in the UK claimed the same.
(Source: Forex Bonuses)
Figures released by UK Finance find the number of debit and credit card transactions grew by 12% in the UK in the year to the end of June, the highest annual rate since 2008. The value of spending also rose, accelerating to 7.2%.
Lenders are currently facing the pending challenge of upping their game after The Bank of England's Prudential Regulation Authority (PRA) highlighted the need to address lending concerns.
Ian Bradbury, Chief Technology Officer, Financial Services Business at Fujitsu UK and Ireland, told Finance Monthly:
“With the use of contactless payment cards soaring by over 140% in the past year alone, the news that UK credit and debit card spending is growing at its fastest rate in nine years comes as no surprise. We expect contactless payments to become an increasingly important feature in the British payments landscape. Making up around a third of all plastic card transactions – up from around 10% just a couple of years ago – the convenience and ease of contactless payment means that such transactions are continuing to gain traction with the public. Not only this, the high-growth adoption of contactless payments underlines the fact that consumers and retailers choose to adopt solutions that are secure, quick and easy to use, as well as ubiquitous.
Contactless payments are not only easier to use than Chip and Pin, they are in many ways more practical than small change and small notes. The significant parallel growth in debit card transactions also suggests that this is not growth just fuelled by debt and easy credit – much of this increase will be a result of contactless payments being made purely due to ease. What’s more, contactless payments have the added value of fuelling other payment solutions such as Apple and Google pay and other wearable technology – which can’t be done as easily with Chip and Pin.
Finally, the success of contactless payments demonstrates that consumers are quick to adopt new payments solutions that focus heavily on improving the consumer experience. However, because consumer experience can cover many aspects including convenience, security, speed and ubiquity, it’s vital that providers put in place ways to improve the experience over current solutions. If future payment solutions do not address all of these areas – which are fast-becoming a customer expectation – then they are unlikely to be successful.”
Craig James, CEO of Neopay, tells Finance Monthly PSD2 will prove to be the most beneficial piece of legislation for fintech companies in years, and could completely change the face of the UK banking sector.
While technology has grown increasingly important in the financial sector, the “traditional” industry has been slow to adapt as consumers grow more frustrated by the lack of progress.
Innovative start-ups, looking to fill the gap left by the traditional establishment’s hesitation to change, have been growing in prominence as some banks, regulators and the government try to encourage new ways for businesses to engage with customers in a market suffering a long-standing loss of reputation.
Coming into force in January next year, the EU Payment Service Directive (PSD2) is the latest change facing one of the country’s oldest institutions, and could prove the catalyst for a technology revolution in the sector driven by innovation in personal banking.
Putting consumers at the heart of the fintech revolution
The most substantial change in PSD2 is enabling customers to allow third party businesses – like technology companies – to have access to all their bank data.
For fintech companies focussed on bringing new products to the market, this presents a new opportunity to create these offerings, without the infrastructure costs facing traditional banks.
Personalisation has been a buzzword in banking for some time, and there is no shortage of products from savings accounts to credit cards that are promoted as tailored to a customer’s needs.
However, while banks can provide a card with an interest rate suitable to the customer, the current offerings are incapable of working across multiple accounts, and cannot adapt to real time changes to a consumer’s individual circumstances.
PSD2 opens the possibility for fintech businesses to create “one stop shop” apps for bank services, allowing a customer to access and manage every aspect of their financial footprint from a single point.
These technology based products will put the consumer back at the heart of banking as businesses will be forced to adapt their products, or face getting left behind by smaller technology businesses which can suddenly offer better services.
It will also open entirely new ways for consumers to manage all aspects of their financial needs.
Better budgeting
There is already a plethora of products which can help customers with their finances, but they are severely limited in essentially being a replacement for paper based tracking. The onus is still on the customer to stay on top of the information.
However, by getting access to a person’s account information and financial history, a fintech company could create a genuinely personalised budgeting tool which could remove the management aspect from the customer.
By being able to monitor balances and outgoings in real time, these apps could be programmed to learn when particular bills are due and, if one account is lacking funds to pay, the app could notify a customer and then automatically transfer money from another account – or combination of accounts.
Considering that most people have more than one active bank account, this type of capability could prove invaluable for customers, helping them avoid unnecessarily falling into debt because they failed to move money around in time.
