On Thursday, Revolut announced it had raised $800 million (£579 million) from new investors Tiger Global Management and Japanese Investment group SoftBank. The deal boosted the London-based fintech’s worth to $33 billion (£24 billion). This is a huge increase from last year when Revolut was valued at $5.5 billion. The announcement comes nearly a month after Revolut revealed losses of £207.8 million despite the fintech cashing in big on the cryptocurrency boom.

Revolut was founded by Nik Storonsky, former Lehman Brothers trader, in 2015. The banking app initially focused on offering free currency exchange to customers but has since expanded to over thirty different countries. Revolut now offers business accounts, investments, and wage advances. Although Revolut holds an EU banking licence, it is yet to receive approval in the UK.

On Wednesday, British money transfer business Wise was valued at around £8 billion in a direct listing in London, steering clear of the blows that have lately hit tech businesses such as Deliveroo. Wise saw trading in its shares settle at £8.00 by the latter half of the morning, reaching as high as £8.27 as official trading began.

 The fintech business joined the London Stock Exchange via a direct listing, a typically unusual listing route that saw Wise’s shares posted for trading on the index without a reference price. The debut price was settled via a long-drawn-out early opening auction. By 11:20 am, over 43 million shares worth £350 million had changed hands. 

The positive start to trading means that Wise is London’s biggest float of the year and the capital’s largest ever tech listing. The fintech business has been profitable since 2017. This year, its sale hit £421 million, with the app moving £54.4 billion across borders for 6 million customers. Before this most recent valuation, Wise was valued at between £5 billion and £6 billion in April. 

Wise’s stock market debut has been described as a triumph for British fintech. 

Copenhagen-based company card start-up Pleo has raised $150 million in a financing round, which was led by Thrive Capital and Bain Capital Ventures. Pleo has said that the round, which is now the largest Series C for Danish startups, has led to the company being valued at $1.7 billion. 

Pleo, which sells corporate expense management software and linked smart payments cards, has increased its valuation to $1.7 billion following a $150 million financing round, led by Thrive Capital and Bain Capital Ventures. Following its recent valuation, Pleo is now the latest European fintech firm to reach “unicorn” status. 

Around 70% of Pleo’s profit comes from interchange fees from merchant bank accounts, subtracted each time a customer uses their card. Paid subscriptions are Pleo’s second largest form of revenue. The start-up has said that the coronavirus pandemic has served as an accelerator for its business model. Over the course of 2020, Pleo’s customer base doubled to 17,000 as an increase in remote working offset a decline in international business travel. 

Pleo’s founders were previously employed by Tradeshift, a $1.1 billion fintech company that relocated from Copenhagen to San Francisco. Moving forward, Pleo’s founders plan to use fresh funds to increase the company’s presence in countries like the United Kingdom and boost marketing and PR.

Last year, the London-based fintech firm made £39 million on its cryptocurrency investments. The company, which allows its users to trade in anything from silver to bitcoin, saw its revenues jump by 34%, reaching £266 million. Revolut said it turned a profit in the final two months of 2020, a period which coincided with the start of a big rally in cryptocurrency prices. 

However, the company’s continued expansion across the globe resulted in increased admin and employee costs, pushing up losses. In 2019, pre-tax losses sat at £107.7 million, but in 2020 that figure reached £207.8 million. The fintech firm had employee costs of £170 million, close to a triple-increase on the employee costs it incurred the previous year. 

Despite 2020’s losses, Revolut has become one of the most valuable fintech companies in the United Kingdom. In its last private fundraising round, the firm was valued at around $5.5 billion, despite still not holding a full UK banking licence.

Mikko Salovaara, the new chief financial officer of the firm, has said that 2021 started positively. By the end of last year, Revolut had 14.5 million retail customers, while commercial customers reached 500,000. 

Of course, for any aspiring FinTech, this may not seem like the most stirring part of launching a new payments product. Yet, the truth is that regulatory understanding and planning should be paramount. Also, instead of attempting to overcome regulatory challenges in-house, FinTechs should partner with a bank identification number (BIN) sponsor, as these partners have proven regulatory expertise and experience. By going this route, FinTechs can minimise any risk of non-compliance.

Why understanding market complexities matters

In the payments environment, accurately defining the phrase “regulatory expertise” is quite complicated. This is because there is a vast level of legal requirements across different industries and jurisdictions. Not only this, but such requirements are also changing and adapting on a constant basis.

