So, you want to be a card issuer?

shopping business money pay

Card issuing seems to be hot right now. Despite the rise of alternatives to card payments, many Fintech’s appear intent on adding payment cards to their product portfolios. And it is not just the “me too” start-up banks.

For example, some international remittance services are adding payment cards to their offerings.  This allows customers to spend the money they receive directly but also means that customers do not withdraw funds immediately upon receipt. This extends the customer relationship adding value to both the customer and the Fintech.

Fintech at minus four

Well, I’m just back from Oslo where it was a balmy -4 during the Oslo Fintech Fest. The nice people organising this little get-together of a almost a thousand close friends asked me along to give a short talk on the next ten years of Fintech and since some of Consult Hyperion’s favourite Nordic clients were going to be there, I thought I’d take them up on the offer (especially when I saw the great line-up they had for the day).

Oslo fintech panel  1

Another reason for wanting to go along to #OsloFintechFest is that Norway is one of my favourite countries, for several reasons:

  • They don’t use cash. The beggars here have QR codes that you can scan to donate money to them using your mobile wallet.

  • They are obsessed with trolls, and made one of my all-time favourite films, Troll Hunter.

  • They have a functioning bank-led identity infrastructure.

Yes, that’s right. It may sound a little far-fetched, but it’s true. Basically, everyone here uses a bank-provided identity and secure authentication service to do pretty much everything. In a population of 5.2 million, there are 3.5 million people with a BankID widget and a million people with a BankID app on their phones (here’s my fanboy piece about it back in 2006). What started off as secure way to log in to your bank account has morphed into a secure way to log in to everything.

 In 2015 BankID was used 430 million times, a number that has increased year by year as more services are made available. It is a two-factor-solution, with a key fob-style token  –  or an optional mobile app  –  and a BankID password. Customers can use their BankID to lease a car, rent an apartment or enroll for college.

[From Norway adding mobile digital identity function to its BankID program – SecureIDNews]

Sounds pretty good to me. And now they’ve decided to extend the authentication beyond the browser and in-app which is where, as we all know, the action is. They are running a pilot program right now.

Encap’s ‘Smarter Authentication’ is a device-based, multi-factor platform that removes the need for key fobs by enabling authentication to take place inside an app. Encap takes advantage of the device’s authentication capability – Apple’s Touch ID for example – and lets that be used to verify the customer.

[From Norway adding mobile digital identity function to its BankID program – SecureIDNews]

Love in-app. Love local authentication. Love Apple TouchID. I’m green with envy. Why don’t the UK banks have something like this in place?

Oslo fintech speaking small

It was terrific event, with excellent networking and some great panel discussions. I gave a talk about the future of fintech and ended up by talking about Consult Hyperion’s “Live Five” for 2017 so that there were some specific areas of focus for the delegates. Go Norway. I do have one slight area of disagreement with my Norwegian cousins though.

The Norwegian Data Protection Authority – Datatilsynet believes people should be able to make purchases without having to leave electronic tracks behind them.

[From Norway to Be a Cashless Country – The Nordic Page – Economy]

I’m unconvinced. I think the disadvantages of unconditional anonymity greatly outweigh the benefits of managed pseudonymity. Hence the next step for BankID should be to deliver a functional bank-led multi-identity pseudonymity service (so that when you are asked for your identity, a menu of identities pops up on your phone for you to choose from: e.g. “David G.W. Birch“, Dave Birch”, “Lord Tantamount Horseposture” or “G. Jesus Saves”) and show the rest of us how it is done.

Location, location, location and financial innovation

In his super book “Money Tales”, Alessandro Giraudo looks at the emergence of paper financial instruments and tells how the great medieval trade fairs of Europe were gradually replaced by financial fairs where no actual trade took place except in money.

Even after trade routes had shifted away from the north-south axis that depended on the Champagne commodities fairs, the fairs continued to function as an international clearing house for paper debts and credits, as they had built up a system of commercial law, regulated by private judges separate from the feudal social order and the requirements of scrupulously maintaining a “good name”, prior to the third-party enforcement of legal codes by the nation-state.

