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Poachers and gamekeepers

Perhaps nowhere is the clash of cultures between Banking and Tech clearer than in the current debate on screen scraping rumbling through the corridors of power in Europe. As the European Banking Authority (EBA) and European Commission exchange contrasting views over the practical realities, the PSD2-led matchmaking of fintech and banking in Europe now seems less love story than morganatic marriage. (Associated with dynasties, such an arrangement denies the customary privileges to the incoming spouse.) If you happen to have missed the latest to-and-fro over Access to Account (XS2A) provisions, the EBA has been taking issue with the range of methods fintechs might use once PSD2 is finally up and running throughout the European Union. One method in particular has proved a source of contention: screen scraping . A long-cherished shortcut among coders, this technique involves manipulating web-based information into formats that the originator might not have intended. It has been in use now for decades, but has become more powerful than ever as today's webpages often contain far more information than is apparent. This is despite the rise of APIs, which could be seen as a way to provide a formal data set that removes the need for scraping, but which, like RSS feeds before them, are often neglected by their owners. The best-known instance of screen scraping is that of pulling data from travel websites to produce price comparisons. There is nothing intrinsically illegal or, arguably, unethical about the practice: the reason the internet has much more potential and adaptability than previous media such as television or radio is that it positively encourages exchange and reuse of information. Fintech ways and means So why the conflict? Fintechs, as we know, generally emerge from a 'can do' culture, where productive shortcuts are not only valued but may indeed form the very basis of a brand's value proposition: Stripe, for example, used code to dramatically simplify the mechanics of selling online. However more established corporations — and, to a lesser extent, governments — are uneasy about this power to obtain and manipulate data in forms other than the ones the originators expected. Ryanair famously launched lawsuits and revamped websites at great expense to thwart third-parties. Of course not everything that one sees online is free for reuse: one cannot copy the front page story from the New York Times and publish it as one's own for example: that not only violates the newspaper's terms and conditions but also copyright norms the world over. In the case of PSD2, the European Commission (EC) seems inclined to let fintechs have their way on the issue. But the EBA is having none of it, proposing dedicated APIs from banks for the new third-party payment providers instead. Fintech advocates see this as a way to diminish their access and altogether disempower XS2A. Pressed in turn by the EC to favour a 'fallback option' to screen scrape for any underperforming APIs served up by banks, the EBA listed over half-a-dozen counterarguments: Cost increases; Increased fragmentation compromising the development of standardised APIs; Competitive disadvantages for [third-party payment providers] wishing to enter the market; No improvement to technical reliability; Incompatibility with PSD2's security requirements; Supervisory constraints; and Unclear consumer understanding and consent. The Future of Fintech alliance has now set about refuting these point by point. Ultimately the decision rests with the European Commission and with it the fate of PSD2, with some analysts arguing that a PSD3 might become necessary to do the job that had been envisioned for its disarmed predecessor. One among several ironies in this situation is that tech firms are not so wild about mould-breaking development when it comes to their own ecosystem: Apple, for example, warned Westpac in Australia earlier this month to drop their Westpac Keyboard feature as it was not the approved method for payments on iPhones. WeChat for iOS' digital tipping tool also fell to a Silicon Valley policy pronouncement, in this case one requiring that Apple's internal payment system is the only one that should be used on its apps. Nonetheless Apple's own roots are in hacking. As a young man, Steve Jobs used to tinker with phone networks to place free calls, doing away with the ultimate source of transactional friction: having to pay. Who are the poachers and who the gamekeepers is increasingly hard to discern.

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Africa's interoperability challenge

