Summary

The fintech revolution continues to gather pace globally and there is heated debate about the challenges and opportunities fintech could bring. The critical question of whether fintech start-ups threaten traditional providers of financial services or will become trusted partners remains unanswered.

For Europe 2018 is set to be a pivotal year. Major developments including the unfolding of Brexit; the onset of the General Data Protection Regulation (GDPR); open banking and the implementation of the Payment Services Directive 2 (PSD2) will all have a huge role to play in reshaping the future of financial services in Europe. Globally the fintech train is unstoppable with game changing developments in artificial intelligence; robotics; identity verification; internet of things; RegTech; InsurTech; challenger banking; Blockchain and crypto capitalism. With so much happening it is hard to know where to really pay attention.

In the run up to Finovate Europe, our panel of experts, chaired by the inimitable Ruth Wandhofer, will share their views on what’s hot and what’s not in global fintech in 2018.

Speakers

Moderator: Ruth Wandhöfer, Global Head of Regulatory & Market Strategy, Citi

Ruth is highly recognized in the European payment industry as one of the foremost authorities on the PSD and she is the Chair of the European Expert Group on the transposition of the Payment Services Directive, a joint initiative of the three European Credit Sector Associations.She is also a member of the Plenary of the European Payments Council as well as a member of the SEPA schemes working group, driving the continued evolution of SEPA.

Zilvinas Bareisis, Senior Analyst, Payments and Banking, Celent

Challenges, Successes and Opportunities of Financial Inclusion in MENA

Financial inclusion has been identified as a key topic for the MENA region. Technology on its own will help us connect with the digitized financial world but it will not be the only factor. We need to build technologies that expand the horizons of electronic payments and work with partners across industries and segments. We need to create deeper, inclusive and intelligent experiences to enhance how people live and businesses grow. The webinar will cover the challenges, successes and opportunities of financial inclusion in MENA.

Digital technologies have spread rapidly in much of the world, yet, there is potential to boost digital dividends but also to simply enhance efficiencies, reduce costs and expand access to financial services.

The webinar is expected to draw on the global fintech landscape and how better data collection and analytics can inform customer choice better. It will cover the opportunities, challenge and successes in financial inclusion around the world and how best to serve the digital customer.

Speakers

Hjh Rosmah Ismail

Member, Board of Director, Arab Malaysian Chamber of Commerce and Board Member, AmBank Islamic

Hjh Rosmah is an international banker with a total of more than 25 years of comprehensive experience in the Banking and Financial sector, covering Conventional and Islamic Finance across both corporate and consumer client segments across all banking products, and 3 years in the Financial Consultancy sector. During her career, she has been commended by top international Sharia Advisors for having authored among the best Shariah Compliance, Risk and Business Operational Policy & Procedures Manual for Islamic Banking and Finance. She has set up Islamic Banking entities in the Middle East and Malaysia, and the businesses under her leadership had also won corporate awards during her tenure.

Devie Mohan

CEO, Burnmark

Devie Mohan is an influential writer, speaker and commentator on fintech, and has been listed as a top 10 global fintech influencer by several groups. Devie is the co-founder and CEO of Burnmark, a fintech research company, that supplies research and data to all players of the fintech ecosystem.

Devie has helped several banks, fintech startups, innovation groups and investors understand the trends in the fintech industry, helping them set their corporate, marketing and investment strategies. She is also a proponent of a fintech ecosystem where banks and startups collaborate to drive innovation.

Continuing with our PSD2 series we speak to Brian Costello, Chief Information Security Officer, Envestnet | Yodlee about what it means to the industry’s back office compliance.

Finovate: According to Strategy&, 68% of bankers are worried PSD2 will cause them to lose control of the client interface. What’s your advice to these banks?

