The Future of FinTech, Alive to Opportunity
We explore the disruptive forces reshaping the financial services ecosystem, with new insights from Money20/20's virtual delegates.
listen now to our podcast mini-series
Jenni Himberg-Wild, Head of UK FinTech and PSPs at Barclays Corporate Banking, reviews key sector trends with her colleagues David Shinkins, Global Head of Cash Management Sales at Barclays and Steve Lappin, Managing Director, Barclaycard Business.
Collaboration powering growth
The expert panel explain why key players are focused on growth and how symbiotic partnerships between banks and FinTech will help drive it.
(Recorded December 2020).
Podcast 1, Collaboration powering growth
Speakers: Jenni Himberg-Wild, David Shinkins and Steve Lappin
Jenni: Well hi everybody, and welcome to our first podcast in our series exploring what is possible within the FinTech industry. My name is Jenni Himberg-Wild, I’m the Head of UK FinTech and Payment Service Providers Coverage for Corporate Banking at Barclays and today I'm talking with two of my colleagues, David Shinkins, who is the Global Head of Cash Management Sales at Barclays, and Steve Lappin, Managing Director, Barclaycard Business.
In this miniseries, we'll be discussing the key trends and patterns that are happening in the FinTech space, and what this could mean for the industry, clients, and indeed you.
So, thank you for tuning in to Episode #1 of 3. Today, we will be focusing on the macro environment and industry trends for 2021. But before we dive into the specific questions – as it is the first episode – David, could you tell our listeners what is the Alive to Opportunity report?
David: Great, thanks very much Jenni. So, after the success of our 2019 Future of FinTech report, we've again partnered with Money 20/20, for a second year, and this time we're going to take a deeper dive into global industry trends and insights within the financial sector for 2020 and 2021.
All of our findings can be found in the new report, Alive to Opportunity, and of course we’ll be speaking about the key trends on our podcast miniseries that you just mentioned.
Jenni: Thanks, David.
So, for the benefit of our listeners, we partnered with Money 20/20 to survey people from EMEA, the Americas and APAC, and gained some really interesting insights from those in the field globally. Now, should you wish to take a look at the report, you can find it by typing barclayscorporate.com/fintech into your browser, or, just click the link below this podcast!
And Steve, I'm going to welcome you onto the front next! So, let's start about the COVID-19 pandemic and the focus in 2021 for business. So, could you talk us through a little bit of your views on how that's impacted the FinTech business and indeed, how they've seen that whole pandemic?
Steve: Yes, absolutely, thank you Jenni. Great to be here.
And who'd have thought 2020 would have turned out the way it has, not just for the FinTech space but pretty much for all industries globally will have been impacted by COVID-19? And the results from the survey are so interesting for me, in that the COVID-19 recovery scores fewer points than businesses focused in on growth in 2021 and beyond, I think that's for a number of different reasons.
Firstly, as our business experienced, particularly in Q2 2020 when we processed around 30% fewer card transactions in the UK than we would normally see, there's not a lot we can do about that baseline economy. There's only so much any business can do about any impacts of COVID-19 on its baseline. So I think, actually, what the respondents to the survey are doing is something we've been trying to do in our own business, which is focusing on something we can do and we can try and affect.
So in terms of growth, for example, we're looking at the shift to eComm and the increase in contactless transactions at point of sale following the increase in the contactless limit earlier this year. And also in terms of investment; so, ensuring we’re easier to do business with by investing in upgrades to our digital servicing offering – particularly important given we've all been working from home for the vast majority of this year.
Jenni: That's really interesting Steve. And, I think the report was quite interesting as well highlighting that despite all the challenges of COVID-19, very much the focus is on growth for 2021.
Steve: Yeah, absolutely. As I say, we can only focus on the things we can affect. So we've had a look at our strategy, particularly in terms of growth in the payments and FinTechs space, and the shift to eComm, the shift to card not present consumer activity, the shift to non-card payment types, and obviously, the shift and increase in contactless transactions at point of sale have been really important trends through the second half of this year.
And we just feel will continue into 2021 and beyond. So we've taken a step back, taken another look at the strategy, and made sure we’re refocusing on those areas where we think electronic payments will continue to experience significant growth.
And I think, looking at the responses to the survey, that's what a lot of people have been doing. Taking a step back, looking at how their businesses have been impacted by COVID-19, but focusing on what they can affect going forward.
Jenni: Thanks Steve.
