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The Breaking Banks Europe Team
Innovation and Tech Zoom In: Platform Economy
On episode 23 of Breaking Banks Europe, Matteo and Matthias are joined by Balazs Barna, Engineering Lead for TransferWise European Expansion Team, and Paolo Zaccardi, Co-Founder and CEO of Fabrick to discuss Platform Economy. Platform Economy sounds like an imperious buzzword, but simply put it’s an opportunity for non-financial players to build new services cross leveraging their distribution channels, their customer base and open banking.
But the idea is by no means, new. According to a 2014 MIT Sloan article titled ‘The ups and downs of dynamic pricing,’ “in 2013, 14 of the top 30 global brands by market capitalization were platform-oriented companies — companies that created and now dominate arenas in which buyers, sellers, and a variety of third parties are connected in real-time.” This has been and continues to be an upward trend. By 2018 seven of the 10 most valuable companies globally were based on a platform business model.
Despite the commonality of the platform economy, everybody has their own definition for it. Why don’t we take a look at how the hosts and guests define it.
Matteo: To me is the opportunity for an infrastructure to go way beyond the purpose for which the platform was built for and actually, through an open series of APIs, connect an ecosystem. If we look at a platform like Uber, Booking.com or Netflix, they were all born to do one thing but potentially their business could be extended way farther than the initial scope. That’s to me the opportunity given by the platform economy.
Balazs: It’s hard to add anything. I think, in general, these platforms don’t control the production, they control the means of connection. They are about connecting the supply and demand in a given market. As you said, the difference between a regular taxi company and Uber is that the regular taxi company is responsible for the production (buying the cars, employing the drivers, etc.) and Uber provides a platform that allows drivers to sign up and do the work while they subsidize their service for the users to reach the drivers.
Matthias: I like what you said about not controlling production but the connection. And, out of my perspective, this describes the major aim of a platform very well. In particular, once you talk about various stakeholders and ecosystems. However, pouring some water into the wine willingly, and provokingly, significantly changes the nature of what would define to be a bank as of today. Doesn’t it? Or maybe that’s pouring the wine into the water, actually.
Paolo: In general, we consider the platform model and open banking to be concretely the way to bring open innovation into banking. In the last decade, we have seen the rise of the platform economy in many industries and I think that now, more than before, the platform economy is essentially cross-industries. So if we combine non-banking and banking services we can really create a superior customer experience.
Everyone adds their own spice and their own idea of what a platform can achieve. And so do the platforms themselves. TransferWise and Fabrick are both financial services-oriented platforms. TransferWise is an international technology platform whose primary goal is to move money across borders in the most efficient and cost-effective way possible. Fabrick’s mission was to create an open banking ecosystem, so more than a platform. A combination of an ecosystem of FinTechs and a platform to connect fintechs with banks and incumbents in general. Matteo believes “Fabrick is where open banking, platform economy and the API world are really coming together.”
On this upcoming episode of Breaking Banks Europe, we have the second episode of our ‘Breaking Impact’ series, where we share stories about entrepreneurs, talents and former and current executives who are changing the world. Not only on the financial inclusion angle which might be actually a closer topic to FinTech but generally speaking, they are changing lives for the better. On this episode, Matteo and Meaghan are joined by Tiago Borges Coelho, Co-Founder of UX Information Technologies, and Andre Van Zyl, Co-Founder of CLIC.World. They shared with us their lives stories, how they came about their idea, how they developed it, the hurdles they had to overcome and their effect in the ecosystem. We’ll give you a short overview of their story, but don’t forget to tune in next Monday to the BBE podcast for the whole story.
