01 March 2016
Collaboration at Level39 - NextGen Banking conference Review
VocaLink was the headline sponsor of ‘NextGen Banking’, a one-day event dedicated to the future of banking, hosted by Finextra at London’s Level39 in Canary Wharf. As the conference name suggests, the key discussion topics revolved around future of banking, touching upon regulation, evolution of consumer needs, business model and technology innovation, with a special focus on access to the payment schemes and, as an overarching theme, competition and collaboration between established banks and new Fintech players.
The event had over 500 registered participants and had to shut down registration early in the face of huge demand for tickets. An impressive array of speakers and attendees, including representatives of traditional and challenger banks, Fintech startups, major technology and solution providers, government and regulators, yielded some excellent discussions and networking opportunities.
Gwyneth Nurse, Director at HM Treasury Financial Services Group, was the first speaker of the day and has kicked off the agenda by delivering a passionate speech on the significance of the Fintech sector for the UK and its leading position globally. She highlighted the role of the UK regulators, praised for being the world’s most supportive and open to innovation, and mentioned several initiatives under way, including the Open Banking Working Group, FCA’s Innovation Hub and Regulatory Sandbox, work in digital currencies space, CMA’s retail banking market investigation and the PSR’s reviews of payment infrastructure provision and indirect access to payment schemes. Among other points she reiterated the government's ambition to see 15 new banks coming to the market within the current parliament (end of 2020).
Access to Payment Schemes
The next speaker was David Yates, CEO of VocaLink, who spoke about opening access to payment systems in the UK and VocaLink’s role in it. He started with outlining the three key challenges banks wishing to become a member of Faster Payments are facing. The new bank would need to get a settlement account at the Bank of England, navigate the scheme approval process, and sort out technical access, a costly exercise under the existing arrangements.
He spoke about the Faster Payments’ new model for aggregator services meant to address the technical access issue and to provide low-cost, hosted solutions to smaller banks; and introduced PayPort, a new VocaLink’s managed service payments gateway, created as a response to the new model. He spoke about market demand for more sponsor banks and a new partnership between Raphaels Bank and VocaLink created in order to offer a one stop shop for challengers, where technical access will be provided by PayPort and sponsorship will be provided by Raphaels.
David went further to suggest that technical suppliers should get access to settlement accounts at the Bank of England to be able to settle on behalf of customers who are not able or not willing to do it themselves. He expressed his support for the work the Faster Payments scheme is doing to simplify the scheme accreditation process, and in particular to allow the burden of accreditation to fall mostly on the aggregators like PayPort, by way of addressing the remaining of the biggest challenges for the new joiners.
David shared with the audience VocaLink’s ambitions for PayPort to become a single access point for all UK payment schemes, alleviating the complexity of multiple standards and multiple connections for customers; spoke about VocaLink’s support of the PSR’s recommendation to converge to the single standard, ISO20022, and the importance of maintaining interoperability with the current standards during the migration period. Finally he spoke about PSD2 and Open API access to banking data, the seismic shift they may cause to the market and potentially the huge amount of new demand for access via these routes.
The speeches were followed by the first panel of the day, dedicated to benefits and beneficiaries of the UK’s payments schemes opening up. The panel was moderated by Jerry Norton, VP Financial Services, CGI and included Craig Tillotson, CEO of the Faster Payments scheme, John Box, Head of Strategic Partnership at Raphael Bank, Andrea Dunlop, CEO Card Solutions and Acquiring Europe at PaySafe and Chris Dunne, Director of Market Development, VocaLink.
A large part of the discussion echoed David’s speech and went about the importance of real-time payments for the challenger banks, pain-points of the current access model and the new model being developed by the industry. The panel touched upon the key elements of the new model, including payment aggregators, broader range of sponsors, simplified accreditation process and the move to pre-funded accounts for settlement risk management. Craig Tillotson confirmed that he expects several aggregators to be officially accredited in time for Easter, including VocaLink’s PayPort. The complexity of opening a settlement account with Bank of England was mentioned again as a question yet to be addressed.
Evolution of customer needs
The rest of the morning was dedicated to two panels discussing evolving customer needs, those of corporates/SMEs and retail consumers respectively.