So, David, coming back to you then, one of the things that our report was strongly suggesting is this trend continuing, and very much the majority feeling that financial technology or, I suppose, financial transactions if you wish, will be very much consumed through integrated, invisible services. Could you give us your view? What does it mean, integrated invisible services, and a bit of a view in terms of what kind of answer is getting to?
David: Sure, you're right Jenni. And I think naturally, based on business model choice and business model design, what it's effectively saying is that the end value proposition that's presented to, whether it's consumers and/or to retailers, may be provided by either directly by a bank or independently by a third-party provider. So one great example of that would be this FinTech value chain.
The most important thing here is about, when looking at an entire value proposition for underlying clients, how can third-party providers and third-party FinTechs actually integrate themselves directly into value proposition, and actually then provide a greater value to the underlying client? Where historically, probably some other providers that probably aren't as nimble and can't move at the same pace, aren't able to offer that same level of value, effectively.
So examples like that we could see particularly in the foreign exchange value chain, particularly in the payments value chain, the ability to show alerting capabilities, and really just show and use data and MI to provide real insights into the underlying value proposition.
I think the interesting point for me, though, and I think this is also one point that came out of the report, that, interestingly, a lot of financial technology organisations are actually looking now further to becoming regulated businesses. So we've seen that actually more broadly, either becoming banks, so getting their own banking licence or either getting their money licences, which we've seen already take place quite a lot in the sector.
But I think the most important thing is around that stability, resilience – clearly important things that regulators look for, particularly when it comes to the holding of client monies or client assets. But the most important thing out of all of this is, it's showing that the industry is particularly innovative and there's definitely a space to play for all of the different players across that value chain.
Jenni: Yeah, it's absolutely fascinating stuff, particularly that, even given all the time it takes for everything, there's still that drive of becoming a regulated FI. But, really interested you brought a word up that is one of my favourites, which is this agility in a sector.
So maybe, Steve, coming back to you again, start-ups particularly, I mean they are agile, right? We always tell them that start-ups are particularly agile, and they have been seen as the lead generator in disrupting the payments industry, and that's coming through strongly also in the report. I'm really interested to get your view and angle on that.
Steve: Absolutely Jenni. Start-ups are right at the cutting edge, as you say, and often leave the market questioning longstanding banking practices. And survey results show an increase in responses to partnerships disrupting the payments industry, producing differentiated offerings for clients through collaboration of different parties within the payments and the FinTech value chain.
My own view is, perhaps many of the respondents to the survey are start-ups themselves, and therefore see themselves playing this important role. And no doubt, as I've said, much of the innovation in the payments space does come through start-ups. The difficulty is reaching scale, as you will know, and how you take what is a really cool, innovative start-up idea in payments and try and put that payment technology in the hand of every single consumer in the UK is a very, very difficult path to achieve.
So, reaching scale, and that eternal chicken and egg battle of do consumers want to use that payment type and, therefore, do retailers want to accept that payment type? Which of those needs to come first for a piece of technology to get that scale it needs to get in payments – to genuinely become a breakthrough technology as opposed to just this year’s cool whizzy idea?
So, partnership’s also really important here. So not necessarily acquiring technology, but how does Barclays, as an example, as a huge universal bank, partner with the right organisations to provide the right level of innovation into the consumer payments industry and become as frictionless as possible?
Jenni: Yeah, collaboration as well, right? And partnerships collaboration still seems to come through as the very, very strong theme in the report and that's something that carries on from last year’s report as well. Which is of course good news to all of us that we all exist and coexist in a world and continue to drive for better differentiated offerings through those.
So, just interested on that role of a smaller FinTechs or ‘agile’ I suppose, are they ‘start ups’? Could be scaleups by now as well. So David, what's your view on the role that they play in the whole of the broader FinTech ecosystem?
David: So it's quite interesting – in the report it sort of really stated that small FinTechs have a stronger role than ever to play. So we saw that 92.8% see a role for them, which has been consistent across the different regions and is also, interestingly, up from 5.3% last year. I think what's particularly interesting, back to both the points that Jenni you made and also Steve earlier, smaller, more agile companies are able to drive innovation at speed and at pace.
And an interesting point for me actually is one that, I think it will continue to allow further disruption in the industry; it will see greater innovation. And actually it allows this quite ‘fast or fail’ mentality that effectively, you know, small amounts of investment can see quite rapid change happening, particularly with that agile mind-set that you mentioned.
But the other important thing for me, I think, is what it'll also see I think particularly, is banks actually investing in some of these organisations actually to help accelerate that journey, as we've already seen in particular across the banking industry and particularly how we look at start-ups.
