There’s five months to go until the adoption of ISO 20022 in Europe – the international standard for exchanging electronic messages between financial institutions, covering cards, payments, securities, FX and trade. Here’s a reminder of what it is and the progress so far.
The International Organisation for Standardisation (ISO) first published ISO 20022 – a global standard for payments messaging – in 2004. The new standard creates a common language for payments data across the globe, enabling faster processing and improved reconciliation.
Benefits of ISO 20022 include increased transparency, automation and digitisation of payments. It provides richer and higher quality data which means much more detailed information about the payment is available.
Which sounds promising when the cost of failed payments – due to inaccurate or incomplete information, or poor reference data and validation tools – is estimated to cost the global economy $118.5billion in fees, labour and lost business a year, according to Accuity data.
There is a global ISO 20022 programme underway to assist all banks to adopt ISO 20022 for all payments and reporting exchanges, which will complete in 2025. The standard has already been adopted in 70 countries to replace domestic or legacy formats, including Switzerland, China, India and Japan.
SWIFT, the global provider of secure financial messaging services, will enable ISO 20022 messages for cross-border payments and cash reporting businesses, starting from August 2022, on opt-in basis, and November 2022 for general availability. MT messages supporting cross-border payments and reporting transactions will be decommissioned in November 2025.
Bank of England and Pay.UK will implement ISO 20022 in the CHAPS and NPA (New Payments Architecture) in April 2023. In the US, The Clearing House (TCH) – operator of CHIPS, the largest private sector USD clearing and settlement system in the world – plans to implement the ISO 20022 message format by November 2023.
ISO 20022 is ‘good news’
According to financial services consultancy Projective Group, the new framework will alter the way in which payments are received forever, unlocking the speed and transparency associated with low-value domestic payments, and connecting the financial world with far less friction.
Jacob Rider, head of payments for Projective Group, said: “The transition to ISO 20022 needs to happen – and fast – if the industry wants to reap the many benefits it provides. Payments have already become faster, more transparent and more trackable thanks to the widespread adoption of SWIFT gpi, but the current MT standard does not offer the quality of data needed in today’s digital world.
“With better customer experience, better compliance and better efficiency, ISO 20022 is good news for financial institutions, provided they manage this transition quickly and carefully.”
In the latest chapter of Mastercard‘s payment system modernisation insights series, publishd this month, it describes ISO 20022 as enabling several key pain points that exist for both banks and their end users to be addressed.
It says: “In an increasingly competitive landscape, ISO 20022 message standards can smooth the process of innovation, which is critical to long-term success. ISO 20022 delivers operational efficiencies while promoting and supporting the development of value-add products and services for banks, businesses and consumers alike. As the shift to ISO 20022 rapidly picks up pace, those financial institutions that stay wedded to older standards risk being left behind.”
ISO 20022 adoption
A recent Mastercard review of 61 real-time payment systems around the world found almost two-thirds were based on ISO 20022 data standards.
Banking Circle says it has already adopted the ISO 20022 messaging standard, three years ahead of the 2025 deadline for completion.
Laust Bertelsen, CEO of Banking Circle, said: “To conduct business, financial institutions exchange massive amounts of information with their customers and other institutions. Such exchanges only work if the sender and receiver of a message have a common understanding of how to interpret this information. Rather than managing multiple market systems that speak different languages, ISO20022 offers a universal messaging language. Many real-time, low-value and high-value clearing systems around the world have begun their migration and are using ISO20022, with many more to follow by the end of this year.
“We are delighted to be part of the early wave of businesses that have adopted the new standard. It is perfectly aligned with our mission of simplifying cross-border payments, breaking down barriers to international trade by removing unnecessary delays and challenges with reconciliation and by being ready ahead of the deadline our clients can benefit immediately.”
What’s next for fintechs?
According to BrightBridge, a Midlands-based technology consultancy, banks who fail to initiate moving to the messaging standards of ISO 20022 sooner rather than later risk further setbacks down the line.
In a blog, it said: “With much change yet to pass in the coming years, 2025 may seem a long while off. Yet the institutions able to act now stand a greater chance of making the transition on time – before their existing products and services become obsolete.
“Compared to legacy formats, bank systems will need to process larger data volumes at higher speeds to allow for the real-time payments, daily liquidity management, and compliance checks of the modern world; and not forgetting sophisticated fraud detection and prevention.
“In an ideal world, testing should begin to take place from 2022 onwards – from ensuring the syntax and formatting information is accurate, to data within associated payment and clearing systems being mapped correctly.”
Two in five SMEs in EEMEA are earning more money than before the pandemic, driven by digital growth and international sales opportunities, according to the latest Mastercard report.
Data from the company’s ‘Borderless Payments‘ report has brought to light how 46 per cent of small and medium-sized businesses (SMEs) in Eastern Europe, the Middle East and Africa (EEMEA) are now enjoying more revenue and profit than they did before the economic crash of the pandemic.
Its report identifies online business and international sales as key drivers of this, with 71 per cent recording above-global-average growth in online sales, while 77 per cent are planning to do more business internationally going forward.
The research, which covered 3,000 SMEs, highlighted that three-quarters had to make changes to their business model to survive the pandemic, while 64 per cent globally believe it has changed how they will do business forever.
The pandemic has accelerated digital transformation to tap into cross-border opportunities, with nearly half of SMEs in EEMEA saying they now do more business internationally.
Sixty-four per cent of respondents credit cross-border payments with enabling their business to grow, making it clear that cross-border payments will be a key focus for business growth across the EEMEA region, and therefore economic recovery, moving forward.
Fifty-nine per cent are now making and receiving more cross-border payments than they were prior to the pandemic, while 72 per cent say the pandemic has allowed them to source more competitive quotes from suppliers across borders and 46 per cent say using international suppliers reduces risk.
Speaking on the findings of the report, Stephen Grainger, executive vice president of Mastercard, describes how the impact of the pandemic and the unprecedented disruption it caused “realigned regional and global economics”, causing many SMEs to start exploring new markets.
“With small businesses in EEMEA and across the world growing their international customer and supplier networks at pace, especially online, it’s crucial that financial institutions have the right cross-border solutions in place to support them,” Grainger comments.
As the country continues its lockdown well into 2023 while consumer consumption slows, China’s economic challenges have become important drivers for internet companies’ credit profiles; dampening industry profitability and cash generation in the short term.
According to the findings of Fitch Ratings, China’s internet companies, including its fintech community, now face a diminishing threat of regulatory risk, bolstered by the attention of the country’s policymakers trying to support the economy. Yet in the aftermath of last year’s policy tightening, some companies may continue to encounter difficulties.
The American credit agency has predicted that China’s economic growth will fall to just 3.7 per cent this year, down from an 8.1 per cent expansion in 2021; a prediction that reflects the impact of lockdowns.
The recovery in activity is likely to be restrained and subject to setbacks, given that the government’s zero-Covid policy is set to remain in place well into 2023, with a high risk of new lockdowns if outbreaks re-emerge.
Although lockdowns can lead to some spending shifting to online firms, weaker economic growth will weigh on overall market growth.
Thus, even though the credit agency expects the market share of online retail to rise to 29 per cent of total retail in 2022, it only predicts a single-figure rise in revenue; slower than both years previous.
It puts forward that the strength of the recovery in consumption, expected in the second half of this year, will be affected by various structural changes, including price sensitivity among consumers amid macro-economic uncertainties and decreasing demand for specific non-essential goods and services.
Many Chinese internet companies have now realigned their strategic focus towards optimising costs, rationalising non-core businesses and pursuing more prudent mergers, acquisitions and investments.
According to the company, these adjustments should help reduce pressure on profitability and cash generation and preserve liquidity and financial flexibility.
There is also a risk that some Chinese internet firms could respond to the difficult demand environment by expanding into new business areas to drive sales. For example, the apparel brand JD has considered launching online food deliveries, which would pitch it against the sector’s dominant players such as Meituan and AlibabaGroup, which both have a rating of BBB-/negative and A+/stable respectively.
Increased competition could put downward pressure on ratings for a number of internet companies, but some, such as Meituan, have less headroom than others at their current rating level.
The agency recommends that it would be premature to say whether or not the more conciliatory comments of the government to feature over the past few months mark a sustained alleviation of regulatory pressure on China’s large internet companies.
However, it also emphasises how recent developments, including the resumption of issuing monetisation licences for specific online games, the potential conclusion of an investigation into rideshare firm Didi and the government’s approval of a plan for ‘healthy’ development of the payment and fintech sectors, might mark the loosening of its grip.
Still, the agency retains its belief that regulatory risk will recede as a sector credit concern relative to macroeconomic factors.
Risks to the creditworthiness of specific companies will decrease as they are released from or deal with regulatory challenges, allowing them to focus more on core business challenges and growth.
However, the repercussions of previous regulatory actions will continue to be felt and regulatory risk will remain an important consideration for Chinese internet businesses’ ratings, regardless of potentially positive developments over the next few months.
