27 June 2017
Money2020 Europe - Day 1
The first thing you notice about Money 2020 Copenhagen is the comic book aesthetic painted all over the walls and conference materials; it’s fun, geeky and gives a playful and informal feel to the whole event. I can confess, within ten minutes of walking in I had ripped off my tie and undone the top button of my shirt - now that’s what I call anarchy! Broadcaster and host of the conference, Angela Lamont, elaborated on the theme saying that, “we have tried to recreate Comicon at Money 2020”. Alas, I am disappointed to report that apart from a few Money 2020 helpers wearing capes, there is very limited Cosplay action going on. Fingers crossed this will change at the networking drinks this evening.
Fintech startups are an important part of Money 2020 and this year organisers have said they are putting startups at “the heart of the event”. However, it is equally evident as you walk in to the main foyer, the imposing presence of major international payment brands. This David and Goliath situation is discussed in a number of meetings as the industry continues to wrestle with how established business models should interact and deal with the vast array of new fintechs: are they a threat, a complimentary partner, or do they provide necessary disruption to help shake things up? The words collaborate and partnerships have been repeated time and time again on my first day here at Money 2020. Indeed this marriage of the old and new, the big and small, is perhaps best exemplified by the Mastercard sponsorship of Startup City – an area showcasing 20 hand-picked Fintech startups that aim to give a glimpse of tomorrow’s next big thing. I suspect there will be a few investors with their cheque books armed and ready.
Managing Director of Money 2020 Tracey Davies kicking things off at the start of the day highlighted that the event was about bringing everyone across the whole payment ecosystem together. This holistic approach is reflected in the session content which, to be quite frank, is a little intimidating. There is so much to see covering virtually every major payment topics, from next generation retail POS payments to cross-border disruption, from risk to user experience. While this means there is something for everyone, it does mean trying to sum up the event is nigh on impossible for one person to do. But as Adam West’s Batman curtly replied to the boy wonder’s quip about the impossible task ahead: “That’s a negative attitude, Robin”. So here I go.
The opening key note speeches were excellent introductions on how to leverage success in payments and in many ways actually provided a useful summary for the many sessions I went to today. Twitter and Square founder and CEO Jack Dorsey highlighted the reasons for starting Square: “Our model was simple, all we have to do is focus on making sure the seller can make a sale.” Square has recently launched its full suite of services in the UK, which include providing access to its API. Offering advice for would be startups looking to embark on an open platform strategy, but who may be concerned about opening themselves up to competition, Jack Dorsey noted that the key is to know what your core is so there is no confusion as to what you do and what everyone else does.
Barclays UK CEO, Ashok Vaswani was bullish about how to succeed – claiming that whenever his company in its 327 year history has addressed a societal need, they have come out ahead. He said it is important for all companies to define a societal purpose. In describing Barclay’s next chapter they have decided the future is not about product innovation, but how they serve their customers: “We are living in an increasingly interconnected world and our focus is to help all our customers move forward in this changing world”, whether that be helping corporates offer rewards to customers through new digital services, or providing educational services via their Digital Eagles to ensure that in this digital revolution, no one gets left behind.
Carrying on the same digital theme, Carlos Torres Villa the CEO of Spanish bank BBVA gave an upbeat view of the changing banking environment by claiming that technology is enabling things that were until recently unimaginable. Just as we have the emergence of the self-driving car, soon we will have self-driving banking. Citing research which claims that Millennials would rather go to the dentist than visit a bank, technology allows consumers to make choice: “If you want to dedicate time to your finances you can switch to manual, however, if you don’t, you will be able to switch to cruise control.” - the bank will effectively manage your finances based on your requirements. At the heart of this vision will be the use of customer data to enable actionable insights that offer value to users. This of course will require consent.
If I was going to sum up these three speakers in 140 characters or less, it would be: define your customer’s problem, define your purpose/role, embrace the technology to help you solve this.
The next couple of sessions I attended focused on the rise of challenger banks. Devie Mohan at Burnmark offered some useful insights in the latest primary research they have carried out on UK consumers. Perhaps most interesting is that the overwhelming primary reason to choose a challenger bank (74 percent) was that customers “wanted to try something new”. If true, this provides some potential hazards for challenger banks. They will need to ensure they provide an exemplary user experience in order retain these customers. Although the good news for challenger banks is the same research showed that 87 percent who switched from a traditional bank thought that customer experiences was either “awesome” or “good” in their new challenger bank.
Nick Lee at the Bank of England highlighted the extent to which they have helped and supported new challenger banks in the UK by reducing barriers to entry, reducing capital and liquidity requirements and simplifying the process of becoming a bank. Since this process begun in 2013, there are 26 new banks in the UK with a healthy pipeline of 25 new bank authorisations. What is perhaps most interesting is the variety of banks and business models among these 26 banks, from banking infrastructure services (eg. Clear Bank), international banks, digital consumer banks, existing lenders, new SME banks and niche banks, such as Trade Finance banks.
However, it was Anne Boden from Starling Bank that offered perhaps the most left field presentation today with her provocatively titled: Post Truth Banking and Nasty Fintech. Describing the post-truth era, which she says were optimised in the Brexit referendum and the election of Donald Trump in the US, there has been a movement, including protest, to get more truth. Similarly, in banking, the industry has for many years not been particularly straight with its customers, whether that be hidden terms, over-hype, mis-selling or even scandals. Nasty fintechs, like Starling Bank, are a movement to get more truth: “we are the rebels trying to fight banks in a post truth era”.