And as you said, scale-ups they suddenly go from start up to scale up relatively quickly by accessing further seed funding. So I think that’s particularly interesting. So a summary of all of that? I think just more to come, I think it's a really exciting space to be in at the moment.
Jenni: Yeah, I agree with that, David, and it's fascinating. I participated myself and listened to lots of the sessions in our New Frontiers conference which took place only a little while back, and in there we heard from various different FinTech start-ups who really have pivoted this year, particularly in the current macro environment and given that context.
So it's been interesting to see how they've been really able to reach new heights because of the macroeconomic conditions and, perhaps, despite of them. And lots and lots of good examples in there. I wondered if you had any view? You know, have they performed perhaps better, or do you think it's just that, generally speaking, that the market is very much open for all?
David: I guess in my mind, you know, I think the market is very open. I think we see particularly, one, from a regulatory standpoint, we’re seeing very much driven by open banking and PSD2; we're seeing new types of business models come about; we've seen, particularly, that's also the case out in Asia. So different regions around the world are seeing particular levels of innovation really drive that type of growth.
I think also we're seeing, actually, quite a lot of ex bankers move into this new sector, because what they're actually starting to see is that they can use their expertise and skill set that they may have learned from being in a large incumbent, to suddenly actually start to drive and, effectively, drive innovation in the sector, which really needs that expertise that we've seen from other organisations.
And similarly, partnering with other individuals that clearly have the technology skills, the future mindset, the vision of how they can see, how they can really drive innovation. So I think there's quite a lot of opportunity out there for a lot of different engines and a lot of different players. The critical bit is finding the right sweet spot, and I think that is clearly where the value comes.
Jenni: So thanks, David. Yes, I do agree with those points, and for my benefit, I can see, Steve, you are smiling and nodding there, our listeners can't, but what's your kind of view on this one?
Steve: Yes, Jenni. Just back to the point David makes on bankers who are maybe leaving some of the large incumbents to go and plough a new furrow in the start-up environment, my sense when talking to those individuals is what they love about that change, is the approach to innovation, the agility, the fast-paced environment, and how quickly they can deliver things into the market.
I guess, however, on the flipside what's really difficult is the lack of relationship with regulators, the lack of scale when it comes to compliance operations, and much less of a focus, for example, on cybercrime versus some of the large incumbents.
And that's just interesting for me; so, just an additional point on the back of what David said.
Jenni: Agree, agree Steve. So we'll be discussing, actually, some of those points about cybersecurity and so on in our podcast number two and three. Thank you very much for both David and Steve, for your valuable insights today.
David & Steve: Pleasure / Thank you very much, Jenni.
Jenni: And that concludes today's podcast. Please join us for our next two podcasts, where we will be discussing innovation in a payment sphere and regulation for business. And do download the Alive to Opportunity report or learn more about our specialist FinTech offering via the information boxes below, or type barclayscorporate.com/fintech into your browser. Thanks very much and goodbye.
Disruption driving payments
Jenni, David and Steve discuss innovation that’s made payment systems an essential feature of customers’ experiences rather than just utilities.
(Recorded December 2020)
Podcast 2, Disruption driving payments
Speakers: Jenni Himberg-Wild, David Shinkins and Steve Lappin
Jenni: Hello everybody, and welcome to our second podcast in this miniseries in which we will be discussing What is Possible in the FinTech landscape. My name is Jenni Himberg-Wild, I’m the Head of UK FinTech and Payment Service Providers Coverage for Corporate Banking at Barclays, and together with David Shinkins, the Global Head of Cash Management Sales at Barclays, and Steve Lappin, Managing Director, Barclaycard Business, we are taking a deeper dive into the findings from our Alive to Opportunity report.
For those of you new to our series, the findings from our report were taken from a recent survey we undertook with Money 20/20. We surveyed people, from EMEA, The Americas and APAC and gained some really interesting insights from those in the field. So, the survey results in turn helped us produce our 2020 report, Alive to Opportunity, exploring the key trends within the FinTech landscape for 2021.
During our last episode, we discussed macro industry trends, and today we will be taking a slightly closer look at innovation in the payment sphere. As a reminder to our listeners, should you wish to learn more about the findings, please click on the information boxes below, or just type barclayscorporate.com/fintech into your browser to download our latest report. So welcome back, both!
David & Steve: Thank you, Jenni / Hi, Jenni.
Jenni: So, let's go straight into this, then. So, our survey suggests that real-time payments will be the big next innovation to disrupt the payments market. So, the report showed really high percentages on this one. Like, over 70% of people overall thought that was the next big thing, and over 75% in the Americas.