Costello: While this seems on the surface to be a valid concern, Envestnet | Yodlee has a different perspective from our years of powering innovative digital channel and data-driven solutions. There are, of course, different profiles of banks, but in general the use of third party services that either are not offered by the bank or compete with the bank’s offering do not materially impact competition. In the former case, clients stay or leave the bank, based on the suitability of the bank’s products and services, the effectiveness of the digital and traditional channels (i.e. branch, ATM and phone), and the quality of the experience. In the latter case, competition either drives banks to innovate at the breadth and pace required to keep (and gain) clients or to partner with third parties to expand their service offerings.

With this in mind, PSD2 simply requires participation in a payments ecosystem and facilitates client access to their own data. Neither of these negates the bank’s ability to preserve the client relationship via quality products and experiences. Just the opposite, in fact, it empowers the bank to offer expanded payment and data-driven services under the protection of the new regulation. Our advice, therefore, is to identify what services are most needed by their customers and build them or seek out qualified partners to incorporate them into the client experience.

Finovate: Will PSD2’s enhanced security requirements increase friction for end consumers?

Costello: Yes, for those customers that already use consumer-permissioned aggregation solutions today but not for new customers. However, the friction is short-lived as the third party providers (TPPs) will provide a “cut-over” mechanism. Ultimately, participation in the PSD2 ecosystem will provide better protection to the customer, so this small amount of friction is justified and enhances security. It’s also important to understand that without PSD2, friction would have increased for these customers as banks tightened online access controls with dynamic authentication which, while reducing online banking fraud, prevented some aggregation-powered applications from working without customer intervention.

Finovate: How do you suggest banks and fintechs communicate about PSD2 to consumers who are scared to share their data because of privacy issues?

Costello: First, there is good guidance provided by authorities that can be used to craft consistent messages. In general, banks should consider the following key points:

1. It is the consumer’s data. They control what to share and with whom to share it with.

2. Exercise due diligence in selecting third parties based on their value to you and your needs. Read their terms of service and privacy notices. If they seem unclear, too broad or otherwise concerning, then find another provider.

3. Participants in PSD2 are authorized and must follow the laws; including the current Data Protection Act and upcoming General Data Protection Regulation. Consumers are protected by each of these laws and regulators are actively enforcing them.

Finovate: The benefits of PSD2 to fintechs are obvious. How can banks make sure they’re benefiting, as well?

Costello: Envestnet | Yodlee believes that there are many benefits of PSD2 to banks as well. We pioneered Personal Finance Management (PFM) offerings for financial institutions knowing that if the bank had a broader view of their customers’ financial picture, they could offer personalized services, proactive advice, and build better products. PSD2 provides clarity to banks on how to collect, protect, and use their customers’ data to improve their financial well-being. It also reduces banks’ risk as online banking credentials will no longer need to be provided to third party providers.

Finovate: Should banks be worried that, by opening their APIs to third parties, they risk increased security vulnerabilities?

Costello: No, as long as banks apply the same security rigor to these new API end-points as they do for online and mobile banking interfaces. The same controls for vulnerability management: secure builds, patch management, change management, monitoring, etc. apply to PSD2 APIs. As PSD2 takes hold, cybersecurity sharing forums will become a valuable source of information so that all members of the ecosystem (banks, TPPs and regulators) can work together to ensure that all customers can enjoy the full potential of improved payments and data-powered services.

The information, analysis, and opinions expressed herein are for informational purposes only. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

With the FCC voting 3 to 2 to repeal net neutrality today, let’s take a look at the impact a post-net neutrality internet may have on fintech and banking.

Politics and opinions aside, the repeal of net neutrality may have two main effects in our industry:

Pay up for fast fintech

Though Comcast has said it will not offer paid prioritization for websites, many are concerned that lack of regulation for internet service providers (ISPs) will create tiered offerings for fast lanes and slow lanes. In other words, if you want your site to load faster, you’d better have some extra cash. Since consumers have little patience for website loading times, this could be an extra stumbling block for fintechs with a grand idea but limited funding. The players with the bigger pocketbook, not the better innovation, may win out.

