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TCF 2022: Closing the void between banking and fintech

TCF 2022: Closing the void between banking and fintech

Banking as a Service (BaaS) and Banking as a Platform (BaaP) were key themes throughout both days of the Temenos Community Forum (TCF). These topics were also hit on during a session about how to scale your business, led by Ross Mallace – speakers executive vice president, global head of SaaS and partner ecosystem at Temenos.

Speaking about the customer of today, Mallace highlighted that "things are changing and changing really fast. Changing customer demand is happening rapidly. The demand for hyper personalisation is here more than ever before. The need for instant gratification, with the short attention spans of our users, it's staggering. And we all here are trying to figure out how best to keep up with this demand.”

Ermes Dajko, senior cloud solutions architect at Temenos, gave a demo of the scalability of their platforms and said “everything you have seen throughout the day, composability, high water benchmark, composable infrastructure, all of this comes together with the ecosystem capabilities and allows us to bring those new components and extend the services very rapidly.”

Andrew Reeves, managing director, SaaS business office, at Temenos also spoke about scalability and explored how it is “more about right sizing your technology for your particular needs at a particular moment in time. And then being able to seamlessly scale that technology up and down, either to cope with fluctuations in demand from your users, or to grow that technology. as your business grows. But size isn’t everything. It’s also about regional scalability.

“Cloud and SaaS provide the capability to take services on demand as you enter new markets,” Reeves argued. “When we think about BaaP, it’s about opening up your platform, allowing the services that you've manufactured to be distributed to the customers you own, through new channels, to fintechs, to the use of other brands, through the use of potentially other banks, as part of an open banking ecosystem.”

Mallace pointed out that the same was true of BaaS: “it is all about being able to offer banking services to the non banking sector. The customers want choice, they want everything hyper personalised, available in that one spot. Let's say, they go and buy something on Amazon, they want to be able to choose from the financial products that will help with that transaction, like being able to pay for it over time.”

Vlad Lounegov, CEO of Mbanq, also took to the stage to give an American banking perspective on this issue: “The banking as a service value chain of the United States is much broader. It starts with the regulator, or multiple regulators on the one side, followed by bank licenced institution, and then followed by technology provider technology partner who works very closely with the service provider and delivering this value proposition to the fintech.” A lot is to be expected from BaaS and BaaP in the coming years. 

Engaging customers

Opening another session on day two of TCF, Elias Ghanem, vice president and global head of Capgemini Research Institute for financial services stated that “clearly we are not in good shape, banking is in a state of flux." He went on to report that they found that 82% of bankers are struggling to identify new customer segments, and 49% claimed they are struggling to deliver personalised content through the right channels.

“Consumers today, when they look at banks they see three levels: service, value, emotion. Yet when they go to the bank,  29% report they are not getting service banking, they are not seeming to get getting this basic thing they want.” Ghanem argued that what banks need to create is more of an experience for their customers, and that is something that is “fun, it's gamification, it's perceived that I [the customer] am known for something more than just a number.”

He further mentioned that this is something that many fintech firms and neobanks have been able to do, and that over the last two years they have “leveraged technology to really become actors in the game, the New Age players are completely filling the void. Slowly but surely they are capturing our minds and our wallets, because they are servicing us, they are giving a value experience.”

In advising banks on how to close this void between banks and fintechs, Ghanem stated, “it’s essential for the banks to have a big shift in their mindset from running after the bank into orchestrating customer experiences, orchestrating customer experiences.”

Additionally he suggested that banks “decode how the others are doing it. Decode how the New Age players are capturing value, creating value and gaining customers.”

An update on regulation

Lisa Hall, product director – regulation and compliance at Temenos, led a session updating on Temenos’s regulation technology. Hall highlighted some of the challenges compliance officers are facing, and the cost of non-compliance. She noted that “in 2020, the FCA published £192 million worth of fines, and we saw that increase massively in 2021 to up to £567 million. Of that £567 million, one of the banks was fined a total of £264 million in 2021 in offenses related money laundering in 2007.”

She also cited the rise in GDPR fines from £179 million in 2020, to £1.2 billion in 2021. Although much of these are due to social media firms, banks are also reflected.

