Lendingblock, the first cross-blockchain securities lending platform for cryptocurrency, has released research into attitudes towards cryptocurrencies, which reveals that most people believe cryptocurrency is here to stay. Despite the pervasive narrative of the indeterminate future of cryptocurrencies, the survey of 2,000 people through personal data and insights platform CitizenMe found that more than one in five (21%) of respondents already own or have previously owned cryptocurrency. Furthermore, the majority (55%) believe cryptocurrencies will be widely accepted in shops and even on the bus by 2025.
According to the survey, the majority of people would use cryptocurrency, and are positive about its future. While only 20% could say for sure that they think they are a good investment, 56% said they would be tempted to buy them in future - a contradiction that suggests that there is an appetite if the risk was reduced. When asked what would make them more likely to buy cryptocurrencies, better security ranked highest (32%), followed by better apps for buying and selling (28%), and government backing (23%).
Steve Swain, Co-Founder and CEO of Lendingblock said: “In spite of much discussed uncertainty about cryptocurrency, the public is sure that cryptocurrency is here to stay. Cryptocurrency is a maturing market, and this is exactly what we would expect to see happening at this time as we move from early-adopters to more mainstream awareness and use.
“Before we get there, however, cryptocurrency need to be made safe, and that’s why we welcome the UK Government’s recent recently announced inquiry into investments. What’s interesting, is that this survey shows that the public and the market are aligned in what they think the cryptocurrency market needs next: which is more security, infrastructure and better tools. This is undoubtedly the next step of evolution for the market.”
Other key findings of the research include:
- A considerable gender divide, as nearly 30% of men surveyed currently or have previously owned a cryptocurrency, as opposed to just 13% of women
- A remarkably close alignment between those who identify as “millennials” and those who identify as “household decision makers” in terms of cryptocurrency ownership (22% vs 19%), whether they’d be tempted to buy cryptocurrencies in the future (56% vs 55%) and whether cryptocurrencies will be widely accepted by 2025 (56% vs 55%). In fact, more millennials think that cryptocurrencies will be a passing fad than household decision makers (19% vs 17%)
- Only 10% of people said they would never buy cryptocurrencies, no matter what
“These demographic breakdowns give an interesting insight into where cryptocurrencies have taken hold first,” said Linda Wang, co-founder and COO of Lendingblock. “While you might have guessed it would be millennials, in fact cryptocurrency is an incredibly serious and potentially lucrative market that is getting considerable interest from financial services, which is what is reflected here.
“The gender balance within cryptocurrencies is something I personally care a great deal about, and we at Lendingblock have been working hard to further inclusivity. However, I think there is great potential in cryptocurrency because - unlike traditional financial services - there are no barriers to entry. The “old boy’s club” on the trading floor does not exist in cryptocurrency, you can invest from your home and this has massive potential to open up the market to new entrants.”
(Source: Fieldhouse Associates)
How are banks meant to co-exist, work with or become the initiators of fast-developing fintech when most are so caught up in legacy systems? Below Finance Monthly benefits from expert insight from Kyle Ferguson, Chief Executive Officer at Fraedom, on the potential avenues banks could focus on in the pursuit of tech advancement and the maintenance of a competitive edge.
Legacy systems are seen to be the most common barrier preventing commercial banks from developing fintech applications in-house. That was a key finding of a recent survey conducted by Fraedom. The research that collected the thoughts of shareholders, middle manager and senior managers in commercial banks revealed that more than six out of ten (61%) of banks are being held back by this technological heritage.
The banking industry has historically found it difficult to make rapid technological advancements so in some cases it is unsurprising that older systems are holding them back. However, with this in mind, smaller fintech firms have already started to muscle their way in to help assist retail banks with providing a more comprehensive range of services to consumers.
Banks now have the option to negotiate the obstacle of legacy systems through partnering or outsourcing selected services to a fintech provider. Trusted fintech firms are offering banks the chance to reap the benefits from technical applications that can lead to more revenue making opportunities, without taking the large risk of banks taking the step into the unknown alone.
However, a shift does appear to be on the horizon with only 26% of commercial banks not outsourcing any services 41% of respondents globally stated that their bank currently outsources payment solutions to fintech partners. This was in comparison to 33% who say they do the same for commercial card management solutions and 26% who claim to do so for expense management solutions.
It was also interesting to note that banks are planning to ramp up their fintech investment over the next three years, with 77% of respondents in total believing that fintech investment in their bank would increase. This feeling was especially strong in the US where 82% of the sample stated this belief opposed to 72% of those based in the UK.
This transitionary period is great news for ambitious fintech firms. Banks are starting to realise that established fintech providers can make a big difference in areas of their business by providing technical expertise as well as in-depth knowledge of local markets.
It’s all about selecting key, digital-driven services that will help retain customers and entice new ones. The ability to offer card expenditure and balance transparency can reduce risk and costs for issuing banks. It is a service that can be joined on to an existing business with little overhead costs.
This is just one of several ways that partnering with fintech firms can bring substantial benefits. This increase in agility also helps banks to speed up service choices and improve customer satisfaction.
Forming a partnership can provide banks with a way around the issue of coping with legacy systems and avoid implementation costs. By forming a partnership, outsourcing banks buy in to a product roadmap that will keep their offerings ever relevant as fintechs develop the technology required.
The partnering approach is becoming more appealing to commercial banks. They understand their customers value their reliability, trustworthiness and strength of their brand. But increasingly, they also understand the importance of encouraging innovation to remain ahead of the technology curve, while recognising it is not the bread and butter of their business.
While legacy systems appear to be the most common factor in preventing banks from creating in-house fintech applications, the study did also reveal that a lack of expertise - recognised by 56% of respondents was also a major stumbling block.