Given this situation, this could be somewhat overwhelming to a FinTech whose strength is in strategic and speedy innovation, not the rigorous process of grappling with often complex regulation. However, there should be no temptation to view the need for a comprehensive regulatory roadmap as anything other than critical to the success of the product.

Needless to say, when FinTechs and programme managers choose a BIN sponsor, it is a given that they must choose one that holds the required regulatory permissions. For example, a license that enables passporting across the European Economic Area (EEA). However, they should also ensure that their chosen partner has a clear understanding of the complexities of each regulatory landscape in which they operate. The key value that a sponsor provides is applying their knowledge and experience to the exact requirements of the customer and its market, from day one of the product launch and beyond.

However, legislation within this space does not stand still, meaning it is essential to know that the BIN sponsor also has the ability to manage and continually keep on top of an ever-shifting regulatory landscape of its entire portfolio.

Yet why is this so important? For a BIN sponsor, if a regulatory issue occurs with one of its programmes, it has the potential to negatively impact other customers relying on this sponsor.

There have been a number of recent examples of such episodes occurring in the payments market leading to programme managers incurring the cost and disruption of finding a new sponsor through no fault of their own. This highlights the need to ensure when choosing to work with a BIN sponsor that they can successfully manage all of their customer’s programmes.

Critical considerations for FinTechs and cross-border growth

Ambitious FinTechs aiming to scale across countries, continents and even the world is no longer an unrealistic expectation. Yet, there’s no getting away from needing to understand and plan for the many regulatory intricacies and nuances that will be present during this process. With this in mind, there are three pivotal areas to consider.

Differences exist between each member state within the EU

There’s no one-size-fits-all approach between member states of the EU. European regulation gives each member state the independence to interpret and/or implement directives as they see fit. Make sure that your BIN sponsor appreciates this and guides you accordingly.

Beyond Brexit

In the wake of Brexit, FinTechs face a key decision on if they require a European License to operate outside the UK.

For example, if such businesses are not directly offering a card product, they are not bound by Scheme rules such as VISA and Mastercard, and some e-money products may not have a legal requirement for a European licence.

However, as outlined previously, member states do have the freedom to stipulate their own set of specific local requirements, and whilst one may not require an EU licence, another state may insist on it.

Going global

The management of a worldwide product involves a wide variety of partners, in effect, a patchwork, to provide the necessary regulatory foundation. Challenges arise from this, especially around where the dividing line of responsibility amongst partner organisations begins or ends. From the outset, there needs to be absolute clarity of such responsibilities for a programme to work seamlessly, ensuring there are no issues.

A good approach is to foster a like-minded global network. For example, in the case of Know Your Customer (KYC), the more the entities that are involved work together to find a common route to customer onboarding, the fewer barriers exist to the customer. The overall effect of this approach is that it provides an improved customer journey and increased customer numbers for the programme.

To be clear, for each of these three areas, the responsibility falls to the BIN sponsor to ensure they understand all regulatory requirements. It also means that they are constantly keeping on top of upcoming changes - relevant to the launch and expansion of the programme, thus removing any burden for their customers.

For FinTechs focused on launching highly innovative products, remove the regulatory pressures and work with a BIN sponsor that has the expertise, experience and track record of launching many international payment products.

Sweden-based payment and shopping service Klarna has completed its latest equity funding round, raising $650 million and achieving a valuation of $10.65 billion – cementing it as the highest-valued private fintech company in Europe.

The funding round was led by Silver Lake Partners, Singapore’s sovereign wealth fund GIC, and funds managed by HMI Capital and BlackRock. Other current investors include Dragoneer, Bestseller, Sequoia Capital and Commonwealth Bank of Australia.

Klarna has announced its intention to use the funding to invest in its shopping service and expand its global presence, singling out the US as an opportunity for growth. The company already has more than 9 million customers in the US, and 90 million worldwide.

Founded in 2005, Klarna offers an app-based service allowing users to shop online and pay in interest-free instalments while Klarna pays the seller. It competes with other high-profile fintechs including Revolut and Checkout.

Klarna co-founder and CEO Sebastian Siemiatkowski said in the deal announcement that the company was at “a true inflection point in both retail and finance.”

“The shift to online retail is now truly supercharged and there is a very tangible change in the behaviour of consumers who are now actively seeking services which offer convenience, flexibility and control in how they pay and an overall superior shopping experience,” he said.

