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Fintech ties good for banks

Lafferty Group is set to publish its in-depth 'Fintech and Banking' report later this year as part of our Retail Banking 2020 series, and so far our research has led us to believe that whether or not the major players want to admit it, fintech start-ups either disrupting or improving the financial industry is here to stay.While the consensus originally leaned towards fintechs being direct competitors to traditional banks, it now seems as though collaboration is the go-to strategy for both parties; since fintechs aren't going away, everyone has something they can learn from each other.Indeed, the payments industry is at the centre of much of the change ongoing right now. Independent foreign exchange business Travelex is witnessing the shift first-hand, so Lafferty News caught up with Travelex's Global Head of Product and Operations, International Payments, Colin Swain to get his thoughts on a number of issues.A recent Travelex report titled: 'The Race to Re-bundle the Bank' points out that emerging fintechs are becoming increasingly important in the UK financial sector — the key statistic showing a 50 percent increase in the number of fintech accounts held over the last ten years compared to just an eleven percent jump for traditional accounts.For Mr Swain, however, it isn't as straight-forward as suggesting that fintechs are coming to out-muscle the established names, nor does he feel the usual suspects are weakening."I think the banks are still on top", he says."We live in quite a fintech bubble in the area we work, where we see a lot of start-ups coming on board, and they are obviously doing a lot in terms of the overall user experience that they are giving their customers. If you come outside of that fintech bubble and look particularly at transactional banking and current accounts, certainly the banks are still on top. So, it's more about how they can maintain that rather than necessarily regaining it."Considering the impending effects that PSD2 and Open Banking will have across the EU this month, fintechs will see even greater growth. With third parties receiving more access to account and transactional information, consumers will have more choice and banks will certainly come under pressure as a result.However, Mr Swain feels that while reacting to the revised payments directive will certainly be a challenge for established banks — the most important factor is that it will provide them with the chance to collaborate with fintechs."There will be winners and losers, but I personally cannot see banks going anywhere quickly", he says."Open Banking actually gives those banks an opportunity rather than [posing] a threat."We do have a number of customers which are banks and what we're seeing is that they do want to embrace it. I do think it will mean banking changes. I think it will mean actually those banks that embrace new technology, embrace the idea of creating marketplaces potentially within their customer base and embrace the idea that they don't have to offer all the services and can actually build partnerships — they're the guys that I believe will win."Key also to the future of banking in an increasingly shifting and dynamic landscape will be the ability of financial institutions to ensure the customer experience is at the core of their philosophies, a point Mr Swain identified in our interview."So, what do I think banks need to do [in order to] stay on top? The key for me is becoming more relevant and more contextual to what customers actually need and want."The challenge is — guess what — most consumers don't wake up in the morning and go 'do you know what? Today, I'm really excited about doing my money management or budgeting'. It's not how people think. So, the opportunity for banks to stay on top is to think far more about customers' life stages and the jobs they want to do."His thoughts echo Tom Groenfeldt's thoughts on Forbes earlier this month where he labelled reports detailing banks' strategies as off the mark: 'Missing among all the technical talk to AI, APIs, machine learning, big data and analytics was any sense of the customer, especially any sense of the customer as an active agent, or a larger view of the purpose of financial services in an individual's life'Mr Swain also noted that, although tech companies didn't rank very high on the trust scale for customers (at around 18 percent in Travelex's report), it has probably grown over the last five years — and that trend will certainly be an intriguing one to chart in the coming weeks and months.Colin Swain, Travelex: Banks that build fintech partnerships will win outCard fees ban the first sign that PSD2 has arrivedAn interview with Payjo CEO, Srinivas NjayDon't be hacked off in 2018P.A.ID Strategies: High-street banks need to adjust mindsets for mobileEthical investmentsIrrational numbersKeyfact monthly market and competitor snapshot — January 2018Financial literacy for the youngWho will we trust with our digital identity?