So let's start with you again, David. What's your take on this? What makes this so important to the industry?
David: So I guess, in my mind, when I look at real-time payments, clearly, firstly, what do we mean by real-time payments, is the first point. And I think secondly, this has been particularly a trend that we've seen, first starting really, particularly in the UK, as part of a new payments architecture that came into play. Of course, also now, we're starting to see that coming out particularly with the development of the SEPA Instant programme, along with a number of other countries around the world, who're developing very similar real-time clearing payment systems.
Now the question that, I guess, I posed to myself right at the beginning, what do we mean by real time? Is it 4-hour clearance cycles, is it 2-hour clearance cycles, or is it literally instantaneous clearance cycles? As in, within seconds? I think this is all driven back by underlying consumer demand. So effectively, we're finding that FinTechs and payment service providers are effectively needing to meet the ever growing and increasing demands of their underlying clients, and naturally, the infrastructure or the clearing infrastructure that sits behind that has to keep up with that change in expectation.
So, in my mind, I'd say yes, we're going to continue to see high disruption, we're going to start to see even stronger business models coming about, and effectively, speed will continue. The one challenge we’ll have to overcome, though, is of course, how do we maintain resiliency? How do we remain in control? How do we have the right level of screening and checks taking place, while at the same time the speed increases?
All interesting dilemmas, and obviously ones we’ll have to concentrate on.
Jenni: Yes, that old adage how fast is fast enough, right, in real-time payments?
So, Steve, from your perspective, where's your view on these real-time payments, and what will it bring and what will it enable?
Steve: From a consumer perspective, open banking has been a huge theme for the last couple of years, and I expect it to continue to be into 2021 and beyond. And I think, some of the respondents to the survey who talk about real-time payments being important are thinking of, for example, the rise in push payments as a result of the introduction of PISP. Clearly this is all a part of the industry's response to the second payment services directive otherwise known as PSD2.
And retailers are increasingly interested, I think, in push payments. Not least because the cost of accepting credit and debit cards has started to increase over the course of the last couple of years since the multilateral interchange fee regulation from a few years back.
My own view is that we’ll definitely see Open Banking and PISP services gain a foothold. But I also wonder about mass adoption until certain elements are resolved. For example, one of the reasons the card industry, both credit and debit cards, has worked so well for consumers and retailers to this point, is around a disputed transaction.
So, when you don't get the goods or services you pay for, you're able to write to your card issuer and the card issuer takes upon their shoulders the job of getting your money back or making sure you see an adequate resolution to your dispute.
In the world of push payments, that's just not in place right now. And I think it will only take a few disputed transactions that consumers don't feel are dealt with in an appropriate fashion that will see the adoption slow. So, really interesting to keep an eye on what's going to happen in this space. I just feel, until we get clear on the dispute processes, the growth of PISP and push payments may be hampered in the short term.
Jenni: Thanks Steve. So that's really interesting Steve. One thing just caught my ear there. You talked about this kind of scale adoption, and we've been talking about it I suppose for a few years now. Like, open banking is such a great opportunity for the industry, but has it really taken off? Has it really monetised itself yet? Do you see any green shoots out there? Anything that gives you the indication that actually, yeah, it will build on from here?
Steve: Yeah, absolutely. Certainly, I can talk with a bit of authority about what's happening here at Barclays, where we are on the cusp of launching our own bank pay solution with a third-party partner. And I think, as some of the large incumbents that bank the majority of the UK adult population bring their own solutions online over the course of the next 6 to 12 months, we’ll certainly see an increase in adoption in this space. So, absolutely one to keep an eye on.
Jenni: So Steve, it's still very much all focused around reducing the friction within the client experience of connected platforms and connected buyers and connected sellers. Any sort of insights that you might have on this?
Steve: Yes, not surprised at all to see reducing friction coming high among the survey respondents. For me, it's absolutely the battleground in consumer payments, those retailers or other payments accepting organisations who are able to remove the most friction have the highest authorisation ratios, for example, from a cards perspective, will be the ones that win in this space, I've absolutely no doubt about that.
And coming back to my point on scale from the earlier podcast, I feel the largest players right now truly have the capability to connect buyers and sellers in unique and differentiated ways. For example, here in the UK, Barclays issues a significant portion of the credit and debit cards, and it also processes a significant number of transactions via its merchant acquiring arm.
And I think this is going to be key. Particularly in a world where PSD2 increasingly requires stronger authentication, particularly for eCommerce transactions, and that convoluted one-time dynamic password experience that we're starting to see at point of sale when buying online.