[ymal]

Silver Lake heads Egon Durban and Jonathan Durham hailed Klarna’s business model in a joint statement. “Klarna is one of the most disruptive and promising fintech companies in the world, redefining the eCommerce experience for millions of consumers and global retailers, just as eCommerce growth is accelerating worldwide and rapidly shifting to mobile,” they said.

Klarna’s last funding round was completed in August 2019, raising $460 million and earning the company a $5.5 billion valuation. The company has surged in strength during 2020, as Siemiatkowski claimed in August that the value of transactions processed through its platform increased by 44% through the first six months of the year.

FinTech – financial technology – is arguably the most prominent of them all. FinTech is now widely used in both a consumer and business context; generally, it is applied to digital banking, be it online or mobile, as people have become more comfortable with using technology to access their accounts and manage their financial affairs. 

Yet, the term FinTech is not without problems. In fact, the same could be said for HealtTtech, PropTech, EdTech, InsurTech, RetailTech, GreenTech and every one of these phrases.

The problem is that they are broad, catchall terms. As a consequence, when we talk of FinTech, the conversation has become vague and jargonistic – the word itself only carries a loose meaning.

What’s in a word?

So, why does this matter?

Well, underneath the semantics, there is a pertinent issue: the advancement and adoption of technology is hindered by excessive use of general buzzwords.

We can look to the artificial intelligence (AI) sector as a clear example: according to a 2019 study by London venture capital firm MMC, 40% of European startups that are classified as AI companies do not actually use artificial intelligence in a way that is “material” to their businesses.

Popular technologies have a habit of, therefore, becoming a victim of their success. As soon as it is dubbed “the one to watch”, a field of technology is at risk of being inundated by jargon; lines become blurred; startups jump on the bandwagon; investors rush to back nascent tech that is yet to prove its worth, and businesses latch on to trending terms to sell products.

Is FinTech plateauing?

In contrast to the ever-increasing use of the term FinTech, an argument could be made that financial technology is failing to live up to the hype. Or, that the sector is starting to plateau.

The onset of the global financial crisis in 2008 promised to set in motion a period of significant change within the financial services sector. Over the past decade, commentators have been heralding the coming of the ‘FinTech revolution’.

The transition from traditional, cumbersome, offline processes to new and innovative digital solutions was meant to inspire a new look to the finance industry – one where customers would be empowered by choice, with fairer deals and more hassle-free experiences; meanwhile, an era of open data would see a more progressive application of data management so it could be better collected, stored, analysed and understood.

However, in truth, this revolution has struggled to make much ground in recent years. Outside of relatively basic online banking software, consumers generally have not experienced much of what financial technology has to offer. An understandable hesitancy surrounding regulation and the migration to new technology has meant that FinTech adoption has generally been cautious to date.

The coronavirus pandemic has already played its part in changing this, though. Yobota recently commissioned an independent survey among over 2,000 UK adults – it found that FinTech usage was 50% higher during the lockdown period between March and June 2020 than it was in 2019.

As social distancing measures were imposed, consumers and businesses became far more reliant on digital banking to manage their financial affairs. What’s more, the economic hardship brought about by COVID-19 has also driven more people to seek new forms of credit (namely loans and credit cards), which banks have now had to be able to provide while their teams were working remotely, and their branches were closed.

The need for cloud-based banking platforms, which can be accessed by customers and employees anywhere, has become clear. So too has the need to automate processes and use interoperable technologies – again, in the cloud – to ensure an excellent service can be delivered without financial services businesses needing to have entire teams in a physical location.

The next era of FinTech

The term FinTech is here to stay. However, now is the time to look beyond financial technology as merely being ways of accessing one’s account or quickly transferring money to someone else. We have to think bigger. Much bigger.

The fact that banking staff were on the list of key workers during the recent nationwide lockdown in the UK (allowing them to travel to offices and bank branches) is demonstrative of the fact that the FinTech era is not yet upon us. Many incumbent banks continue to operate on legacy IT systems that prevent them from delivering financial services from outside their workplace.

And yet, true FinTech is a fully digitised service. Theoretically, if financial service providers had fully adopted technology throughout their operations, then banking staff should have been fully capable of working from home without their customers being adversely affected. What’s more, with the right technology in place, neither staff nor customers would be unnecessarily exposed to the health risks posed by COVID-19.