On a research trip in Africa in early May, Lafferty News heard one issue raised again and again: interoperability. That one word covers a multitude of challenges and in Africa, interoperability takes on an additional weight because of the relative success and potential for widespread adoption of mobile money. Interoperability can't be separated from financial inclusion — possibly the second most-oft mentioned issue in African financial services. While the continent gained some degree of political autonomy back in the 1960s, the work to connect the continent's financial and payments businesses continues to defeat the optimists. And while many NGOs and philanthropies have stepped in to assist work on financial inclusion, interoperability remains a more complex business. Some countries are still working through the first stage of interoperability, which is to link all of a country's banks together on one platform, so that customers of one bank can, for example, use the ATM of another bank, and customers can use merchants regardless of which bank is at the back end of the payment. But the prevalence and ubiquity of mobile money means an extra challenge, which is to add mobile money interoperability onto bank interoperability and make them all work together — meaning that it should in principle be easy to send money from a bank account to a mobile money account or vice versa. The Safaricom is not as simple as it's made out to be Although Kenya is widely held up as a case study in the success of mobile money, the story is a bit more complex. Safaricom, which literally popularised mobile money, came to totally dominate the mobile money business in Kenya, with its M-pesa service taking the lion's share of the business. If it was possibly to send mobile money to 90 percent of the other users of the mobile money system in Kenya, it wasn't due to interoperability, but to Safaricom's dominance. In fact, it's only in mid-2017 that Kenya's mobile money operators are finally (and due to pressure from the regulator) about to introduce interoperability. It's due to arrive by the end of July. Neighbouring Tanzania want to avoid one network dominating the area. "It is worth noting that although Tanzania was well-suited to a market-based approach to interoperability, with its supportive central bank, conducive regulatory framework, and a sufficient level of market competition and maturity, two other factors played an important role," notes Kennedy Komba, writing for the Association for Financial Inclusion. Those are: "(i) the value proposition for the private sector was taken into account and (ii) private and public sector dialogue was enhanced through the public policy lens of financial stability and financial inclusion. This helped the regulator balance its dual mandate and ensure financial inclusion initiatives do not compromise financial stability." Tanzania now has interoperability among mobile money providers, but the ultimate goal is to connect merchant payments, banks and mobile money operators together. Ghana tries to rise to the interoperability challenge Ghana is one of the countries closing in on interoperability — and is an illustration of the prize at hand. It's ten years since the Bank of Ghana created the Ghana Interbank Payment and Settlement Systems (GhIPSS) with a mandate to manage interoperable systems for bank and non-bank financial institutions. One of the GhIPSS initiatives is the e-Zwich card, which allows payments to be made across all bank platforms. But only two years after GhIPSS received its mandate, mobile money arrived in Ghana and has become highly significant, with an estimated mobile phone penetration of 128 percent in 2016. With a decade of experience by 2017, GiPHSS seemed to be the natural choice to build a second layer of interoperability for mobile on top of the banking interoperability. However, the scope of the project was not clear even to participants. In early 2017, in a controversial move, the Bank of Ghana announced a tender for a 15-year contract to be awarded to a new business to develop an interoperable system for mobile money and banks — giving the appearance that it did not have full faith in its own wholly-owned subsidiary GiPHSS. The strange Sibton Switch story Three businesses tended for the new switch, which was to be known as the Ghana Retail Payment System. Vals Intel Ltd quoted GH¢14 million, Mericom Solutions Limited quoted GH¢ 5.5 million and Sibton Switch quoted GH¢ 4.6 billion (equivalent to around one billion dollars). Sibton Switch emerged briefly as the winner of the bid, and claimed that the high price was due to the intensive nature of full interoperability. "The platform we are putting in place is quite comprehensive and it is capital intensive," Sibton manager Keikos Watanabe told City FM Online. "If we are to factor the retail payments across the board, not just locally, we are also connecting with international payment systems — there is so much investment that has to go into our platform." Ms Watanabe went on to explain that Sibton's platform would work across the entire retail payments system: MNOs, banks, merchants and beyond. She conceded that the rollout would be gradual. "As part of the tasks, we have to perform, we have to invest in the infrastructure and that is made up of the physical infrastructure, the hardware and the software... we are doing the investment. Nobody is paying us to do it. It is part of the process." This was about as expansive as Sibton managed. Ghanaian journalists however were minded to enquire why Sibton's solution was so much higher than the other companies. When they looked into the background of Sibton Switch, they found that it appeared to be a 14-month old company set up for the express purpose of building an interoperable switch for Ghana. Questions raised about Sibton's ultimate ownership failed to elicit much information from the company itself — although there is information on the website of parent group Sibton Communications suggesting that the company was working in financial services in The Gambia. It may even have been working in Tanzania, which should be a plus, but the details got lost in the controversy. The reaction to Sibton's bid appeared to rattle the Bank of Ghana, and by the end of March, GhIPSS was back in favour. Ghana's Vice President Dr. Mahamudu Bawumia appeared to back GhIPSS to get the job done, in a speech that observers saw an an unofficial cancellation of the Sibton Switch contract: "I believe that GhIPSS is in a very unique position to bring the banks and the telcos together to make their platforms interoperable, so that you can transfer money between the telcos and the banks very easily," said Dr Bawumia, in a speech at the Tang Palace Hotel on 22 March this year. "The process is not rocket science," he said, claiming that with cooperation from the interested parties, the work could be done in six months. Interoperability: Is it rocket science? It's unlikely that GhIPSS welcomed Dr Bawumia's observation that interoperability "is not rocket science", but it did plant a doubt in the public mind that interoperability is a billion-dollar project. However, it's looking likely that the new switch will provide interoperability for the mobile money operators — and will not connect the entire financial infrastructure. At the end of March 2017, Bank of Ghana governor Abdul Nashiru Issahaku announced his resignation, less than one year into the job. The move was put down to a change in the government following December elections. The reality is that Sibton Switch did itself few favours once journalists started asking questions. Its website https://www.sibtonswitch.com/about/ looks as though it was thrown together in a few hours, with glaring errors running through the pages — not a good look for a business tasked with linking together a country's financial infrastructure. Yet Sibton, despite its secrecy, recognised something about the value of interoperability to a country, for a fully interoperable switch would potentially unleash all kind of pent-up consumer demand and accelerate the cashless portion of an economy. Many individual African countries are confronting the same issue, and it makes sense to include mobile money and banks on the same platform, especially given that many already operate partnerships. That still doesn't take into account the bigger picture. As the population grows and Africans look to build major trade routes across the continent, it can't hurt to do some hard thinking about the desired end result. Several players currently looking at building pan-African networks, including Interswitch, which owns the card network Verve. It currently operates principally in West Africa, but is exploring opportunities in East Africa. Of course, Interswitch is not the only champion of pan-African payments. Pan-African bank Ecobank is effectively developing a mobile money ecosystem as its app operates across more than 30 African countries — and UBA also has a pan-African reach. With the launch of mVisa and Masterpass QR, the traditional card schemes have no intention of just giving up their footprint either.

