How PSD2 is set to change banking up as we know it …

May 22, 2017May 22, 2017 marcabrahamLeave a comment

Fig. 1 – A prophetic vision by Bill Gates!? – Taken from: https://www.slideshare.net/patrickpijl/how-square-is-disrupting-banks/6-Bill_GatesBANKING_ISNECESSARYBANKS_ARENOT

“Banking is necessary. Banks are not.” Yep. Bill Gates said it. Back in 1994. And 28 years later, it’s it’s set to become reality. From the 1st January 2018, banking will no longer be the exclusive domain of banking institutions because PSD2 is going to drastically alter the way in which we bank.

The biggest consequence is that more than 4,000 European banks will need to open their legacy (mainframe) data stores to Third Party Players (‘TPPs’) and allow them to retrieve account information (‘AIS’) or initiate payments (‘PIS’). Both capabilities will be facilitated through APIs. I wrote about the scope and ramifications of PSD2 a few months ago, and I’ve been thinking ever since about the implications for existing banks and whether they’ve got reason to be scared.

It would be surprising if some of the traditional banks weren’t nervous about the extent to which they’ll have to open their kimonos under PSD2. And even if the Facebooks, Googles or Amazons of this world don’t become banks overnight, I expect the traditional, lifelong bank-customer relationship to slowly evaporate as a result of PSD2 (and subsequent versions of PSD).

Fig. 2 – PwC: PSD2 providing third party access to data and payments via APIs – Taken from: https://www.finextra.com/finextra-downloads/newsdocs/catalyst-or-threat.pdf

Facebook could easily decide to become an AISP (Account Information Service Provider – see Fig. 2 above), which would enable them to offer an aggregated view of a user’s bank accounts. As a result, they would be able to analyse spending behaviour, understand their users’ financial profiles and personalise a user’s banking experience. This isn’t that revolutionary, as virtual assistants like Cleo and Treefin have already starting offering this functionality, and I believe it’s highly likely that we’ll see it roll out across Facebook Messenger or WeChat in the near future. If you need more convincing, Facebook made their first move two years ago by appointing David Marcus, former CEO of PayPal, to head up Facebook Messenger, so watch this space. Similarly, US bank Capital One integrated with Amazon’s virtual assistant Alexa last year. This integration enables Capital One customers to pay their credit card bills and check their balances, by talking to their Alexa devices.

Fig. 3 – PwC: Six API-powered banking business models – Taken from: https://www.finextra.com/finextra-downloads/newsdocs/catalyst-or-threat.pdf

In addition, any remaining doubters about the power of APIs are likely to be converted as a result of PSD2. In the current Fintech landscape, there already are large number of banks that are either using APIs to hook into existing banking infrastructures (e.g. Varo Money) or offer additional services (e.g. N26). PwC recently conducted a study into the strategic implications of PSD2 for European banks and they listed no less than six API-powered banking business models (see Fig. 3 above).

Main learning point: It will be interesting to see what the actual impact of PSD2 will be, but if I were a traditional European bank, I’d be working as hard as I could to open up my APIs from today and start working on the creation of strong alliances with 3rd parties and their developers. As Nas once rapped on “N.Y. State Of Mind”, “I never sleep cause sleep is the cousin of the death.” If I were a traditional bank I’d follow Nas’ advice and give up on sleep completely …

Nas, lyric on “N.Y. State of Mind (Illmatic, 1994) – Taken from: https://uk.pinterest.com/MrConceptz/hiphop-101/

Related links for further learning:

App review: Vipps

May 5, 2017 marcabrahamLeave a comment

I’m always on the lookout for new payment apps and I recently came across Vipps. Vipps is a Norwegian peer to peer payments app, currently only available to Norwegian users.

Fig. 1 – Screenshot of Vipps – Taken from: https://www.vipps.no/

These are the main things I’ve learned about Vipps:

Use the recipient’s mobile number – Similar to the way the likes of Monzo and Uber work, with the Vipps app all you need is the mobile number of the recipient. If you need to send money to someone else, your friend needs to download the Vipps app and the amount will be sent to his/her account registered with Vipps. Select the person you want to pay from your phone’s contact list or enter their mobile number.
Use Vipps to split bills – For example, when you’re eating out with a group of friends, you can ask your friends for money when splitting the bill. Create a group name – e.g. Nando’s on Friday – and add the names of the group members. Now people in your group can enter all expenses that are to be shared between the group members. Once all the amounts have been entered and everyone has confirmed that there are no more outlays, it is easy to see who owes what.
Personal account registered with Vipps – Vipps doesn’t have it’s own current account. Instead, users can send money through Vipps from any Norwegian bank, provided that they have a bank debit card and a bank account with the bank in question.
Getting started with Vipps – To be able to use Vipps, users need to enter a Norwegian national identity number, a Norwegian mobile number, the details of their payment card (Visa or MasterCard), their Norwegian bank account number and an email address. Once you’ve created a four digit code, you can start paying or receiving money. When logging into Vipps, you can use your personal code or Touch ID.
Vipps’ charges – Vipps doesn’t charge for amounts below NOK 5 000. For payments of NOK 5 000 or above, the charge is 1 per cent of the total amount. There is no charge for receiving money.