Instead, the pandemic has instead laid bare the practice of using a banking app or website as a front for embracing FinTech, whereas, in reality, the adoption of tech has not advanced too far beyond this point. The next era of financial technology will see us move far beyond this; it will be defined by cloud-based platforms and open banking, by interoperability between different technologies and systems. This will provide the end-user with a joined-up service and a far better experience.

Moving beyond niche solutions for niche problems

Take the example of someone applying for a credit card; something that is likely to have become increasingly common over recent months, as mentioned above. There are various different stages that an applicant will need to pass through – identity verification; credit scoring; advice or product recommendation; application and assessment; and, if successful, creating the account.

Outside of relatively basic online banking software, consumers generally have not experienced much of what financial technology has to offer.

At present, credit card providers might have implemented tech (FinTech) for some parts of that chain. For the rest, human involvement is required. What’s more, the applicant may take on a new credit card with a bank they have not previously held an account with – they now have one more app or online platform they have to use to manage their financial affairs.

A more progressive approach to FinTech – that is to say, the true vision for what FinTech can enable – would ensure an individual can receive the credit card through an entirely automated process with as few clicks as possible. On top of that, they should be able to check and pay the balance on their new credit card through their existing digital banking platforms, rather than relying on several.

This is only possible through open banking, open data, cloud-based platforms and interoperable systems; after all, this was the promise of the FinTech revolution. As such, the industry would advance beyond the niche digital solutions that have been created for niche problems; while FinTech in isolation can deliver value, it is only when a more holistic approach is taken, and technologies are used together, that the financial services sector will truly innovate.

For all the hype and investment, FinTech is still in its infancy. People might be familiar with the term FinTech, but they are only experiencing the early stages of what it can deliver.

Finance firms cannot become complacent while legacy IT and on-premise servers continue to halt the progress of the digital transformation in the financial services space. Now is an opportune moment to bring about the next stage of FinTech’s development and push towards its true potential.

Ammar Akhtar is the Co-founder and CEO of Yobota, a London-based technology company. Founded in 2016, Yobota has built a fast, flexible, cloud-native core banking platform, which allows clients to create and run innovative financial products.

It is unquestionably causing chaos all over the world with dysfunctional administrations wishing for its departure, yet it is the administrations and governments themselves who may find that it is them who will be sent ‘packing’ before long.

So, our focus this month is FinTech, the ‘new’ exciting and flexible link between finance and technology. COVID will not see off the more robust FinTech outfits but they may morph into slightly different versions and become more of a new establishment. Some companies do appear to be actually benefiting from the climate and have been careful and flexible enough to alter their targets and their image slightly and not stay stuck in yet another ‘new card system’.

Over the last seven months, we have witnessed the increase in the phone-based alternative to plastic (coming with its own auto fx model), to now having it as the only way to purchase in stores. And, if you add to that the massive increase of online fulfilment programs for all forms of retail, this has risen to the top of priorities for many firms such as Amazon, eBay and Alibaba.

Therefore it is fundamentally important to focus on the FinTech markets and also to see which of them are going to become ‘not flexible enough’, and those that are right up there and ready to take advantage of a continuing extraordinary new set of markets being pushed out in front of our eyes during COVID. Who will best deal with a continuously changing market that is not transitioning smoothly?  

One of the phenomena of the FinTech space is that we have seen literally every type of business categorise themselves into the FinTech sector over the last few years, with different levels of success, and the craze of fish chasing them around to try and find the next big game-changing tech as an investment has become difficult.

It really does remind us of memories of the dotcom bubble, when tech companies were having millions thrown at them by greedy investors on the back of a handwritten cigarette pack business models!

Of course, there were the success stories including some of the greatest of all time, such as Google and Amazon and a few others which now dominate both our online and offline worlds. However, we still need to show some caution when playing in the FinTech world.

PayPal 

PayPal Holdings Inc is a company that has been there for a long time before the word ‘FinTech’ existed and is a part of most of our lives in some way or another. Our online fortress as we spend away on those items we really need (and not so much either) on eBay and the plethora of e-commerce websites we are all trawling at the moment. So far during the pandemic, PayPal has seen its user base increase dramatically and will very likely continue to grow as we spend longer at home. The company’s CEO Dan Schulman says that the current user base of 325 million people could increase to a billion, which would increase the value of PayPal in our pockets and the hold it will continue to have on us online. Obviously, this is not a ‘get-rich’ quick stock, unless highly leveraged, but looks to be a nice one for a diversified portfolio.