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Payments and the Coming Wave 2

In the second of a two-part article (Part One having been published in the previous edition of Lafferty Global Intelligence), Peter Kinahan continues his examination of what digitalisation and regulation are together unleashing in banking and payments. BBVA When it comes to monetising APIs, Spain's BBVA is one of the more highly evolved organisations. For those who wish to understand the practical applications of APIs, it is well worth perusing its marketplace at bbvaapimarket.com. There you will find a highly focused product set and the rich data that underlies payments is borne out by the fact that payments data dominates the offerings. At a macro level, BBVA PayStats "offers anonymised and aggregated statistical data from millions of transactions performed with BBVA cards and any other cards in BBVA POS terminals, creating a virtual map comprised of consumers' habits, demographics and origins. With this information, updated on a weekly basis, you will be able to gain knowledge and value for your business." BBVA's target market for BBVA PayStats "includes market analysis companies, new businesses searching for the best location and companies looking to better understand their customers' consumption behaviour." BBVA's Payments API facilitates third-party businesses in integrating a P2P and P2B application that allows a customer to send money from an authorised user's BBVA account to any bank account, domestic or cross border, secured with two-factor authentication. BBVA's Cards API makes even richer promises: "Get the best tool to know your customers better through their purchases and expenditure patterns. Gain critical insights to better serve your customers with their card transaction and real-time info. Obtain a list of the cards belonging to a customer and check their transactions, limits and expiry dates in real-time to reduce costs and improve user experience — ie, imagine being notified in real time of a cash withdrawal of your customer at an ATM." The 360° view The richness of data now being made available by banks might well come as a surprise, especially to veterans. For many decades, retail banks have deployed massive core banking systems to record and power their businesses. The primary function of these systems is the processing of daily transactions, specifically the updating of accounts and postings to the general ledger. Core banking systems originated in a retail environment and historically these transactions originated at the branch teller and were decidedly nondigital in nature. Core banking systems started life as proprietary, in-house banking systems and, over time, various technology vendors developed off-the-shelf, plug-and-play products to cater for banks' extending needs. Today, banks can no longer afford to maintain bespoke or in-house built systems and are beholden to major vendors such as Temenos, Oracle, SAP and Finacle. Regardless of the vendors, however, one promise of core banking systems in terms of functionality has always been a '360° view' of each individual customer on the system. That view or promise, however, has remained mythical — since bank systems lacked the ability to identify the data elements behind payments transactions. Now, in fact, major banks may well be evolving towards a new role as utilities providing data to a host of TPPs that consolidate every aspect of a customer's financial and non-financial wants and needs: the 360° view. Any move towards this prospect is an admission of failure of sorts (although in truth, no single bank can determine the complete picture of a multi-banked individual). That is not to say that the utility model is unprofitable. There remains considerable scope to charge handsomely for provision of capital, compliance, data and security infrastructure to TPPs. Now, somewhat ironically, by becoming a TPP in their own right, banks in Europe can fill in the missing parts of the complete customer picture through capturing all accounts and particularly payments. In short, capturing payments data and exploiting the possibilities of PSD2/XS2A for the first time gives the bank or TPP the potential to have visibility of both the P&L and balance sheet of the customer with all that implies not just for financial products and services but the entire household budget. What's more, the richness of payments data and the habits it represents means it is less important as a historical document than a pointer to future customer needs and wants. For more insights from this Lafferty thinker, read the just-published Payments Power: How digital payments will unlock massive latent demand in consumer banking , available at LaffertyReports.com. If you have yet to obtain your copy (for example, as part of your Lafferty Councils membership), use promo code WP17PCW to avail of a ten percent saving at checkout . We would like to invite you to join global leaders in cards, payments and banking at The International Cards and Payments Conference 2017: Thriving in the new world disorder , a two-day conference in association with ClearBank, the UK's first new clearing bank in 250 years, taking place on 19-20 September 2017 at One Whitehall Place in London. Visit laffertyglobalevents.com to view the agenda and a list of speakers. Use the exclusive promo code LAFFERTY 10% for a ten percent saving on registration.

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