IBSi Blogs

By Daumantas Barauskas, COO at Genome

Some things change the world so rapidly and drastically, that no amount of statistical data and research can predict it. The COVID-19 pandemic proved to be one of such things. Due to it, the global economy may shrink by 5,2%, as shown in The World Bank’s recent report, meaning it would be the biggest global recession since World War II. The forecast is based on the assumption that the countries would lift domestic mitigation measures by the mid-2020, and global spillover effects would be mostly dealt with in the second half of 2020. And in a worst-case scenario, the global economy is to reduce up to 8%.

Now, when we have a global picture, let’s turn to the banking sector. In 2018, global payments revenues reached $1,9 trillion and were expected to hit $2.7 trillion by 2023 with continuous growth. Needless to say, the pandemic had a devastating impact on the revenue, as the industry can lose from $165 billion to $210 billion, even though before the pandemic it was forecasted to gain $2.1 trillion this year.

In the middle of March, the average global bank stock prices underperformance grew to a rate of the industries that are most vulnerable to the lockdown. If we use our baseline of 100% for bank stock prices on 19 February, then by the third week of March the prices dropped to 60%. At the end of April, the situation has improved a bit, as the index passed the 70% mark.

European banks might suffer one of the worst impacts of the pandemic, as the Eurozone economy is forecasted to decrease by 9,1%. The muted-recovery scenario, which will result in GDP shrinking by 11% across the Eurozone, is what every third executive believes will happen. The scenario may result in the banking sector revenue drops as severe as 40%, prompted firstly by increased margins and government stimulus packages, and ultimately by the rise in risk costs. Thus, the negative effects could be more damaging than during the 2008 financial crisis, and the European banking industry will need four years to recover.

Right now, some of the countries are reducing the lockdown regulations with businesses and shops opening and employees returning to their offices. However, it doesn’t mean that the world is ready to return to its previous state, as most of the companies need to adapt to a new reality, and financial institutions are no exception.

First of all, businesses need to be ready for another possible wave of the coronavirus outbreak. For instance, doctor Anthony Fauci, director of the American National Institute of Allergy and Infectious Diseases thinks that the COVID-19 will not be eradicated due to its widespread. Meanwhile, the director of the Centers for Disease Control and Prevention Robert Redfield voiced the concern that the second wave, which is expected to hit this fall or winter, will be even more dangerous, as it might coincide with the start of flu season.

Secondly, a lot of people have changed their day-to-day habits to protect themselves and their families: they use e-commerce services to buy products, minimize cash payments, and want their banks to provide online services. A survey conducted in April showed that more than half of customers prefer digital channels for banking with 52% and 54% using mobile and online banking during the pandemic accordingly. The attendance of bank branches, which wasn’t even high pre-pandemic, dropped from 22% to 15% during the lockdown.

Now, when we have covered the bleak economic forecasts for financial institutions, as well as the new preferences of banks’ clients, we can point out the main changes that banks and PSP are expected and required to make and strategies they should implement in the second half of 2020 and beyond that.

The need for digitalization is as strong as ever. Without a doubt, banks should bring at least some of their services online, as the demand for internet and mobile banking grows. Otherwise, traditional banks will face the sad reality of their clients switching to digital FinTech services. According to the Capgemini Consumer Behavior Survey, around 30% of customers are going to start using FinTech companies instead of banks after the pandemic, if the latter won’t be able to deliver proper customer experience.

Redeployment of employees and branches. The obliged relocation of staff due to the lockdown proved that bank employees can successfully work from home. And right now, not all banks are ready to allow their staff members back to offices. And considering the possible second pandemic wave, this return may be short-lived. Thus, the financial institutions better to use this situation to their advantage – some of their employees might start working from home permanently, but will need to be provided with technical and security means to do so. This, in turn, will allow to redeploy the remaining staff among the branches and, potentially, close some of the branches to cut rent and maintenance costs.

Customers’ convenience and safety are the top priorities. The lockdown led to the overwhelming number of customers using support chats, phones, and emails to communicate with their banks. The situation shows the demand for diverse usage of banks’ digital channels to always keep in touch with clients. Social media, push-notification, emails, apps, online chats, and call centers – all is fair game to keep the people informed. But to keep up with all these channels, financial institutions should make sure the support team (which can also work from home) has enough employees for the challenge.

But having digital communication channels open is not enough – banks and PSPs need to reach out to clients themselves, inform them about each new update or service, show the support to pandemic-vulnerable customers and warn people about potential COVID-19 risks.

If banks are deploying new online and mobile services, they’d better have detailed tutorials on how to use these, so that the clients will go through the process easily. And also, the online channels are great for quick surveys, with feedback allowing banks to improve the services if required.

The mutual support of businesses. Banks and companies need each other’s help to overcome the effects of the pandemic. To do this, financial institutions should analyze their clientage to determine, which groups of people or businesses require the support the most. Taking this into account, banks can make personalized offers to these groups to help in dealing with severe economic losses. In return, banks and FinTechs will get loyal clients, that are more likely to thrive again, when the pandemic is over.

For instance, Genome introduced the COVID-19 initiative in the middle of April to help all our current and potential low-risk clients. We have canceled all monthly account fees for three months, and believe that this offer will be especially beneficial for food and entertainment services, electronic and home appliance goods, toys, educational platforms. To find out more about this initiative and other services visit Genome’s website.