Starling Bank 

Starling Bank is another digital bank which is aiming to disrupt the banking sector, just as is Revolut and some other contenders. Currently, Starling is still private, but CEO Anne Boden has strong ambitions of floating the digital bank by 2022. As discussed, the pandemic is making us think twice before popping into the local bank. With the old-fashioned bricks-and-mortar banks appealing less, especially to the younger generations, it really does seem that digital is not going anywhere soon. Although this is not open for us mere mortal investors at the moment, it is certainly one of the disruptors to keep our eyes firmly locked onto over the next couple of years.

Square

Square (SQ) has come a long way over the years. Initially, a POS card reader service for smaller businesses, of which there are now many, the company has diversified to offer a large and rather powerful suite of payment and loan solutions. Previously investors were cautious with Square, but with the cash app reaching 24 million users, along with literally no impact from COVID-19, it seems that they are going from strength to strength.

Apple

Apple is and stays on our radar. They are one of the tech giants eyeing up the FinTech sector and were one of the first organisations using a no-card retail play in their stores using the Apple App payment system, and with this model, they also were able to use ‘Apple Pay’ as a wallet app device in most shops for payment.

They have now finally released their actual credit card into the US, which of course sits nicely into the Apple Wallet on our iPhones and is likely to be released in other countries such as the UK in the near future. With cash now being a be a potential carrier of COVID, a lot more people will be moving over to their digital currencies and will start avoiding cash completely.

Instead, Apple has for some time been able to deliver a simple double-tap and recognition so users can enjoy being able to pay up to £100 via contactless. Along with this, iPhones’ security continues to increase even to the point that if the phone is stolen – the money can’t be! With the sheer weight Apple has, it is likely they will roll out cards globally and capture a market which they could easily dominate; and even in collaboration with the fulfilment markets.

Amazon

Similarly, as with Apple, Amazon has also finally gained traction with Amazon Pay, which provides a checkout solution for e-commerce websites enabling customers to pay with their Amazon account.

The Amazon Pay website guarantees: “Your site, enabled with a trusted checkout experience”, which will certainly be appealing to sites considering the sheer number of Amazon subscribers globally.

Stripe

Lastly, as 2020/21 could be a period for some new IPOs and mergers to keep our eyes on, many are considering the US-based Stripe - a software developer orientated e-commerce platform. With American Express and Visa bolstering them, Stripe is a good option to jump on when they announce an IPO.

FinTech is still ‘new’ and as stated, there are some companies that will certainly make this their new century to a point where cash is in the past and most currencies will become ready-made app-based solutions. What COVID has taught everyone is to have a new respect for what and how we spend our worth. Those FinTechs that demonstrate that respect will ultimately win.

Leonardo Brummas Carvalho, CEO of Wealth Management at ITI Capital, explains why the social responsibility of finance is coming to the fore.

The COVID-19 crisis has not just posed a huge threat to human life on a global scale, it has caused mass devastation for thousands of businesses and all but crippled the economy. As a society, the extent of disruption caused by this pandemic has not been seen since the world was shook by war in the 1940s, and the financial impact has completely overshadowed the recession in 2008.

However, the comparisons to 2008 stop there. Over a decade ago, banks and financial services organisations were embracing high risk decisions as a matter of routine, where all the risk eventually fell in the hands of the consumers and working people, millions of whom were left unemployed and facing financial turmoil. The banks, on the other hand, walked away comparatively unharmed, having been bailed out by taxpayers.

As a result, the already questionable reputation of bankers, financial services and investment specialists plummeted further. Even today, business owners, consumers and mortgage owners do not feel that traditional financial service providers have their best interests at heart.

But, due to COVID-19, many consumers have no choice but to turn to banking services: taking out important investments to keep businesses afloat, to manage personal finances and to meet credit debt payments.

Thus, financial institutions have not just the opportunity, but the responsibility to win back the trust of the general public with deep pockets and generous investment – helping to boost the economy and support independent businesses and struggling individuals at a time when they need it most.

[ymal]

Whilst it must be acknowledged that central and consumer banks in the UK have already introduced unprecedented emergency measures, such as mortgage and credit holidays, and cut interest rates on loans to 0%, they still could do more to fulfil the social responsibility they are now liable for and redeem themselves in the eyes of the public for actions in the early and mid-2000s.