Real time debt solutions
For those customers who have already fallen into debt, new technology based bank apps could be created to offer real time solutions to help consumers pay down the money they owe, and get out of difficulties.
One of the major frustrations with current banking services, according to our research, is that balance updates are not always immediate and in some situations a user is not being shown an accurate account of their financial situation – which makes it hard to make decisions.
New banking apps could greatly benefit these customers by assessing their income and spending habits – while updating account balances in real time – and instantly suggest ways that customer could reduce their out-goings.
There is also the potential for banks to adopt these kinds of apps, which could be used to find or suggest savings plans.
The biggest benefit of this wave of products over existing services, is that they could monitor activity across multiple accounts in real time. The real-time aspect of these tools could help customers by instantly alerting them to unusual activity or if an account is in danger of becoming overdrawn.
While the “traditional” banking sector is at risk of being left behind by the speed of technological change there remains great potential for banks and fintech companies to introduce a wave of new products and tools for consumers that can help them manage their personal finances better.
PSD2 could kickstart the biggest chance the banking sector has experienced and, in the long run, will prove extremely beneficial for those institutions most able to implement technology at the heart of the customer offering.
September marks the 10th anniversary of the contactless card, and in the last decade we’ve seen its use soar, particularly in recent years. Barclaycard believes its use will push a further 300% in the next four years.
Finance Monthly has heard from Ian Bradbury, CTO for Financial Services at Fujitsu UK and Ireland, who shares his insights on how contactless has developed over the past ten years, and where he expects the payments landscape to go next.
It is hard to believe that contactless cards have now been around for a decade, as we have only in recent years seen them receive significant uptake with consumers. What was once seen as ‘scary’ and ‘unsafe’ to use, is now – thanks to its ease and education – resonating and growing in popularity with today’s consumers and now responsible for a third of all card transactions.
We expect this adoption of contactless payments to only grow, and become an increasingly important feature in the British payments landscape. Ultimately, both consumers and retailers are choosing to adopt solutions that are secure, quick and easy to use, as well as ubiquitous.
Not only are contactless payments quicker and easier to use than Chip and Pin, they are in a variety of ways more practical than small change and notes. The notable corresponding growth in debit card transactions also implies that this is not just growth fuelled by debt and easy credit – much of this increase will be a result of contactless payments being made purely due to ease. Moreover, contactless payments have the added value of fuelling other payment solutions such as Apple and Android pay and other wearable technology, which isn’t so easily done with Chip and Pin.
The success of contactless payments highlights consumers today are quick to adopt new payments solutions that focus on improving their experience. That said, because consumer experience can cover many aspects including convenience, security, speed and ubiquity, it’s essential that providers put in place ways to improve the experience over current solutions. If future payment solutions do not address all of these areas – which are fast-becoming an everyday expectation from consumers – then they are unlikely to be successful.
Late payments are an even bigger challenge for those medium-sized companies, with 94% of businesses employing over 50 people reporting that the issue is causing cashflow problems for them. This is according to new figures from Ultimate Finance.
In partnership with BDRC Continental, Ultimate Finance conducted research into the impact of late payments on the SME sector.
Other stats to be revealed by the research include:
- Overall, 81% of SMEs state late payments are an issue for them
- 51% of SMEs believe their business would run smoother if they had fewer late payments
- 82% of SMEs have up to £25k in late payments
- This rises for medium-sized companies which have an average of over £30k in late payments
Late payments within the sector are an increasingly public issue, with the main political parties vowing to stamp out the problem with legislation such as late payment reporting.
Ultimate Finance however, say that this sort of legislation can be incredibly divisive, and recognise that businesses of all sizes have their own cashflow issues. The company is now calling for the business community to come together and find its own solution.
Anthony Persse, Director of Strategy at Ultimate Finance commented: “We know that late payments can have a huge impact on small businesses. It is without a doubt, one of the biggest challenges faced by UK companies. However, there is a deep misconception that it is an exclusively small business issue which is simply untrue.
“This is leading to rules such as late payment reporting, which is creating an ‘us and them’ situation, when we should be seeking a workable long term solution. This is not just a case of the bigger boys picking on the smaller guys; cashflow and supply chain management affects every organisation, and should be tackled by the community coming together to support one another.”