By Daumantas Barauskas
COO at Genome

Gary Dolman, Co-Founder and former CFO of Monzo, in conversation with Capdesk

Ahead of a webinar hosted by equity management platform Capdesk on the lessons learned by ‘startup to scale-up CFOs’, the equity management platform sat down with Gary Dolman, one of the Co-Founders of Monzo, who served as Monzo’s CFO from its inception in 2015 until February 2019.

– How did you find going from a relative ‘lone wolf’ finance lead in Monzo to managing a bigger team? Did your previous corporate experience make it easier?

Being a CFO in a startup is never easy. Right at the beginning of my startup career I was told that every week would feel like the most important week in the life of the company. How true that proved to be. Without doubt my time at Monzo was the most challenging of my entire career. It was also the most enjoyable.

As a ‘lone wolf’ you often feel so far from your comfort zone that you need a telescope to see where you’ve come from. However, it’s incredibly energising to work with a massively talented team that has no fear of taking on new challenges to drive the business forward. Their support and encouragement was truly commendable.

At times my prior experience could hinder rather than help me at Monzo, as everyone was encouraged to think about how you would set things up if IT was not a limiting factor. This was a very different scenario to my prior life in the corporate world where IT resources were limited by the number of skilled people and maintenance of legacy systems.

That said, the problem-solving skills I acquired in the corporate world stood me in good stead, as did my ability to spot and resolve problems quickly. And as the team grew, my previously learnt managerial skills came to the fore.

– What are the major changes in culture between an early-stage startup to a scale-up growth business?

In an early-stage startup, you can have ten people standing in a circle talking about their hopes and fears for the day ahead. You know everyone in the company by name and quite a bit of their history. People can rotate jobs and cover each others’ backs. People accept that all jobs need to be done and muck in.

At Monzo I folded up hundreds of letters with prepaid cards to send out to customers; I answered queries on the help desk. It was great fun and there was a real sense of teamwork. As the business scales and slowly becomes more departmentalised, that can’t continue. The challenge is to maintain the startup ethos of being willing to experiment – to try five different things to find the one that really works. As the customer base inevitably increases, experimentation is still possible, but it needs to be managed in a controlled way.

– What are the key challenges that a CFO faces during the startup and scale-up process?

A CFO needs to wear many hats. At the outset they might be a team of one or two that needs to be able to undertake many tasks, many of which they will be new to and, frankly, have little interest in. Running the payroll is a classic example of this. They may well utilise an outsourced accounting firm for core processes but certainly cannot abdicate responsibility. Like the rest of the organisation, finance needs to be lean and accept that ‘scrappy is happy’. Many finance professionals find this very challenging.

As the business expands the CFO must continually evaluate whether they have the people and the systems capability to keep in step with the business. Hiring good people takes time and effort and if they fall behind it can be hard to catch up. The CFO also needs to keep an eye on the technical debt that their department is building up and have a plan and timescale to rectify this. Wherever possible the CFO should look to use automation rather than people. However, this requires IT engineering time – for which there will be fierce competition.

I’d encourage all startup CFOs to find a mentor: someone who has been through it before, who can help them avoid the typical mistakes made in early-stage businesses.

– How can a company keep employees motivated and engaged as it transforms from a startup to a scale-up, eventually becoming a large enterprise?

Options, distributed as part of an employee share scheme, typically play a large part in motivating employees, especially when the company seeks to conserve cash and pay salaries below market value. As the business expands it will face upward wage pressure for a few reasons, including an org structure that requires hiring senior managers who have higher minimum cash requirements.

Strong communication between founders and management teams is necessary to make sure remuneration is allocated fairly between people. I’d recommend setting up an equity rewards scheme and having it regularly reviewed by finance and HR. The two departments need to be joined at the hip on this, because the fallout from a dysfunctional equity scheme can be huge.

One of the other challenges of moving beyond the startup phase is fitting staff to constantly evolving roles. There are some people who only feel comfortable in an early-stage startup and can feel displaced or resentful as company needs change. This is not a crime! It’s very helpful if this is discussed openly within the company. There’s no shame in saying “I’ve enjoyed this leg of the journey and I’d really like to repeat it elsewhere”.

Equally, if more senior people are brought in to deal with the demands of a bigger company, staff need to be reassured that this is not a reflection of their efforts or abilities but a natural part of the growth journey. When assessing employees, there are two questions: Is this person able to grow in pace with the company? Do they want to be part of a bigger (often by necessity more ‘formal’) business?

– What trends have you witnessed for startups over the last five years in terms of objectives and milestones, particularly with respect to balancing growth and profitability?

At the outset the objectives have remained the same: to gather together a strong team of co-founders, to identify a market problem and solution, and to obtain funding to deliver an MVP. Proof of product and market fit follows on from that and then it becomes all about de-risking the proposition by increasing your base of paying customers.

Four or five years ago the main objective at this point would have been growth in customer numbers. That shifted towards a focus on reaching positive customer economics whereby the marginal revenue from each new customer was in excess of the marginal cost. Scaling up the business would then mean that the fixed costs were covered in due course. More recently, there’s been an increased focus on the path to profitability as well as growth.

TODAY’S FUNDING ENVIRONMENT

– Do you believe Europe needs an angel investor revolution to become more like the US?