Card Reader
Card fees ban the first sign that PSD2 has arrived

The Revised Payment Services Directive (PSD2) and Open Banking EU regulations have finally come into effect across the continent — and their ban on card charges show how potentially fundamental the shift in law will be.Since January 13, it is now illegal for retailers to charge customers card fees for paying via credit or debit cards, a change that has caused great division in the financial community.On one hand, it is viewed as a positive — the end of an unjust fee that customers will no longer have to put up with.While others view it as merely the end of transparent card fees and the beginning of more insidious ones such as 'service charge' or other equally vague terms.Someone has to lose out over the ban — and while customers initially hailed its impending arrival as a win, it comes at the expense of small businesses.Over the weekend, the Federation of Small Businesses (FSB) national chairman Mike Cherry expressed concern that while card companies will still be able to make the charges, it will be up to the small firms to cover the expense."The proportion of small firms reporting a rise in operating costs is now at a five-year high. Removing their freedom to share the burden of card payment fees will give them yet another outgoing to worry about."The payments landscape is in a considerable state of flux, particularly with cash usage much more restricted than it was five to ten years ago. So, coupled with the fees ban, there will be an impact on how merchants decide to handle payments and Mr Cherry says that the "changes make insisting on payment by cash all the more appealing."Small businesses are getting squeezed from the top down, but there is a flipside to this — ever since the interchange fees cap was introduced which set the maximum fee charged by the card scheme to 0.3 and 0.2 percent for credit and debit cards respectively, merchants have not been charged as much as they were used to for processing transactions by card.Lafferty Group head of research David Hickey explains how this feeds into the card fees ban: "The surcharge ban is really an effort to prevent merchants exploiting the interchange caps which they lobbied for."As merchant service charges should be lower now, there is less justification for surcharging. Of course, merchants who were surcharging will increase prices or add new service charges to compensate."The biggest issue with the change will likely be in the UK where the regulators chose to include American Express in the surcharge ban. Merchants would often surcharge for Amex as the cost of acceptance is higher. The fees Amex charges merchants are partly used to fund rewards to cardholders so surcharges were fair in this case. However merchants will now have to spread the cost across all customers so people paying with debit cards are subsidising wealthy Premium credit card holders. There may be a shift towards credit cards, particularly Amex, because of this. The irony is that this could increase merchants' acceptance costs and increase prices for everyone" Mr Hickey concludes.Colin Swain, Travelex: Banks that build fintech partnerships will win outCard fees ban the first sign that PSD2 has arrivedAn interview with Payjo CEO, Srinivas NjayDon't be hacked off in 2018P.A.ID Strategies: High-street banks need to adjust mindsets for mobileEthical investmentsIrrational numbersKeyfact monthly market and competitor snapshot — January 2018Financial literacy for the youngWho will we trust with our digital identity?

Payjo CEO Interview

Last month, Lafferty Group released our AI and Robotics in Banking report, featuring original interviews and case studies with several industry leaders — and with another updated and exclusive version planned for the summer, we thought we would share snippets of our recent interview with Payjo CEO Srinivas Njay (an extended version of which will feature in the upcoming edition).Payjo is a universal artificial intelligence (AI) banking platform which allows direct contact with one's banks remotely — customers can carry out all the regular actions that are available through most modern online banking platforms by interacting with a chatbot through the website, app, Messenger or virtual assistant."For me, the fundamental concept is just because someone is a banker, they shouldn't have a better financial future. Just because someone is a doctor, they shouldn't have a better, healthier future, right? How do we give access to this knowledge? How do we democratize this system?" Mr Njay, pondered, during a conversation with Lafferty Group."For us, the best way to do that is to provide basic, widespread knowledge of finance."If Payjo is about anything, it is about philanthropy — creating something that benefits everyone and looks to improve the way people gain their financial information. While not necessarily educating users on how the world of finance works, it does help them negotiate a way to find an easier path, a shortcut, towards ways that improve how they manage their finances.Importantly, of course, it is powered by AI which examines the pattern of how you pay for things and can suggest tips on how best to maximise your finances accordingly.Mr Njay says that Payjo is "sort of a middle ground in that it is not completely automated...not completely manual" adding that it is "probably the most advanced [banking] AI in the world."Many big banks seem to agree because Payjo is already live with the likes of State Bank of India, Yes Bank and RBS. Although Mr Njay concedes that Europe is a market that they have not yet tapped, he adds that some major US banks are lining up to get on board, with as many as eight being added to the list at present.Payjo possesses sophisticated Interactive Voice Response (IVR) technology which means that customers can feel like they are chatting with a human banking representative. The positive by-product of this for the bank is that they don't need to pay the wages of a human employee to help customers carry out the transaction/process, and the customer is still attended to.In all, Payjo can be interacted with in 14 different languages, including Spanish, several regional Indian dialects and even a form of Pidgin, which is pretty niche.For Mr Njay, though, cutting costs is not why Payjo opted for AI."Machines will liberate us," he says.With operating financial services, Mr Njay says that getting the right information for customers when it comes to completing activities is of utmost importance, and he says that on a more universal scale AI has the potential to positively impact our everyday lives.Colin Swain, Travelex: Banks that build fintech partnerships will win outCard fees ban the first sign that PSD2 has arrivedAn interview with Payjo CEO, Srinivas NjayDon't be hacked off in 2018P.A.ID Strategies: High-street banks need to adjust mindsets for mobileEthical investmentsIrrational numbersKeyfact monthly market and competitor snapshot — January 2018Financial literacy for the youngWho will we trust with our digital identity?

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