The impact of government intervention has also been questioned by SMEs themselves. In research by BACS, 38% of small business owners questioned were unconvinced legislation would be helpful.
Ultimate Finance, which works with thousands of SMEs across the UK, believes that the business community needs to look at the way cashflow challenges affect companies of every size, and create an initiative or code of conduct that supports businesses holistically.
“We have taken a look at the numbers,” Persse says. “Many SMEs have significant late payment debt and it’s clear that something must be done. But current methods to help aren’t doing the job; just look at the bank referral scheme which is being evaluated for effectiveness.
“The issue is that politicians keep coming up with one-size fits all ideas and trying to dictate to businesses. Both SMEs and corporates are full of intelligent people who understand the challenges better than anyone.
They should be the ones to create the solution, with support from government and the wider industry – not the other way around.”
(Source: Ultimate Finance)
The Bitcoin (BTC), the first and original cryptocurrency worldwide, has been very volatile and seen incredible ups, with some downs, over the past few years. Last week saw its value fall once again, following days of gains, and after recently splitting to Bitcoin and Bitcoin Cash (BCC). Nonetheless, 1 Bitcoin is equal to approximately $3907.82 at time of publication.
It’s also not the only cryptocurrency, with many others following suit and gaining traction. What keeps it together and functioning without a central bank is the blockchain.
In light of the popular rise of this type of currency and its systems, and now the unexpected coin split, Finance Monthly has heard from several sources around the globe on the latest Bitcoin opinion and analysis.
Richard Tall, Partner and National Head of Financial Services, DWF:
The surge in the price of Bitcoin began with its recent SegWit upgrade, a technical update which has made transactions of the cryptocurrency more efficient than ever before.
Since then, the upswing in the price of Bitcoin has received much attention, with many commentators speculating that its value could even climb as high as $5,000. And as Bitcoin’s price continues to hike on a daily basis, more and more people are looking to invest their hard-earned cash in the cryptocurrency, for fear of missing out on a big pay-off.
It is also interesting to note that there is strong demand in South Korea and the Far East for Bitcoin. With unrest taking place across both of these regions, it may be that some are buying Bitcoin as a convenient and safe place to protect their wealth – just like when people turned to gold during times of conflict – which may also be contributing to this recent surge in price.
Historically Bitcoin has suffered significant swings in value and while its pricing is impossible to predict, it may take little more than investor sentiment to reverse recent gains.
Dominic Williams, President and Chief Scientist, Dfinity:
The Bitcoin community was divided even before news broke that it would be splitting in two. There is a possibility we will see major instability in both Bitcoin and Bitcoin Cash over the coming months. Whilst the former has recently seen its price soar, the latter has seen its price slump, and so if Bitcoin Cash were to gain momentum we could potentially see major swings between the two currencies. As per expectations the new currency did not significantly impact Bitcoin’s market capitalisation when it was released. We must keep in mind though that the very first block of the new currency was only mined two weeks ago.
Jakob Drzazga, Co-Founder, Brickblock:
Before the final acceptance of the segregated witness update, people thought that Bitcoin had hit a ceiling in terms of price growth potential, and now there is widespread relief within the community that something is being done about scalability. This relief, along with the new capabilities of the blockchain to process more transactions goes a long way to explaining the surge in Bitcoin’s value.
It’s likely we’ll see even more growth of this kind in the future as people find new and innovative ways to use the technology. For example, Blockstream Inc.’s plans to make the digital ledger which underpins cryptocurrency available via satellite signal is also likely to contribute to this growth.
Looking at Bitcoin price surges and dips in the past, the trend seems to be cyclical. A rapid rise in price, many new users buy Bitcoin, price reaches previously unimaginable heights, then people start taking profit and converting to USD / GBP, price comes down. Eventually new features cause another surge of interest and so the cycle repeats.
In light of this, optimism around growth should also be accompanied by caution. Even as Bitcoin gains momentum, it is still capable of market contractions like the one we saw on Tuesday, which saw more than $6 billion to evaporate from the cryptocurrency market cap in a matter of hours. Volatility is still a big concern for those looking to invest in cryptocurrency, and has led to mistrust, especially amongst some larger investors.
As the industry grows, it’s important that more sophisticated ways of managing volatility-related risks are developed in order to make the market more inclusive and attractive to those who favour more passive investments.