Based on my experience within the UK, I’d say the angel investor scene certainly needs improving. Some of this comes down to a need for stronger financial education at all age levels and the need to appreciate that angel investing has a part in anyone’s investment portfolio – no matter how small. Think of Crowdcube, where £10 can be the minimum stake.

I think attitudes towards failure in the UK need to change. If a business fails in the US, people view it as a learning experience for the entrepreneur. In the UK it is just seen as a failure. As a result, investors become paranoid about investing in a failed company – which speaks to the need for angel investors to take a portfolio view and also be mindful of the tax breaks that exist.

There are some very talented people who would be strong angel investors – both from a strategic and operational advising perspective – but are unwilling to enter the community without a warm introduction.

Finally, the regulation needs a major rethink. Currently we seem to operate in an environment in which a loss represents an opportunity to sue someone, despite the risk of loss being fully advertised. As an example, SIPP providers are totally against a person undertaking angel investing from their own pension assets for fear of subsequent legal reprisals. Given the long-term horizon of angel investing, pension assets should be a sensible source of angel investing – albeit as very much part of a person’s overall portfolio. Seemingly SIPP providers are unable to accept the statement that ‘I know what I am doing, I understand the risk of losing this money and want to proceed’. If this is the legal position, that puts us in a bad place.

– How do you think the funding environment has changed in the UK in recent years? Has it become easier to raise capital in general?

If we consider the years prior to COVID-19 I’d say that the position has improved, and that capital-raising has become more available and the channels to access it more diverse. I was fortunate enough to become a Venture Partner at Antler, a global early-stage venture capital firm that invests in the defining technology companies of tomorrow.

In the last two years, Antler has made 190 portfolio company investments across 30 industries and has opened offices in 14 cities across six continents. I was blown away by the quality of the people on the investment side and the entrepreneurs it backed. Antler is practically mining entrepreneurs out of the ground and turning them into the successful business leaders of the future.

– Do you think the government is doing enough to support the startup ecosystem?

Generally, I think the tax breaks and support for the startup ecosystem within the UK are strong. My personal gripe would be that being a startup bank has some unfavourable elements that need addressing, including:

• SEIS and EIS are not available
• EMI share options scheme is not available (the alternative CSOP scheme, in my view, is inferior)
• VAT on costs can’t be reclaimed
• Offsetting corporation tax losses is more difficult (a hangover from past sins of bankers in the 2008 financial crisis)
• Bank levy (again, fallout from the 2008 financial crisis)

THE FUTURE OF FINTECH

– As the rest of the world catches up with the UK in terms of fintech innovation, do you think its crown is under threat?

I don’t think the UK has a divine right to wear a crown of fintech invincibility. That said, in the pre-coronavirus world if you wanted to hire world-class talent – which is what Monzo aims to do – London was where people wanted to work.

– Looking at Monzo as an outsider now, what do you think are its biggest challenges and opportunities?

Monzo is a fantastic company. It began life only five years ago yet has grown to a customer base of over four million people. One of the most admirable things about Monzo is its brand. It has a net promoter score of 75, putting it way above its competitors, and won nine awards in 2019 alone.

As with a number of businesses Monzo has suffered headwinds due to COVID-19 but it has a very strong management team with a plan to move forward. That plan will include the expansion of revenue-generating channels to move to profitability but also continuing growth. The market for current accounts that make money work for the consumer is huge and I see no reason why Monzo cannot make further headway both within the UK and overseas.

By Capdesk

The Covid-19 pandemic, a sharp economic downturn, incoming regulations and emerging technologies all feature prominently on this year’s agenda – what does that mean for the treasury function? As treasurers look to safely navigate this formidable landscape,  what do these new priorities mean for them in 2020 and beyond?

By Ole Matthiessen, Global Head of Cash Management, Deutsche Bank

These are uncertain times for treasurers. Just as many began 2020 believing that their strategies were locked in and ready to go, the

economic picture for the year changed dramatically. The Covid-19 pandemic spread globally at extraordinary speed, moving day-to-day work out of the office and into people’s homes. As treasury made this transition to a remote way of working, the focus of treasury was shifting in tandem – a reaction to the rapidly changing macro-economic environment.

So, as treasurers look to navigate these challenges, what are their concerns and priorities for the immediate future and longer-term? To answer this question and more, the Economist Intelligence Unit’s annual corporate treasury report, in collaboration with Deutsche Bank, surveyed 300 treasury professionals over April and May 2020. It found that this year’s treasury agenda is now driven by three core priorities: the economy, regulations and new technologies.

A changing economic landscape

Coronavirus is undoubtedly shaping a “new normal” for corporate finance – one that will require the treasury function to implement robust forms of risk management. This need is reflected in the results of the survey; 43% of participants cite pandemic risk as a key concern in the short term, and 27% believe it to be a medium-term concern. Global economic growth and inflation/deflation risk – both of which are impacted by Covid-19 – also ranked highly.

So how is treasury reacting to this sudden shock? At the start of the pandemic, long-term cash-flow forecasts were quickly discarded in favour of short-term forecasts, giving treasury departments a more accurate and ongoing picture of their cash and liquidity. Then, as uncertainty surrounding interest rates and inflationary trends become more acute, treasurers have increasingly looked to diversify their investment portfolios.