To innovate and grow, banks and fintech firms alike must have employees that understand the technology – developers, systems architects and people with a record of solving problems. Taking a forward-thinking approach to recruitment is key.
If they want to attract and retain the best talent, organisations need to be listening, adapting and trusting each other to work together to resolve issues and frustrations. We believe all the above elements will become increasingly important in any successful business.
Overall, the research represents growing strength within the fintech sector and it is great to see that more banks are beginning to see the value in partnering with a fintech provider. In turn, this is delivering a better service for banks and customers alike and it is a trend that I expect to continue as banks fight to keep on the pulse of technology in the sector.
2017 was a busy year for regulatory compliance and technology across the globe. We witnessed countless mass data breaches, sexual misconduct claims, money laundering scandals, and of course, the Wild West that is the Blockchain. Alongside that, we continue to see significant advancements in Artificial Intelligence (AI) and Machine Learning (ML) technologies across all industries, being applied to automate business functions, gain insights into behavior patterns, and more.This year, the Banking Industry will adopt ML and AI-based automation for enhanced efficiency and data-driven decision making.
Banks were slow to adopt ML based automation in 2017, but to remain competitive in 2018 and onward, banks will have to consider how adding AI and ML fueled technologies will impact their growth and improve the efficiency of their business processes.
Many financial institutions have been quick to experiment with AI applications in the frontend of the business, for example, to streamline and improve customer service via chatbots. In general, the value proposition is that AI can automate manual and repetitive roles but now, we are seeing AI being applied towards broader data-driven analysis and decision making.
This not only reduces costs and saves time, it also eliminates the risk associated with human prone errors. The machine is well-situated to consume large data sets while also self-learning overtime. But before even considering the tremendous opportunities to implement this technology on the backend of the business, organization leaders will need to educate themselves on how the technology actually works.
AI in the Enterprise
While many AI-based solutions have advanced over years, the financial industry remains suspicious of the science behind the decisions made by such technologies. Now we are seeing a shift towards increased transparency in AI-based solutions, where the science behind machine learning (ML) based decisions can be justified, tracked, and verified. This should help move along industries on the cusp of adoption.
Artificial Intelligence and machine learning in the long term can be applied to reduce costs and time by automating a once manual process. However, on average, most AI algorithms are only about 80% accurate, which doesn’t live up to the business standards of accuracy. That leaves 20% flawed, which requires human input to bridge the gap. There is an inherent design flaw to any AI solution which does not utilize some human component in development. It is a general understanding that the most successful AI models use the 80:20 rule, where 80% is AI generated, and 20% is human input. This is implemented in the form of supervised learning or human-in-the-loop.
Human-in-the-loop Integration
A best practice in the successful development of AI includes a human component, typically referred to as “Human-in-the-loop” or supervised learning model. The way it works is that machine learning makes the first attempt to process the data and it assigns a confidence score on how sure the algorithm is at making that judgement. If the confidence value is low, then it is flagged for one or many humans to help with the decision. Once humans make the decision, their judgements are fed back into the machine learning algorithm to make it smarter. Through active learning, the intelligence of the machine is strengthened, but the quality of the training data is based on the human contributors.
(CrowdFlower Inc, n.d.)
Some data analysis is specific and complex, such as the case with Financial Regulation. The evolving and complex nature of regulation is a tough subject matter to master. AI in RegTech requires an in-depth knowledge and understanding of the regulatory framework and how to read and interpret the text. In these types of fields, expertise is far more critical than the tool. However, if a tool could incorporate subject matter experts into the machine learning model, then the tool becomes exponentially more viable.
Expert-in-the-Loop takes Human-in-the-Loop to another level. It makes use of subject matter experts to train the machine and flag the machine’s errors. For example, a well trained machine in the RegTech industry could eliminate countless hours a compliance officer takes in researching, reading, and interpreting regulations, by automatically classifying documents into topic-specific categories or by summarizing the aspects of a document that have changed from a previous version.
The Expert-in-the-Loop model differs from Human-in-the-Loop in one major way: Human-in-the-Loop doesn’t differentiate between the aptitude level of the various participants to judge the particular question correctly. Human-in-the-Loop takes advantage of the Law of Averages which states that if many people participate, the average response will yield the correct result. So the response from a college student and a PHd student would be weighed the same. On the other hand, Expert-in-the-Loop , specifically looks at the experience level of the participant to determine how their result will be weighed. With Expert-in-the-Loop, a human is essentially supervising another human’s qualifications. While the cost is higher than both the unsupervised and the Human-in-the-Loop models, the results of Expert-in-the-Loop models are proportionally more accurate, making them suitable for highly specialized and industry specific topics.
Nearly every industry is exploring how to use AI and machine learning as tools to increase efficiency and streamline data analysis, among other things. The future holds endless possibilities for this emerging technology. It serves as a bridge to close the gap between information and the time it takes to compile results. The speed of data can bring about a new era of understanding and increased reaction time in the Financial Services industry. There are a lot of unknowns still left to address, but the technology is becoming more intelligent and its applications more advanced. Early adopters will have the benefit of experience on their side once the inevitable industry-wide adoption finally falls in place. Until then, organizations can pilot new applications and evaluate their impact and success. Ultimately, the financial industry will need to educate themselves on the pros and cons, while considering the implementation of this new technology.
By Mark Jackson, Head of Financial Services, at Collinson Group – a global leader in influencing customer behavior to drive revenue and value for clients.
2018 is set to be a game changer for the relationship between banks and their customers. Driven by the European Commission’s second Payment Service Directive (PSD2), which has now been rolled out across the financial services industry, banks that operate in the EU are now obliged to provide open access to account data and payments, to correctly authorised third parties based on the consumer’s consent. Although not yet mandated within PSD2, the means of providing open access in this way will come from the wide-spread adoption of secure Application Programming Interfaces (APIs).