Main learning point: Love how apps like Vipps are making it easier and easier for people to pay and receive money. The splitting bills functionality is very welcome!

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Fig. 2 – Vipps’ peer-to-peer payments – Taken from: http://anti.as/news/vipps-by-dnb

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Fig. 3 – Screenshot of Vipps’ Android app; making a payment – Taken from: https://play.google.com/store/apps/details?id=no.dnb.vipps

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Fig. 4 – Screenshot of Vipps’ iOSapp; selecting a contact or a company that you want to pay – Taken from: https://www.appannie.com/en/apps/ios/app/vipps-by-dnb/

Related links for further learning:

App review: THEO

April 19, 2017April 19, 2017 marcabraham1 Comment

Fig. 1 – Screenshot of THEO – Taken from: http://fintechnews.sg/3137/roboadvisor/robo-advisory-services-asia/

I recently came across THEO, a mobile, Japanese investment service offered by Money Design. THEO acts as a ‘robo-advisor’; enabling users to invest using their smartphone, and applying machine-based learning to offer users investment suggestions. The service allows users to start investment from 100,000 JPY. By answering nine questions (see Fig. 2 below), Money Design’s proprietary robo-advisor’s algorithm selects an optimum combination from about 6,000 Exchange-Traded Funds (‘ETFs’) in about two minutes and provides discretionary investment management to the user.

Fig. 2 – Screenshot of questions asked to THEO users to create their investment profile

The user’s answers will trigger THEO’s underlying algorithms to deliver the most optimal money management plan for the user (see Fig. 3). At this point, we’ll need to consider the artificial intelligence aspect of THEO. This is where the accuracy of the proposed plan, as generated by THEO’s algorithms, comes into play (see Fig. 3 below). As one Japanese investor commented: “I am an aggressive investor with a long timescale so I was surprised to see how conservative the allocation ended up.”

Fig, 3 – Screenshot of sample diagnosis results based on answering THEO’s questions

Main learning point: The key point with apps like THEO is going to be the accuracy and personal fit of the investment plan its algorithms will suggest to investors. I wonder whether any manual ‘tweaking’ is involved in assessing investment profiles and subsequent recommendations.

Related links for further learning:

App review: Tide

April 6, 2017April 8, 2017 marcabrahamLeave a comment

How did Tide come to my attention? – I vaguely recall receiving an email from Tide a while ago about signing up for Tide, and a chance to learn about this new service before launch.

My quick summary of Tide (before using it)? – I expect a bank account exclusively geared towards to small to medium size businesses. A bit like Varo Money or Simple, but aimed at SMEs.

How does Tide explain itself in the first minute? – When I googled Tide, the top search result has “the Business Current Account that saves you time …” as its byline (see Fig. 1).

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Fig. 1 – Screenshot of top search result for Tide Banking

When I then go to Tide’s website, the homepage’s key messaging explains how Tide provide a small business current account (see Fig. 2). Speed and costs are the main things I take away from looking at Tide’s homepage at a first glance. I’m immediately intrigued to learn more about Tide’s “powerful tools that save you time and money.” This perception is reinforced by a “Sign up in 5 minutes” call to action button, just below the fold on Tide’s homepage.

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Fig. 2 – Screenshot of the homepage of https://www.tide.co/

Getting started, what’s the process like? – I click on the “Sign up in 5 minutes” button and a popup appears, telling me that Tide is available on Google and Android (see Fig. 3). I (wrongly) assumed that Tide’s services would also be available on my desktop, but I’m happy to go the App Store and download the Tide app.

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Fig. 3 – Screenshot of Tide’s popup message, directing me to Google Play and the App Store to start creating a Tide account

Fig. 5 – Screenshot of the opening screen of the Tide iOS app

I click on the “Get started” button and land on a delightful screen that shows me upfront what I need to open a Tide account. I like how the app informs me upfront of the documents and information I need to open a Tide account (see Fig. 6). As a user, there’s nothing more infuriating than starting the account creation process and learning halfway through that I don’t have the right documents.