Tiago is, first and foremost, a social serial entrepreneur. After spending many of his formative years in Portugal and the rest of the world, he decided to return home to Mozambique and create meaningful and impactful businesses. He Co-Founded UX Information Technologies in 2013, an information technology company with a strong focus on social entrepreneurship. They develop a range of online desktop and mobile applications for companies and institutions while creating their own products and solutions for social empowerment. Their two flagship products are Emprego and Biscate. An online recruitment platform for the formal sector and a mobile recruitment platform for the informal sector, respectively. These flagship products have become the biggest job boards in Mozambique and in addition to seen productivity increase for all users they have experienced some positive unforeseen consequences. “For example, some of the most highly rated workers (a la Uber) have taken to mentor other workers in the same job or formed working groups to be able to meet the demand for their services”. They are also solving pay points for the companies themselves by taking care of the payroll directly through their platform with the collaboration of Vodacom’s M-Pesa.
Andre is, to say the least, a visionary and an early adopter of new technologies (e.g. Andre had the first internet line in South Africa) Something he tells us can be problematic when navigating a regulatory environment. CLIC.World is at the moment something you could call a social financial marketplace, although Andre himself is still looking for the proper way to describe it. Despite that, he believes the end goal of CLIC.World to be that of a “Lifestyle Service Provider.” Andre is a South African expat residing in Uganda. The idea for CLIC.World came to Andre in 2008 while working an economic development consulting project in DRC Congo, where he realised that “if we don’t come up with some sort of banking or financial set of rails, you’re not going to go very far.” But in 2008 the technology was not readily available yet. They tried to get on a saturated Ripple with no success and went then to become one of the first members in the Stellar Blockchain. Founded in 2016, ‘CLIC.World is built on the Stellar blockchain and uses Stellar Lumens (XLM) as the primary mechanism of transferring value during fiat currency-based transactions’. Cryptocurrencies have been met with scepticism in many parts of the world and with its unnecessary share of fake bitcoin scams, Uganda is no exception. Meaghan posed an interesting question for Andre, “How did you educate your consumers about Stellar? How much did you have to tell users about this non-traditional banking platform?” For the sake of time, Andre gave us the short version. “We do not use the C-word. We rarely use the B-word. It’s just technology, OK?” We are all looking forward to the long version.
Tune in next Monday to learn more about how UX is transforming the labour market in Mozambique and how CLIC.World is creating a financial services ecosystem with digital identity at the foreground, as well as their hurdles and achievements.
Innovation and Tech Zoom In: Central Bank Digital Currency
In this article, we will attempt to unpack some of the interesting information shared by the hosts (Ajit Tripathi & Brett King) and guests (Makoto Takemiya from Soramitsu, Aleksi Grym from Bank of Finland, Todd McDonald from R3, and Lynn McConnell from Binance) such as ‘What is CBDC?’, ‘Different types of CBDC’, ‘CBDC Projects moving ahead’ and ‘What is implementable in the current environment?’. For more input on the conversation, please take a listen to Breaking Banks Europe, Episode 20, in your favourite podcast streaming service.
Contrary to popular belief, Central Bank Digital Currency (CBDC) are not cryptocurrencies. CBDC represents the digital form of a fiat currency of a particular nation (or region) and is issued and regulated by the competent monetary authority of said nation (or region). Basically, ‘CBDC will act as a digital representation of a nation’s fiat currency and will be backed by a suitable amount of monetary reserves, such as forex or gold’. Another important differentiating factor from cryptocurrencies is that CBDCs are centralized. Which, as Brett King mentions in this episode, “for a lot of crypto purists, that’s kind of the issue of fiat currencies.”
So, what does this mean? Ajit sets the question in a way most of us living in economies with wide adoption of digital payments can relate to. “What is CBDC? I mean, money is already digital, I can make payments with Venmo, Revolut, you name it. So how is a CBDC different from what we do today in terms of electronic payments?”From an end-user perspective is really not very different. The key difference is that if you use Venmo or Revolut or any of these electronic money type of solutions, as a customer of that service provider you have a claim on that company (i.e. You have put money on that service or account and then you can use that to make payments so in the end, it’s that service provider who owes you the money or it owes you the services that it’s promising to provide). In the case of CBDC, the service is very similar, the difference is that the claim is on the central bank (i.e. the Central Bank takes your money and promises to keep it safe and provide those payments services). As of now, Central Banks don’t do that, they have left it to the private sector.