Buy Now Pay Later (BNPL) has established itself as one of the primary ways for people to make payments in 2022. The pandemic caused many to become much more financially aware, leading to a massive uptake in alternative payment methods as people looked to stretch their available finances. For better and for worse, this saw a rise in BNPL.
Research from ConsumerAffairs, an American customer review and consumer news platform, looked to uncover how Americans felt about the payment method. It surveyed 1,000 Americans about their experience or lack thereof with buy now, pay later services. 700 respondents were BNPL users, and 300 had never used these services. Among its respondents, 21 per cent were Generation Z, 32 per cent were millennials, 27 per cent were Generation X and 20 per cent were baby boomers.
Aggregate use of BNPL
To begin the study, ConsumerAffairs first asked respondents about their preferred usage of BNPL, comparing the different generations’ responses. They shared their favorite apps, frequency of use and overall sentiments regarding the payment option.
It’s no wonder BNPL is raking in hundreds of billions of dollars and expected to pull in even more; 80 per cent of those surveyed had used it for the first time within the last year alone. People also habitualised paying later with gusto: 44 per cent used BNPL weekly or more frequently. Only 10 per cent said they employed the payment option once a year or less.
Despite BNPL being a relatively new offering, baby boomers were enthusiastic adopters from the beginning. Unlike millennials or Gen Zers, one in four of those between 57 and 75 years old had already been using BNPL for a year or longer.
Interestingly, those using BNPL the most frequently didn’t have the poorest financial health, on average. It was actually those who used BNPL sporadically — just every few months — that had the worst situations. Perhaps holding on to cash for longer is financially advantageous in this particular economy of high inflation and market-dip buying opportunities.
What people are buying now and paying for later
This next piece of research digs into the specifics behind BNPL. Respondents shared what they’re purchasing, how much they’re spending and what types of late fees they owe. Once again, responses were further compared by generation.
Gen Z respondents were the most likely to agree with the statement that inflation has directly contributed to their use of BNPL — and well over half of respondents of all ages agreed. With deferred payments, increasing inflation can lower the amount you ultimately owe. Then there’s the fact that wages have not kept up with inflation — more than one in 10 respondents said they wouldn’t have made a specific purchase without BNPL.
It might be concerning to see Gen Z adapting to this phenomenon the most. It’s reminiscent of the circumstances around the CARD Act of 2010, when college students were preyed upon by credit card companies offering swag, gifts and other inducements on college campuses. Since then, there’s been a steep drop in the number of young adults signing up for credit cards. Instead, it appears they’re opting for BNPL, which mirrors the concept of a credit card.
Currently, Gen Z is racking up the most in late fees, with an average of $483 during their tenure using BNPL.
Future estimations of BNPL
The study wraps up with a look at future approximations of BNPL. Respondents were asked to share what they felt were the pros and cons of the service and which types of products and services they’d like to see BNPL options for.
BNPL ultimately offered more upsides than downsides, according to respondents. They liked the option for its convenience (70 per cent) and low interest rates (33 per cent) — and also because it doesn’t require a high credit score (31 per cent). The perceived downsides were unknown fees (54 per cent), difficult payment tracking (47 per cent) and a lack of rewards or cash-back incentives (46 per cent).
Most respondents wanted BNPL options to extend even further. Nearly half (48 per cent) said the option is particularly helpful during a recession, and more than a third wanted the payment plans to be extended to health care.
With consistent proof that more money actually can lead to more happiness (or at least a life with less stress), this study suggests that having the actual money on hand might not be as important as having access to it through financing options. People who rated their financial health, mental health and quality of life as good or amazing in this study reported higher median fees, on average, suggesting the later (higher) payments could ultimately be worth it.
Using BNPL to your advantage
BNPL offers a trove of possibilities for your financial well-being — if used correctly. Respondents who took advantage of the option with regularity were actually more likely to be happier and financially healthier, even if they were paying higher fees. Particularly during a recession, this option provides access to items people need the most. Of course, those who benefited most probably didn’t do much frivolous spending.
Phos is to launch a white label SoftPoS app for payment service resellers through its partnership with payment solution and infrastructure provider Paynt.
Once resold, the off-the-shelf solution will enable small and medium-sized enterprises (SMEs), sole traders and specialist merchants to turn any smartphone or tablet device into a contactless payments terminal.
One of the benefits of this approach is that it requires no additional hardware, enabling merchants to make use of the mobile devices they already have – rather than investing in costly physical terminals.
The solution aims to remedy key issues for resellers, improving merchant acquiring and day-to-day management by automating the onboarding process and merchant account setup.
It will also provide data and customisable reporting capabilities that will be able to be accessed via API or a web-based interface.
SamKohli, CEO of Paynt, explains how its latest white-label solution is in response to the rising demand for payment acceptance capabilities, and that the company is “delighted” with its latest partnership with phos, which will bring its new product into fruition.
Phos CEO BradHyett added that the new app will allow payment service resellers to deliver a solution for a “historically underserved audience…by removing the complicated, expensive and time-consuming app development and certification process,” identifying how the solution will allow resellers to expand their offering.
The collaboration with Paynt is the latest in a string of partnerships for phos, including collaborations with UK-based payment solution provider UTP, cashless fundraising firm Givestar, and AZUL – part of GrupoPopular – in the Dominican Republic.
To review, certify and supervise Shari’a compliance for its new corporate cards and working capital products in Islamic markets, TribalCredit, a global company from Silicon Valley that provides integrated financial solutions for startups across the Middle East and emerging markets, has partnered with Shariyah Review Bureau (SRB), a GCC based Shari’a advisory firm.
With this announcement, Tribal Credit has become one of the first standalone credit and expense management solutions to offer Shari’a compliant products in MENA.
SRB has been at the forefront of Shari’a advisory for more than seventeen years and leads in providing Shari’a certification, Islamic product structuring and Shari’a Audit services to international financial institutions, asset management houses, fintech, insurance firms, and alternative wealth management organisations.
AmrShady, CEO and co-founder of Tribal Credit said: “As a result of the partnership with Shariyah Review Bureau, we will also maintain a dedicated Shari’a supervisory resource to ensure that our products remain Shari’a compliant”.
He also adds, “through our deep knowledge of the corporate cards and financing market in the startup and SME eco-system, we expect to unlock new potential for businesses and investors with this new partnership.”
Tribal Credit is strengthening its network and strategically managing the Islamic financial ecosystem in order to adapt fast to constantly changing business needs and deliver innovative credit card and financing solutions to startups and SMEs in the coming years.
Speaking about the engagement of SRB’s services to oversee its Shari’a compliant side of the business, Duane Good, Tribal Credit’s, co-founder, and president, said: “SRB’s experience in Islamic financial markets and deep understanding of the evolving needs of credit and expense management will enable us to develop secure, 360° and powerful Shari’a compliant finance solutions that provides startups in emerging markets with flexibility and financial control.”
Yasser S. Dahlawi, CEO at SRB, said: “Our establishment is a trusted partner to clients worldwide seeking to attain Shari’a compliance in their products and investments. Our multi-sector product certification and development consultancies all under a single roof have become quite a hit with our existing client base.” Commenting on the partnership, Dahlawi added, “We are pleased to have formed this relationship with Tribal Credit. We will bring a seasoned team of experts with unique scholarly expertise to ensure ongoing Shari’a compliance.”
Revolut, the financial super app with more than 18 million customers worldwide, is rolling out its pay later product, ‘Pay Later’ in Europe as it continues to expand its suite of products to help people get more from their money. Revolut Pay Later is the first pay later product in Ireland that uses an approved credit limit, designed to focus on affordability, putting the customer in control of when they want to use Pay Later rather than being restricted to certain merchant partnerships.
Beginning this week, some Revolut customers in Ireland will be eligible for early access to Pay Later, which will gradually roll out to all users in Ireland – where 1.9 million adults have a Revolut account. Pending the sign-ups for Pay Later, Revolut will look to offer the product in additional markets from the end of 2022 and beyond, with Poland and Romania to be the next markets gaining access to the product later this year.
Qualified customers can use Pay Later for purchases up to a maximum of €499, with any of their Revolut cards, including when paying with a Revolut Disposable Virtual Card which provides an extra layer of security for online transactions.
Customers can spread the cost of a purchase across three monthly instalments with the first instalment paid upfront by the customer at the time of purchase followed by two monthly instalments. The fee of 1.65 per cent per purchase is repaid as part of the final two instalments. Fully integrated within the app, once approved, customers can activate Pay Later on-the-go with one tap. Customers can view their Pay Later balance in the Cards section and in the Pay Later hub. If a customer would like to repay the instalments early, there are no additional fees to do so.