Jenni: Great, thanks Steve.
So, let's turn a little bit more into some of the innovation that's coming through looking into that 2021 and beyond, and really the innovation in disrupting the payments market. So, David, I mean, where do we start? Swift GPI? ISO 20022? Blockchain? Frictionless experience is all over that. Do you want to talk a little bit through what did the report say about the importance of those various things, and indeed your own views of how they're going to impact the market?
David: It's always interesting. I think, like you said, you know, those are all very, quite broad, topics. But let me just give you a couple of interesting points.
The first one, you know, particularly in Asia Pacific, I was particularly interested in, obviously, the ISO 20022 trend, which is obviously going to be coming out relatively soon, and we will be a multiyear journey for the entire banking industry around the world.
So, one example of that, and let me touch on it very briefly, ISO 20022 will see payment schemes such as CHAPS in the UK, Target 2, Euro 1, and Step One in Europe, all being fully migrated by the end of Q2 ‘23. But with all major payments infrastructures, expected to be migrated by November ‘25.
Now, there are a number of really strong benefits that we're going to see from this. One, ISO standards will enrich the data and bring enhanced creditor and debtor details, which will ensure we have consistent file formats. We’ll see operational efficiency through that enriched data, so, fewer payments are expected to fail, which will be great news I'm sure for both corporates and for clients alike. Improved AML and fraud protection, back to the point earlier. So really a positive story, I guess, from a regulatory perspective, and also that broader social agenda.
But ultimately, I think it will also allow innovation, and that's the important thing. I think, back to what you said earlier, it'll allow innovation to come through in the messaging formats, better product development, and also faster responses to changes within the industry.
The other thing that came out of – also to your second point – it was interesting that Swift GPI, because of course Swift GPI is touted as the next way to basically trace data points in payments across the world, and having that integrated, particularly for clients when they’re tracking real-time payments and also managing their underlying liquidity needs, is going to be particularly of interest.
Now of course, that's going to have adoption in different places around the world. Interestingly, in the report, Swift GPI wasn't a focus area in the Americas, but I think that will change. But I think the other important thing is, I think Swift GPI is seen very much as a hygiene factor. The ability to track a payment should be seen very much in that sense today.
The last one, obviously, Blockchain. We can spend probably the entire podcast talking about Blockchain, so I won't intend to do that today. But I think the interest remains relatively high in Asia Pacific, so around 21.8%, but lower elsewhere in the other regions.
But I think the interesting thing is, is the choice of whether there's a viable use case. We've seen there are viable use cases, particularly when it looks particularly a lot at trade businesses, particularly when we think about the ways in which we see goods being moved across borders. But aside from that, I think, particularly in the payments case, I'm still yet to see the business cases being monetised effectively for stronger long-term value.
And I guess that's the question. There are some good examples out there, some good innovation coming through, but something at scale I'll be interested to see over what time period that will take. But there we go, lots of innovation, Jenni, so quite a lot to focus on. But ultimately, all of it's really having the ability to drive and enhance client experience.
Jenni: Absolutely. Thank you very much David.
So, just to wrap up on this thing about 2021. So, from both of you, what do you think really is the focus of looking to improve that client experience overall for 2021 and beyond for the industry? And maybe, David, you could start first.
David: Thanks Jenni. So, look, in summary I think, listen to all the great things we've just talked about today. You know, payments is exciting, it is very innovative, there's a tremendous amount of change that's already happened and will be coming in the next few years. I think this is the really important time for, particularly for FinTechs, and for example, all of the businesses that we've talked about to seize those opportunities.
It will see the growth of new business models. It will mean a lot of change for a lot of people, and a lot of new skills that are required to deliver on that, but it's a really exciting time to be in payments.
Jenni: And Steve, on your side?
Steve: Yeah, in the many years, Jenni, that I have been in consumer payments, there's been a huge transformation in what that means to the industry, and in particular to the retailers we work with. It's really gone from being a utility must-have, relatively dull part of what they have to deliver to their consumers, to being absolutely central to that checkout experience. And where a differentiated payment experience can absolutely lead to a shift in market share for the right players.
And so it's a great time, as David says, to be in payments. Increasingly in our retailers we’re seeing a whole host of new job titles crop up, and it's no longer the FD, the CFO, or the payments managers that we’re talking to. There are customer experience directors getting involved in payments – for me just underlining how central it is to delivering that brand promise at checkout.