Banks in general play a fundamental role in society, as they act as an intermediary in regulating credit and loans to the public – throughout history, banks have operated by awarding loans almost exclusively to large corporations and high net worth individuals who can guarantee repayment.

Today, the opposite can also be true and many institutions have the option to help communities, vulnerable individuals and propose social impact investments.

Now, in these challenging times, SMEs and workers are more vulnerable than ever, and would be deemed high-risk assets by numbers on a computer screen. Thus, bankers and financial experts must prioritise vulnerable communities, and not just look at the interests of their holders and senior managers, but also customers, employees and more broadly, the entire society.

The good news is that, over the last decade, digital platforms, fintech and cloud and software capabilities have evolved to the point where traditional financial service providers can overhaul operations, and cater to not just the high-paying clients, but to millions of consumers at the same time.

Unfortunately, many big banks are still running slow legacy IT systems, and therefore new technology and app services remain a priority for consumer banks.

Banks in general play a fundamental role in society, as they act as an intermediary in regulating credit and loans to the public.

On the other hand, fintech companies and financial start-ups have spent years dedicating themselves to transparency and high-quality services. At ITI Capital, we have identified the disparity that exists in advisory and investment services provided to high-net worth individuals, compared to the general public. Thus, we have dedicated ourselves to democratising the financial market, ensuring normal, hard-working people on all sorts of different wage brackets, are catered to with professional financial services.

This has all been facilitated by cutting edge technology such as artificial intelligence, which allows us to provide a huge amount of consumers with top-tier, fully regulated financial services which would otherwise only be reserved for high-paying clients.

If the entire financial sector had this mindset in the UK, consumers would be trusting again and businesses and individuals could be comfortable optimistic towards the near future.

So will the attitude from the major banks change from now until the end of COVID-19, whenever that may be?

Of course, government legislation and schemes have, in the short-term, enforced significant social change. The furlough scheme in the UK, for example, has provided millions of workers with financial support at a time when they would have otherwise been laid off by their employers. In the short-term we should hope that shortfalls in government schemes to combat COVID-19 are covered by the financial institutions, providing preferential interest loans to companies who can’t front the cash to pay salaries.

However, as previously mentioned, fintech start-ups and market disruptors are on the rise, and it appears as though the financial sector is naturally transitioning to processes facilitated by automation and artificial intelligence. Thus, within the next decade, we could expect to see fintechs, such as Monzo and Starling, become the new normal for consumer banking. Alternatively, we might see traditional banks embrace the new wave of technology, and self-democratise the financial sector by offering affordable and remote online services.

Regardless, if traditional banks are looking to excel in the new normal, or if fintech start-ups are looking to flourish, they should each prioritise one thing: serving vulnerable communities and society as a whole during the remainder of the COVID-19 crisis and beyond.

So why did blockchain adoption take so long compared to other new technologies such as cloud and AI? The slow adoption in highly regulated, complex markets such as the financial services industry shouldn’t come as a surprise. Blockchain is suited for complex, collaborative, multi-party, and critical application use-cases. This is another big reason why blockchain adoption has taken much longer than some predicted, as Rob Coole, VP of Cloud Technologies at IPC, explains below.

Next-generation blockchain

Next-generation blockchain organisations are leading the way showing how the technology can be used intelligently for the world we live in today. For example, R3, an enterprise software company, is working with an ecosystem of over 200 financial institutions, regulators, trade associations, professional services and technology companies to develop Corda, a Blockchain platform designed specifically for businesses to deliver two interoperable and fully compatible distributions of the platform that addresses issues such as transactional certainty, data privacy, and scalability limitations.

Gartner predicts that blockchain will be fully scalable by 2023. IPC’s sense of the future of blockchain, particularly in the enterprise space, is just as positive. We are seeing customers truly learning about the practical reasons to deploy, leading to more investment in time and money in blockchain.

Importance of complementary partnerships

Both application service providers and subscribers should partner with service and product providers at an operational level integration to be ahead in the blockchain curve.  Real value is provided with the integration and support from the hyper-scale platform community such as Microsoft Azure and AWS together with open industry platforms, such as IPC’s Connexus Hub, that creates end-to-end solutions that solve business problems. The importance here is APIs. We believe in a API partner integration approach which gives institutions the ability to easily access data, provide insights and inspire innovation for the market need.

