FStech reports from Pay Expo Europe 2017

This year’s PayExpo took place on 4-5 October in London’s ExCeL, with over 2,200 delegates from the payments industry visiting the exhibition and attending the four conference streams. FStech’s Chris Lemmon reports from day one of the conference.

Day one of Pay Expo started with a special announcement from Anne Boden, founder and CEO of Starling Bank, who unveiled the digital challenger bank’s foray into the business market with the launch of business banking accounts for customers. Designed for entrepreneurs, sole-traders and small business owners, Boden confirmed that the new mobile-based finance management product is anticipated to launch in early 2018 and will be free for the bank’s customers.

Tom Blomfield, CEO of mobile bank Monzo, then hosted the first talk in the Future of Banking stream, labelled ‘Building a smart bank; from crowdfunding to reality’. Blomfield started by describing the “stale rate” of innovation that seen in banking over the past 20 years, stating that “financial institutions have access to an abundance of information and technology, but are not using it to innovate”. Banks remain focused on selling their products, Blomfield explained, with consumers having to fit themselves around what the banks are offering.

Monzo, on the other hand, wants to keep the customer as its focal point – developing products with them in mind. Blomfield then ran through a number of current and upcoming features available to Monzo’s mobile banking customers, including a new ‘Connect with Monzo’ feature that will allow customers to make better use of their data and identity. The ‘freeze your card’ functionality has also proved popular among customers, according to the CEO, who noted that it was also used to track down and arrest a criminal who was using the stolen card to purchase gin in a nearby supermarket.

Monzo recently reached half a million customers, Blomfield noted, and the UK bank is on course to break the million mark by early next year. The ‘network effect’ means that the average customer on Monzo has 13 other friends or family members using the bank’s services. When asked how the recent revelation that Monzo will now start charging users for ATM fees incurred abroad was received by customers, Blomfield said that they had seen little to no impact, with just two or three accounts closing as a result.

Staying with the Future of Banking stream, the next talk was a panel discussion on how digital banks are challenging the market, hosted by Jeremy Nicholds, director of Vipera. Panellists had an interesting debate on how digital banks will be able to challenge the incumbents in a traditional market. Rich Wagner, CEO of Cashplus, expressed that he did not believe that the digital revolution is upon us, stating that the incumbents “still do a very good job for us”, while safety still trumps convenience when it comes to customer banking. He noted that the challenger banks are faltering on “staying up” all the time, with outages remaining a relatively regular occurrence for them. “Getting payments wrong is an emotional nightmare for people,” Wagner explained, claiming that issues will only be exacerbated as the banks’ scale and grow towards serving much larger customer bases.

Ricky Knox, founder of Tandem Bank, responded by explaining that Tandem, like other challenger banks, is still in “phase one” – meaning that their customer offering is not the final product yet, and they have alerted customers to this fact, asking them to not close their current accounts in the meantime. But the interest that challenger banks are receiving from consumers, according to Knox, demonstrates that “the switch to digital is happening”. “There are limitations to physical,” Knox said, noting how it took Metro Bank six years to reach one million customers – far slower than how long it is taking its fully-digital counterparts to achieve that feat in today’s market. In addition to this, Barclays’ customer base currently sits at around 10 million, which Knox argued will soon be overtaken by challenger banks if their current growth rate continues.

Francesco Scarnera, CEO of iBe TSE, replied by saying that this sort of scaling will prove to be very difficult for challenger banks, who will need to incorporate with other institutions if they are to support a substantial customer base. Instead, “we will see a much more niche-based market where people will use different providers for differing offerings – for example Revolut and TransferWise for international transfers and Atom for their savings products,” predicted Wagner.

Profitability was a key talking point of the debate, with Wagner and Scarnera highlighting that all of the challenger banks are currently losing money. “Show me a smart digital bank that is making a profit – that is who will win the race and be successful,” remarked Wagner. Knox responded by explaining that the route is not a traditional one – challenger banks have to lose money through raising awareness and growing customer trust, before making money in the future. He also explained that his bank, Tandem, included aggregation and a credit card feature which has been making money since day one.

Crossing into the Market Regulation and Security stream, the next talk was a discussion on the forthcoming General Data Protection Regulation (GDPR) and its potential impact on the financial market. The discussion centred around consumer trust and ownership, with Gerard Wilkinson, managing director of Cognitive Research, warning that organisations must “innovate or die – if you do not gain trust with a consumer, they will move away”. He continued by stating that the usage of unclean data runs the risk of reducing a business’s revenues by six per cent, citing the Post Office as an example.

Dennis Voigt, partner at Melchers, pointed out that GDPR will primarily affect businesses within the EU, who risk the fine of four per cent of their total global revenue if they fail to comply with the new regulation. He also warned that the introduction of GDPR could have a negative effect on the reporting of financial crime. Data breaches are reported more or less on a daily basis, according to Voigt, who believes that some organisations may reduce their reporting for fear of reprisals.

Andrew Hewitt, senior payment solutions consultant at FIS Global, agreed that an open API economy will help to enable portability in the market, as well as put consumers in better control of their personal data. “The future could be a personal data store where consumers sell their data,” Hewitt said, claiming that a level of trust can be established between business and consumer “if you can show them what you are doing with their data and why”.

A talk on ‘strong customer authentication and how mobile biometrics will play a significant role in payments’ was up next, delivered by Steve Cook, director of sales EMEA at Daon. He explained that there are currently 1.9 billion biometric-enabled devices in the world today, which will rise to over five billion over the next five years. Cook also noted how the introduction of the second Payment Services Directive (PSD2) next year will contribute to the growth of biometric use, as payment service providers will have 18 months from the date of effect to implement strong customer authentication – a key part of the new legislation, with businesses facing implications if they do not comply.

“There is no perfect biometric solution that fits all situations,” according to Cook, who said that consumers using different biometrics in different channels will undoubtedly cause friction in the future, and that the industry must strive for a more standardised approach across the board. But the sector was working towards this, noted Cook, with banks combining biometrics with other security features to increase engagement and brand perception, as well as enhancing security measures.

The day concluded with a Dragons Den-style pitching competition, with four startups showcasing their financial services products and programmes to the PayExpo audience. Irish firm Trezeo was crowned winner of the event, for their financial stability solution for unemployed and freelance workers. The Dublin-based company will be launching a pilot with initial customers this month, and is currently raising seed funding to support its launch in 2018.

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