PSD2 is designed to encourage greater competition and innovation amidst banking and payments across the EU. Combined with Open Banking in the UK – which is the UK Treasury and CMA’s own slant on PSD2 which goes further and faster – PSD2 has the potential to fundamentally change the financial services industry, for customers and service providers alike.
Switching rates amongst current account holders are incredibly low, with just 3% of UK customers shopping around for a better deal[1]. Improved engagement, facilitated by Open Banking, could help banks attract new customers and increase the proportion of people looking to switch.
Some traditional banks have been slow to facilitate use of APIs. However, other banks on the continent are already starting to see opportunities from collaboration with FinTechs and other players in a wider banking and payments ecosystem to improve the customer experience and better integrate themselves into the channels customers want to use more regularly.
One example is Brazil’s Banco Bradesco Facebook app, which allows customers to conduct day-to-day banking via Facebook. Meanwhile, Capital One and Liberty Mutual have capitalised on the popularity of Amazon’s Alexa, enabling customers to check balances and pay bills through the voice-activated personal assistant.
- Provides greater customer choice
Open Banking creates opportunities for banks to share banking and payment data, meaning that customer relationships are essentially ripe for the picking. Any company can compete for customers, from incumbent and retail banks, to fintechs and tech giants such as Google and WeChat. Increasing this consumer choice will shift the balance of power to customers who increasingly demand a smarter, more rewarding digital experience.
Reports suggest that a leading social media company sees its average user spend approximately 50 minutes every day on its platform[2]. In stark comparison, a leading global retail bank spends a mere 54 seconds per day engaging with the typical customer.
Banks must maximise the time given to customers by utilising the wealth of knowledge about them made available by Open Banking. The winners will be those companies that combine payment and banking information with behavioural and lifestyle data to offer new, more personalised services. The resulting experience can help secure customer loyalty and differentiate from competitors.
FinTechs working with the banks can also reap rewards, gaining access to an entirely new customer base. Many of these digital companies are in their infancy, so partnerships with large financial institutions offer scale, scope and opportunity not otherwise achievable.
- Delivers a more rewarding digital experience
In an ever-changing digital world, customers expect an intuitive, user-friendly and flawless banking experience. Faster payment options, such as mobile wallets from technology brands like Apple and Samsung, mean that customers have become accustomed to an experience based on convenience. This represents a paradigm shift in customer expectations for rewarding loyalty. People want everything to be delivered ‘on the go’ via apps on their smartphones and other connected devices, slotting in seamlessly to their busy lives.
However, some banks are still falling short of customer expectation, not investing enough in technology infrastructure, and seeing customer satisfaction drop as a result. With the provision of open APIs, banks can encourage collaboration with innovative, agile third parties to create new customer-centric, digital propositions. Rather than only seeing FinTechs as competitors, banks should look for opportunities to collaborate and integrate with them as an extension of their own service, offering customers a more fluid approach to their finances.
- Improves engagement through personalised offers
Customers are typically choice-rich and time-poor, so offers need to be individually tailored. The last thing they want is to be bombarded with irrelevant offers, or spend hours searching online for offers that suit them. A poorly targeted offer is more likely to drive customers away than increase brand loyalty.
Leveraging the power of mobile and data from open APIs, banks can better understand customer preferences and offer tailored rewards, sent in the right place at the right time – giving the personalised experience customers demand.
In addition to customer loyalty, providing compelling, timely and contextually-relevant offers will enable banks to create new revenue streams by upselling at optimum moments in the customer’s decision-making cycle.
Customer behaviour won’t change overnight. Two thirds of consumers in the UK say they won’t share their financial data with a third party[3], but with better education around the issue, customers will soon see the potential.
Open Banking should be embraced, not feared. This long-awaited shake-up places the customer at the centre of the experience, with a focus on engagement and brand loyalty. It could also serve to retain and grow a bank’s customer base, so long as they engage with them in the right way. Whether or not they are impacted directly by EU regulations, those that embrace the opportunities provided by Open Banking will be able to offer customers a greater choice of personalised offers and rewards, delivered ‘on the go’ via apps.
[1] https://www.gov.uk/government/news/bank-switching-to-be-overhauled
[2] https://thefinancialbrand.com/69877/digital-banks-platform-economy-trneds-open-banking-api-psd2/
[3] https://newsroom.accenture.com/news/accenture-research-finds-lack-of-trust-in-third-party-providers-creates-major-opportunity-for-banks-as-open-banking-set-to-roll-out-across-europe.htm
The financial services industry has changed significantly over the past years, and technology has been at the heart of that change. Heightened competition and rapid progress in disruptive technologies have brought about a paradigm shift in the banking experience which has accelerated in 2018.
Banks that don't invest in technology risk falling behind, as new regulation continues to level the playing field with new innovative players. Last year, many of the banks appealed to the CMA for an extension for the Open Banking initiative[1][1]. A number of banks are reaching the end of their extension period which obliges them to give banking customers more control over their financial data by allowing them to share it with challenger banks and FinTech firms.
The introduction of the open banking initiative across Europe opens the floodgates to competition - as PSD2 balances the scales between banks and digital players, banks are directing resources towards digitally transforming their operations and services.
Lloyds Banking Group recently launched a £3bn investment in a three-year strategy to strengthen its digital capabilities. It aims to slash costs to less than £8bn by 2020 and transform the banking experience for their end-customers.[2][2] The bank is driving capital towards technology and its staff to compete against mounting pressure from other traditional banks, challenger banks and FinTechs.[3][3]
Talent and human capital provide the best value and return on investment for banks looking to diversify their digital offerings. Investment in talent and digital skills goes hand-in-hand with investment in technology solutions to help banks become more fluid and responsive to changing customer behaviours.