[From Champagne fairs – Wikipedia, the free encyclopedia]

Hello. New instruments but no new institutions, new technology beyond traditional law enforcement, so a private reputation-based scheme grew up to facilitate commerce where previously gold and silver had been the oil that greased the wagon wheels. It’s almost as if identity had become the new… no, let’s not get distracted…

Giraudo tells how over time the power of the Genoese bankers rose and they shifted the fairs from France down to Piacenza, near Milan. The Genoese had established the function of the banker as a money merchant and separated this function from that of the “merchant banker” with holdings. Imagine how the idea of paper replacing gold and jewels and spices must have seemed to the institutions of the time! The finance and wealth based only on paper astonished the traditional Italian bankers, and those of rest of northern Europe too, but they all had to adapt to the new reality so as not to be overtaken swept aside by this technological revolution.

Those Paicenza money market fairs became the largest in Europe from the end of the 16th and into the 17th centuries with bankers from Flanders, Germany, England, France and the Iberian peninsula converging four times a year to meet with the Genoese, Milanese and Florentine clearing houses. The clearing houses put down a significant deposit in order to participate in the fairs and in return they fixed the exchange and interest rates on the third day of the fair (this was when interest rate fixing wasn’t the thing it is today). In addition to the bankers there were also money changers who also had to put down a deposit (smaller) to present letters of exchange, and there were also there were also representatives of firms and brokers who participated in the trading.

During the fair, the participants tried to clear all of the transactions in such a way as to limit the exchange of actual coins, so it was net settlement system. Any outstanding amounts were either settled in gold or carried forward to the next fair with interest. This was the first structured clearing system in international finance and it lasted until 1627, when the Spanish Empire went bankrupt (again) causing serious losses to the Genoese bankers who were its principal financiers (and sadly for them had no access to a taxpayer-funded bailout). As a result the financial centre of Europe shifted to Amsterdam, which had a central bank for efficient inter-merchant transfers (more on this is in another post) and was developing newer instruments including futures and options, and then onto London. Spain’s gold and silver (from the Americas) never translated into a strong financial services sector and trade-led economic growth.

When Philip III became King of Spain and Portugal in 1598, Spanish commentators were complaining that instead of being used to stimulate industry and business, the treasure from the Americas had created an attitude that held productive work in contempt, while foreigners – Genoese, Dutch, Germans – ran Spain’s trade and finance to their own profit.

[From Spanish Bankruptcy | History Today]

Giraudo observes that while geography and politics have a strong influence on the location of financial centres, the deciding element has always been the capacity to invent and use new financial techniques, and above all to create a dynamic sense of innovation. This is where, in my opinion, London and New York excel and why they remain powerful financial centres. But what if that capacity to invent new financial techniques is in the future better exploited in Kenya or the Far East or on the Internet? What if financial innovation slips its mundane anchors and begins to float free on the tides of cyberspace? In London, in the UK and in Europe we have to make sure that we have a regulatory climate that supports innovation in financial services in the new economy, not one that attempts to prop up the old one.

Well, anyway, that’s what I told the Parliamentary Office of Science and Technology when they interviewed me about fintech this week and it’s what I’m going to tell the chaps from the European Parliament when they interview me about fintech next week.

No fintech disruption? It’s already started

I came across an article in Finextra about fintech and disruption. I put it to one side, meaning to respond to it, but I didn’t bother because Brett King got in before me. However having just come across my notes while looking for something else, I thought I’d spend a few minutes on it because I want to make a general point about the relationship between banks and fintech. The article said that, in essence, there is no fintech disruption in UK banking because most customers don’t want to switch banks. That’s an interesting hypothesis about the measurement of disruption, except that I can’t ever remember anyone I know saying that one of the effects of current fintech initiatives would be customers changing bank accounts more frequently.

The much hyped ‘digital disruption’ in the UK banking sector appears to be a non-event for the majority of consumers, who remain steadfastly unimpressed by noisy new entrants and new-fangled tech. A YouGov and ACI Worldwide online survey of more than 2000 UK adults found that the overwhelming majority of current account holders in the UK (88%) have no intention of switching bank accounts within the next 12 months.

[From Finextra: Finextra news: Forget the hype: Bank customers unimpressed by ‘disruptive tech’]

Personally, I think this figure is irrelevant. We already know that fewer people are switching accounts than before the UK banks were forced to spend a billion quid on the new account switching system, fintech or not. The point about fintech, I would have thought, is that it eats away at bank profit pools, not bank customers. I still have my Barclays account even though I use TransferWise to send money to my US account. Anyway, on to technology. One area where fintech might have had an impact is around the internet and mobile phones. Yet according to this article

a staggering 59% never use mobile banking within [a month]
[From Finextra: Finextra news: Forget the hype: Bank customers unimpressed by ‘disruptive tech’]

This is correct, but it’s not the story. That’s that according to the British Bankers’ Association (BBA), “banking by smartphone and tablet has become the leading way customers manage their finances”. The leading way. Not “a way”, the “leading way”. And while about a third of adults use mobile banking now, the BBA expect this to be two-thirds within five years.