Whether it’s a new washing machine, hotel booking, or a birthday gift, customers can use Pay Later at any merchant that accepts Revolut online or in store. Unlike other pay later products, merchants do not sign up to Revolut Pay Later, and Revolut does not charge them for Pay Later transactions. It also offers a more robust assessment as it approves the credit limit before the transaction rather than offering an instalments payment method at the point of sale.
The fintech checks customer affordability by linking to customers’ existing bank accounts through open banking. Revolut will assess customer suitability and affordability for ‘Pay Later’ through an underwriting process.
Pay Later is another tool to help customers manage their spending all from one app. The Buy Now Pay Later market in Europe is set to grow to £680billion over the next five years. Revolut’s ‘Pay Later’ offering meets the growing consumer demand for this personal finance tool, while offering it in a responsible way, with a heavy emphasis on customer affordability and suitability.
Joe Heneghan, CEO Revolut Europe, commented “Pay Later is an exciting and fast-growing area of personal finance and consumer spending, and we are excited to add Revolut Pay Later to our financial super app.
“Revolut Pay Later gives our customers more control and flexibility over their personal finances, in a responsible way, by enabling them to spread the cost of purchases over three instalments. This encourages people to pay within two months, rather than calling on overdrafts and credit cards which don’t carry the same emphasis on quickly paying back the amount borrowed.”
Visa, the digital payments company, has launched its global She’s Next initiative in Egypt to economically empower local women entrepreneurs and SMB owners. The initiative is launched in partnership with Commercial International Bank (CIB), a bank in the Egyptian private sector, and the United States Agency for International Development (USAID), the international development agency and a catalytic player driving development results.
She’s Next, empowered by Visa, is a global advocacy program that brings practical insights and tools to women-led small businesses, including networking, mentoring, and funding opportunities.
Since 2020, Visa has invested +$2.2million in over 200 grants and coaching for women SME owners through the She’s Next grant program globally including US, Canada, India and Ireland.
Women business owners across Egypt can join She’s Next and apply for funding and access peer networks and educational resources that help to address the challenges revealed in a recent Visa study of women entrepreneurs. Key findings include:
A majority of women – 69 per cent – said getting funding for their ventures had been a challenge, with 77 per cent using their personal savings to start their businesses. Fifty-three (53 per cent) also cited finding a business partner as a key challenge, with four in six women concerned about the long-term success of their startups.
Three in 10 women (32 per cent) admitted that gender stereotypes have negatively affected their work as an entrepreneur, with 80 per cent saying they felt that societal approval or disapproval played a role in their choice of career or business.
Two in three women said they currently accept both cash and cashless payments from their customers. More than half (53 per cent) of women said they would use the additional funding to invest in advertising and marketing.
Being financially independent ranked as the top motivation when starting a business, followed by the desire to realise a dream, to achieve a balance between ‘home and work’, and to be a leader and responsible for the results of their business.
The areas women entrepreneurs said they wanted to learn more about were how to better set goals for profitability of their businesses, how to develop stronger strategies, and ways to survive the continuing impact of covid-19. The She’s Next initiative includes a series of mentoring programs that provide women entrepreneurs with access to practical insights from women leaders in the public and private sectors, as well as valuable tools and educational resources they need to grow and develop their businesses.
She’s Next, powered by Visa, will also deliver significant networking and capacity building opportunities in partnership with USAID.s. She’s Next is one part of a new partnership agreement between USAID and Visa to empower Micro, Small, and Medium Enterprises (MSMEs), with a special focus on women-led small businesses. This partnership will facilitate the use of electronic payment platforms to promote financial inclusion and foster inclusive economic growth. Through this collaboration, hundreds of MSMEs will receive capacity building training, and opportunities to join online markets, digitalise their supply chains, and introduce digital payment systems to their customers. E-commerce opportunities will also be expanded to enable further economic opportunities, especially for women-led small businesses.
Malak El-Baba, Visa Egypt’s country manager, commented: “Women who own and manage businesses face a unique set of challenges including access to capital and peer networks as well as societal pressures. That’s why we are excited to help women business-owners across Egypt today through the first She’s Next grant program and offer access to coaching and support through IFundWomen as well as that injection of $10,000 in capital. We are also honoured to be partnering with CIB and USAID, who will help us in our mission to not only empower women entrepreneurs, but also create for them a supportive environment in which they can grow and thrive.”
“We are proud of this partnership, which falls in line with CIB’s strategy to support small- and medium-sized enterprises and empower women led-business. Through ‘She’s Next,’ we plan to harness the power of Visa’s global brand and network to build awareness of women entrepreneurs, invest in them, and provide them with the tools and funds to build their businesses in Egypt,” said Hany El-Dieb, head of business banking segments, products and credit relations management at CIB.
USAID acting mission director Mark Driver said, “The US Government reaffirms our commitment to empowering women through this new partnership. Through USAID and Visa’s collaboration, five Egyptian women-led businesses will have the chance to win a $10,000 grant to grow their business Hundreds more women entrepreneurs will acquire new skills through training, and have access to learning resources to take their careers and businesses to the next level.”
This new grant program builds on Visa’s commitment to digitally enable 50 million small businesses around the world to kickstart recovery from the covid-19 pandemic.
As the trusted engine of commerce, Visa is also providing access to entrepreneurial knowledge and tools to unleash businesses in the digital era via Visa’s Practical Business Skills platform. The Visa She’s Next Grant Program will further support small businesses, with a particular focus on unlocking the potential of the most promising women entrepreneurs.
Women entrepreneurs in Egypt from all industries and sectors are invited to participate in the Visa She’s Next Grant Program. The winner will receive one of five $10,000 grants, a one-year IFundWomen coaching membership, and access to resources such as the workshop library and community of entrepreneurs.
As pressure on the compliance function grows in a fast-moving and increasingly complicated regulatory and operational landscape, almost 90 per cent of financial services firms have reported increased compliance expenditure over the past five years, with one in 10 saying costs have doubled.
In this light, 44 per cent of firms are planning to invest more in regtech solutions in the next 12 months to cope with the growing pressure on the compliance function, while a further 41 per cent expect to continue investing the same amount as they did in the 12 months prior.
However, the cost of compliance is rising with demand, with almost all financial firms encountering increased compliance costs over the past five years, while costs have doubled for one in 10.
This insight was brought to light by SteelEye in its ‘Compliance Health Check‘ report, which was largely based on the compliance technology and data analytics firm’s survey of 170 senior compliance and risk professionals working within the UK and US financial service sectors.
Regulatory change and data fragmentation continue to be a challenge
Of the 170 professionals surveyed, 44 per cent states that they struggle with challenges related to data management. This included overlaying communications and trades to mitigate market abuse risk, using management information (MI) efficiently to demonstrate the risk and the consolidation and normalisation of structured and unstructured data.
A fifth of firms identified having to keep pace with regulatory changes as the biggest challenge in meeting regulatory obligations.
Opinions were split on dealing with regulators. While 42 per cent said that regulators are now more challenging to deal with, 48 per cent said they now find it easier to deal with the regulator, which could be down to technology making compliance processes more streamlined and straightforward.
When asked if they think firms are well equipped to handle more stringent regulatory rules over the next five years, encouragingly, three-quarters of respondents believe financial services firms are in a good position.
Compliance teams burdened with fragmented and manual processes
Administrative and repetitive tasks dominate compliance professionals’ work, pointing to the need for greater automation and digitalisation within the sector. In light of this half of the respondents reported that at least half of their firm’s compliance staff engage in administrative or repetitive tasks.
The survey demonstrated a clear trend toward centralised compliance management, with 56 per cent of respondents working within one team that oversees compliance for all branches and regions in which the company operates.
Meanwhile, a mere 12 per cent reportedly deploy a decentralised model where compliance is managed directly within individual jurisdictions, while it’s understandably more common for large organisations at 18 per cent.
In contrast, 88 per cent of small firms’ compliance management is fully centralised. Centralisation of the compliance function can enable businesses to be more strategic and allow for richer learning across multiple jurisdictions. However, this hinges on a strong data foundation for the business as a whole.
Regulation, surveillance and data management top of the priority list
When asked about their top two investment priorities for the year ahead, regulatory reporting ranked first overall.
However, when breaking this down by region it becomes clear that regulatory reporting is a leading investment area in the UK, whereas communication surveillance is the top priority in the US, particularly among banks.
This is unsurprising given the fact that US regulators are clamping down hard on communications rules. Last year’s $200million fine for J.P. Morgan by the Securities and Exchange Commission (SEC) demonstrated the importance of adequate monitoring of employee communications.
Firms are reaping the rewards of machine learning in compliance
Thirty-one per cent of firms said they have fully implemented a degree of AI or machine learning (ML) in their compliance processes. A further quarter are investing in the technology but are still in the implementation stage.
The subsections of larger firms and US-based respondents are even further along in that journey, with 75 per cent and 95 per cent respectively having partly or fully implemented AI and ML in compliance. And those that have implemented AI are reaping the benefits, including a marked improvement in the quality of their MI.