[ymal]

Service providers, like IPC, can play a critical role here by supporting operationalisation in the systems-oriented context. Such providers are a natural connector embedding connectivity to key market participants. IPC, for example, enables access to all asset classes with over 2,000 sell-side firms, 4,000 buy-side firm and 75+ exchanges in its vast, diverse ecosystem.

What’s next?

COVID-19 has provided a ‘new normal’ that is impacting every aspect of our lives. Though this pandemic is devastating from a health, societal and economic perspective, blockchain may help the global economy rebound. The World Economic Forum believes technology such as blockchain “will benefit all countries currently impacted by COVID-19”, as it provides an efficient approach to reduce trade cost on a global scale.

Digital initiatives such as blockchain is non-partisan and open to all which allows users to act quickly at low cost with low barriers for innovation - all valuable factors in supporting the economy in an economic downturn. So, although blockchain adoption was slow in its early stage, 2020 seems to be the year blockchain comes of age.

Nowadays banking is closely interlinked with technology. It’s also no secret that digital banking is many people’s preferred method of interacting with their money. Changes to the way we bank over the last decade and our increasing reliability on digital platforms have led banks to change their business models. Controlling money through online services has created a seismic shift in the industry and those who haven’t adapted are struggling to stay relevant. Jean Van Vuuren, Regional VP for UK, Middle East and South Africa at Alfresco, examines how challenger banks have pushed the industry forwards.

Despite the introduction of challenger banks to the industry, many of us still rely on large, traditional banks to keep our hard-earned money safe. So how do these institutions take inspiration from the new emerging banks and put it into practice whilst keeping themselves relevant to a society that is increasingly reliant on technology? And what is next in the wave of digital transformation for financial institutions?

Using AI as part of the customer experience

Banks prioritising the customer experience has increased by leaps and bounds in the last 5-10 years, but it doesn’t just end with the launch of an app or the re-design of an online experience. The customer experience needs to be revisited regularly and continually play a core role in the adoption of the latest technology available.

For example, the future of AI in the banking world is very exciting and is completely transforming the customer experience. Voice banking, facial recognition and automated tellers can help create a completely personalised experience for each customer. Someone could walk into a high street bank, AI sensors at the door could use facial recognition to let the teller know who has arrived and they could automatically pull up all the information about their account without having to ask for their bank card or details.

The customer experience needs to be revisited regularly and continually play a core role in the adoption of the latest technology available.

As technology gets more sophisticated, this opens up possibilities for banks to focus on advising customers rather than spending time on transactions and processes.

Trusting the security of the cloud for confidential documents

The cloud has completely transformed the way in which we store information on our smartphones, computers and within the enterprise. However, as with any technology it comes with potential security risks. Trusting a third party with your data feels risky in most industries because you no longer feel in control of it, but banks are often trusted with our most precious data – not to mention our money. Therefore, maintaining confidentiality is of upmost importance to banks in order to maintain the trust of their customers.

Financial institutions should make sure that they are not relying on security embedded in cloud platforms to do the heavy lifting. Implementing governance services that provide security models, audit trails and regulate access – even internally, and confidently demonstrate that compliance is key for an industry with so much access to personal information. Whilst working in the cloud offers flexibility, it needs to be made secure with intelligent security classifications and automatic safeguarding of files and records as they are created.

This also brings up the issue of legacy platforms from a security and feasibility standpoint. Fund management companies find that legacy platforms are very expensive and not cloud ready. There is very little room for innovation and it is hard to adapt them to meet customer demands. Even if a fund management company has migrated to a Saas or Paas solution, quite often regulatory obligations and the potential dangers posed by hacking and data breaches mean that they sometimes go back to using an on-premises solution. Instead of backtracking, financial institutions should spend time to understand what the best cloud option for them would be and how they would implement it within the confines of governance and compliance.

[ymal]

Going paperless

Discussing going paperless in 2020 may seem like going back to the past, but for many financial institutions making the transition to fully paperless operations is still a work in progress. This is also a key area where challenger banks which have never had paper-based processes have an advantage, they don’t have to adapt simply because they were born paperless. There is also a new generation of consumers that embrace and often expect paperless banking.

While the fintech industry is intrinsically paperless, banks are still adapting to phase out paper support, but this transition should be an integral part of updating the customer experience. The paperless movement involves moving from simply depositing checks via smartphone to a complete digital experience from end-to-end.