Currently, just over a third (34%) of UK adults are estimated to be banking on their mobile. With the increasingly widespread ownership of smartphones and a growing appetite amongst UK adults to access their finances on-the-go, this figure is expected to almost double to 60% by 2020.

[From UK mobile banking set to double to £3.4 billion a week » Banking Technology]

So the survey is instantaneously accurate, but doesn’t tell us much about the future because it doesn’t show the trend, and therefore isn’t very interesting. I think the ACI survey covers much more interesting ground when it looks at the impact of technology companies.

Further, 78 percent of those surveyed stated that it is unlikely they would use banking services offered by the likes of Google, Apple or Facebook—household names in today’s ‘digital age.’

[From Finextra: Finextra news: Forget the hype: Bank customers unimpressed by ‘disruptive tech’]

I don’t know what the “banking services” offered by Apple or Facebook are, and couldn’t find any mention of them on their web sites, but “banking services” to me means “services that you need a banking licence to provide”. To the best of my knowledge, neither Apple nor Facebook have such a licence and I have no reason to suspect that they might want one. Hence my summary of the survey results would be “100% of customers have never used a banking service from Apple or Facebook because there aren’t any and can’t imagine what they might be even if there were and hence there’s no point asking them about it”. You might well also want to ask why Apple or Google would want to do it. The answer is, of course, that they don’t. Who does?

operating a regulated deposit-taking banking license is incompatible with the pursuit of profitable growth

[From Finextra: Finextra news: Regulatory costs force loss-making Tungsten out of banking]

Why would Apple want to do something as heavily regulated as banking? Ah, you might well protest, but what about Apple Pay? Isn’t that a “banking service”? The answer is no. (And in any case, Apple Pay is a reactionary play that uses the card rails provided by banks.). Still, apparently, this is one area where some customers are responding to the new products and services forged in the white heat of the Old Street fintech forges.

However, the results also suggest that a smidgen of change is evident with long-endorsed practices such as the use of PayPal and Internet banking gradually achieving mass-market acceptance. Equally, technologies which can demonstrably improve the customer experience, such as the use of contactless cards to tap and pay at the checkout, are showing faster uptake.

[From Finextra: Finextra news: Forget the hype: Bank customers unimpressed by ‘disruptive tech’]

Internet banking is “gradually” achieving mass market acceptance? Really? Thanks for bringing us these dispatches from the front line, Finextra!

Look, banking isn’t going to be disrupted because somebody new uses technology to deliver the exactly the same highly-regulated banking service that banks already provide. Banking is going to be disrupted by competitors using new technology to deliver specific services in a better way, drawing away customers for those services, and undermining bank profit pools as a result. P2P lenders don’t offer bank accounts, so it’s pointless trying to measure whether (e.g.) Zopa has been disruptive by looking at how many people have switched bank accounts. I still have my Barclays savings account (with four quid in it) even though I have a Zopa account that delivers around triple the interest rate. What’s important to measure is the impact on bank profits and since P2P lending directly competes with unsecured personal loans (which according to Goldman Sachs have the biggest banking profit pool at risk), I would imagine that this is already showing up on bank spreadsheets.

What’s the reality? Well, in his predictions for 2016 (“The World in 2016”), Stanley Pignal (the Banking editor at The Economist) said that fintech is on the rise and that $1 billion companies will start to seem like “old hat” in 2016 for the finance industry’s technology-driven new stars as the $10 billion club will have a growing membership. He goes on to say that while even the big fintech players are still small in comparison with the incumbents, they have already forced banks to sharpen their game. If the growth continues, however, they will become more substantial competitors. The disruption has already started.

P.S. Sincere congratulations to Giles Andrews of Zopa on his OBE in the Queen’s New Year’s Honours List. A thoroughly well-deserved gong that couldn’t have gone to a nicer guy.


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Over the years, what was once the London BarCampBank has, with the support of Consult Hyperion, turned into an annual fintech unconference held the day before Finovate Europe. I think – apart from great networking and enjoyable discussions – it provides a useful weathervane for our clients. This year – no surprise – two topics dominated the conversations: blockchain and identity.

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