In a world where everything is accessible at the click of a button, customer expectations need to be matched by the experiences created by banks. Earlier this year, USB found that online banking has overtaken visiting branches for the first time. The study found 52% of all consumer transactions are now done online, making it the primary method of banking.[4][4]
Bank branches are expensive with most retail bank branches costing banks between 40-60 % of total operating costs.[5][5] The cost savings from a reduced number of branches can be redirected towards investments into creating digital banking experiences that accommodate evolving customer habits.
With introduction of new financial technologies, the way in which people manage their money has shifted dramatically. However, the current potential of the UK financial services industry is restricted by the lack of tech and digital talent available. Firms are spending record amounts, with 85% of business executives allocating up to a quarter of their total budget to digital transformation in 2018.[6][6]
Digital Transformation goes beyond moving traditional banking to a digital world. A digital strategy is no longer limited to the IT department. In the current business environment, it transcends every aspect of a business and drives long-term success. In order to digitally transform, banks need to adopt a digital mindset. This means fostering a culture of innovation. It’s about going beyond the hype of digital trends and the latest buzz words and identifying the business impact on operations and service delivery.
Most banks still run on core systems installed in the 1970s and 1980s.[7][7] These enterprise structure are made up of a patchwork of systems with limited functionality for the current digital landscape. Fintech and challenger banks are not hindered by these systems, and have the agility to keep pace with customer expectations, which means banks are turning their attention to their business critical function and how they can re-engineer it to become more flexible.
Smart banks are taking advantage of cloud-based systems to enable staff to better communicate and interact with customers across multiple channels to accommodate all customers.
Banks definitely need to push forward with their digital strategy, but they must do so wisely, supported by a reliable digital partner. Technology is beginning to encompass all aspects of bank operations. Working with a single-source supplier that integrates digital into the DNA of the bank – from the talent to the technology solutions – is key to adopting a digital mind-set, which will support a bank’s digital transformation journey end-to-end.
[1][1] http://www.cityam.com/277814/five-uk-banks-given-open-banking-deadline-extension-cma
[2][2] https://www.fnlondon.com/articles/lloyds-puts-digital-banking-at-heart-of-three-year-strategy-20180221
[3][3] http://www.bbc.co.uk/news/business-43138764
[4][4] https://www.telegraph.co.uk/business/2018/01/10/digital-banking-overtakes-branch-use-may-fuel-closures-warns/
[5][5] http://www.economist.com/node/21554746
[6][6] http://www.digitaljournal.com/tech-and-science/technology/59-of-businesses-find-their-digital-transformation-falls-flat/article/504386
[7][7] https://www.euromoney.com/article/b143rj4dz3cd92/technology-investments-drive-up-banks-costs
Driven by his passion for technology, George Anderson founded Enterprise Engineering, Inc. (EEI) in April 1995. Throughout his career, he’s built a company that has garnered a number of honors and awards, including inclusion in the Deloitte and Touche Fast 50 and Fast 500, as well as the FinTech 100.
Enterprise Engineering works with Financial Institutions and FinTech developers to securely and reliably connect people to their money, through any channel they care to use. The company’s software products facilitate data access, aggregation and transaction processing for many of the world’s largest Financial Institutions. By brokering access to vast amounts of financial data, EEI is able to power a wide range of applications and leverage analytics that power growth for the company’s partners.
This month, Finance Monthly had the pleasure of speaking with George about EEI’s award-winning software solutions and the exciting journey that starting and running his company has been to date.
What are Enterprise Engineering’s ethics and priorities towards its clients?
Before the term ‘FinTech’ was even coined, NY-based EEI was successfully delivering financial data solutions to leading Financial Institutions. From our inception, the commitment to build ground-breaking financial software solutions has been the cornerstone of EEI. We have unparalleled customer focus, comprehensive resources, and in-depth subject matter expertise, making us a trusted adviser to many of the world’s largest banks and wealth management firms.
Today, EEI’s reputation as a world-class ‘trusted adviser’ is legendary on Wall Street. We have been in business over 22 years - not a lot of companies get to the 20-year milestone and we feel incredibly lucky to be here. We take great pride in being one of the very first FinTech companies and the pioneers of financial data aggregation.
Key attributes have led to EEI’s success, making us a standard in the industry. In any successful business, having the ability to spot talent and retain the highest caliber of individuals is key to being effective. We are proud of our incredible team and the high rate of repeat business that demonstrates the quality of their work.
Above all is our strong commitment to our clients and their future success. We understand how to build and deploy enterprise grade technology products. EEI’s products run every day, aggregating and accessing tens of millions of account records for major financial institutions without fail. Our goal is to continue to build leading-edge solutions that offer secure, competitive advantages to our customers.
Tell us a bit about the formation of Enterprise Engineering.
EEI first started as a professional services firm and even had a learning centre where we were wildly successful in teaching database courses and application development. In 1998, we developed a software product for one of our clients, a major financial institution, and our history began. Our software was built to ensure that it was rapidly deployable – a design principal behind our products since day one.
To date, EEI has delivered software solutions to the financial industry for over 20 years. These have been some of the most volatile and challenging times, but throughout our entire history, we have maintained a strong relationship with the leaders in the industry and continue to partner with the top firms as an adviser for their technical and business objectives. As CEO, I am personally involved with many of our initiatives and will continue to stay current on market conditions and technological advances.
We have developed a sophisticated software product set that integrates with personal financial management tools, SMB accounting software, tax packages, and expense management applications.
With the help of our high-level subject matter experts, we have created and deployed test and development methodologies that enable our software and professional services to be extremely complimentary.