While this same principle applies to banks, it is not as large of an issue, since banks are cash flow positive and have income to foot the larger internet bill. Additionally, consumers have a lower elasticity of demand for banking services than fintech services. In other words, because online banking is seen as more of a true need, they are not only willing to pay more but they will also be willing to wait for a longer web page loading time.

The counter-argument is that, if net neutrality remains in place, everyone will end up with a larger internet bill since ISPs will need to find a way to build and maintain faster online networks. “If the rules stay in place… ISPs will have to find other ways to fund these robust networks,” Nicol Turner-Lee, a fellow in Governance Studies at the Brookings Institution told U.S. News.

An eye on competition

Another area of concern of an unregulated internet is competition. Currently, net neutrality prevents ISPs from discriminating toward competing applications. This argument isn’t generally heard in the banking/ fintech space, since ISPs do not own any competing banking or fintech applications. However, if an ISP was to create or acquire a P2P payment app, it could speed up that service, while potentially throttling performance for Zelle and Square Cash.

The counter-argument here is that we should allow the markets to operate freely and that the Invisible Hand will allow for faster innovation. In this line of thinking, perhaps if our favorite P2P payment apps are too slow we’ll be more likely to begin using the blockchain?

Fintech innovation is experiencing its highest-ever interest levels, and 2017 has seen some revolutionary new ways of doing business emerge. With the stage set for an explosive 2018, what are some of the top innovations to watch out for next year? Hear what global industry leaders predict for the future of fintech.

Nick Ogden – founder and Executive Chairman, ClearBank

The number one thing that’s going to occur in 2018 is fragmentation of the marketplace as we know it today. The days of big banks delivering everything and being specialists in everything are over. Some of them might still not accept that but the reality is that it’s happened.

You’ve got ringfencing in the UK occurring, and it will be in place by January 2019. Where you’ll get to is a situation whereby there’ll be transactional banking, which everybody needs – it’s how we pay bills and how we receive our salary. And it’s the same structure for businesses.

Then there’ll be different ways in which we consume financial services – things that we use occasionally like a car loan, a house loan, or a holiday loan. And the market will change to encourage customers to seek alternative choices as opposed to feeling reliant on one choice.

Ajay Bhalla – President of Global Enterprise Risk and Security, MasterCard

These technologies are now reaching a point where they can really change consumer experience, and that’s one of the reasons for our investments in this artificial intelligence space. These algorithms and the way they make decisions are becoming so good that we as consumers will increasingly leave our devices to start making decisions for us.

And it’s cool and it’s sometimes worrying, but in the bigger picture it’s going to change the way we live. And I think that’s not very far away now.

Karen Kerrigan – Chief Legal Officer, Seedrs

Rather than looking at a specific technology, have a look at a particular sector. There are a lot of challenger banks out there at the moment – Starling Bank, ClearBank, Monzo, Tandem – and they’re all vying for the same space. They’re all doing things slightly differently, but  ultimately are taking on the banks.

How they do that, what technologies they use, and how they embrace user experience will be a fascinating journey, and I’d urge everyone to keep their eyes on it.

Want to learn more about the future of finance from these and other global industry leaders, including Professors Nir Vulkan and Alex Pentland, and David Shrier?

Saïd Business School, University of Oxford is collaborating with online education provider GetSmarter to present the Oxford Fintech Programme, a 10-week online programme designed to equip you with the skills, tools, knowledge, and network you need to take a fintech startup from concept to execution.

According to Google Trends, the search term “fintech” only began its upward swing in search popularity in January 2015, hitting its peak in May 2017. This rapid increase in search prevalence came as a result of the world’s collective interest and investment in financial innovation and disruption.

While the evolution of financial technologies and innovation is ushering in an exciting new world of opportunities, it’s becoming increasingly difficult to keep up with the fast-paced growth of the global fintech industry. And with so much global interest, it’s near-impossible to stay ahead of the curve.

As Professor Alex Pentland, guest speaker on the Oxford Fintech Programme, puts it: “Fintech is happening right now. We’re seeing all these very exciting changes ranging from Bitcoin, which is sort of old, to Initial Coin Offerings, which are very new. We’re also seeing much more of the democratisation of fintech, so a lot of the crowdsourcing things are opening up new ways of investment that just haven’t happened before.”