Jimmy Nguyen, Chief IP, Communications & Legal Officer, nChain:
Bitcoin’s significant price increase since the August 1 ‘hard fork’ demonstrates increased confidence now that uncertainty over the hard fork’s impact has come and gone without major incident. Investors are believing in the future of Bitcoin as not just a cryptocurrency, but also a technology system that can change the way businesses and consumers operate.
While ‘original’ Bitcoin’s dramatic price rise is getting much of the attention, it’s important to remember that the Bitcoin Cash chain has also survived. Bitcoin Cash presents a preferred choice for forces supporting unlimited block sizes and massive on-chain scaling. At nChain, we believe that is the path to Bitcoin’s true maximum value. Massive on-chain scaling is needed to enable countless technology functions which can, and should, be performed in a decentralised manner on the Bitcoin network. We should have a Bitcoin network that powers a faster Internet of Transactions, and enterprise-level capabilities for payments, data, communications, smart contracts, and many other functions.
Today, the technology is not yet advanced enough to accomplish this, but nChain is working on many innovations and intellectual property assets - such as scalability solutions, security improvements, and software development kits - needed to achieve that level of Bitcoin network growth worldwide. The Bitcoin token is the key to delivering transactions on the network, and the token’s value will increase as the transaction capability increases. While more than one Bitcoin chain can certainly co-exist, we believe the highest value proposition for the future will be on a chain like Bitcoin Cash that supports much bigger blocks, lower transaction fees, and more exponential growth.
Jordan Hiscott, Chief Trader, ayondo markets:
The success of Bitcoin and other blockchain currencies this year has certainly been impressive. When Bitcoin initially began nine years it was only found in the dark corners of the internet, whereas it’s now becoming almost a mainstream financial asset.
The spilt from Bitcoin to Bitcoin Cash in the form of a SegWit hard fork could have been a catalyst for derailing the impressive upward momentum in price and general popularity of Bitcoin, but so far we haven’t seen this. I would call Bitcoin the ‘poster boy’ for successful cryptocurrencies – it’s established, secure to a certain degree, has a huge mining community, a large amount of speculation traders and its price has increased at an exponential rate every year. To me, it’s no surprise that since the hard fork, its price has increased from $2,700 to an all-time high of $4,449.
Interestingly, the spin off to Bitcoin Cash has hugely underperformed at the same time, initially increasing to $600 on the day of the spilt to now trading at $300. In my view this abundantly shows the importance in having a secure blockchain, and support of the mining community, in relation to how the transactions and sizes were recorded. At this stage it would seem this is still yet to happen with Bitcoin Cash.
However, I do believe that the price of Bitcoin has been kept artificially low in the run up to SegWit and now that the fork has happened, without significant issue, its popularity in general will greatly increase. Bitcoin represents a technology that has a finite amount, and also importantly is in a digital form, so unlike fiat currencies it is not affected by central banks printing more money. It is this aspect which I believe will drive its popularity to the next level.
David Parsons, CTO, TrustMe™:
It’s clear the recent price surges in Bitcoin and Bitcoin Cash are composed of three distinct principal drivers. The first one involves demand generation coming from new speculators entering the market driven by media reports. In the case of bitcoin cash, new and old speculators are looking to reproduce their gains as they did when bitcoins where in the low hundreds. The second driver involves the hording of bitcoins as an appreciating store of value, as bitcoin goes up the supply further contracts thus correspondingly driving the price further up.
Lastly, the third driver and the most controversial one in my opinion signals the market’s realisation of BCC and BTC as the start of something that represents fundamental change to banks and financial institutions operations. Today, our economy relies on the ability of banks and other financial institutions to create currency out of thin air. When home mortgages or loans are issued by current financial institutions the physical currencies do not exits and never did. This enabled banks to dispense with the need of ever physically obtaining the actual currency being given out. BCC and BTC can be thought of as physical currencies that must be given and received. This is what’s driving the price surges, the realisation the current financial institutions will be forced to physically obtain the currencies to conduct business that they normally perform.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Transactions made in cash are losing ground to digital payments, and governments around the world are considering the merits of losing paper currency for good. Bloomberg QuickTake Q&A explains the advantages and disadvantages of a world without cash.
Video by Henry Baker