Jenni: Thank you both. And that brings us to the end of the second podcast in this miniseries. So, thank you very much David, and thank you Steve, for your insights today.
Steve & David: Thank you Jenni / Thank you!
Jenni: And look out for our third and final instalment of this miniseries, in which we’ll be exploring regulation, and whether or not that is a hindrance or, indeed, an opportunity for business. And of course, if you would like to learn more about the report type barclayscorporate.com/fintech into your browser. Thanks very much.
The cybersecurity contradiction
We’re spending more time and money online, yet cybersecurity’s importance is still being underestimated. Our experts discuss the potential implications.
(Recorded January 2021)
Podcast 3, The cybersecurity contradiction
Speakers: Jenni Himberg-Wild, David Shinkins and Steve Lappin
Jenni: So, hello everybody and welcome to our third and final podcast of the series in which we’ll be discussing what is possible in the FinTech landscape. My name is Jenni Himberg-Wild, I’m the head of UK FinTech and Payment Service Providers Coverage at Barclays Corporate Banking, and together with my colleagues David Shinkins, the Global Head of Cash Management Sales at Barclays, and Steve Lappin, Managing Director, Barclaycard Business, we're taking a deeper dive into the findings from our Alive to Opportunity report. So welcome back both.
David: Thank you, Jenni.
Steve: Hi Jenni.
Jenni: As a recap for our listeners, the findings from our report were taken from a recent survey we undertook with Money20/20. The survey results helped us to produce our 2020 report Alive to Opportunity, which explores the key trends within the FinTech landscape for 2021, and should you wish to take a look at the report you can find it by typing barclayscorporate.com/fintech into your browser.
So, during the last episode we discussed innovation in the payment sphere, and today we’ll be talking about regulation and security. So, it's clear there's been a bigger shift in regulatory landscape over the years, with different elements of the industry having certain impacts. Now, this in turn has affected how the industry is viewed. This in mind – David, let’s start with you – can you tell our listeners about some of the elements and big, big sort of themes we see in the regulatory landscape?
David: Thank you very much for the question. The thing I would always say firstly is, regulation is an important part of a regulated business, and what I would say is, actually, it’s an enabler, I think, to really drive new types of business models; but also, more importantly, to really help to drive the overall experience, and also, really, to protect consumers, to protect the businesses we operate in, and also to ensure security and, I’d say, real structure in the financial system.
The other thing I would also talk about is something else that’s really going to be on our agenda and we’ll touch on this later – is very much around ISO 20022. Particularly those benefits that will come in, particularly in the payment systems.
But the important thing I would talk about really, and I think that that's the key, the ability to horizon scan and to look at all of this regulation, see how it impacts both banks, regulators, clients, and then also the end consumers, is going to be really important, and it's going to be here to stay.
Jenni: Thanks David.
And Steve, from your perspective, coming from more the card payments side, anything to add to that rather comprehensive list already?
Steve: Yes. Hi Jenni. Yeah, consumer payments, and particularly card payments, equally really carefully regulated to make sure fair outcomes for retailers and consumers alike, and alongside some of the names David’s mentioned, including the payment systems regulator we have here in the UK, which covers things like PSD2, I'm going to come on to talk about Open Banking a little later on in this podcast; you have the card scheme operating regulations.
So these are really Visa and MasterCard’s rules of the road to make sure consumers globally, when paying by cards, can rely on the same experience, be that entering the PIN at point of sale in the same way; be that checking out online in a way that they recognise, with the correct password authentication; or be it, eventually, when they get their goods, and if there are any problems with the services or goods delivered, relying on the chargeback process to ensure they get their money back or some sort of remediation from the retailer in question.
There are hundreds and hundreds of pages of these regulations; one of the particular pieces of operating regulation when it comes to the card schemes is the payment card industry data security standard, or PCI DSS as it's known in the industry, and retailers have put a huge amount of work and time into getting themselves compliant with this standard and making sure those all-important cardholder payment data is capped really, really, really safe.
Particularly important in an online environment where cardholder data is passing through several servers, millions of times a day as internet payments have taken off, particularly post COVID. But even in a physical environment, you know, the position of a CCTV camera in-store – is that directed in a way that it could be used in the future to divine somebody's PIN number? There's a real load of detail about exactly how you need to set yourselves up to comply with this piece of regulation, and any non-compliance fines can be particularly punitive.
So anybody who’s interested in getting into card payments, make sure you take a good look at the payment card industry data security standard.