Tell us about EEI’s growth & transformation over the years
EEI evolved from the Wall Street and Capital Markets space. Since inception, we’ve been working with complex investment and client problems. Our initial software product, EnterpriseFTX™, launched in 1998 to streamline banking by supporting all banking functions, including checking, savings, wealth management products, brokerage, bill pay and funds transfer. Today, EnterpriseFTX™ has morphed into a leading edge software product suite, which when used together, can support all products within a retail bank, wholesale bank, capital markets and wealth management – capabilities that no other product on the market has.
In the last few years, EEI has seen tremendous growth. In addition to our new customers and partnerships, we launched our next generation software solutions, which have helped revolutionize the financial services industry. Tax Navigator™, EEI’s only cross industry product with several government agencies as clients, enables automatic tax data downloads and distribution to any tax management and reporting platform. Tax Navigator™ is a subset of Commander™, EEI’s flagship product. Commander™ leverages data from a financial institution’s internal platforms to provide accurate, timely and secure automated access to financial information.
However, what truly distinguishes EEI in the industry today is our illustrious product, the Trusted Network Platform™, a cloud solution with the ability to aggregate ‘assets held away’ across multiple Financial Institutions. Often, clients distribute their total assets among multiple wealth management firms to minimize risk. With financial advisers only seeing a fragmented view of a client’s assets, it is impossible to provide holistic financial advice. Using EEI’s Trusted Network Platform™, financial institutions can now provide a secure, accurate, real-time, holistic view of their clients’ data, utilizing internal and held-away assets.
Sitting on top of all of EEI’s software products is our financial services API, the FS-API™. This was the first commercially available Financial Services API ever deployed and has capabilities well beyond the industry standard, such as money movement & bill payment. It is currently deployed in multiple financial institutions, providing secure and reliable access to financial data every day.
It’s funny, EEI is not a household name, yet there’s a good chance that the average person is using, or has used, our software without even realizing it. We work with all financial institutions, Millennium platforms, service providers and FinTechs to securely connect their clients to their money through any channel, including Quicken®, Mint, QuickBooks™, Xero™ and hundreds of other channels. We sit at the centre of the financial ecosystem, providing access to financial data to these participants, in a controlled and secure way. If you use one of these products or bank at a major financial institution, it is very likely you are using EEI’s software.
When working in an industry that is constantly changing, what do you do to ensure that you are at the forefront of any emerging developments?
It’s been quite a journey. EEI has overcome some challenging times under unprecedented conditions, but our commitment to our clients and continued innovation has led us to drive the future of financial data needs. We aggregate over $7 trillion in assets for 7 of the top 10 wealth managers and are considered experts in the financial services Industry. We have been at the forefront of the changing landscape in aggregation and digital banking. In Financial Services, traditional business models continue to be challenged by evolving customer demands, regulatory pressures and the proliferation of FinTech apps accessing data. Financial institutions need a fast and secure way of providing their clients with a single, customized view of all their financial data and the explosion of FinTech apps using data aggregation has led Financial Institutions to explore more efficient and higher-quality data access methods for their account holders. While challenging for our customers, this makes for an exciting time for EEI. We are at the centre of market acceleration in wealth management, enabling us to help our clients react to market demands and gain the competitive edge they need. Our traditional competitors have not been able to deliver the breadth of services, nor the reliability, that EEI can consistently provide.
What does the future hold for you and Enterprise Engineering? What is your advice for success in this modern tech-focused world?
Looking into the future, I am most excited about the growing API market. It’s an exciting time with lots of opportunity. Financial institutions need to be careful and thoughtful about their decisions surrounding API-based data sharing agreements. There is a lot of noise from both the big banks and the FinTechs with each using a different API standard. Big FinTech companies and large banks can deal with these one off implementations and multiple standards, but others will not be able to scale. Our goal is to standardize data sharing.
APIs are different depending on the Financial Institution or FinTech company offering them, and therefore, the implementation process is different each time. Financial Institutions should question which APIs are scalable and viable. Over time, we will not only see Financial Institutions finding it complicated to comply with the manifold standards while implementing APIs, we will also see consolidation, representing risk in the middle to their customers. To solve this predicament, we have architected the FS-API™—a real-time, multi-protocol, multi-channel API that acts as a universal connector. EEI has been developing systems for the major FinTechs and financial institutions for a long time. Our API is constructed to provide an ‘insurance policy’ and a layer of protection to anyone who is using it. If you leverage our API, you won’t worry about scale or one-off implementations – we abstract you from all of that.
You support various charities – can you tell us a bit more about your involvement in the community?
At EEI, we contribute time and resources to charitable endeavors focused on empowering communities and supporting children, families and animals. It is our privilege and responsibility to support organizations that are making a remarkable difference. Some organizations we actively support include the United Way, ASPCA, Friends of Karen, where I am on the Advisory Board, and Make-A-Wish Connecticut.
Website: http://www.joineei.com/
With one in three bank staff now employed in compliance, and financial institutions groaning under the pressure of an ever-increasing regulatory burden, 2018 is set to be the year that RegTech rides to the rescue, stripping out huge cost from banks’ processes.
In the same way that nimble start-ups introduced FinTech to the financial sector, the stage is now set for the same tech-savvy entrepreneurs to apply the latest technology to help tame the regulation beast.
The challenge is even more pressing now, with the arrival of an alphabet soup of blockbuster regulation including GDPR, MiFID II and PSD2, which will stress institutions like never before.
What is RegTech?
Deloitte has set high expectations for RegTech, describing it as the use of technology to provide ‘nimble, configurable, easy to integrate, reliable, secure and cost-effective’ regulatory solutions.