The corporates and SMEs panel included Sharon Argov, CEO and Co-Founder, Fundbird, Will Beeson, Head of Operations & Innovation, CivilisedBank, Patrick Mang, Lead for Innovation Strategy, HSBC Group, Christoph Rieche, CEO and Founder, iwoca and was moderated by Stephen Grainger MD, Head of Market Infrastructures, SWIFT. The challengers spoke mostly about the high cost of servicing SMEs within the traditional banking model and the limited funding options available as a result, while Patrick Mang of HSBC, the only established bank on the panel, stressed the importance of providing comprehensive service and global nature of many customers’ needs and HSBC’s solutions.
The consumer panel had Sophie Guibaud, Vice President European Expansion, Fidor,Jonathan Kernkraut, Retail and Business Proposition Director, Metro Bank, Alex Letts, Founder & Chief Executive, Ffrees, Sigga Sigurdardottir, Chief Customer and Innovation Officer UK, Santander UK, David Webber, Managing Director, Intelligent Environments and was moderated by Thea George, Director of Research at Finextra. This panel was more in agreement and concluded that the digital revolution did not affect the fundamental consumer needs in any significant way, and trust and quality of service remain the most important consumer requirements.
Regulatory driven change
The afternoon session was opened by Graeme McLean, Head of Banking, Lending & Distribution, Strategy and Competition Division at FCA, who updated the audience on the latest regulatory developments, spoke about the benefits of innovation and the FCA initiatives designed to support it, Innovation Hub and Regulatory Sandbox, but also mentioned the structural risks fintech may pose to the traditional banking industry.
The next panel on the PSD2 was led by Gary Wright, Director of Content at Finextra, and was probably the liveliest of the day. Paul Anning, partner at Osborne Clarke, labeled the directive as ‘the lawyer’s dream’, apparently referring to its complexity and the amount of legal work it is likely to generate. Nilixa Devlukia, Technical Specialist for Payments, Strategy and Competition at FCA, shared some challenges about the transposition timeline and explained that certain elements of the PSD2, driven by EBA, may settle as late as in mid 2017.
Anne Boden, CEO of Starling Bank, stated that the directive can be the biggest change ever to the industry ‘if it ever happens’, alluding to the experience of the PSD and the industry’s ability to slow down change. Nick Middleton, Head of Payments Strategy and Architecture at Nationwide, echoed this statement, saying that he expects it to be ‘an evolution rather than a revolution’. Ian Clark, Head of API Management Solutions, CA Technologies EMEA, advised the audience that their clients are getting ahead of the game and start getting ready for the PSD2 despite all uncertainties. The panel agreed that a lot of very difficult points, in particular around liabilities and security, are still to be resolved and that consumers’ reaction to the new offerings is still mostly unproven.
The final panel: where next?
The last panel was moderated by Keith Saxton, Chair Financial Services Programme at techUK, and had representatives of traditional and new banks sharing their thoughts on what the future for banking may look like. Ricky Knox, Co-founder of Tandem bank, shared his vision of banking in 10 years’ time being ‘not productised and infinitely more flexible’ citing as an example a mortgage which will allow to skip a payment in a month when the customer needs to buy a birthday present for their spouse.
Jonas Huckestein, Co-founder and CTO at Mondo, told about their plans to build customer trust by starting with low risk services and gradually moving to more sensitive areas. Chris Popple, Managing Director, Personal and Business Digital at RBS, spoke about their innovation pipeline, focus on end-to-end services and customers ‘life moments’. He mentioned one of their first new products, Home Move, an advanced mortgage calculator app integrated with property search websites and helping with the entire process of buying a house.
Caroline Thomas, Director, Innovation & Customer Experience at Barclays, referred to the bank relentless focus on innovation and joked that nothing looks up-to-date anymore, unless it mentions blockchain. Alon Zadka, Senior Innovation Lead at Lloyds Banking Group, spoke about the bank transformation efforts aimed to fundamentally redesign customer journeys and challenges of making change in the massive organisation. It was a genuine thought sharing discussion and, as Chris Popple observed, it was increasingly clear that while there are some tensions between the established and challenger banks, there is a lot of agreement when it comes to what is best for the customer.
Jim Wadsworth, Product Director at VocaLink, provided closing remarks for the day and passed the word to Patrick Baudry, a celebrated French astronaut, former fighter pilot and UNESCO Goodwill Ambassador. Patrick spoke about importance of moving ahead and taking risks.