Incoming regulations

Amid the fog, ensuring regulatory readiness always factors highly in the treasury agenda. This year, the focus hones in on the replacement of the London Interbank Offered Rate (LIBOR) and other Interbank Offered Rates (IBORs) – with 38% of respondents citing these as their top regulatory focus. The clock is ticking on LIBOR’s era as a global benchmark for lending and borrowing and, by end-2021, firms in the US and UK are expected to have completed the transition to alternative risk-free rates (RFRs). But with a variety of potential replacements still in play, combined with complications to project work brought about by the crisis, treasurers lack clarity over what the future may hold.

Emerging technologies

In the wake of disruption, treasurers are relying on technology more than ever – accelerating the digital transformation of treasury. With lockdowns and social distancing in place, cloud-based applications, which give businesses access to their systems and data remotely, have played a key role in facilitating “business as usual”. As this digital transformation advances, treasuries are also prioritising the skill sets needed to realise the full benefits of this data and technology. This year, 30% of respondents are confident they have all the skills required to manage the widespread technological change – up from 22% in 2018.

Opportunities on the horizon

With fading prospects for any quick return to normality, treasurers must continue to expect choppy waters for some time. A range of complications, including the virus, struggling economies, incoming regulations and emerging technologies, must be factored in to any successful treasury strategy. But the industry is equal to the task. Treasuries have access to the essential skills and tools to help them protect company cash while also extending their insight and strategic counsel to support corporate growth. Treasury has proved to be incredibly resilient in 2020 and, with the right strategies and partners in place, it can weather the storm until better days return.

By Freddy Kelly, CEO and Co-Founder, Credit Kudos

The Covid-19 pandemic has profoundly impacted the nation’s finances, with millions having to borrow to mitigate the effects of lockdown. But these unprecedented economic circumstances have dramatically altered the lending landscape, making it impossible for lenders to continue business as usual while still relying on traditional credit assessments.

British businesses have borrowed almost £35 billion under the government’s three emergency coronavirus credit programmes, but the approval rate for coronavirus business interruption loans (CBILS) remains just 50 per cent. Critics say that these emergency lending schemes rely too heavily on old, cumbersome legacy technology and if FinTechs using Open Banking were to be involved, more loans could be paid out faster.

There is a similar issue in the consumer lending market. The Credit Kudos Borrowing Index found that 32 per cent have previously been turned down for some form of lending and I’m sure this number will rise in the coming months. In the credit card sector, which had been in growth for many years pre-coronavirus, several providers stopped offering new cards and the number of 0 per cent balance transfer deals swiftly plummeted. Many people’s financial situation will have changed due to Covid-19 and so pre-pandemic data isn’t enough for lenders; they need access to up-to-date data on an individual’s current financial situation to properly assess affordability.

We have already seen adoption of Open Banking in lending increase as a result of this need, and I’d expect to see much more innovation in credit reporting on the back of the crisis, with Covid-19 acting as a catalyst for further digitisation. From car finance, to credit unions, and unsecured personal loans, lenders are hampered by inadequate, insufficient data, reducing their ability to lend responsibly. The traditional methods used to identify creditworthy borrowers are not reliable enough, often use out-of-date information, meaning lenders are unable to understand the borrower’s current and future financial health.

Opening up new opportunities

It’s time for lenders to embrace new data sources and technologies to better understand borrowers in our rapidly changing world. Open Banking provides a reliable, timely, and compliant way of accessing a wider range of real-time transaction data for credit risk and affordability assessments. It gives lenders across all sectors the opportunity to return to growth after the pandemic.

Open Banking streamlines processes and speeds up the results offered to lenders. Adding Open Banking into current customer flows need not be a large technology transformation that takes months, as technology-forward solutions can get new businesses up and running in a matter of days.

As one of the first FCA-authorised AISPs in the UK, we have seen first-hand how the lending sector has progressed on this journey. Using the transaction data available through Open Banking, we’ve been powering brokers and lenders to keep issuing loans in these uncertain times, and as we’re starting to come out the other side we’re seeing a wider range of use cases within the organisations we work with.

Servicing the full spectrum

Open Banking is relevant to each and every lending vertical. Even credit unions, the most traditional of lenders with a model rooted in face-to-face contact, have had to digitise rapidly. We’re working with forward-looking organisations such as Serve & Protect Credit Union, which caters for service personnel and other frontline workers, to draw on Open Banking to help them extend their services.

Similarly, unsecured personal loans, Open Banking helps to uncover new opportunities, converting marginal declines to acceptances thanks to the additional data and insights available. Lenders who already had Open Banking in place have been able to mitigate the cost of Covid-19 by identifying new borrowing behaviour before its reported by the traditional credit reference agencies.

Car finance is another good example. It was a steady market before the pandemic but much of the business is done through car dealerships, which have only recently reopened. Despite the dealerships being closed, some lenders were able to carry on lending through online brokers which have an enhanced credit risk model using Open Banking data. Open Banking can highlight recent loans and missed payments, and our Income Shock Detector also helps lenders to accurately detect and account for recent loss of income.

Demand remains high

Brokers felt the impact of Covid-19. Online brokers are still getting a lot of traffic, but they’ve struggled to continue to serve the market due to reduced lending appetite. They now have an essential role in supporting lenders as they seek to safely return to the market or, for those already lending again, safely return to growth.