From digital wallet Curve, to AI-driven mortgage auction system Lendr, fintech startups are being created by anyone and everyone with a good idea and the appropriate tools.

Fintech innovation isn’t limited to the game of upsetting incumbents and big banks, either. Proptech applications are allowing potential homeowners to virtually tour and remodel their future homes using VR, and with the increase in size of the transactions taking place on fintech platforms, recording, monitoring, and ensuring compliance will need to be high on everyone’s priority list, driving the need for regtech.

These revolutionary new technologies bring with them exciting opportunities, and worrying prospects. Industry experts believe that between 2 million and 6 million jobs will be lost over the next decade due to disruptive financial technologies like Artificial Intelligence (AI) and blockchain. Illustrating the potential, digital challenger banks such as Starling and Monzo can operate with 90% less headcount than traditional banks.

While this is exciting for big business owners, the average employee will stand the chance to find themselves without a job very soon. But fintech, proptech, regtech, and other associated innovations will enable small and medium businesses to create both new wealth for expansion, and new job roles. The challenge now is finding a way to not only engage with fintech, but to also stay ahead of the curve.

One way to up-skill quickly is to tap into the knowledge of global experts, and put the skills you learn to use immediately. As industries and innovation continue to evolve at a rapid pace, interactive and online burst-like education is a natural solution. This format of learning allows you to enhance your skills in a matter of weeks, in your own time, and collaborate with like-minded individuals from across the globe.

Saïd Business School, University of Oxford is collaborating with online education provider GetSmarter to present the Oxford Fintech Programme, a 10-week online programme designed to equip you with the skills, tools, knowledge, and network you need to take a fintech startup from concept to execution.

This is an interview with Mark Weir, Regional Director – UK & Ireland at Fortinet. Fortinet is a global cybersecurity firm based in California.

How real is the threat of cyber-attacks to the financial services industry?

Weir: Financial services are about as big a target as the cybercriminal community has, if the pure amount of attacks in 2016 is anything to go by. Due to the sensitive nature of its data and the value it holds for the cybercriminal community, it will likely remain in the crosshairs moving into 2017 and beyond. As the attacks grow in both number and complexity, financial institutions will have to prepare to better detect and mitigate threats in order to protect their organisation.

What is the level of understanding of cyber risk in financial institutions?

Weir: Whilst financial institutions are generally quick to adopt new technologies, every large retail bank is still hamstrung by legacy infrastructure and applications. To address that, they need to start examining their technology from a base level. This means understanding which platforms are under threat and ensuring they are fully up to date with security patches. But that is just a first step. What banks need to ensure is that they build upon that initial perimeter defense and start putting a ring around key applications. It is web applications that have long been favourite targets of hackers because they have access to valuable information and they are relatively easy to exploit.

Is enough being done across the industry to protect against cyber-attacks?

Weir: Industry players, their partners, big players in other verticals and vendors; all of them have little pieces of the jigsaw making up the bigger picture of protection against cyber-attacks. Only by them all being more co-ordinated and collaborative will defense be on par with the levels of attacks. Cybercriminals are certainly very well-organised, well-funded and well-regimented. They also benefit from having more time to prepare their attacks than those defending, so a more co-operative partnership between sectors, where organisations share intelligence is key to counteracting the threats.

As cyber threats are continuously evolving, what can financial institutions do to stay ahead of the curve?

Weir: Cyber threats evolve continuously, much like a fashion collection. Last year, Distributed Denial of Service (DDOS) attacks were in vogue and financial institutions are scrambling to ensure applications are protected from a DDOS point of view and ensure that the perimeter is fully patched and up to date. This way they can mitigate financial loss resulting from customers being unable to access their accounts and make online transactions.

And yet this can’t be done at the expense of more granular layers of application level security. Even if a hacker gets through those perimeter layers, there must be protection at the application level, for services such as checking your balance on a banking application. Cybercriminals can be hiding malware at this level, behind what would appear to most people to be legitimate requests.