Anne thinks that unbundling the banking model will give people more power. She says that for many years we’ve been locked in a business model in which banks controlled the end-to-end process. Until now people haven’t experienced the same technical innovations from banks that they have benefited from everywhere else in their lives. This looks set to change.
Starling Bank was the first challenger bank to launch a mobile only current account, and unlike other digital challenger banks, including German digital bank N26 which aims to be a one-stop shop where you have access to all your financial needs, they are satisfied with just offering a current account product. Instead Starling Bank, will offer a Marketplace platform where other providers come in and offer loans, savings and various other service to support the customer.
Starling Bank is also the first mobile-only bank with direct integration to the UK’s Faster Payments. What’s more it will also become a sponsor for Faster Payments. Hot off the press, I can confirm that Vocalink has signed an agreement with Starling Bank that will enable access to Faster Payments for Starling Bank customers and other Financial Institutions and Payment Service Providers using the Vocalink PayPort FPS Gateway.
Reminiscing on his banks 327 year history, CEO of Barclays UK, Ashok Vaswani, also noted that today (Tuesday 27th June) is the 50th Anniversary of the first ATM, introduced at the Enfield Town branch of Barclays Bank in North London. As the conference broke up for lunch, I caught up with our friends at Retail Banking Research (RBR) who specialise, among other things, in global ATM research and analysis. I asked Business Development Manager, Felix Kronabetter, what he thought the present state of the ATM market was given recent statistics in the UK that show a strong decline in cash usage:
“Despite the decline in usage, I think it is surprising just how resilient cash usage has been in the UK, especially when you consider the level of opportunities to make electronic payments available across the country. While banks may have retrenched from offering ATMs, independents are jumping into bridge the gap. It is happening everywhere, not just the UK. Even in cashless Copenhagen, independents are making significant in-roads.”
If you are interested in reading more about the ATM’s 50th year, check out my own little ode to the humble ATM.
The last session of the day was a high profile C-Level perspective on tomorrow’s payment landscape moderated by Ron van Wezel of the Aite Group. The distinguished panel included , Joel Leonoff (Paysafe), Mike Laven (Currency Cloud), Jean-Claude Farah (Western Union), Stefan Thomas (Ripple) and Vocalink’s own Paul Stoddart.
The first question directed to Paul Stoddart questioned whether we could see a shift in payments from the card networks to account-to-account transactions provided by ACHs.
“Electronic payments is a pretty big market globally, it has a lot space for fintech, banks and existing payment networks to play. Globally, cards roughly account for about 25 percent of payments with ACHs accounting for another 25 percent. The remaining 50 percent of payments is mainly cash. As such, there is a hell of a lot of space to play in. We look at it from the perspective that banks, corporates and merchants are looking for greater choice. They are looking for networks that have particular characteristics to serve particular customer needs.“
Addressing a key growth opportunity, Paul Stoddart notes that: “ACH have typically been domestic in nature and there has really been nothing in the cross-border space utilising the real-time ACH. There are around 20 markets with real-time infrastructure now and another 10 implementing it. We forecast almost all sizeable markets will be investing in technology in the next 10 years. We are looking forward to a point where there are multiple networks running instant payments and offering richer data. Importantly, these network will be interoperable. Users want the benefit of immediate authentication like you get on the card network, to be able to get the use richer data benefits from ISO20022 standards and to clear fund in real-time.”
The emergence of open banking and unbundling of banking services, a theme discussed in the challenger bank sessions, was also discussed by Currency Cloud’s Mike Laven. Contrary to many industry commentators, Mike believes that PSD2 is the greatest ever gift to established banks; it allows banks to keep their deposits, which are the most valuable part of the relationship enabling them to finance loans etc. Other services are all low margin. Paysafe’s Joel Leonoff wasn’t convinced saying that from his companies experience, there is more money moving around and it does not necessarily mean more bank deposits. Often money is moving out of bank and into wallets. However, I would challenge this this claim on the basis that from most estimates, in value terms, the amount circulating in stored value accounts is extremely low when compared to bank deposits.
Paul Stoddart noted that the advantage to banks is they have a high degree of trust, potentially shielding them from the competitive effects of open banking, although he doubts many of them consider PSD2 a saviour. While he questioned Mike Leven claim, suggesting credit is not what it used be, there is certainly opportunity to grow new revenue streams through leveraging data.
So what did the panellists think were the greatest threats to their business? For three of the panellists regulation was the big fear.
Joel Leonoff (Paysafe) said regulation had the potential to affect how we interact with our customers and businesses. However, he also noted that regulations also provides barriers for potential competitors.
Jean-Claude Farah said that while regulation is an external threat, internally the biggest worry for an establish company like Western Union is to allow inertia to creep in. As easy as it is to think that things won’t change, it is important to continue to not allow yourself to stay still. Mike Laven, pointed out that regulation created asymmetric risk. If you get it wrong on a $100 transaction it can cost you $1,000.
Conversely, for Stefan Thomas at crypto currency Ripple, regulation and disruption is from their perspective, not necessarily a bad thing. “Disruption is always driver for our business, as we help companies deal with it.”
Paul Stoddart, acknowledging regulation as a potential danger, said that cyber risk is the top of his list. “Running clearing systems can give you sleepless nights. While we understand where the cyber risk is coming from, the speed with which these threats is changing is a concern. We need to ensure we continue to invest in protecting our businesses from these risks and ensure we are on a par with the threat level.”
Tomorrow is another jam packed day – so stop by Vocalink’s CONNECT for the next instalment from Money2020 Europe.