However, many firms are yet to take advantage of the potential of AI. Forty-four per cent have not started looking at AI’s possibilities for compliance. One cause of slow adoption might be the need for a strong data foundation which is necessary for successful AI deployments.
Speaking on the challenges that today’s compliance professionals find themselves currently facing, SteelEye CEO MattSmith describes “keeping abreast with regulatory change, improving data quality and managing risks and controls within the business” as some of the main contenders.
However, the good news is that the benefits of using technology to remedy complex compliance challenges are now being fully realised, with Smith adding that “85 per cent expect to invest the same amount or more in regtech in the next 12 months.”
“Technology and data are key to establishing future-proofed compliance processes and procedures,” he comments. “It is great to see that a large proportion of firms view the enhancement of data quality as a top priority and that most firms are actively investing in technology.”
Smith adds that by prioritising how disparate datasets are consolidated and making better use of data firms can “more easily address regulatory change and other compliance challenges that will emerge down the line.”
The company remains “hopeful” that compliance programmes and compliance teams will be made more efficient by the influx of these investments.
“Doing so can enable the compliance function to pivot from reactive investigations and firefighting to a more proactive model for compliance management and risk detection.”
Shojin, an FCA-regulated online real estate investment platform, has launched its secondary market offering to accommodate bespoke deals as the fintech scaleup continues to lower barriers to entry to the online property investment market.
Once the investment opportunity in a Shojin product has closed, the investor will then have the ability to list their investment on the secondary market, setting the number of units they are looking to sell and the price per unit. This market will function in a peer-to-peer format, like eBay, where a buyer and seller negotiate directly through offers and counter-offers to come to an agreeable price.
Shojin’s current investment threshold is £5,000, but the introduction of a secondary market will lower the minimum investment ticket size to £100, enabling more people around the world to create wealth by investing a fractional amount in real estate projects.
Sellers will have the ability to exit projects early releasing capital for upcoming or unexpected expenses, rather than staying in projects for the entire duration. Buyers will be able to participate in projects they may have missed on Shojin’s primary market and invest at different stages of project risk.
Both parties can be opportunistic and look to strike a mutually beneficial deal based on their risk and return appetites, along with real estate market sentiment. The negotiation capability of Shojin’s secondary market facilitates all these benefits which will ultimately increase investor confidence.
Jatin Ondhia, CEO of Shojin, said, “As a business, we are always looking for new ways to lower the barriers to entry to property investment. The introduction of a secondary market not only brings a larger number of prospective investors into the fold, but it means they can access the market with a lower initial investment, while simultaneously increasing liquidity for existing investors.
“Adding new investment opportunities to our platform is extremely exciting for us. As a business, we’re at an important inflection point within the real estate investment space. Having made our first investment outside of the UK and with substantial resources in place, we’re ready to continue with our global expansion plans.”
The launch of the secondary market follows Shojin’s Series A first tranche raise of £3million via a global pool of investors at a company valuation of £49million. Earlier in the year, Shojin secured a £5million underwriting facility provided by a London-based family office with a provision to increase it to £10million as the pipeline grows. Having focused exclusively on the UK property market until recently, closing its first non-UK real estate investment in Malaysia, the launch of the secondary market will help create liquidity to draw in new investors as Shojin sets its sights on new investment opportunities across the globe.
As a result of aging paytech stacks, traditional financial services providers are losing market share and revenue to new digital-first companies. A recent IDC InfoBrief found that 73 per cent of FIs globally currently have paytech infrastructures that are not equipped to handle payments for 2023 and beyond. As a result, more and more payments are being processed by non-traditional FIs, whether that’s payment service providers or digital banks. By 2030, 74 per cent of consumer payments will be handled by these types of organisations.
From the assets being transacted to the companies processing them, payments are changing. Changing consumer preferences require both traditional providers and new entrants to keep up. That’s why Episode Six‘s payment solutions are powering market-leading payment propositions across the globe by giving banks, fintechs, and brands the power to create digital payment products with incredible speed and quality.
John Mitchell is CEO and co-founder of Episode Six and has decades of fintech and payments expertise. He is known for leading and growing companies and startups. Mitchell was the CEO of several payments companies, as well as the primary architect and strategist of Netspend Corporation’s early sales and distribution strategy.
What has been Episode Six’s response to financial technology innovations?
New methods of paying are being developed at the fastest rate in decades. These innovations are likely to have grown as a result of open API technology and pandemic necessity. Digital-based financial solutions are expected to grow in demand as more people live device-driven lives.
However, many businesses face payment workflows and technology design in legacy platforms that are steeped in traditional value definitions for asset classes, which create significant problems for interoperability, integration, and the creation of new products. Therefore, value-agnostic platforms are key to enabling payments flexibility. That’s why at Episode Six, we provide a highly configurable and extensible digital ledger and payments system for financial institutions, fintechs and other innovative companies of all sizes. This allows them to effortlessly design and manage products that consumers and businesses want and need. Our proprietary technology was built from scratch and is designed to be future-proofed, meaning whatever new ways there are to pay, Episode Six’s customers can provide them.
How has this changed over the past few years?
While the payments industry has been constantly changing, back-end infrastructure across financial institutions hasn’t. The payments infrastructure has largely been built based on requirements that are no longer current. Whether it’s contactless payment, QR codes or cryptocurrencies, the evolution of payments is accelerating.
Platforms need to ensure they’re future ready. The speed that new payment types are appearing means that to advance payment propositions, companies need to use platforms that are prepared to allow them to handle both current and future channels. Moreover, understanding the value of the ecosystem has never been more important. There are multiple points in payments ecosystems where payments players can fulfill potentially lucrative roles. I’d recommend being creative in forming partnerships and seek platforms which can enable this creativity.
Is there anything that has created a culture of change inside the company?
We’re a company of engineers and entrepreneurs, constantly looking to improve our products and ensure we’re providing a truly unique and differentiated proposition. We give freedom to banks, fintechs and brands to design and launch digital payments products with unmatched speed across any imaginable unit of value. We’ve architected the most adaptable and extensive payments platform with high product configurability.
Our Series B funding last year, where we raised $30million, allowed us to grow with a new intensity. We’ll continue to invest heavily in our products and people as we launch ourselves into the next phase of growth.
What fintech ideas have been implemented?
We offer a growing library of 550+ APIs and 100 plug-ins that allow businesses to introduce and customise almost any imaginable capability or product feature—simply and quickly.
With our highly-tuned platform, everything works seamlessly, removing the issues that arise from piecemealing disparate solutions together. Accounting and transaction flows are simplified yet far more capable.
Our solutions are highly performant, simple to implement and deploy—and can be used anywhere in the world. That means you can bring new products to market at speed.
What benefits have these brought?
These benefits have allowed our clients to create unique products, go to market faster, make smart enhancements, and expand globally.
Our technology has helped global FIs like HSBC create leading digital payment products. Our platform, Tritium, supports e-wallets, neobanks in Japan, and FIs and fintechs on multiple continents
Do you see any other industry challenges on the horizon?
Financial services providers have made aggressive efforts in the past year to integrate their products and be at the center of their customers’ financial lives. What this approach has done has blurred the lines between providers and what services they offer, from traditional firms offering crypto products to telco firms offering payment services. As a result, we are witnessing a land grab in financial services today. For financial institutions the more products and services they can offer and integrate, the more they can cross sell, the more they can ‘own’ the customer.
The challenge here is that time is limited. Depending on the region, there are perhaps 24 months of furious land grab ahead of us before battle lines are drawn and consumers choose their primary providers. For most financial providers, they need to have the underlying technology to offer different services, a quicker way of ensuring they have this is by partnering with companies that already offer this technology.
Can these challenges be aided by fintech?
Yes, FIs need to move fast to stake their claim before someone else does. Working with fintechs, with focus and spending on future ready paytech solutions, can help to quickly develop and integrate new capabilities to improve utility for customers and vie for a larger share of business.
Traditional FIs will continue to lose consumer payments market share, and corresponding revenue, until they have infrastructure that is able to support new ways to pay. Competition in payments is increasing. There is a land grab taking place for the hearts, minds and wallets of consumers the world over. FIs need to be able to process value in whatever form consumers demand – fiat, crypto and gaming currencies, loyalty points and value denominations that don’t exist today. That requires paytech infrastructure that’s fast to deploy, highly configurable and future ready. Data shows that FIs are investing, but also suggests that they’re focusing on maintaining a quickly diminishing position, rather than ensuring an ability to compete in the future.
Customer relationship management provider Salesforce has announced its collaboration with GoHenry, as the necessity for financial education remains prevalent.
The prepaid debit card and app, which provides financial education for six to 18-year-olds, is to leverage the technology of Salesforce, including centralised collaboration through Slack and the deployment of both its service and marketing clouds, in an attempt to close the financial literacy gap among this demographic.