It’s important to ensure a fully comprehensive response, as cybercriminals will already be working on the next big thing to attack your organisation.

What should the role of regulation be in ensuring that the FS industry is cyber resilient?

Weir: Banking is heavily regulated, and rightly so, but sometimes banks can wrongly go down the path of simply trying to meet compliance. That can all too easily become a minimum standard for security. It becomes a tick-box exercise. But the issue is, it may or may not be what is actually required for a particular application. Banks need to go on a security journey that is not only cost-effective and helps them towards compliance goals, but this journey first and foremost needs to be pragmatic. Cyber threats change on an hourly basis and cybercriminals are a moving target. Meeting the minimum standards of compliance can only go so far in helping financial institutions combat them. 

In the past few years, we have seen increasing levels of collaboration between large financial institutions and fintechs. What security considerations should banks and insurers have in mind when looking to work with fintech start-ups?

Weir: Large financial institutions are always looking at new ways of fixing problems and fintech start-ups can provide innovative solutions to these issues. However, security forms part of a bigger business consideration which needs to be made when collaborating with a start-up. The future for that particular organisation needs to be considered heavily. A financial institution may build a strategy based on a particular start-up’s technology but you need to make sure they’ll still be in business for years to come. Is there a likelihood of them going bust?

Another consideration is their global footprint. There may be some areas of the globe you may not want to work and do business. Do they have a footprint in the right geographic locations, and do they have security operation centres in the geographies you operate in? We should embrace new ideas and new technologies from new companies, but also consider the security implications.

What are the most exciting trends in cyber security sector?

Weir: Due to the sensitive nature and value of the data associated with it, the financial sector will undoubtedly remain a top target for cyber criminals in 2017. Whilst typically the finance industry has lagged behind other industries when it comes to moving data to the cloud, we expect to see more and more financial services institutions making the move. We have already seen some large banks and organisations making the move to public cloud providers such as Amazon Web Services (AWS) and Microsoft Azure. But they shouldn’t forget basic principles around the security of public clouds, and whether or not they have the ability to audit these services.

In 2017, we should also expect malware to get smarter. At the moment, malware can hide in a device or a network, but it is only programmed with a specific objective. A hacker simply points it at a target, and hopes that it will accomplish its goal. But now, threats are getting smarter and adapting to operate autonomously. We should expect malware designed with adaptive, success-based learning to improve the success and efficacy of attacks. The new generation of malware will be situation-aware, meaning that it will understand its environment and make calculated decisions based on this. Such as evading detection, choosing methods of attack and identifying targets.

How do you think the tech landscape will have changed in 5 years’ time: will the FS sector be more cyber resilient?

Weir: The FS sector is gradually starting to move towards the cloud to deliver the best customer service they can. Some organisations are moving entire systems and platforms to the cloud whilst others are opting for a hybrid approach. In five years’ time, I expect that a large majority of organisations will be operating in the cloud. With this increased migration, security is imperative, and with it comes many more factors to be considered when selecting a cloud security vendor. Data security, scalability, visibility and control as well as openness are necessities to be kept in mind in order to protect data, and mitigate reputational damage which can be devastating for any FS institution.

However, it’s important to note that the threat landscape from the last two years is unrecognisable now, and predicting the next big innovations in tech is impossible. In the cyber security industry, the fast-paced environment means that 5 years is equivalent to 20 years in any other industry! We will be more cyber resilient if we find better ways to communicate with other organisations and sectors and put data security at the heart of this.

If you could give one piece of advice to a financial institution on its cyber security strategy, what would it be?

Weir: For all financial institutions, every application and the data held within it is important, but it’s up to them to understand and prioritise what is important to customers. The trust financial institutions have with customers is critical to preserve brand loyalty and their reputation in the industry. They should build a security strategy around that trust, and the data held within their organisation.