We’ve developed a secure onward consent mechanism which is allowing companies like Loans Warehouse to safely share credit risk and affordability insights with lenders to help better inform their decisions. As part of the Loans Warehouse customer journey, individuals will be asked to connect through Open Banking. We will then analyse a borrower’s financial transaction data and securely provide Loans Warehouse’s lending panel with an up-to-date report of an individual’s current financial situation, with the borrower’s consent. By sharing richer, real-time data, prospective borrowers will be more likely to be matched with a lender that meets their needs, increasing their chances of being accepted.

Amidst the mayhem created by Covid-19, Open Banking is a cause for genuine optimism. Lenders across the spectrum are already accepting the digitisation of credit reporting, and I expect this to continue – even in more traditional sectors like banking as they endeavour to quickly embed Open Banking into their strategy further. There is no way back – Open Banking is already well on the way to creating a new lending landscape that will be characterised by innovation and collaboration; a fertile environment for increasing responsible lending and driving growth.

Freddy Kelly
CEO and Co-Founder
Credit Kudos

By Kevin Walkup, President and COO of Harmonate, a data operations firm serving private funds.

Can the confluence of three fast-moving market forces make for a perfect storm in a specific industry? Fund administers are about to find out.

First, the pandemic has driven down valuations in expectation of a recession. Asset managers are under pressure to come up with investment strategies that perform while controlling costs. They can’t waste time on anything that doesn’t clearly help.

Second, before the coronavirus arrived, margins were already dropping and fees had already fallen in large part from competition in finance. The truth is that neither will be rebounding anytime soon. The result is that asset managers can’t waste money. On the contrary, they need to make up for lost revenue.

Third, for all of the above reasons, funds were also already shifting away from internal administration before the coronavirus. Now that pace is accelerating due to the stresses arising from the pandemic.

For fund administrators, a typhoon of outsourcing is coming our way. Asset managers are still hiring data scientists to perform in-house work and develop domain expertise. But they increasingly are going to reach out for third-party partners, too. Funds will have little choice if they want to compete.

I’m going to predict that the administrators who live long and prosper in the new climate will be the ones who adopt a high-touch approach that utilizes solid data operations for funds. They’ll be the ones capitalizing on new fund administration that resembles the close collaboration that asset managers expect from their in-house teams except with more innovation.

High-touch is the ability to answer questions and react to fund managers’ needs quickly and accurately. In a high-touch relationship, speed and accuracy are key. Managers need to have information at their fingertips to respond promptly to events, to plan and to answer investor queries with confidence. Working closely at speed, however, can only come with automation that leverages the power of talented teams.

Technology is already at the center of fund administration. When asset managers talk about fund services, they mention statement processing, capital statements and other reporting. But in reality the asset managers are talking about data operations. They might not view those processes as high-tech because they don’t ask about which tools helped human administrators produce those documents. Humans can do it. But humans need data operations, mostly because speed and accuracy are the result of data operations.

The most advanced data operations for funds can take reporting from 2 weeks to 24 hours. Accounting processes can decrease from more than 100 minutes per investor to 1 minute per investor. Those numbers gain the attention of hard-pressed managers. Even if those numbers weren’t so staggering, can you imagine a leader not performing thoughtful due diligence?

New fund administrators should first start by asking managers about their needs, their challenges and the solutions that they think would improve their productivity. There’s a joke going around that a fund in a major metropolitan area was using interns and Excel spreadsheets for fund services. It probably echoes the truth, though, suggesting plenty of asset managers have not yet even considered data operations that are revolutionizing funds.

That said, as they increasingly shop around and the trends mentioned earlier, more asset managers will understand that data operations will dramatically improve their productivity. What’s more, many will eschew the mega consultancies in hopes of finding more boutique service providers who will treat their fund with extra love and care.

That gets us back to high-touch. If an asset manager is seeking new fund administration, then they are likely trying to chart a course through the storm that has been brewing in recent years but has since exploded with the appearance of the coronavirus. Fund administrators who work with those kinds of managers will need to capitalize on the most advanced machine learning and domain expertise if they want to keep up. Batten the hatches.

Kevin Walkup
President and COO
Harmonate

David Orme, SVP, Sales & Marketing, IDEX Biometrics ASA

The coronavirus pandemic has changed consumer behaviours and attitudes towards digital payments. While previously, consumers were happy to punch in a PIN, or even provide a signature for a purchase, they are now familiar with more convenient and safer touch-free methods, and this is unlikely to change following the pandemic.

Since the beginning of lockdown, when the World Health Organization encouraged people to not use cash, touch-free authentication has played a pivotal role in helping to reduce the spread of the virus. However, as shops and restaurants across the world begin to reopen, we are seeing an increasing number of people making payments via touch-pads. As we return to the ‘new normal’, the global payments industry must now consider how we can protect consumers from the pandemic and reduce the risk of another outbreak.

During the pandemic, touch-free payments began to gain international traction across the world, changing behaviour during the payment process. Contactless payments has also continued to grow since the reopening of the economy. In Europe, high street stores have rapidly shifted to contactless payments, often refusing to accept cash. Meanwhile in the USA, levels of contactless payments have rocketed since the pandemic, after a slow initial adoption of the service – US banks only adopted contactless cards in 2019 compared to 2007 in the UK. According to Visa, overall contactless usage in the USA has grown 150% year-on-year as of May 2020.