With the service cloud, GoHenry can send employees on a guided journey to help log cases faster, while automated processes and centralised data give employees the right tools to serve customers quickly and efficiently.
Employees can continuously improve how they use the technology by leveraging Trailhead, Salesforce’s online learning platform. In addition to this, its marketing cloud is helping to deliver personalised onboarding and engagement journeys for customers.
With over 100 member service agents, Slack acts as the company’s digital HQ, connecting its people, tools, customers and partners in a central hub that also provides flexibility to working environments
Combined, these innovations are helping GoHenry achieve its goal to make every kid smart with money as it looks to advance its pressing agenda. The combination is also set to help the company connect more data and processes, break down silos and unlock richer metrics across the entire organisation.
The app is currently experiencing a period of rapid growth, with its member base increasing from one million to over two million across the UK and US in the past two years. Leveraging Salesforce technology GoHenry is scaling and optimising its operations to meet growth needs.
The app’s COO and co-founder LouiseHill describes financial education as the company’s “number one priority,” emphasising that the deployment of Salesforce and Slack has been “crucial” for its ambitions to scale while helping more young people to become “money confident.”
GoHenry is just one of many apps and services seeking to advance financial education and inclusion among young people. In an attempt to target the right people at the right time, many in the space are turning to the power of social media.
Social platforms have long been identified as an effective avenue to reaching and influencing the right audience; given the vast number of youth users who sign up for the service.
Pioneering this space is Ola Majekodunmi, the founder and CEO of AllThingsMoney, a prominent social media channel and website that shares daily updates and insights into money management techniques, beneficial services and up-to-date news on the wider financial industry.
Very much like GoHenry, All Things Money exists to educate its 12,400-strong audience, who all primarily fit into the youth demographic, about financial matters that matter.
When speaking exclusively to The Fintech Times, Majekodunmi emphasised the effective use of social media as a tool for financial education.
“It’s no secret that the vast majority of people are now on social media,” she comments, “which has enabled people to spread facts and information with ease which has created a surge in the level of financial education now being taught online on various different platforms from Tik Tok and Instagram to Twitter and Youtube.
“Social media has enabled these ‘personal finance influencers’ to reach a much wider audience than ever before which in turn has helped tackle the existing financial literacy gap in the UK!”
GoCardless has launched two of its latest open banking features in Germany, offering one-off payments and fraud prevention capabilities.
The direct bank payment solutions fintech has unveiled two open banking features through the introduction of Instant Bank Pay and Verified Mandates.
The fintech’s Instant Bank Pay feature allows merchants to take instant, one-off account-to-account payments from new and existing customers without sabotaging the benefits of bank debit for their recurring payments.
This service would be applicable when during an initial payment when setting up a bank debit (e.g. signing up for a physical box subscription), purchasing additional goods or services, or topping up an account outside of a customer’s regular payment schedule for example.
Although bank debit is preferred in Germany, with consumers citing it as their top way to pay for subscriptions, household bills and instalments, it is not suitable for one-off payments because it doesn’t provide instant visibility of payment authorisation, something that has forced many merchants to turn to card payments, often with high fees attached, or time-consuming manual bank transfers.
The open banking feature addresses an issue that is particularly acute for recurring revenue businesses. According to the company’s own research, 88 per cent of German merchants engaged in a recurring payments model have a need for collecting additional one-off payments.
The feature aims to supply businesses with the flexibility to collect both recurring and one-off payments with near-instant confirmation. The service achieves lower costs through reduced admin and reconciliation time, plus savings from avoiding high card fees.
The Instant Bank Pay feature can be integrated directly into a merchant’s checkout and can also distribute payment request links. Similar to a mobile wallet payment, payers are connected to their bank and can authorise payment directly from their bank account.
In tandem with the launch of Instant Bank Pay, the fintech is also launching its Verified Mandates service, which uses open banking to verify customer information automatically as part of the flow of setting up a new direct debit mandate.
The service aims to reduce the common risk of payment fraud, particularly amongst B2C companies processing a high number of transactions. Thirty-five per cent of businesses in Europe rank payment fraud among the top threats facing their business today, and in Germany, 53 per cent of merchants report losing up to five per cent of annual revenue due to fraud.
At the moment, businesses are forced to accept fraud risk — and the potential for losses — or purchase additional fraud solutions. With Verified Mandates, GoCardless offers merchants a way to stop fraud before it happens, without compromising the customer journey.
Citing the rapid and promising adoption of open banking, with 64 million active users projected in Europe by as early as 2024, AlexandraChiaramonti, general manager of continental Europe at GoCardless, comments that the launch of these two latest features is “enabling German merchants to get ahead of the curve,” and that the company is “excited to offer this new technology” to assist merchants in addressing a series of challenges, including “high card fees to payment fraud,” in conjunction with “offering consumers a more secure … way to pay.”
The introduction of Instant Bank Pay and Verified Mandates in Germany is the latest development in GoCardless’ open banking roadmap. Earlier this year, the fintech launched Verified Mandates in the UK and announced a variable recurring payment (VRP) agreement and pilot with NatWestGroup, in addition to its first VRP customer, Nude.
GoCardless is slated to release its VRP proposition in line with the industry roll-out in the UK next month, and Instant Bank Pay and Verified Mandates across Europe later this year.
Consumer intelligence Talkwalker has released its latest report, High Street vs Challenger Banks. It examines how the future of banking in the UK is seeing rapid and irreversible change, with challenger banks hot on the heels of high street banks.
High street banks lead the way with the lion’s share of voice in the sector, with Barclays (34.4 per cent) and HSBC (27.4 per cent) being spoken about the most. This is in part due to huge peaks and clusters in conversation around popular culture and sport such as football, with Barclays sponsoring the Premier League.
While challenger banks such as Starlingand Revolutare often mentioned in the same sentence, Revolut sets itself apart as the brand being spoken about and engaged with the most with the highest market share of voice (8.9 per cent) amongst the challenger brands. Themes here are far more customer-centric, talking less about the world in broad terms and more about payments, platforms, and plans.
Overall, net sentiment for all of the banks is low. High street banks are spoken about more by consumers, but not favoured. Challenger banks come out on top with more positive sentiment than high street banks. Starling Bank has the most favourable net sentiment score (-4.4 per cent), whilst high street bank NatWest fairs the worst (-36.6 per cent).
The biggest issue for both high street and challenger banks and the number one factor driving the decision for people to switch banks is customer service. Sustainability and ethics are also seen as the big drivers, but for positive reasons.
HSBC can be seen advertising bank accounts for those people with no fixed address, and climate-crisis-fighting initiative Tech Zero attracting the likes of Revolut, Starling Bank, and Monzo.
Topic analysis identifies fraud, crime, and support as key conversation drivers; challenger banks are surrounded with far more operational conversations about the app, access, and their account.
The report distils twelve months of data by analysing shared and earned media as challenger banks experience significant growth and are increasing their share of the market.
Whilst the likes of Monzo, Starling, Revolut, and Monese are experiencing growth, it’s worth noting that these challenger banks combined, are the same size as NatWest – the bank with 12.5 million customers and over 1.8 billion log-ins to the app every year.
JackRichards, marketing manager UK and Nordics at Talkwalker says: “The world is changing. Consumers are more demanding, more urgent, and more unpredictable than ever, and brands are struggling to keep up. By analysing up-to-the minute insights and pulling data from a range of sources, brands are able to obtain a holistic view of the marketplace and identify opportunities to help them close the consumer closeness gap. This in turn helps them challenge or maintain their brand position.
“The rise of challenger banks is an example of some of the most successful innovation, diversification, and differentiation any industry as established as banking has ever seen.”
The Fintech Times Bi-Weekly News Roundup on Thursday reveals a slew of senior hires for Mambu and funding success for Prime Trust.
Investment and funding
Prime Trust, a provider of financial infrastructure for fintech firms, has raised over $100million in its Series B funding round. It has now raised more than $170million in funding. The investment will provide ‘critical operational expertise’ to further scale Prime Trust into new offerings including wealth products, as well as Web 3 and DeFi products.
Autonomous banking platform Fido has completed a $30million funding round led by Fortissimo Capital with additional backing by Yard Ventures. With this funding Fido will launch new financial products in Ghana, expand its operations to new territories in Africa and also establish a tech hub in Accra to train and introduce engineers to advanced software development.
Openly, a provider of premium homeowners insurance, has bagged a $75million Series C investment. The round involves a mix of current and new investors, including Advance Venture Partners, Clocktower Ventures, Obvious Ventures, Gradient Ventures, PJC Ventures, Techstars and Mtech. It will use the proceeds to expand its home insurance product as well as enhance its technology and insurance products.
Playter, a growth platform that helps SMEs scale quicker with buy now, pay later (BNPL), has closed a $55million funding round. The investment follows seed funding of $1.7million in March, continuing Playter’s accelerating growth in recent months. This series of funding will contribute to even further expansion within the UK market, with the company having international ambitions in the future.