At its heart is the ability of ‘bots’ to automate complex processes and mimic human activity. And RegTech start-ups are already using robotic process automation to translate complex regulation into API code using machine learning and AI.
The holy grail of RegTech, however, is to strip out huge layers of cost and dramatically lower risk by developing and applying complex rules across all business processes in real-time, automating what can otherwise be an expensive and highly labour-intensive job. Simply put, RegTech promises to do the job faster, cheaper and without human error.
Behavioural analytics
Just like its FinTech cousin, RegTech is already being used for a surprisingly wide range of applications, for example banks are using behavioural analytics to monitor employees, looking for unusual behaviour patterns that may be a tell-tale sign of misconduct.
Brexit will also present a golden opportunity for agile RegTech start-ups whose tech solutions can adapt and transform quickly according to the new regulatory landscape, while traditional institutions struggle with the pace of change.
Unlike FinTech however, which has largely been focused on B2C solutions, RegTech start-ups have to work much more closely with traditional financial institutions. That’s because capital markets are a highly complex, regulated area, where institutions are cash-rich and where access to funding is critical if vendors want to disrupt.
Bespoke solutions
Traditional institutions are also more likely to need solutions that are specifically tailored to the challenges they face, rather than the one-size fits many approach developed by FinTechs. For example, they rely on many different data systems, and this torrent of data often makes it difficult to compile reports to deadline for regulators – a perfect challenge for a RegTech start-up.
RegTech could well be the cavalry, riding in to save the investment management industry from the increasing amount of data being produced that financial regulators want access to. A significant amount of this data is unstructured, making it difficult to process, which adds a greater level of complexity. The flow and complexity of this data is only going to increase, and with it the challenge for banks.
Financial institutions are increasingly pulling out all the stops to crunch data and meet the regulator’s next deadline and in this high-pressure environment teams are not necessarily developing the strategic overview needed to streamline their IT architecture in order to reduce operational risk.
Compliance at speed
RegTech promises to automate these processes, making sense of complex interconnected compliance rules at speed, making compliance more cost effective, while reducing the chance of human error.
It also promises to dispense with the current time lag between a period end, the collection of data by the institution and assessment by the regulator – a process that is always backwards looking.
Under the RegTech model, powered by data analytics and AI, information is in real-time and self-correcting to ensure the regulatory process remains dynamic and relevant.
The scale of the advantages promised by RegTech, are such that banks successfully harnessing its power will strip out huge amounts of cost from their processes, which can then be invested in business-critical innovation, giving early adopters a clear competitive advantage over the rest of the market.
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John Cooke, Managing Director
There's no doubt that these are strange times in the digital age. Whilst the advent of technological innovation has made it easier than ever for individuals to access products and launch businesses, for example, stagnant economic growth and global, geopolitical tumult has prevented some from maximising the opportunities at their disposal.
Make no mistake; however, the so-called “Internet of Value” has the potential to change this and create a genuine equilibrium in the financial and economic space. In this article, we'll explore this concept in further detail and ask how this will impact on consumers and businesses alike.
So what is the internet of value and how will it change things?
In simple terms, the Internet of Value refers to an online space in which individuals can instantly transfer value between each other, negating the need for middleman and eliminating all third-party costs. In theory, anything that holds monetary or social value can be transferred between parties, including currency, property shares and even a vote in an election.
From a technical perspective, the Internet of Value is underpinned by blockchain, which is the evolutionary technology that currently supports digital currency. This technology has already disrupted businesses in the financial services and entertainment sectors, while it is now evolving to impact on industries such as real estate and e-commerce.
What impact will the Internet of Value on the markets that its disrupts?
In short, it will create a more even playing field between brands, consumers and financial lenders, as even high value transactions will no longer have to pass through costly, third-party intermediaries to secure validation. This is because blockchain serves as a transparent and decentralised ledger, which is not managed by a single authority and accessible to all.
This allows for instant transactions of value, while it also negates the impact of third-party and intermediary costs.
What will this mean for customers and businesses?
From a consumer perspective, the Internet of Value represents the next iteration of the digital age and has the potential to minimise the power of banks, financial lenders and large corporations. In the financial services sector, the Internet of value will build on the foundations laid in the wake of the great recession, when accessible, short-term lenders filled the financing void that was left after banks choose to tighten their criteria.
Businesses and service providers will most likely view the Internet of Value in a different light, however, as this evolution provides significant challenges in terms of optimising profit margins and retaining their existing market share. After all, it's fair to surmise that some service providers (think of brokers, for example) would become increasingly irrelevant in the age of blockchain, while intermediaries that did survive would need to seek out new revenue streams.
The precise impact of the Internet of Value has yet to be seen, of course, but there's no doubt that this evolution will shake up numerous industries and marketplaces in the longer-term.
If cash is in decline, how does the future look for finance?
Once the preserve of banks, states and major institutions, the world of finance has seen big changes in its product offering. A huge growth in tech companies creating ways to make spending easier for both consumers and institutions has seen a shift away from banks ruling the finance industry. Cryptocurrencies have gone even further, removing the need for major institutions to even get involved with both positive and negative results.
Money comparison experts Money Guru have analysed the growing payment trends, how tech and finance have formed an unlikely partnership, and what the future has in store for our spending.
World
Payments
Currently serving as the Chairman of Illinois-based C&H Financial Services, Anthony Holder has been in the payment processing industry for over two decades. In his role, he oversees all revenue and customer operations, as well as business development and affinity partnerships for the rapidly growing company that provides online payment processing services in the United States and Canada. CHFS offers a range of products and services helping businesses through credit card processing solutions, whilst also providing CHFS Gateway, a Web-based payment gateway that allows merchants to process payments online; PCI compliance solution that allows merchants to accept credit cards, avoid fees/fines, and minimize investigative objections in the event of a data breach; and Tin compliance solutions. The company also allows merchants and mobile workforce to process payments through their mobile devices by converting smart phones into secure POS terminals; and business loans to the owners of retail, eating and drinking, and service and seasonal businesses.