Even mega-retailer, Walmart, has recently introduced contactless options for in-store shopping and delivery to protect its customers during the pandemic – showing there is growing demand for a touch-free and convenient way to pay across the world. This has raised awareness of touch-free payments among consumers looking to reduce contact-based interactions and time spent at the checkout during the pandemic.

Tapping into the future of mobile payments

Mobile payments are continuing to grow in popularity, again, showing the desire for touch-free authentication among consumers. According to Forbes, the US mobile payment market – currently only sixth in the world – has increased 41% and is worth more than $98 billion.

To respond to the growth of touch-free payments among small vendors, PayPal has launched a new QR code-based payment app that allows market stall holders or businesses without a PoS machine to accept payment through a code. This means even the smallest of merchants, from small stores and farmer’s markets to craft sales, can now go cash-free and use touch-free payments for everything.

Meanwhile, China has long been using QR code-based apps, such as WeChat Pay from tech giant TenCent and AliPay from Alibaba. The apps are so widely used that street vendors display QR codes for payments and together the two fintech giants control about 90% of China’s digital payments market.

Payment cards remain king

At the same time, payment cards are still consumers preferred way to pay. Of course, we only need to look to Apple and Google, who recently have launched physical payment cards despite running mobile payment apps for further proof that payment cards are far from dead.

So why aren’t cards on their way out, given the growth of mobile payments?

We know that consumers still look to payment cards for security and a sense of familiarity while shopping. According to IDEX Biometrics’ research carried out in the UK, only 3% of consumers choose to use mobile payments, while nearly two-thirds (65%) state that carrying their debit card provides a sense of security. And when it comes to touch-free payments, only biometric payment cards can provide the most secure level of validation with an easy digital experience for shoppers.

Despite the popularity of WeChat as a payment app, China’s biggest card provider China UnionPay has recognised that its customers aren’t ready to give up on physical payment cards either. China UnionPay has recently certified the first biometric fingerprint card technology in the country as they look to the use of biometric technology in cards to provide an extra layer of security, with added convenience and hygiene during a payment transaction.

Touch-free card payments – the key to securing data

Biometric fingerprint payment cards allow the user to authenticate their ID by touching their finger to the card’s sensor while holding it over the contactless Point of Sale. Therefore, the shopper only has to hold their own card over the PoS system, making the entire transaction process free of public PIN pads or checkout counters. Not only does touch-free payment technology provide consumers with the convenience of contactless or a mobile payment but the process offers far greater security, as the card is personally tied to the owner.

With biometric technologies like fingerprints, facial and voice recognition, and even iris recognition becoming popular in smartphones, consumers are becoming familiar with the technology. It is only a matter of time until biometric identification in payment cards will become essential to help consumers navigate the shopping and transaction process safely, speedily and securely.

As our economy gradually reopens, the financial services industry has a responsibility to protect consumers during the transaction process, whether it’s in stores, on transport systems and even in stadiums. The payment industry must adapt and adopt fingerprint biometric payment cards to ensure touch-free authentication for all, and to keep payments seamless, secure and sanitary.

David Orme
SVP, Sales & Marketing
IDEX Biometrics ASA

By Stephen Ferry, Managing Director at Pay360 by Capita

For businesses, the impact of Covid-19 has changed the way they interact with their customers. In order to survive, many who viewed an ecommerce offering as a “nice to have” have been forced to act quickly and decisively, moving into unchartered territory: by becoming a fully-fledged online retailer. Of course, amidst such dramatic change and uncertainty, this is when fraudsters can thrive.

Many businesses might dismiss payment fraud as only applying to large corporates, but that is simply not the case, as every business will encounter fraud, whether they know about it or not.

According to a recent report in Retail Times, fraudsters are using the surge in online activity to target unsuspecting consumers and merchants. The average ticket price of attempted fraud increased by £14 in May ‘20, driven by electronics and retail goods. During the period from January to May 2020, the fraud attempt rate by value increased to 4.3%. Significant, by any standards.

In light of the dramatic increase in online fraud, businesses need to be conscious of customer contested card payments (“chargebacks”). The intention should be to minimise chargebacks as much possible and the threshold for this is around 1%, though the target should be 0.5%. However, when a merchant’s chargebacks go over 1% this becomes a red flag for many card acquirers. This can result in higher security or rolling reserves, higher charges and, worse case, the card acquirer serving a merchant notice.

To put this into context, according to Chargebacks911, only 18% of chargebacks are even contested by merchants, because they don’t have the internal resource or the technology to contest them. Repeat fraud is also assured, since 2 of out every 5 consumers who commit this type of ‘’friendly fraud” will do it again within two months.

So, where do businesses start? Many businesses are not even aware that they are being targeted or think that the costs of preventing card fraud will be greater than the fraud itself, which is usually not the case at all.

There are many fraud prevention solutions on the market sold as standalone products or integrated within payment platforms. It makes good sense to have a fraud prevention solution baked into your software, to enable the seamless process that merchants and their customers crave. Make sure you shop around to find one that fits into your business, integrates with your existing system and can scale with you as your business grows. Select one that has a straightforward and easy to understand interface and an interactive dashboard that can be connected to multiple data points. Also make sure rules are available to be set up in real time and offer complete flexibility.

