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Money 20/20 Europe: Digital banking is only 1 percent on its way

Thursday 13 July 2017 | 08:39 AM CET

Money 20/20 Europe: Where Europe fintech superheroes come together to build the future of money

Two weeks ago, fintech superheroes, including The Paypers team, flew from 70 countries across the world to attend the Money 20/20 event. Networking, attending tracks, speaking to industry experts, testing some biometrics solutions and VR payment environments, enjoying the smoothies and the fresh fruit were the highlights of the conference.

It is all about collaboration

You can sense the spirit of collaboration and willingness to help move things forward when it comes to banks, fintechs, technology, innovation. It was a common understanding that in order to offer customers the best banking experience, the players in the industry need to join forces.

However, as Douwe Lycklama, Founding Partner at Innopay, mentioned during a panel discussion “How is this Open Banking collaboration between fintechs and banks going to look like? How can we collectively explain this new way of working to 400 million European customers? Some form of common expectation is needed, just like we all learned to phone, text and Whatsapp over time. Only now it is about money, the stakes are higher.”

PSD2, SCA, new regulation – not that scary anymore

As banks are opening up their customer data, PSD2 becomes part of a long-term ambition of the regulators to drive competition, innovation and transparency across the European payments market, while enhancing the security of digital payments and account access.

We talked with Tomas Likar, VP of Strategy and Business Development at Hyperwallet, on this topic, and he told us “PSD2 is a massive opportunity to boost fintech innovation and open up the banking infrastructure in Europe. If the transition is managed properly, it will give European fintech players the ability to gain significant market share from incumbent banks and scale faster than their US and Asian counterparts where similar regulations do not exist.”

Moreover, Marten Nelson, Co-Founder & VP of Marketing at Token, believes that “open banking will continue to feature as a key issue as the PSD2 deadline approaches next year” and he believes “that new business models will be created for banks that chose to take a strategic approach to open banking. The applications that will be enabled in a post PSD2 world will change the way we do banking across Europe.”

But PSD2 is not the only regulation that is affecting the current banking and payment landscape. 4MLD, especially its updates that came into force a few weeks ago, should require special attention. Danny Klein, COO at EverCompliant, told us that “with the 4MLD, entities will no longer be able to apply simplified due diligence and will have to take into consideration various factors, most notable ownership and location of the customer.” Furthermore, “the inclusion of the gaming/gambling industry in the directive is new. The 4MLD extends AML/CTF requirements to all gambling services. The directive sets financial sanction of at least 5 million euros or 10% of the total annual turnover. For many of the payments players that can be a devastating fine.”

RegTech: overhyped and underestimated?

The sheer number of regulatory changes impacting financial services across the EU is overwhelming and the fines for non-compliance are expected to increase. A new report from Consult Hyperion, commissioned by Mitek, reveals that the average UK bank is currently wasting GBP 5 million each year due to manual and inefficient Know Your Customer (KYC) processes, and this annual waste is expected to rise to GBP 10 million in three years.

“Any customer will prefer taking a selfie and snapping a photo of an ID credential over a manual process that means taking documentation to a branch,” said Sarah Clark, General Manager for Identity at Mitek. “Banks cannot afford to wait for governments to create eID systems to make this possible, and risk their competitors offering a better onboarding experience and attracting customers who increasingly demand this.”

Not surprisingly, visionary technologists can deliver back office technology that keeps pace with innovation. Eamon Jubbawy, COO at Onfido, told us “RegTech can bridge the gap between regulators and business while protecting the best interests of consumers. RegTech enables regulators to successfully implement and audit their compliance requirements and offers businesses a cost-effective way of meeting them. Most importantly, RegTech makes these services available to those who, until now, have been excluded from our economy.”

Strategies for identity management and (stronger customer) authentication in the new open banking environment

Open banking will revolutionise the banking sector and the payments landscape, but consumer trust will be crucial to succeeding in this new age. Furthermore, in the light of PSD2, strategies should combine transparent security and strong authentication to unleash the potential of open banking. Biometrics can help turn previously clunky experiences into great ones.

As biometrics are becoming increasingly diverse with mobile devices and IoT technologies enabling fingerprint, face, voice and iris recognition, it was a great experience to meet fintechs like FacePhi, EyeVerify, Jumio showcasing their biometrics solutions.

Therefore, the primary objective of open banking projects around the globe has been to increase competition and improve services for end-users. Nevertheless, traditional bank’s greatest strengths (their size, scope and scale) can complicate the delivery of new capabilities. Collaboration with fintech startups can be the path to creating next-generation services for global banks.

If you want to find out more about Money 20/20 event’s takeaways stay tuned for Part 2!

© Illustrations: Money2020 Europe