Stanhope Financial Group, an Ireland-based fintech company, has bolstered its senior management team following a $10million Series A funding round. Rob Groombridge is named chief product officer during ‘incredibly exciting times’ for the company. Groombridge previously served as chief commercial officer for fintech Cardoro.
Mastercard has appointed J.K. Khalil to lead its operations across the MENA east cluster in his new role as cluster general manager. He is now responsible for the UAE, Qatar, Kuwait, Pakistan and Oman. Khalil joined Mastercard as Middle East region lead for Mastercard Advisors, before most recently leading the business as country manager of Saudi Arabia, Bahrain and Levant.
Zumo, the Edinburgh-based crypto wallet and payments platform, has appointed Clark Povey as its new operations director. He will oversee operations and customer service strategy and implement digital-first solutions to help the company scale and expand.
Mambu, the SaaS cloud banking platform, has welcomed four new senior hires. The fintech has appointed Werner Knoblich as chief revenue officer, Fernando Zandona as chief technology officer, Tripp Faix as chief financial officer as well as Sabrina Dar as chief of staff to the CEO. The new hires come following its $235million Series E funding round in December.
Mergers and acquisitions
Frankfurt-based Raisin Bank is acquiring the payment division of Bankhaus August Lenz with immediate effect. With the acquisition, Raisin Bank will expand its product range by payment services and also cover cash solutions. The new business division of Raisin Bank AG will be headed by Mirko Siepmann.
Codebase Technologies, an open API fintech, has joined Visa Fintech Partner Connect – a programme created by Visa to connect the world’s best fintech providers with Visa clients. Joining the Visa Fintech Partner Connect programme has already resulted in a partnership with Credit Libanais to launch Lebanon’s first digital onboarding offering and eKYC for prepaid cards.
Mastercard signs agreement with Saudi Esports Federation to promote the Kingdom’s billion-dollar gaming industry. Partnership will see new products, services and solutions delivered to gamers and consumers in Saudi Arabia and wider region. Gaming and esports consumption in Saudi Arabia is expected to reach $6.8billion by 2030.
London-based Prograd has unveiled a partnership with Indeed Flex to help young adults find and understand the alternatives to borrowing at their disposal. Prograd leverages alternative data points and open banking to find the best borrowing, earning or saving solutions.
Meanwhile, Phos has partnered with infrastructure provider Paynt to launch a white label SoftPoS app for payment service resellers. The new app enables merchants to turn any NFC-enabled Android device, such as a smartphone or tablet, into a contactless payments terminal.
APEXX Global, the global payments platform, has teamed up with Scott Dunn, the luxury tour operator, to increase transaction efficiency and boost conversion rates across the US and Singapore. This follows APEXX’s successful integration with Scott Dunn in the UK in January.
Launches and company updates
Konfir, a B2B SaaS platform, launches its instant employment verification platform for the UK. Konfir, which recently raised £1.6million, launches the new platform at a time when one in five UK workers are likely to change jobs in the next 12 months.
AFEX, a Nigerian commodities exchange and commodities market player, has expanded into Kenya. It follows a successful pilot phase. As part of the expansion, AFEX Fair Trade Limited (AFTL), has launched a $1million loan programme that will allow farmers to gain access to seed and fertiliser for their crops, to mitigate ever rising commodities prices.
Finally, Mission Lane, a purpose-driven fintech, has launched a series of product enhancements for its Earn by Mission Lane app. The updates are designed to help people grow and optimise their income through a gig work discovery engine and an automated income tracker.
Payments are constantly evolving as companies look to create new, innovative and easy ways for consumers to make transactions. One method which has taken off in popularity is mobile wallets.
Paysafe Limited (“Paysafe”) (NYSE: PSFE) (PSFE.WS) is a specialised payments platform. Its core purpose is to enable businesses and consumers to connect and transact seamlessly through its capabilities in payment processing, digital wallet, and online cash solutions. With over 20 years of online payment experience, an annualised transactional volume of over $120billion in 2021, and approximately 3,500 employees located in 10+ countries, Paysafe connects businesses and consumers across 100 payment types in over 40 currencies around the world.
Jan MarcKuelper, is SVP, enterprise sales, North America at Paysafe. An executive with more than 15 years of business and corporate development experience in the digital, social media and fintech industry spoke to The Fintech Times to explain how the payment method has and will continue to evolve:
The covid-19 pandemic has changed the payments landscape forever. One payment method that has grown in popularity at a particularly accelerating rate is mobile wallets such as Google Pay or Apple Pay. Mobile wallets require customers to register their bank card details to a smartphone which are then tokenised to create a simple and secure payment method stored within the device. Over the last couple of years, we have seen consumers across the globe embrace this alternative to traditional card payments for both online and in-store payments. For instance, research revealed mobile wallets usage jumped over a quarter (29 per cent) in the US in 2020, to 40 per cent of all smartphone users over the age of 14. More than half of US consumers are using some form of contactless payment method, which includes contactless credit and debit cards, highlighting the growing appetite for more frictionless ways of paying.
There are three clear motivations behind the growth of consumer uptake:
Security – Mobile wallets payments are verified using biometrics, which is more secure than memorising passwords. Card details are more strongly protected and unlike traditional debit and credit cards the payment method cannot be used if physically stolen
Ease of use – Stored card details means consumers don’t need to remember long card number details, or bring a physical wallet with them when shopping in-store
Speed – Payments can be made through a single step process that doesn’t require multi-factor authentication
Understanding the surge in consumer adoption
Global smartphone adoption – Owning a smartphone and having access to the internet has been an obstacle to the mass migration to mobile wallets from debit and credit cards or cash globally. However, this has become less of an issue as the number of global smartphone users increased from just 3.67 billion people in 2016 to 6.38 billion people in 2021 (80.6 per cent of the global population, and 89.7 per cent of all mobile phone users), and is predicted to reach 7.33 billion people by 2025.
The effect of the pandemic – As consumers and businesses veered away from using cash in the early stages of the pandemic, the need for mobile wallets and contactless cards increased. When we asked consumers in May 2021, 74 per cent told us that they were now making regular contactless payments in stores and a further 32 per cent of consumers told us that they were using digital wallets more regularly online due to the pandemic. Beyond the regions we surveyed, Asia also saw a surge in adoption. According to research carried out earlier this year, mobile wallet penetration in Thailand is 93.7 per cent, and other countries in the region are not far behind. To put this into perspective, the same research estimates mobile wallet adoption in the UK and US is 36.5 per cent and 42.8 per cent respectively.
The expansion of mCommerce – Not only do more consumers around the world now own a smartphone, but they are also increasingly using them as a device to access digital commerce. In the US this translates into 79 per cent of consumers using their smartphone to make at least one online purchase in the past six months. Globally, mCommerce now dominates the digital commerce landscape; the percentage of all online transactions that takes place on a mobile device has risen from just over 50 per cent in 2016 to 72.9 per cent in 2021. This figure values the total global mCommerce market at $3.56trillion this year.
Out of the 900 small to medium-sized businesses (SMBs) across Europe, North America, and Latin America which we asked to tell us about their plans for evolving their online checkouts in the next 12 months, 41 per cent told us that they already offered mobile wallets in their online checkout, and this growth is being driven by the US (51 per cent), UK (47 per cent), and Germany (47 per cent).
A further 36 per cent of businesses told us that they are planning to integrate mobile wallets into their checkouts within 12 months. Less than a quarter (23 per cent) of all businesses currently have no plans to integrate mobile wallets into their online checkouts.
What’s next for mobile wallets?
Taking into account the impact covid-19 has had on the way consumers are paying, it is not surprising that 61 per cent of businesses are increasing their plans to improve their checkout experience, and integrating mobile wallets to match consumer demand is going to play a vital role here. SMBs that fail to listen to consumer preferences and fail to prioritise the introduction of mobile wallets into their checkout risk losing out in an increasingly competitive market.
The UK Government is to apply more stringent regulations to the buy now pay later (BNPL) industry; as many continue to turn to payment instalments to manage the rising cost of living.
In the announcement made on Monday, 20 June, the Government outlined its intentions to introduce BNPL systems and providers to a wider regulatory framework which will seek to promote fairness, transparency and guided industry development.
As the paytech has made historic leaps and bounds in terms of consumer adoption, the regulation around this form of alternative finance has struggled to keep pace; placing consumers at risk when using the service.
In today’s Spotlight, we’ll be delving into what the announcement had to say about regulating BNPL, and hearing more about exactly what the industry thinks of this latest move that could work to define how the service is provided.
What the announcement said
The UK Government disclosed a series of initiatives throughout its announcement that seek to offer more protection to consumers, and raise awareness around the full implications of using BNPL services.
Expected to come into action from 2024, any lenders providing the service will need to be approved by the UK’s Financial Conduct Authority (FCA), and will also be required to perform regular affordability checks to ensure that the loans they’re offering are affordable for the customers who receive them.