Hall further added that at Temenos, they have seen an increase in the number of regulatory changes, stating that, “in 2020, the average day alerts went up to 257 a day, which amounted to 67,000 over the course of the year.

“Increasing alerts reflects a significant social, political and economic development. The new political administration in the United States and Brexit would have also contributed to these and the social economic landscapes that have been redrawn because of Covid-19 pandemic.”

Hall provided a description of how Temenos uses their technology to meet regulatory challenges. One example given was of their module used for qualified intermediaries (QIs). Hall reported that “our new QI module is something we've been asked to do on a number of occasions over the years and we managed to add that in over the last year. It is designed to support banks that act as QIs under Chapter 3, enabling banks to comply with the documentation and withholding requirements related to the income received by their customers from investing in US securities. We provide support for the client identification and due diligence procedures We also have user defines rules that you can set up yourself making it very flexible system to identify QI status.”

The power of  good working relationships between banks and fintechs

“You often hear that banks and fintechs working together can be a bit like a boxing match,” said Abid Mumtaz, global lead at Wise, who presented the success that Wise has had as a fintech working with banks, and what can be learnt from their journey.

Mumtaz posed three main questions that need to be asked in order to form a good working relationship between a bank and a fintech.

  • The first is to ask if you are solving a real problem. “Too often, this question doesn't get asked and often leads to confusion, lack of alignment, and ultimately, no direction to what the end goal should be.”
  • The second is to ask if the bank and fintech understand each other. “Banks are highly regulated, very complex organisations. On the flip side, fintechs seem to be very agile, and lean organisations. And that comes with obvious differences in the way they approach businesses.”
  • The third question to ask is whether the relationship is leveraging each other’s strengths. “There's a strength to play off. It's not all one sided benefit, there should be a mutual benefit.”

Mumtaz expanded on this guidance with experience from Wise. The first question was answered quickly as Mumtaz drew upon the fact that Wise moves money across borders and traditional methods of doing this are “broken”, expensive, slow, inconvenient and the process is too opaque.

When looking at the second question, Mumtaz argued that an initial barrier is often that banks assume a fintech’s infrastructure is “built the same way as theirs. Whereas fintechs have the benefit of not having 20 years of legacy technology.” However, he pointed out that despite being lean, fintech technology is only designed to solve for very few problems. In Wise’s case that is cross border payments. So this is an area where both banks and fintechs need to be understanding of each other.

“Fintechs should spend the time to invest in making it easier for their banking partners to work with them.”

Meeting the challenge of green regulation

One of the final sessions of the day was taken by Greenomy’s head of product, Henri Vanhomwegen. Greenomy is a Belgian regtech focused on helping EU corporates deal with sustainability reporting legislation.

Vanhomwegen opened by discussing what the green taxonomies are. “A legally binding screening standard. That means that any voluntary corporate in Europe and any financial institution will need to use the taxonomy to disclose their sustainability levels.”

The taxonomy has already been applied to 11,000 corporates, reported Vanhomwegen, but by January 2023 ,non-financial corporates will be mandated to provide their full taxonomy exercise. Financial institutions will also have to meet these standards by January 2024. By 2024, the taxonomy will apply to more than 50,000 corporates.

“The Greenomy has created an ecosystem that aims to be a facilitator for the taxonomy for each impacted stakeholder. The way we've set up the platform is that we have digitised the integrity of those legislation within the ecosystem.”

Users will be shown what specific criteria they need to assess to prove their sustainability. Once the company in question proves their sustainability, the platform “can help them collect and generate the data needed for the screening, compute their KPI automatically and generate their taxonomy complaint report with all of its underlying raw ESG data that can then be sent to the auditor portal, where we will secure the timely providing of validated EU taxonomy report to the ecosystem.

“That means that asset manager can now plug into the ecosystem, retrieve the ESG data of the counterparty and the platform will automatically compute their green investment ratio and produce their necessary report.”

Greenomy was created based on a report by the EFB and UNEP FI, which recommended such a tools creation. They work within the Temenos platform.

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