Integrated fraud solutions can save merchants thousands of pounds in lost revenue, chargeback costs and administration time, and enhance the right customer payment experience. The key message I leave for businesses is – the threat of online fraud is current and growing. It’s a risk you ignore or underestimate at your peril.

Stephen Ferry
Managing Director
Pay360 by Capita

James Butland, VP Global Banking at Airwallex

Businesses will always need banks, but this necessity does not equate to trusting or even liking their chosen provider. The last decade has seen the digitisation of financial services change entirely how people manage their finances and what they want from banking suppliers – from instant contact, API integrations and more importantly, choice in the market.

COVID-19 has presented an optimum time for banking providers old and new to engage with their customers on a human level, rather than simply transactional. Since their rise from the early 2010s challenger banks have gained huge support due to customers no longer needing to physically visit a branch and the high tech digitisation of managing finances. However, traditional providers continue to overwhelmingly dominate market share and retain long-standing customers, whether they trust them or not.

A shift in attitudes since 2008

The years following the financial crash have witnessed an explosion of choice in banking, in turn altering what businesses are looking for when choosing a provider. The effects of 2008 have had a major impact on the structure of the industry. Advancements in technology and increasing competition from newer financial institutions entering the market means that what was once a monopoly for traditional high street banks is no longer the case. With an abundance of new options, it is only to be expected that customer needs have changed.

The arrival of digital-only banks was a blessing for customers hoping to have their own needs put first. Trust is core to UK banking and when customers hear a provider has a UK banking license, or is regulated by the FCA, it’s an immediate proofpoint ticked off the list. New FinTech companies that have come in and disrupted the market over the past decade were born in part from a loss of confidence in the traditional banking sector as customers sought options elsewhere. The crash opened up opportunities to disrupt the status quo of banking, and businesses re-evaluated what was important to them. Something FinTechs have over traditional banks is agility to expand their services to suit customer demand. For example, aside from often being cheaper, faster, more convenient, new financial providers can listen to customer wants and adapt their platform accordingly, more quickly and easily to meet demand, as the technology is not shackled to older legacy hardware and business processes.

The consequences of the pandemic for the industry

COVID-19 has offered banks an apt opportunity to show their customers how best they can serve them during hard times. In theory, this should provide financial providers with an optimum time to gain customer trust, but research suggests there is a notable gap between what SMEs feel about banks carrying out transactional tasks against the level of trust that banks will look after their long-term financial well-being.

Before the pandemic hit the number of physical banks branches were already in decline, especially in Spain, Luxembourg and Iceland. The lessering need for bricks and mortar means a wider array of choice and as we come out the other side of COVID-19, digital only banking will likely continue as the norm, particularly with advice from The World Health Organisation to use contactless payments and avoid handling cash to reduce the spread of germs. Where there are health connotations attached, the lessening of visits to high street bank branches may mean a continual decline in branch use. Lloyds Bank saw a 50 per cent increase in those registering for online banking compared to last year, while TSB has seen a rise of 137 per cent since the start of lockdown.

Business banking needs in 2020

A huge number of businesses have struggled immensely during COVID-19, with more than half of UK SMEs seeing a significant decline in sales, or worse, out of business entirely. Now more than ever business owners need the support of their bank, so the mission-driven ethos newer providers tend to offer will hold an immense amount of significance. FinTechs cater towards changing customer demand quicker than traditional providers because their platforms are built to adapt. If a new feature is being requested they can most likely build it and be much more transparent on progress. For example a public roadmap or regular company updates clearly demonstrates to users what they can expect and when.

Trust is immensely important for international businesses needing to manage money in multiple currencies. The cost of sending money abroad can be extortionate and traditional providers are guilty of inflating the exchange rate, while also adding on high foreign transaction and receiving fees. It is often when businesses realise they have lost out on a significant chunk of money that they are incentivised to search for alternatives. Many FinTech companies are reliable options to ensure businesses do not get ‘stung’ each time they send, spend, or receive money in another currency. Airwallex, for example, provides clients with easy and immediate access to international markets by allowing them to set up local business accounts and displaying a transparent rate at the time of the transaction.

The shock of COVID-19 to the world economy has been huge and affected businesses and consumers alike on a global scale across all industries. Trust was a huge problem in the previous financial crash because it was born out of decades of bad practice and excessive risk-taking, whereas this isn’t the case in 2020. Nonetheless, COVID-19 provided banks with the ideal time to show businesses how their needs were being put first, something that appears better communicated from the newer FinTech providers on the market. And while the shift to fully digital banking/payments is underway, traditional providers are still a long way off being competitive with the technology (and underlying customer demand) of the FinTechs of the past decade.

Whether or not this year has resulted in a growing amount of trust towards banking providers, or positively shifted attitudes is still yet to be discovered. One thing is for sure though, the effect this will have on customers’ futures will be remembered for years to come.

James Butland
VP Global Banking
Airwallex

Mohit Joshi, President, Infosys, in conversation with Siew Choo Soh, Managing Director, Group Head of Consumer Banking and Big Data/AI Technology, DBS

DBS is a leading financial services group in Asia with a presence in 18 markets. Headquartered and listed in Singapore, DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank’s “AA-” and “Aa1” credit ratings are among the highest in the world.