This month we caught up with Mr Holder, who told Finance Monthly about his company’s journey to becoming the growing force within the financial services industry that it is today.
With an over 8000% growth rate, C&H Financial Services is one of the fastest growing privately held companies in America. As a Co-Founder, can you tell us about the company’s beginnings? How did it develop into the company that it is today?
With over 20 years of experience in our industry, we have been associated with tens of thousands of merchants, dozens of Niche Merchant Focused Associations, Chambers of Commerce, as well as hundreds of sales associates and colleagues. This pedigree in our industry, combined with the level of integrity that we operate under has honoured us the respect and admiration of these incredibly valued partners. When we launched CHFS in 2013 as our lead marketing brand, we put our names on the company. C&H is descriptive and stands for Costanzo and Holder Financial Services. James Costanzo and I launched C&H after nearly 20 years of working together in the payment processing industry. James and I are lifelong friends and business partners and complement each other greatly. While James handles Operations and organic growth initiatives, I find myself spending more time on our strategic relationships and acquisitions.
My brother David L. Holder Jr. and Michael Psaromatis also played integral roles in our growth over the years and within our strategic vertical markets.
CHFS has been privileged to process on behalf of over 8200 merchants. Those merchants have entrusted us with nearly $4Billion per year in payment card processing. With our future plans for growth and incredible M&A activity, we are confident that CHFS is approaching a Top 50 status for merchant acquirers.
As we continue to leverage our position in key niche markets, we will expand upon our offering to various retail and e-commerce segments of our industry. Our new cash discount programme will allow greater margins for our company and pump revenue back into the economy, by allowing merchants greatly discounted and in some cases completely free payment card processing.
For me, the most important aspect of our growth has been our support system. With six children at home, all under 12 years of age, I would not have been able to work the 75-hour work week, travel all over the country and work on the weekends, without my amazing wife Rochelle by my side. She is an incredibly hard-working mother and driven professional. Aside from managing a house of six children ranging from 4 to 12 years of age, Rochelle is also managing the marketing for one of our retail businesses. She is an inspiration, amazing mother, incredible partner and quite frankly, more deserving of being featured on this month’s cover.
What is CHFS’ growth strategy? How do you execute your growth plans?
CHFS has a multiple-pronged approach to growth. First and foremost; our organic growth channels that are split into several sub-categories. Our W2 sales force focuses on our strategic partnerships in several niche markets at the association and ISV level. We continue to grow our internal sales forces in California with plans to expand nationwide in 2018. Our 1099 independent contractors generate sales and referrals on a monthly basis. We continue to recruit and leverage these relationships, taking advantage of market trends or preferential pricing that attracts an independent agent to build a merchant portfolio through us. Paying accurately and timely is essential to maintaining an independent sales force.
CHFS also plans to continue leveraging our revenue to allow for strategic acquisitions. One of our goals for the 2018 is to acquire nearly $4mm in recurring annual EBITDA. We review dozens of potential acquisitions per year and pursue those with a synergistic model to our own.
Can you tell us a bit more about the payment solutions and systems that C&H Financial Services offers?
C&H Financial Services is licensed to distribute every make and model of payment processing hardware available to our markets. We remain agnostic to hardware and software preferences to fulfill the needs of each merchant. What works for a hair salon doesn’t necessarily work for a retail store front. Through our various processing platforms and Bank Sponsorships, CHFS has the unique position of never walking away from a merchant relationship because of technological hurdles. Since our inception, we have integrated with dozens of specialty management systems, catering to a wide range of niche markets; restaurant, retailers, e-commerce websites, educational and instructional facilities, automotive retailers and quick lube stations, as well as medical and dental practices. With our consultative approach to merchant services, we customise our solution to fit each market segment’s demands.
Can you tell us about CHFS’ plans for expansion worldwide?
CHFS is currently acquiring merchant accounts in Canada, Australia and New Zealand with plans to expand into the European and South American markets. Our cross-border relationships and software partners will take us into the most opportunistic areas of our Global Economy. As our partners expand into International territory, CHFS will stand ready to license and open our acquiring abilities to support their payment processing needs.
What is CHFS’ acquisition strategy? Can you tell us about CHFS’ recent acquisitions? What attracted you to these companies and what do these acquisitions mean to the future of CHFS?
Our recent and future acquisitions are all similar in nature. Our acquisition targets have a synergistic operating structure that mirrors our own. Independent sales organisations or merchant acquiring companies that have a portfolio of merchants that generate a recurring revenue based on payment processing receivables. CHFS targets those competitors that process on the same platforms as us, specifically First Data and Tsys. This allows us to seamlessly integrate customer service and technical support by routing 800 numbers and websites to our service team. While solid historical performance is important, synergistic profiles are key for a smooth post-closing integration and merchant retention. We also look at those portfolios that are comprised of similar merchants. CHFS has a large footprint in educational and instructional facilities along with retail automotive, parts, labour and service - we are also looking to target acquisitions for those acquirers.
CHFS moved offices in July last year– what was the rationale behind this decision? What has been the impact of moving offices thus far?
The new office allowed us the environment to grow and scale our operations staff and provided the cosmetic and professional presence we could be proud of. The expansion allowed us the proper support facility, training resources and staff accommodations to allow for a healthy and comfortable working environment. With over 30 full-time employees on board, this new facility will allow us to expand to over 50 team members in customer and technical support. In addition, we are happy to host individual sales agents or referral partners to our new facility for in person training seminars. Lodi is centrally located, only 45 miles South of Sacramento, and makes us a hub for sales and marketing efforts in California and throughout the country.