Now that we have gotten the premise of what CBDC is and what would actually change if implemented, let’s touch open the different types of CBDC. There’s a lot of talk about ‘Wholesale CBDC’ and ‘Retail CBDC’, but what does that mean? In very simple terms, a retail CBDC is one that will be issued for the general public and a wholesale CBDC is for financial institutions that hold reserve deposits with a central bank. A retail CBDC based on DLT has the features of anonymity, traceability, availability 24 hours a day and 365 days a year. This proposal is relatively popular among Central Banks in emerging economies, mainly because of the motivation to take the lead in the rapidly emerging fintech industry, to promote financial inclusion by accelerating the shift to a cashless society, and to reduce costs of cash printing and handling. A wholesale CBDC could be used to improve payments and securities settlement efficiency, as well as to reduce counterparty credit and liquidity risks. The wholesale CBDC is seen as the most popular proposal among Central Banks because of the potential to make existing wholesale financial systems faster, inexpensive and safer. ‘The Bank of International Settlements also shares the view that wholesale CBDC could potentially benefit the payments and settlements systems.’ Decisions on whether to implement retail, wholesale or hybrid CBDC, depends on each specific Central Bank and what is trying to achieve. If you are interested to learn more please visit the WEFs’ ‘CBDC Policy-Maker Toolkit.’
What are some CBDC projects moving ahead? One of the projects touched upon with most detail was ‘Bakong’, a collaboration project between Makoto’s Soramitsu and the Bank of Cambodia. “Bakong is a next-generation Real-Time Gross Payments system already in production, that promotes financial inclusion through a friendly yet powerful app.” If you want to learn more about Bakong, please visit their case study. Other projects mentioned in the podcast where: Bank of England, People’s Bank of China and Riksbank. Others such as Canada, Uruguay, Thailand, Venezuela and Singapore, are looking into the possibility and validity of introducing a Central Bank issued digital currency.
The podcast ended with the guests sharing what they believe to be “implementable in the current environment.” but it would not be right of me to take away the joy of listening to these stellar analysts closing statements.
The Largest distributed ledger
project, outside of major crypto’s.
Back in December of 2017, the Italian Banking Associations’ (ABI) Spunta project started, giving way to the largest distributed ledger project outside of major cryptocurrencies. It all started when ABI Lab and NTT Data Italia started working on a blockchain POC for straight-through processing of interbank reconciliations using R3’s Corda platform. Since then, SIA has also come on board as a technical partner. The total collaboration team comprises the following:
- 17 industry-leading banks, including Intesa Sanpaolo and Banca Mediolanum
- ABI Lab: A consortium of 150 banks and 60 ICT providers, focused on research into the use of innovative technologies to manage processes, channels, and security in banking
- NTT Data: A leading global IT innovator, delivering technology-enabled services and solutions to clients around the world
- SIA: European leader in the design, creation and management of technology infrastructures and services for financial institutions, central banks, corporates and the public sector
- R3: The enterprise blockchain software firm, working with a broad ecosystem of more than 200 members and partners across multiple industries from both the private and public sector
Demetrio Migliorati, Head of Blockchain at Banca Mediolanum, tells us the unusual story of how the project came to be. “..18 different banking groups, 50 banks, meeting with the desire of working together in a coopetition constructing something different. This is absolutely singular.” You are right, Demetrio. It is singular as it is unique. These levels of cooperation and coopetion do not usually go any further than conference panels. Yet here we are. This project will make Italy “the first and only entire country banking sector working together with Corda … And it is coming from a country that has not been very well known for being ahead on the technology trends.”