Recognised for its global leadership, DBS has been named “World’s Best Bank” by Euromoney, “Global Bank of the Year” by The Banker and “Best Bank in the World” by Global Finance. The bank is at the forefront of leveraging digital technology to shape the future of banking, having been named “World’s Best Digital Bank” by Euromoney. In addition, DBS has been accorded the “Safest Bank in Asia” award by Global Finance for 11 consecutive years from 2009 to 2019.

In her conversation with Mohit Joshi from Infosys, Siew Choo Soh from DBS talks about how the bank has achieved a feat unmatched by other banks globally, to become the first bank to concurrently hold three global best bank awards. Siew Choo Soh is the Managing Director, Group Head of Consumer Banking and Big Data/AI Technology at DBS. In her role, she drives digital transformation leveraging Agile, Cloud Computing, Big Data, AI, Machine Learning and is also increasing the representation of Women in Tech. Mohit Joshi is a President of Infosys. He is Head of Banking, Financial Services & Insurance ( BFSI), Healthcare and Life Sciences at Infosys and is also responsible for firm-wide sales operations and reporting processes, including large deal pursuits and top account growth.

Mohit Joshi: You have had a very interesting, fascinating and a well-documented career. Could you just give us a sense of your journey and the key lessons through-out your years in technology at DBS?

Siew Choo: It was a point in my career when I was ready to move towards new challenges and that was when DBS came calling. They asked me to look at a transformation they were about to start and pick up an opportunity there. When I first started in DBS, I was working on all the back-end technology, core banking is one of them from Finacle. As well as all the supporting units for the business such as legal, compliance, finance and so on. Those were the areas that I had never done in my entire career, I deliberately asked to be assigned to such a kind of technology to make sure I can get a 360-degree view of technology in a bank. I did that for about 2 years and after that I was given another new opportunity to head the consumer bank technology and the big data platform for the bank. That is what I am currently doing and still in the journey to further transform these 2 areas in the bank.

I was very fortunate to work with companies that truly supported mobility of people. We actually select people for roles and not because you have done it before but because of your calibre and as well as your passion to make an impact.

Mohit Joshi: You are also one of the few female leaders in technology across the world. For us at Infosys, 40% of our employees are women. What advice would you have for them as they move up in their career and take senior positions.

Siew Choo: Wow, 40% is a great achievement. Well done. I would say that women are typically the shy lot and we always have very high standards. To me, I think every woman should be bold and be fearless. One of my favorite icon is the fearless girl that has been moved in front of the New York Stock Exchange. I think that should be the model for every single girl. Be fearless and go after your dreams and do what you are passionate about.

Mohit Joshi: Now, moving to DBS. DBS has been a remarkable bank for many decades, but specially over the past 10 years. In 2019, the bank won every single ‘Best Bank in the World’ award, every single magazine and every single survey. What would you say is the vision of DBS, what is DBS truly looking to accomplish?

Siew Choo: In the last 10 years, we have been guided by our current CEO, Piyush Gupta. He has a very clear vision about where the bank should be, how we the bank should add value and how we should be transforming ourselves. I think the key part of it actually that we want to make sure that we are truly customer obsessed. We are striving every single day to make our customer experience seamless and we are always pioneering new areas to exceed the expectation of the customer. We have been doing this for many years and we continue to think of new ways to exceed the expectations of the customer, to make banking seamless and invisible to them. That has been the key part of our agenda.

Mohit Joshi: DBS is in a unique position where people contrast DBS with a Netflix or an Amazon just because your technology DNA is so strong. How do technology and business co-exist and succeed at DBS?

Siew Choo: We have a new saying at DBS that ‘business is tech and tech is business’. We are using technology as an enabler for business. Quite a few business models came about because of technology. That’s how we see technology as a revenue contributor rather than a support unit. That is a big contrast to many years ago to where we are now. In this whole agenda, we are quite relentless in pursuing cloud native, in making sure that our people are working in a truly agile manner as well as in the leverage of data and AI. We want to make sure that we do each of this in the true and correct way. There is a lot of effort put into educating our people, giving opportunity to attend various conferences and to be trained by the experts in the industry to understand the true essence. This is so that when we are implementing all of this, the architecture pattern for example, we are doing it the right way that we are able to reap the true benefits from those implementations.

We also benchmark ourselves with the big tech firms. For example, in the last one-two years we are trying to create a new enterprise data platform – ADA, to drive our AI agenda. Before we started, we went to all the various companies, especially the tech companies to look at what they use, what are the tools that they use and what is their operating model and so on. We created our platform based on those learnings.

Mohit Joshi: That’s very inspiring. From a Finacle perspective, we have had a relationship with DBS for many years now and you personally have been a very strong sponsor but also a very constructive critic of everything that Finacle needs to do. What is your advice to us as we invest and grow our platform?

Siew Choo: DBS has been in partnership with Infosys and Finacle for more than ten years. Finacle is definitely a core part of our architecture. As the bank grows up to become more and more digital to tackle new business models, it is important for us that Finacle evolves at the same pace as well as in the same direction as where we are going. So, in a sense the architecture pattern, the product capabilities, the agility of the teams as well as the user friendliness of the UI, those are all key part of what Finacle does to DBS. It is in our interest that we kept the agenda and the priorities of the bank in sync with Finacle.

DBS was recognised as the winner of the Celent Model Bank award in 2018. To download a copy of the Case Study click here.