Advertisement for BNPL should be equally clarified, with the announcement stating that they should be ‘fair, clear and not misleading’.
The announcement also provides more options to borrowers who feel like they’ve been abused, with the Financial Ombudsman Service (FOS) now directly accepting BNPL complaints from consumers.
The regulations aren’t just for BNPL, and will also apply to other forms of short-term interest-free credit, such as financing for larger purchases like furniture and medical work.
Any company that chooses to offer this form of financing will need to comply with exactly the same rules as larger, established providers.
The Government has confirmed that these rules will apply to businesses that partner with a third-party lender to offer credit services, including throughout embedded finance options.
Although its consultation on draft legislation is expected to be published sometime later this ear, the Government is currently in the process of seeking stakeholder feedback to confirm whether or not to extend the regulation to online merchants who directly offer credit for the purchase of their own products.
Following this announcement, the government is expected to propose secondary legislation by mid-2023, after which the FCA will consult on its rules for the sector.
Speaking in the official announcement, JohnGlen, economic secretary to the Treasury recognised the benefits that BNPL brings to financial management but went on to identify that “we need to ensure that people can embrace new products and services with the appropriate protections in place.
“By holding BNPL to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering the safe growth of this innovative market in the UK.”
This latest move by the Government will ensure that even those that were previously exempt from regulations will now have to adhere to them, increasing its scope, while also setting out to actively educate and protect the end consumer.
What the industry thinks
Although many of the companies that have spoken directly to The Fintech Times have expressed their relief that dialogue around the BNPL regulatory space is finally emerging, many continue to worry about the speed at which these regulations are arriving, while some believe that it could negatively impact the integrity of the market.
While the regulations come as a welcomed arrival, NeilKadagathur, CEO and co-founder of Creditspring, worries that “we simply cannot wait that long to regulate the BNPL sector.”
“There is chronic miseducation about BNPL,” he explains. “One in seven UK adults thinks it’s impossible to get into debt using BNPL and a third are unaware that it’s even a form of borrowing and debt. This, combined with the cost of living crisis which we know is pushing more people into borrowing, is unsafe and unsustainable, and is guaranteed to damage the long-term financial health of millions of UK borrowers.”
However, Kadagathur does recognise the purpose of the regulations, stating that “the onus falls to lenders to ensure they are lending safely and protecting borrowers by not providing more credit than an individual can safely afford to repay.”
Echoing Kadagathur’s thoughts, MyronJobson, a senior personal finance analyst at interactiveinvestor, agrees that “regulation of the BNPL is long overdue,” and that as BNPL mass adoption continues, “the worry is the plans will not be implemented soon enough.”
“BNPL is a form of debt, and, as such should be subject to the same rules that govern the traditional credit industry, requiring things like affordability checks and allowing borrowers to be able to make a complaint to the FOS,” he comments.
Recognising the benefits of BNPL, including its convenience, speed, cost and commerce-boosting abilities, Jobson emphasises that “It’s important that any rules and measures applied to the BNPL industry do not nullify these benefits.”
“But greater protection for consumers is overdue,” he continues. “Many BNPL services don’t subject customers to a hard credit check. As such, a key issue with BNPL is it may attract people who are already in the red and may be struggling to pay existing bills. So, it is likely that a large number of people making BNPL repayments are also racking up credit card debt.
“It is only right that the credit market continues to evolve with time to cater for changing attitudes and requirements, but innovation without regulation spells danger for consumers.”
Speaking on the proposed reforms to the Consumer Credit Act (CCA), which would bring benefits to both the merchant and the consumer, BradleyRice, partner at law firm Ashurst, expressed his frustration that the arrival of this new BNPL regulation would now delay the arrival of the benefits of the CCA reform.
Rice comments: “The Treasury has confirmed the end of unregulated BNPL lending and other forms of short-term interest-free credit, likely with effect from around 2024.
“Last week the Treasury wet our appetites at the prospect of ripping up the CCA as part of much-needed reform. This week, it seems the CCA will live on a while longer with a new bespoke regime for BNPL and short-term interest-free credit agreements.
“It seems like reform of the CCA could be a long, drawn-out process that is not particularly high on the Treasury’s agenda.”
JayadeepNair, chief product and marketing officer at EquifaxUK, expressed his admiration for the new regulations, saying “It’s good to see that the Treasury and FCA are moving in the right direction on the regulation of the BNPL sector.”
The company largely agree with “the Government’s view that clear, consistent and timely credit reporting across the three main credit reference agencies will be an important part of the responsible provision of BNPL products,” adding that “this level of transparency will help to bring hidden lending into the light, and ensure that all consumers who use BNPL get the same benefits and the same level of protection.”
“The fair treatment of those in default or arrears is also a vital part of consumer safeguarding,” Nair continues, “and the statutory requirements on the provision of information to consumers in arrears and default are vital consumer protections, so we are pleased to see these included as well.”
Despite the benefits posed by the reform, Nair admits that “we are still a long way from the finish line, but the outcome of this consultation is another milestone on the path to a set of well-reasoned and much-needed regulatory standards; standards that keep the features of BNPL so many consumers like, but that protect people from problem debt.”
Frances Hodgkins, the managing associate in Linklaters’ financial regulation team, comments that despite the UK Government’s recognition of BNPL’s suitability to remedy the current economic environment, the introduction of these new regulations could unintentionally hinder the customer experience.
“[The Government] are … looking to enhance consumer protection for those using BNPL services, something that will no doubt introduce friction into BNPL transactions and slow down the customer experience,” comments Hodgkins, “without unduly hindering the provision of BNPL products.
“Although this friction will likely benefit consumers by giving them more time to assess whether the credit agreement meets their needs, it is paramount that the regulatory controls applied are proportionate to the risks presented.”
“It is worth saying that we are still a reasonable way off,” comments Hodgkins, echoing the thoughts of many in this discussion, “with the government expecting to publish a consultation on the draft legislation later in the year and to finalise the law by summer 2023.
“Only then, once the law has been finalised, will the FCA start to consult on the detailed rules. It is fair to say, however, that while regulation won’t be the end of the story, it will mark a new chapter for both consumers and providers.”
Clearpay shared a slightly more hopeful view on the new regulations, stating: “Today, we welcome the Government’s response on BNPL regulation, as it acknowledges that BNPL is an important consumer-centric payment option used by millions of people every day.
“The right regulation will set high industry standards across the board that will safeguard all consumers using BNPL. We support the Government’s intention to provide BNPL consumers with access to the FOS and to apply Section 75 cover to BNPL agreements.
“Until the arrival of BNPL products like Clearpay, the credit card industry, which profits from revolving debt cycles, went unchallenged. We look forward to working with HM Treasury and the FCA to deliver regulation that will protect consumers, deliver innovation in consumer credit, and help move the UK away from a reliance on revolving debt.”
The arms of Paynetics’MikePeplow were equally as embracing of the new regulations, with the CEO stating: “Regulation is an appropriate development for the BNPL space, bringing the product into the mainstream whilst making sure we have positive outcomes for consumers.
“Although BNPL often doesn’t charge an interest rate to the consumer, there are penalties and repercussions for late or non-payment.
“Simply providing a link to terms and conditions on a website, or providing a page of small print in an app, is not going to be sufficient to convince the regulator that firms have sufficiently communicated the implications of taking on a BNPL product.
“The new affordability checks coming into play today will protect consumers from spending beyond their means. Regulation is a vital next step for BNPL and I believe these changes will help the consumer while continuing to champion the development of this innovative sector.”
The praises continued with GaryRohloff, co-founder and managing director of Laybuy, who shared that the company has “always been in favour of a proportionate model of regulation, one that reflects the low risk of BNPL, supports small e-commerce businesses and sets high standards across the industry.”
“Since we started Laybuy,” he continues, “we have always set out to be the most responsible BNPL lender. That means working with credit reference agencies and conducting creditworthiness checks on all our customers. It’s a real endorsement of our model that the Government agrees that this should be taken forward across the industry.
“Naturally, we need to have a look at the consultation response in full, but we’re supportive of the Government’s approach and we look forward to working closely with the FCA on the next steps.”
“InnovateFinance welcomes the government’s response to the consultation on regulating BNPL,” shared the company’s CEO, JanineHirt, agreeing that “it’s an important step towards bringing BNPL into the regulatory perimeter, which will give certainty to providers, and drive up confidence and trust in the sector.”
She continues: “We are pleased to see the government maintain its focus on creating a proportionate regime for the sector, striking a balance between providing consumer protection while maintaining a healthy, innovative market for BNPL products.
“It will be critical to get the details right on some of the most important areas, such as creditworthiness, form and content of agreements, and financial promotions. We look forward to working with HM Treasury and the FCA on these elements over the coming months, and finalising the regulations as quickly as possible.”