“Spunta” is a word surely familiar to Italians in the Banking sector, and one to probably be the cause of many a headache. Is the current reconciliation system for interbank transactions in Italy, and, as you expected, it is notoriously complex. The aim of the process is to ensure that the banks at each end of a transaction are in complete agreement about every aspect. However, if the banks don’t agree, then resolving the mismatch can be labour-intensive and time-consuming, partly due to the lack of a standardized procedure and communication method.
Now, thanks to this otherworldly collaboration, there is a faster, more efficient and more transparent way of reconciling interbank transactions. ‘This new system is the product of their collaboration; a successful POC for a blockchain-enabled interbank reconciliation system based on R3’s Corda Enterprise. The trial ran for 10 months and concluded in October 2018, with the participating banks processing a total of 1.9 Million transactions. The project confirmed an interbank system underpinned by R3’s Cora Enterprise blockchain platform can help the counterparties on each side quickly identify and address any mismatched transaction, boosting speed and transparency while reducing cost and effort.’
With the POC successfully completed, the group moved onto testing the solution in daily operations in 2019. ABI says that:
“the test simulated the production with the one-year volumes of 200 banks. The loading and the Data reconciliation took place in a geographically distributed environment and connected to a secure network. The applied architecture was robust without having to resort to specific technical solutions. The methodology used allowed to analyse the operation for banking groups and large and small banks. The test also allowed for an initial analysis of the response time process. The test was completely successful.”
The push towards full-scale implementation comes as Spunta successfully cleared “200 million transactions per year. By far the largest project on the blockchain infrastructure if you don’t mention the largest cryptocurrencies.” The new system will provide banks with complete visibility of own and counterparty movements, daily instead of monthly reconciliations and improved communication with counterparties.
Demetrio adds, “this Spunta project is a great move forward for our country.” But more importantly “I think the most fun part is that when you find the right people to work together, you can create fantastic stuff.” Read More.
Finologee: An ecosystem on its own
In the last ‘Ecosystem Zoom-In’ series of Breaking Banks Europe, we had the opportunity to take a deep dive into Luxembourg with Nasir Zubairi and Jonathan Prince, two exceptional individuals of the Luxembourg ecosystem in their own rights. They themselves do not tend to need an introduction, but just in case, Nazir is the CEO of the LHoFT (The Luxembourg House of Financial Technology) and Jonathan is a serial entrepreneur, his latest hat being the Co-Founder and Chairman of Finologee. Luxembourg gives a lot to talk about, from being a major financial hub in Europe to being on the first-mover wave of FinTech adoption at a governmental level to their work in Microfinance and Financial Inclusion. We could go on, and on. For the purpose of this article, we will focus on Finologee, their outstanding journey of the last two and a half years and what lead them there.
Who better to tell the story than the founders themselves:
“we started out in 1999 by building a digital agency from scratch, Nvision; then we launched a telecom messaging, routing and micro-payments specialist company in 2006, Mpulse; the next endeavour was to build the Luxembourg’s retail banks’ mobile payments product and infrastructure as of 2012, with Digicash; and finally we launched our latest venture in 2017 to provide the tools and platforms to digitalise financial industry customer experiences and processes, Finologee.”
As mentioned by the founders, Finologee “provides the tools and platforms to digitalise financial industry customer experience and processes,” from PSD2 for Banks to Digital onboarding to platform operations. After years of providing technology solutions for banks and financial services, they decided to make the move towards a novel space, RegTech. During an interview with InFinance they clearly explained what Finologee offers:
- facilitate digital on-boarding of end-users by aggregating the best international FinTech products
- help banks holding payment accounts to achieve full PSD2 compliance
- create a digital marketplace and a leading-edge technical environment where FinTech companies and traditional financial industry players give access to their services and expose their APIs
- enable customers to identify, fill-in and sign their SDD mandates using their computer or mobile phone
- and finally, develop a system for creating multichannel messaging strategies, e.g. for the optimization of billing procedures, user authentication or digital marketing
Basically, Finologee is operating a one-stop-shop for FinTech building blocks. Since launching their products they have; 30 banks in 9 countries live with their PSD2 for Banks and are delivering their Digital Onboarding product for KYC automation with partners such as IDNow, KYCTech, ARIADNEXT and LuxTrust. They ave also obtained a ‘Support PFS’ License by the Luxembourg Minister of Finance and are regulated by the CSSF.