What further goals are you currently working towards with the company and what’s your vision for the future of its services?
We continue to expand upon our initiatives as our industry and economy evolve. While we have firm business plans and initiatives in place that we are enforcing, we review and adjust the model monthly. We will listen to our economy, our merchants and sales partners to evolve and respond to the market demands and trends. Hosting our own payment technology and software is a strong vision and initiative outlined for our future. We want to make sure that we are never leaving revenue on the table with our merchant relationships. Cross selling of products in our industry, such as check services, merchant cash advances or small business loans, gift and loyalty programmes as well as the new cash discount programme are critical for merchant retention. While our core competency is electronic payment processing, we want to ensure we become the preferred source for all merchant services.
What does C&H Financial Services do in order to keep up with technological advancements in the financial services industry?
Technology continues to be the Rutter that navigates us through this competitive and ever-evolving financial services industry. Along with security and regulatory compliance, equipment manufacturers and software developers are constantly updating the design of our payment devices and security controls. When we first started in the industry, we were providing any one of four payment terminals that offered limited reporting and data analytics. We have evolved into an Omni-channel focused service industry, taking advantage of mobile devices, EMV Chip card readers, Near Field Communicators (NFC/Apple pay), gateways offering recurring payment vaults for membership services, to POS systems that manage an entire business from accounting to marketing needs. CHFS intends to manage and host some of our own internal technology applications but will always remain on the forefront of market demands by licensing and distributing various applications to comply with market demands.
What are your predictions for the development of financial services in the future?
Technology continues to evolve at lightning speed. Advancements in biometric reading devices, wearable wallets in the form of a ring or small chip placed in the sleeve will continue to evolve into faster, more reliable ways to pay and exchange funds. Person to Person (P2P) payments will also continue to be a growing trend over the next few years as social media platforms open the ability to exchange goods and services. While the demand for faster and more reliable payment experiences grow, so must our ability to protect and secure the payment environment and exchange of data. Blockchain and cryptocurrency payments continue to be the topic of the day. As these systems and payment platforms evolve, we could all expect regulation and controls to evolve alongside it. There continues to be much confusion around how to capitalize and invest in Blockchain and crypto, but where there is confusion, there is opportunity.
We are excited for the continued growth of our industry and to continue being a growing force within it.
As CEO, how do you ensure you are directing the company in the correct direction? How do you advise your team to make the correct decisions for the company alongside clients?
While I’m a firm believer in best practices and not micro managing, I stay involved in every aspect of the company at all times. We have built an incredible support staff that has grown and evolved over the years to know and exceed upper management expectations. It is crucial to have and follow your Standard Operating Procedures (SOP). If you do not have these SOP’s outlined, you are setting your team for failure. I check in with our team on a regular basis from the entry level customer service representative to senior management, my door is always open to them. Keeping my door open is the only way to keep my ear to the ground. I encourage my team to make decisions that would empower our merchants, sales associates and staff. Empower people and they will perform for you at every level. This is how we maintain an A+ rating with our Better Business Bureau.
Everything evolves, constantly. Each new breakthrough poses heaps of new questions to which answers are yet to be discovered. One of these breakthroughs happened with fintech. Fintech, as a word, is what linguists would call a portmanteau – a combination of two separate words. In the case of fintech, those two words would be financial and technology. However, as a system or a sector, fintech is what experts would call the future.
Quite simply, when technology put its fingers in the financial services’ pie, fintech was born. We are talking about mobile payments, transfers, fundraising, cryptocurrencies; you name it. Even though fintech liberalized the whole financial system and put the power into people’s hands, the traditional financial sector felt threatened by it, and understandably so. To share our amazement with it, here are some incredible facts on the incredible growth of fintech in the last couple of decades.
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(Source: 16Best)
S&P Global Ratings does not see competition from large technology groups or "tech titans" as posing a short-term risk to its ratings on global banks, said a report titled "The Future of Banking: How Much Of A Threat Are Tech Titans To Global Banks?" recently published.
While the barriers to entry in the banking industry are high, tech titans like Facebook or Apple possess a competitive edge over new entrants and upstart financial technology companies.
"In our view, banks will feel limited short-term pressure on their transaction fee income as they look set to benefit from the good medium-term growth fundamentals of card-based payments. This is despite bank revenues coming under possible threat from the recent growth of e-wallets and alternative payment methods," said S&P Global Ratings' credit analyst, Paul Reille.
We expect that tech titans' lending activities will remain targeted to merchants operating on their platforms and to segments currently underserved by banks due to profitability and capital reasons. Similarly, we believe that regulation will limit tech titans' ability to compete meaningfully with banks over customer deposits. In the long term, regulation is likely to remain a key factor deterring tech titans' efforts to increasingly offer the full financial services suite currently provided by banks. That said, banks could feel the biggest competitive threat from tech titans for activities where barriers to entry are low--such as transaction revenues, which could constrain their margins.
"In the short term, we don't expect competition from tech titans to have an immediate impact on the banks that we rate. However, in the long term, we think that they are well-placed to potentially disrupt certain aspects of the traditional banking industry value chain," said Mr. Reille.
In our view, payments is the main area where tech titans could potentially disrupt global banks. Although these firms are not posing any meaningful short-term pressure on fee income, we believe that they could leverage their strong customer bases and networks to potentially constrain traditional banks' payment services revenues in the longer term. We do not consider tech groups to pose any short-term threat to banks' lending or depository activities in the US or EMEA. In the short term, we don't expect competition from tech titans to have an immediate impact on the banks that we rate, but see them as well-placed to disrupt banking in certain areas in the longer term.
(Source: S&P Global)