It is very easy for many who are new to the fintech space to think that financial technology is an exclusive term for payments technology, and while there is some truth to this, it does not tell the entire story about fintech. However, in June, The Fintech Times is looking to indulge this belief as we look to discuss hot topics surrounding both sending and receiving payments, like buy now pay later (BNPL), early paydays and much more.
Having established our BNPL coverage with a discussion around its rising popularity, where its associated affordability and increased sales power were all cited as catalysts to its widespread adoption, today we’ll be turning tables to identify the drawbacks of the paytech.
They stack up
Opening the dialogue, Andy Cease, manager of financial solutions at Entrust, sees the drawbacks of BNPL in its fractured contract-by-payment nature, which he says can make it difficult to track numerous repayments: “There’s no immediate impact on the consumer’s credit score, but having to track multiple BNPL contracts can increase the level of effort required to fulfil their payback obligation. In turn, this can lead to lapsed payments and ultimately a hit to the consumer’s credit score if it takes too long for them to make a payment.”
With consumers increasingly turning to BNPL payment options to offset the rising cost of living, Cease warns that more consumers managing more individual repayment contracts will require a more balanced approach, sharing that “while BNPL can be a great option, consumers need to balance what they want versus what they actually need to pay for using BNPL to avoid having to make too many sets of payments at the same time.
But the providers have a job to do too, as Cease goes on to describe, “Institutions have some responsibility with BNPL as well. They need to make sure they are keeping the highest level of security and do not take a step backwards in data protection in order to offer BNPL.”
SameerPethe, a partner at Kearney, underlines Cease’s comments with: “The risk is that customers, perhaps not understanding exactly what BNPL entails, end up buying more than they can afford and as a result get into financial difficulties.
“Thankfully, recent announcements from the Financial Conduct Authority (FCA) and the news that some of the larger BNPL operators are now working with UK credit reference agencies shows that the sector is well aware of these issues and is working to address them.”
On the topic of data protection, RustonMiles, founder and advisor at Bluefin, sees one of the major drawbacks of BNPL in the vulnerability of the vast amount of sensitive payment data it cultivates.
“Any service that requires long-term storage of payment data increases the attack surface and raises your cybersecurity risk – and BNPL is no exception,” he shares. “With attacks targeting payment data rising, BNPL lenders need to make every effort to ensure consumers’ payments and personal data are secure.”
However, despite concerns around BNPL data protection, Miles recommends that fighting fire with fintech could offer a practical, safer solution.
His recommendation states that “the best way to [protect data] is by devaluing it through a combination of encryption and tokenisation. This process replaces sensitive data with a token, or random string of characters. In the event of a breach, this data is now useless to hackers since all they will be able to access is the random token.”
AaronBegner, GM of EMEA at Forter, added: “The near-instant decision-making associated with these transactions, unfortunately, makes BNPL schemes attractive for fraudsters. There is less risk for bad actors to abuse these systems, due to it being easier for them to directly access goods or services. This inevitably leads to an increase in chargebacks and lost retailer revenue.
“To prevent rampant fraud, the security gaps in BNPL platforms must be understood. Soft credit checks are a popular solution, but they commonly fail to pick up anomalies such as misspelt names, phone numbers, or compromised user accounts that have been sourced through phishing attacks.
Galia Beer-Gabel, a partner at Team8, identifies the complexity of completing a transaction as one of the major downfalls of using the service within e-commerce environments, stating that “Some consumers have complained to relevant agencies about hidden fees when returning items paid for with BNPL services or late payment penalties, with reports showing that 42 per cent of BNPL users have made late payments.
“Critics argue that in the absence of regulatory oversight and the ability of users to easily take on new forms of debt, BNPL encourages impulse spending among consumers who may not fully understand that they’re essentially taking out a loan to complete the transaction.”
Beer-Gabel adds that these issues, along with many raised by the participants of this discussion, have “forced regulators to pay attention and look at ways to ensure consumers and merchants can safely benefit from BNPL solutions.”
Stripe, a financial software as a service is launching a new infrastructure for bank transfers, which automates all reconciliation and creates a simplified refund process. It will be first made available in the EU, UK, Mexico, and Japan.
Traditionally, bank transfers require manual reconciliation, whereby teams of accountants are employed to match incoming bank transfer payments with outstanding amounts owed. Additionally refunding traditional bank transfers requires the manual setup of an opposite bank transfer.
The reliance on the payer makes bank transfers challenging for businesses. Unlike card payments that are initiated by a business for a set amount, bank transfers put the customer in control of the amount and timing. Customers might enter amounts that are incorrect or piecemeal—or, even worse, sent to the wrong business.
Reconciliation is manual, as recipients must find and match orders and invoices to incoming credits in their bank accounts (if those credits reach the right account at all). Businesses can spend hundreds of hours resourcing and accounting for payments, requesting additional transfers and information, and processing refunds from overpayments.
Stripe has built a solution that takes away the operational pain of receiving and manually reconciling transfers. Its also enhanced the bank transfers experience and made it easy to operate as a payment method (rather than a funding method) in the following ways:
Automated reconciliation. Stripe provides a virtual bank account number (VBAN) for each customer, so that incoming transfers automatically map to the correct customer. VBANs are localised and regionally recognisable (e.g., they begin with “DE” for German customers). A reconciliation layer allows businesses to immediately see if a customer has paid too much or too little—and can resolve overpayments through the dashboard and API.
Simplified refund and return processes. Stripe users can return a payment to a customer without initiating a new bank transfer from their account—a feature not natively built into the bank transfers scheme. With one API call or a dashboard click, users can refund a customer—no need to set them up as a payee.
Integration directly into other processes, like invoices, subscriptions, and revenue recognition. Bank transfers are compatible with Stripe’s revenue management suite, further removing the operational burden for its users. Users can compliantly request a bank transfers payment with invoicing and grow recurring revenue with subscription logic provided by billing. revenue recognition streamlines accrual accounting so books can be closed quickly and accurately.
Acceptance of other payment methods alongside bank transfers without additional code. Its new bank transfers payment method works with Stripe’s Payment Intents API, which means users can offer bank transfers from the dashboard—no additional integration required. This way, users can have a unified view of all incoming payments (rather than having to go into their bank account just to view bank transfers).
Beta users have freed up time and resources previously spent on reconciliation and accounting using bank transfers on Stripe. These savings can add up: Spicers ofHythe, a UK-based provider of corporate gift hampers, estimates that it will save its financial operations team more than 300 hours per year, which it can refocus on growing its business.
“We save around 1.5 hours per week of manual reconciliation, solely by not needing to match incoming funds with invoice references. However, the biggest value will come as we scale and don’t need to hire support staff to handle our growing volume of bank transfers.” said, Will Stenhouse, co-founder, Yorlet.
A new report from Economist Impact, titled Threat assessment 2022: digital competition in global finance, found 54 per cent of c-suite execs believed their financial institutions have faced greater competition over the past three years from digital alternatives, however, they are now in a better place to compete. The survey which was commissioned by WSO2, a digital transformation technology company, also found 84 per cent of respondents reported that they have, to some extent or more, the necessary technological tools to create new digital products and services
In addition to reviewing the competitive landscape, the report examines how banking institutions are addressing cultural change, embracing digital skills, and relying on technology to achieve a competitive advantage.
Banks Rise to the Digital Competition Challenge
Many of the banking firms have responded to the competition by investing in their digital presence. Among survey respondents, 47 per cent say they are serving customers via digital channels (online or mobile applications) to a large or great extent, and 77 per cent of these executives predict their organisation will serve customers via digital channels to a large or great extent over the next two years.
“All signs in the Economist Impact report point to established financial institutions successfully rising to the digital challenge,” said EricNewcomer, WSO2 chief technology officer. ”A majority of survey respondents say they have the necessary tools, are culturally ready, and have the talent needed to create new digital products and services, which to me represents significant change in the industry dynamic. ”
At the same time, the growth of new digital entrants in the banking sector is shifting views on who is a competitor versus a potential partner. Among executives surveyed, 26 per cent identified increasing competition from banking as a service (BaaS) or embedded finance, such as from non-financial firms including technology companies, and telecoms providers, among others.
Meanwhile, only 12 per cent of survey respondents listed increasing competition from financial technology (fintech) companies—in stark contrast to the widespread fear of competition from fintechs just a few years ago. Notably, the Economist Impact report cites a 2021 report from banking consultancy Cornerstone Advisors, which found that 48 per cent of banks surveyed had partnered with fintech startups over the past three years.
“The intense competition facing banks is leading to unprecedented digital collaboration,” said SeshikaFernando, WSO2 vice president of banking and financial services. “Banks once jealously guarded their data on proprietary systems to grow their customers and revenue share. Today, they are accelerating their growth by partnering with fintechs to add new services, embedding banking-as-a-service solutions in online retail offerings, and tapping the insights of agencies with big data expertise.”