Be it whether you are a FinTech, a Bank or a payment provider, you are sure to find easy to improve your offerings by visiting Finologee’s website. Read More.
Fighting Financial Crime with Advanced AI
Founded in Portugal during 2010 by a combination of data scientists and aerospace engineers, Feedzai is a company fighting financial fraud through AI. Since then, it has become one of the leaders in its market, with a remarkable portfolio of clients and results. As of 2019, their outstanding numbers were the following:
- $5 Billion in transactions scored each day
- 10 of the largest 25 global banks are protected by Feedzai
- $82 Million in total funding
- 30 Million transactions go through their systems each day
- 200 Million people protected by Feedzai
- 500+ employees worldwide
As they themselves put it; “Feedzai is coding the future of commerce with today’s most advanced risk management platform powered by big data and machine learning. The world’s largest banks, processors, and retailers use Feedzai’s fraud prevention and anti-money laundering products to manage risk, while improving customer experience.”
Their constant innovation and experienced technological background allow Feedzai to continue to lead the market while making sure their technology keeps its cutting edge. The company receives awards yearly in many different categories, for example, Tech tour Growth Alumni 50-2017, Medici Top 21 RegTech edition, Forbes FinTech 50-2018, Forbes AI 50-2019, Top 15 Machine Learning Companies 2018 by Datamation, between many others.
Feedzai’s founders’ background has certainly proved helpful to lead such a task. Nuno, Pedro and Paulo’s career before Feedzai would reassure any investors. With past positions at Deloitte, Critical Software, European Space Energy, CERN, Microsoft, Carnegie Mellon, Forbes Technology Council, EPCC, and two PhDs, it is clear they are masters of their domains. And their appearances on stages like Money 20/20, where they chatted with pioneers like The Woz and Stephen Hawking tells you everything you need to know about their pitching skills.
On more recent news, a five-year agreement between Feedzai and SafetyPay was announced earlier this year. SafetyPay is one of the leading digital alternative payment platform providing solutions through LatAm and Europe. The objective of the agreement is for SafetyPay to offer an extra layer of security against fraud risk. As Gustavo Ruiz Moya, CEO of SafetyPay, puts it: “Secure payments have been a core focus for us since SafetyPay was founded more than a decade ago. We constantly strive to leverage the latest technology to protect our customers – both consumers and merchants – and offer them the best experience when they buy and sell online. Our partnership with Feedzai further solidifies SafetyPay’s commitment to enabling fraud-free transactions.” As we move forward into digital payments we are more aware and wary of the possibility of fraud, these are two of the companies providing us with a piece of mind as we transact digitally.
At the time of this writing, it becomes more relevant than ever. We are at the epicentre of the COVID-19 crisis, in which most of us are transacting digitally if transacting at all. And where financial fraud is expected to increase substantially. It also comes as we expect the 6AMLD to come into place later this year. 6AMLD is the ‘The Sixth Anti-Money Laundering Directive’ which “ushers in a new, tougher-on-crime era in the EU. Money laundering is directly linked to an increase in bribery, corruption, human trafficking, terrorist financing and countless other heinous acts. Regulations such as 6AMLD, can empower organisations to create more efficient AML programs that help the innocent victims of the money laundering crimes.” Regulated entities within the EU zone must be compliant by December 3rd, 2020, entities outside the EU have an extra 6-month period.
Finally, we all look forward to Feedzai realizing its mission: “To make banking and commerce safe.” Read More.