If they don’t have an understanding of this, they need a plan to get there. In order to make this plan, organisations should pull together key stakeholders in the business, not just from IT and security but from all lines of the business. If the IT function acts in silo, without insight from other departments, this can lead to making an application which is unsuitable for particular use cases. This is why Line of Business representatives across departments need to be present in security workshops in order to create a high level plan which all stakeholders can buy in to. This is a problem which is particularly faced by financial institutions, the larger the business the more difficult it is to have these kinds of meetings to ensure that everybody is on the same page when it comes to cyber security.

On June 7th, Finovate hosted the “Personalising Financial Services in a Customer-Centric World” webinar. On the panel was Julius Abensur, Head of Industry Finance, Relay42, Simon Bloom, Director of Commercial Operations, Relay42, and Katelin Cwieka, AVP Social Media & Brand Communications Manager, Avidia Bank.

Listen to this lively discussion about the role that data, effectively leveraged, can play in designing and delivering financial services that are truly customer-centric. Understand how to create a single 360 customer view and how to enhance the customer journey and deliver personalized and relevant messages to your customers. Empower the ability to automate and orchestrate your activities – reduce key KPI’s like cost per acquisition by 50%.

We had insights from both a provider of data management services, Relay42 as well as from a financial institution, Avidia Bank that is on the front line of creating best-in-class financial services products for its customers.

“92% of marketers are confident their business is preparing for GDPR. Only 4% realise they’re responsible.”

This exclusive report explores how marketers need to move now, to turn data protection, into a real business opportunity: form.relay42.com

This article was first published on FinTech Futures on April 18th 2017.

Liz Maguire, Head of Digital & Transformation at ANZ reveals the secret to her success within fintech and #WomenInTech.

How did you start your career?

I started in a bank graduate programme straight out of university in a frontline role. I’ve since worked in lots of different departments and roles across several companies and time zones. I’ve held leadership roles in products, marketing, business support and channel management, and now lead a fantastic Digital and Transformation function at New Zealand’s largest (and best!) bank.  

What sparked your interest in fintech?

I’ve always worked in areas which are trying to do things differently and better – and this has really motivated me.

The Digital and Transformation area is a perfect fit for me – we’re part of an industry which is evolving around us and we’re using digital tools to drive the evolution.

I also love the people aspect of it. It all comes down to human behaviour – everything we do starts with people. We don’t just think up cool digital stuff and then try and get people to use it. We study the way people think, behave, work and live and design digital banking functions to make their lives easier – and that’s pretty satisfying.

What was your lightbulb moment?

I have lightbulb moments all the time – doesn’t everyone? For example, I had a real lightbulb moment about the so-called ‘disruptive FinTech companies’. The whole fintech industry is often positioned in quite a negative light for banks, but I think this ignores the fact that banks have a huge track record of digital transformation already.  There are fantastic examples of fintech enablers – those which help banks be better at a particular aspect of what they do. I see enormous opportunity in this.

What inspires you?

People with growth mind sets inspire me – those people who have the ability to take 1 plus 1 and create 3. I have tremendous respect for people who have overcome large obstacles to achieve their goals.

Also, on a daily basis I’m inspired by great customer experiences – whether that’s a story about how one of our bankers or digital tools have impressed a customer, or an experience I’ve had with a company that has blown me away.

Why is the #WomenInTech movement important?

It’s bringing together two important things. Women are half of the population and so we need to address the disparity in the industry. And it’s such an important industry – it’s a crucial part of society and the way we all progress. We need to get as many diverse brains as possible working on the opportunities that exist out there for technology.

What piece of advice would you give women starting their careers in FinTech?

As a whole, society has come a long way in the gender equality stakes. But we’re definitely not there yet, especially in this industry. I think it’s important to ensure young women are supported and can learn from the examples of others. This might be simple things like learning to speak up in meetings, how to ask for help and how to be more visible.

Throughout the year we will be profiling women in fintech, not simply to celebrate their success but also to hear what has worked for them during the course of their careers. Click here to read more inspirational stories from fintech’s leading women >>