Going paperless also provides an added layer of security in accordance with a rising tide of regulations and government mandates. With digital records, automated management processes allow companies to set up rules around metadata to file records, put security procedures around them and also deleting personal information within retention regulations.

Keeping pace with challenger banks who are born of today’s technology

In recent years, the introduction of technological advances such as digital ID verification, e-signature and risk analytics are transforming the way financial service providers interact with their customers. New challenger banks build whole systems in as few as two weeks and automate as much as possible.

By their very nature, challenger banks are pushing their competitors to be more agile and they are growing exponentially, something which the high-street banks had underestimated when they first entered the market. Created for the digital first generation, challenger banks won market share by putting customer-centric products at the heart of their business. They are also able to improve the product and the user experience quickly according to customer feedback.

Customers are flocking to the disruptors in the market who offer exciting functionality. Challenger banks providing customers with new online features, ones that let them take control of their finances, are thriving in the market. In the modern day, banks need to embrace new technologies and digitise processes to create a customer-oriented business and, ultimately, succeed in the market.

With the entire industry currently under pressure due to uncertainty, data must lie at the core of every decision any business makes if it wants to succeed. In fact, research from McKinsey tells us organisations that leverage customer behavioural data and insights outperform peers by 85% in sales growth and more than 25% in gross margin. Jil Maassen, lead strategy consultant at Optimizely, offers Finance Monhly her thoughts on how data experimentation can be used to drive financial services forward.

The game-changing nature of data

One of the best examples of risk and reward, based on data science, comes from the world of baseball. Back in 2002, Billy Beane, general manager of the unfancied Oakland Athletics baseball team, spawned an analytical arms race among US sports teams. Working under a limited budget, Beane used obscure stats to identify undervalued players — eventually building a team that routinely beat rivals who had outspent them many times over.

Data analytics turned the game on its head by proving that data is an essential ingredient for making consistently positive decisions. The success of the bestselling book and subsequent Oscar-winning film, Moneyball, based on Beane’s story, took data analytics mainstream. Today, financial services companies are applying a “Moneyball” approach to many different aspects of their business, especially in the field of experimentation.

Data analytics turned the game on its head by proving that data is an essential ingredient for making consistently positive decisions.

We live in testing times

Experimentation departments for the purposes of testing, also known as Innovation Labs, have been growing at a prolific rate in recent years, with financial services seeing the highest rate of growth according to a survey by Capgemini. By the end of 2018, Singapore alone had 28 financial service-related Innovation Labs. Alongside this, research from Optimizely reports that 62% of financial services companies plan to invest in both better technology and skilled workers for data analytics and experimentation.

Areas such as fund management are no strangers to data analytics. But since the fintech disruptors arrived on the financial services scene, legacy banks are now using data in combination with experimentation to evolve other elements of their business and remain competitive. Many have found that this is helping them to address common concerns, including how to improve customer experience and successfully launch products to market. So much so, that our research found that 92% of financial services organisations view experimentation as critical to transforming the digital customer experience. In addition, 90% also consider experimentation key to keeping their business competitive in the future.

Eat, sleep, test, repeat

However, experimentation takes patience. As Billy Beane said when his strategies didn’t deliver right out of the gate: “It's day one of the first week. You can't judge just yet.” He was ultimately vindicated. Like any new initiative, experiments can fail because of cultural “organ rejection.” They require taking short-term risks that don’t always work, all in service of long-term learning. It’s the job of Innovation Labs to take these risks, and often, one for the team, by being prepared to fail.

[ymal]

The point is, when you're transforming something and making massive change, not everyone is going to understand right away. The best way to convince people that your theory is correct is to show them — not tell them — you're right. Experimentation initiatives in business, and especially in financial services where risks and rewards have high impact and return, allow new ideas to be proven right before they play out in front of a paying public.

Founded in facts and stats, experimentation promotes an ethos that is key in adopting new technologies and utilising data analytics to build roadmaps for the future. As the amount of data companies have access to increases, the ethos of experimentation will only become more important for predicting and changing the future for the better.

Experimentation is about measuring and learning and repeating that process until optimum results are achieved. The final word in this regard should perhaps go to Beane himself; “Hard work may not always result in success. But it will never result in regret.” His story is something that all financial services organisations can learn from.