July 2017

Neil Frederik Jensen reports from Money 2020 in Copenhagen on how banks and fintechs are moving beyond innovation to a transformation of the financial services landscape

Towards the end of the 2017 global financial services convention,  Money2020 in Copenhagen, cybercrime and hacking became the water cooler topic of conversation, pushing the big theme of fintech-bank collaboration into the background, albeit temporarily.

Needless to say, the closing sessions on security suddenly seemed more relevant – the hacking crime underlined that this brave new world of apps and APIs is just as vulnerable as the old order.

But Money2020 was another step along the way towards creative co-existence between the disrupters and the traditional world of banking, which has woken up to the threat of financial technology and is talking boldly about “transformation” and “reinvention”.

Suits to jeans and black t-shirts

Bankers have often seemed a little uncomfortable at events like Money2020 – the DJ providing a somewhat “out there” soundtrack as presenters took the stage (the earliest DJ gig in Copenhagen, apparently) and the comic book themes totally out of sync with the usual banking get together. But bankers are acclimatising, dispensing with ties and the off-duty uniform of “khakis” and even wearing denim. Despite that, there is an underlying feeling that tomorrow’s bankers may be more recognisable by their black t-shirts, trendy facial hair and the odd piece of body art. As we were often reminded, the world is changing – fast.

This time it was indeed different. Barclays UK CEO Ashok Vaswani spoke with great enthusiasm, “in all my long career, I have never been so excited”, about the way his bank is attempting to remodel itself. Interestingly, he insisted that this latest “industrial revolution” would not leave anyone behind, something which has characterised phases of commercial evolution in the past. At the same time, Vaswani said the digital world, with all its potential, was “quite scary” for some people, highlighting cyber-crime and fraud as hurdles that needed to be overcome – is if recent events had not already alerted us to the threats.

The age of air

Some banks are further down the digitalisation road than others. Spain’s BBVA has been breaking down barriers for some time, restructuring the bank to meet market and customer demand. One panellist from a major European bank captured the zeitgeist in describing the new paradigm as “the age of air”, referring to the fact that business will increasingly be executed in cyber-space via hands-free engagement rather than face-to-face or even online.

At the same time, he admitted that the reason a tipping point had not yet been reached is because legacy infrastructure is still generating business and revenues. But the pace of change and new developments is accelerating.

Open banking was high on the agenda, some saying that it reflects the changing society we have seen in Britain, the US and across Europe. The introduction of APIs i  has already caused some anxiety among banks, but it can also open-up choice for the consumer, who can more easily switch providers because of the enhanced security that will result from a more transparent landscape.

In tomorrow’s financial landscape payments are at the nexus of client relationships, accounting for 20% of all transactions. Everyone is craving faster, more transparent and reliable payment regimes. One word that seemed to be in every discussion around on payments was “frictionless” – as one panellist said at Money2020, “we are not there yet, when we get there, we’ll stop talking about payments that are seamless”.

Genuine transformation

Mere innovation is not going to get banks to the place they need to be, according to more than one banker. While banks use enormous amounts of technology, too much of it has left little impact. Antony Jenkins, Founder and Executive Chairman of 10x Future Technologies and former Group CEO of Barclays, said that despite throwing people and resources at technology, the customer’s lot has not seen dramatic improvement. “People now want change,” he insisted. “But we have to move beyond innovation to genuine transformation.”

Jenkins and others added that the use of data will be a key element in driving the metamorphosis of banking. Digital companies and banks are far better equipped at present to interpret and act upon data. One fact that emerged from Money2020 was that traditional banks take 2.2 years to read, listen and learn from a client relationship – digital banks shorten that timeframe dramatically. Data represents one of the battlegrounds of the future and banks have started to employ legions of “data scientists”, but one question still remains, “how do we act upon the mass of data at our disposal?”

Companies such as Google and Amazon have been leveraging their ability to utilise data for some years. “Banks might understand what their customers are doing by looking at their activity, but a company like Google has that information pinned down three months or more before a bank,” said one fintech COO.

This data is effectively the oxygen of the financial system and those companies that can manage it well and act upon it will rise to the fore. These could be banks, fintechs or even the digital conglomerates of the future.

Pulse of fintech

The fintech sector, of course, is at the heart of Money2020 and the conference provides an opportunity to check on the health of the sector. Investment in fintech has been dropping since 2015, although market watchers suggest that fintech may be going through a normalisation process. There’s been a slowdown of venture capital activity but this was partly explainable by investors becoming more discerning and wanting a return on their outlay.  Similarly, the rather uncertain political environment may be curbing appetite. Whatever the reason, KPMG, in its “pulse of fintech” review, was optimistic that investment in fintech was of a higher quality than in the past.

And it is a sector that appears to have modified its approach towards banks. The talk of collaboration that was evident in 2016 has moved on a stage. Fintechs are admitting that banks still retain trust from customers almost a decade on from the financial crisis. Furthermore, many believe that banks will be successful in managing a recalibration, although the process may be uncomfortable. “Banks have to erase from their minds their so-called captive world, nothing is captive today,” was a comment that drew nods of affirmation from the audience.

Ed Budd of Deutsche Bank summed up the challenge – and opportunity – facing banks. “Corporates are changing their business models. We have to go on that journey with them, because the transaction banks that can successfully refocus and identify the products and platforms that their clients need will be the winners.”

Neil Frederik Jensen is a freelance financial journalist and a Former Editorial Director in Deutsche Bank’s Global Transaction Banking marketing team

iA point made by Deutsche Bank’s Shahrokh Moinian in his article on PSD2, New payments playing field

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