Jenni: Yeah I agree Steve, very much so. Lots and lots of elements that make up the world of regulation. And clearly, as the industry matures, the relationship between the regulators and business becomes even more important. In fact, in our report when we asked what impact regulation will have on businesses, half – 50 per cent – of respondents noted that it would provide new opportunities to do business. And that’s quite a significant increase from 39 per cent in the 2019 report.
So David, coming back to you, it seems like regulation is being seen as a catalyst rather than a burden for business; and with that in mind, how important do you feel the relationship between the business and the regulators is?
David: Jenni, what we're getting in my mind is very simple: it's of paramount importance. So, the critical part is fundamental to how we operate today. So constant dialogue with the regulator around changing trends in the market; really understanding how infrastructure operates and how we best serve the needs underlying clients and consumers; how we create transparency – you know, we’ve seeing this along with MiFID as an example, when MiFID 1 was introduced also MiFID 2, as an example. I think, more importantly, is it creates stability in the financial system.
So, you know, another great example of that was the new payments architecture came about, driven predominantly by the Bank of England, as we look to the real-time gross settlement systems, and also then the underlying payment architecture. So, for example, with BACS faster payments and CHAPS in the UK; but there are similar other examples around the world that we can easily talk to.
Therefore, what that creates from my perspective, is it gives the ability to innovate. We saw that very much with Open Banking; we saw direct access being given to new participants to direct clearing in the UK, and we’ve seen then, therefore, other regulators adopt a similar approach by re-leveraging what the UK built, actually.
The other point I think I would also talk about is, again, really highlighting that consumer experience; because again, better client journeys, seamless experience frictionless payments, speed, efficiency – these are all buzzwords that we’re clearly hearing. But ultimately, these are all being helped along by the regulator to make sure that really there’s competition in the market and ultimately, the client and the consumer are really at the heart of that journey.
Jenni: Thanks, David.
Steve maybe with you next. It is our miniseries all about FinTech – so, how much potential is there for FinTechs out there to support our financial institutions and the regulators themselves, perhaps, with monitoring and compliance? And maybe we could look at this from that Open Banking perspective we've mentioned already a few times.
Steve: The regulatory requirements certainly open up, from a consumer payments perspective, opportunities for FinTechs to find themselves a niche role in solving particular problems for retailers or financial institutions alike.
When I speak to colleagues within the FinTech environment, I think, actually, the regulatory piece is a difficult one for them to navigate. You know, they don’t tend to have the banks of lawyers and regulatory governance and compliance experts that you see in a corporate environment – a large corporate environment. So making sure they have the right relationships, making sure they're ahead of the game when it comes to presenting their propositions back to retailers is something they have to think through really, really carefully.
So, you mentioned Open Banking there, Jenni, and actually we asked respondents to our survey which would be the biggest area impacted by regulation in 2021, and 37 per cent of respondents said that would be Open Banking. Alongside that, 45 per cent of respondents thought open banking would ease integration and enable value-added services to be developed for consumers.
When I think about the consumer payments industry the retailers are going to have to work out how they offer a solution to enable consumers to pay via Open Banking propositions. Offering card payments has solved the majority of consumer payments requirements to this point in time, but it's clear from the respondents to the survey that Open Banking is going to be an increasingly important method of payment going forward.
Jenni: So thanks, Steve.
So let's keep with that topic of Open Banking for a little bit longer, then. So, our report highlights that 42 per cent of respondents feel Open Banking could have some benefit to their business, and 40 per cent feel also that it will impact their business in a big way.
So if we break this down further, in the Asia Pacific where Open Banking is currently being rolled out, businesses were unanimous, with 59 per cent expecting Open Banking to impact them in a big way and a further 41 per cent expecting it to have some benefit to them. However, looking at the kind of EMEA region, only 38 per cent in this region expected Open Banking to have a big impact on their business, compared to 48 per cent in our 2019 report.
So David, what do you think has caused this drop in the EMEA region’s opinion on Open Banking and the impact on their businesses?
David: Yeah, it's quite interesting, Jenni. I think what may be is that, within EMEA, there's really widespread acceptance for Open Banking. You know, we've seen, clearly, the rise of new types of businesses; you know, the substantial business flow in the FinTech industry in terms of level of funding that’s being provided, and actually, we’ve seen some really strong, successful stories that have come off the back of Open Banking. So maybe that's one of the core reasons.
Jenni: Thanks David.
And Steve, from the cards and payments perspective, any additional insight you can give?
Steve: Yeah, just a couple of things I would add. One in terms of EMEA, and particularly here in Europe, from a consumer payment standpoint, is that many European countries – as you know Jenni we talked about this previously – have a very different makeup of consumer payments versus the UK. The UK is so card heavy, be that debit or credit card.
But in other countries, particularly Germany, for example – Finland we talked about previously as well – they just don't have the same proportion of spend going through card payment types, so they're already very, very used to account-to-account payments or push payments from their bank account, which is the definition of Open Banking from a consumer payments perspective.
So perhaps it's a case of, within Europe, particularly outside the UK, push payments account-to-account payments, are already a thing – are already really well established – and therefore respondents don't feel it's quite as big a development as elsewhere in the world.
Secondly, I wanted to touch on PSD2 because we're coming up to an important date in September, in 2021, where the secure cardholder authentication or secure customer authentication as part of the PSD2 regulation will kick in and will introduce more friction into the card payment environment.
You'll be required to put in a one-time single use password, for example when buying online, versus the single password you set up at the start when making internet payments today. So that's going to introduce additional friction into card payments; and at that point I think consumers will start to look very carefully at what will become an easier way to pay from a push payment from the bank account.
And if, from an Open Banking perspective, we can make sure consumers are protected in a similar way to the way card payments protect consumers today, then I think Open Banking will really start to take off – later this year and certainly into ‘22 and beyond.
Jenni: That's really interesting, thanks Steve. And thank you David, too.
So, we've, clearly, we've discussed we’ve seen the benefits that come with the use of Open Banking, but I think we had two topics for this podcast; it was looking at that sort of regulatory landscape, and we've gone through open banking but then also the security aspects. So, let’s turn on to that side a little bit- worth us touching on the security sort of breaches that can occur when things don't quite go as planned, are not handled correctly.
So interestingly, our report shows that more than half the responders across all regions are not confident, that they have robust approach to cybersecurity – that was 57.9 per cent.
So Steve, I mean, are you surprised by that statistic?
Steve: I am surprised, Jenni, but I'm actually surprised that it’s not higher. Working in the industry, as I do, working with retailers, and particularly technical teams within retailers who are tasked with making sure their own data is really, really secure; making sure the hackers can't get access to their servers; and from the payments perspective making sure cardholder data is kept secure and cannot be hacked and then subsequently used for fraud, the people I work with tend to have a sense of paranoia in this space.
And therefore, I would put it, you know, a lot higher in terms of the individuals I work with in the industry – 75/80 maybe as high as 85 per cent that are not confident they have a robust approach.
I think the moment you do get confident in your robust approach can lead to complacency, and you only need to look at some of the front pages from the British press over the last 18 months/two years to see that some of the biggest names in industry have hard those cyber breaches and have had payments data in particular stolen and subsequently misused, leading to, obviously, brand/reputational damage and also significant fines from a card industry perspective.
Jenni: Very much so, Steve, absolutely. And, maybe David, just coming back to you then – you know, we've discussed a little bit about that cybersecurity, but from your point of view, you started off with a big list of various different regulations. Anything there that, from your kind of angle, links back into the security? Any sort of top trends that you are seeing?
David: Yeah, thanks Jenni, and I completely agree – I think clearly cyber has to be, and particularly if you think about it from a fraud perspective, has to be of utmost paramount importance when thinking about protecting of funds or also protecting the stability of the payments flows.
As an example, as you’ve mentioned, I spoke about earlier about the new ISO standards that are coming in over the next three to five years. And really, what they’re going to bring is an awful lot of benefits that are really going to help, particularly to attack, effectively, these bad actors, effectively, in the system.
So, the first thing we're going to see is enriched data quality enhanced, particularly for creditor and debtor details, so they'll come in a form of a consistent format, so again that will help with reconciliation and operational efficiency; but again will show and provide more access to data in the payment flow.
Of course, that richer data again will help support improved compliance practices by regulators, banks, and also the end users, to prevent fraud and target financial crimes so again, really key component. But also, obviously again let's come back to the point it’s going to enable us to have increased innovation.
So, these common data standards are really going to be the key for all of the markets around the world and how clients and consumers basically access their banking services more efficiently based on one global standard, and I think that's going to be really important.
Jenni: Great. So it brings me very much the end of the podcast miniseries, so thank you very much David, and thank you for Steve for sharing their valuable insights.
David: Thank you, Jenni.
Jenni: And thank you all for joining. So, I hope that we have provided you with some valuable insights over our three podcasts and do remember that if you'd like to learn more about what we have been discussing just type barclayscorporate.com/fintech into your browser where you can download our Alive to Opportunity report.
So, thanks very much for tuning in everyone, and goodbye.
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