Fig. 5 – Screenshot of the second screen of the Tide iOS app

I use the camera to take a picture of my driving license. Doing this makes me realise again how my passport is still registered to my old address, and I wonder if and how that’s going to impact my application for a Tide account.

Clearly, something isn’t right and I see a popup message which explains how Tide was unable to verify my details automatically. I now expect a phone call or an email from Tide about my identity verification. The good thing is that I can still continue with the account creation process, by simply clicking on the “Continue” button.

The bit where Tide links to Companies House feels very seamless and it automatically picks up my company.

This is the point where I hit a spanner in the works as the app doesn’t seem to accept the security photo that I’ve taken of myself. There’s a circular type button which enables me to take my picture again … and again … and again. Meanwhile, I’m unclear as to what I’m doing wrong and there’s no tooltip to explain what I need to ensure my picture meets Tide’s criteria. Clicking on the “next” button in the top right hand corner of the screen doesn’t help unfortunately, so I feel a bit stuck here.

After contacting Tide, the issue gets resolved and I continue the onboarding process. “Terms And Conditions” is the next step I’m presented with. The calls to action are clear and I like how I can easily read through Tide’s “Member Terms” and “Account Agreement” if I wish to.

After clicking both tick boxes, I receive a notification stating that my account has been opened, but that Tide needs to do some extra checks before creating a sort code and account number for me. I suspect this is due the fact that my driving license is still registered to my old address and doesn’t correspond with my company address.

The additional checks get carried out pretty swiftly and I can see a confirmation screen within the app, containing my account number, sort code and balance.

Did Tide deliver on my expectations? – Yes, apart from the issue with my security photo, onboarding with Tide felt intuitive for the most part. I believe that the app and the overall user experience would benefit from some simple tooltips (e.g. when submitting security details) to further simplify things.

Learning more about what’s coming under PSD2

March 24, 2017May 22, 2017 marcabraham1 Comment

The second instalment of Payment Services Directory, “PSD2”, will come into effect on 13th January ’17. By that date, EU member states are expected to have implemented the new payment rules as outlined in PSD2.

I recently listened to a radio programme where ex Barclays boss Antony Jenkins described PSD2 as “an opportunity for third parties to access a person’s bank data and to do something with that data.” He thus captured the core what PSD2 is all about: opening up banking data and using that data to create better, more integrated customer experiences.

Jenkins also talked about how in the new PSD2 world banks effectively provide the utility components that other services build on, acting as the frond end and being more customers experience focused. One can already see from the success of Fintech startups such as Monzo, Remitsy, Varo Money and Abra the distinction between financial service players that focus more on front-end customer experience and those concentrating on the underlying ‘plumbing’. Jenkins mentioned the concept “a browser for your financial life”. Viewed within the context of PSD2, the idea of a central browser for one’s financial life really resonated with me.

All of this made me have a first stab at understanding the essence and ramifications of PSD2. This is what I’ve learned sofar:

Develop new payment solutions – Account Information Service

Ultimately, PSD2 aims to stimulate new payment solutions, using digital tools and infrastructure to create a more seamless payment experience. As a result of PSD2, there will be two new types of service providers: “account information service” (‘AIS’) and “payment initiation service” (‘PIS’).

Under PSD2, an AIS is defined as an “an online service to provide consolidated information on one or more payment accounts held by the payment service user with either another payment service provider or with more than one payment service provider”. As customers, we can benefit from AIS through its ability to offer an aggregated view of a customer’s accounts. Having this consolidated view should make it easier for customers to analyse their transactions and spending patterns across a number of their payment service providers (‘PSPs’).

Develop new payment solutions – Payment Initiation Service

Whereas AIS covers the aggregation of account data, a payment initiation service (‘PIS’) enables the movement of money between accounts with different PSPs. Under PSD2, a PIS is “a service to initiate a payment order at the request of the payment service user with respect to a payment account held at another payment service provider.”

In essence, a PIS acts as an online service which accesses a customer’s payment account to initiate the transfer of funds on the customers’s behalf, provided the customer has consented and authentication has taken place (see Fig. 1 – 2 below). Payment initiation services thus provide an alternative to paying online using a credit card or debit card. PIS aren’t allowed to hold payer funds or store sensitive payment data but can initiate payment transactions on behalf of customers.

To me, the future payment initiation capability for “merchants” feels like the most exciting opportunity that PSD2 offers. It means that merchants such as ecommerce marketplaces can access the payment accounts on their customers’ behalf and initiate payments, without the need for credit or debit cards. PIS will be allowed to communicate securely with the customer’s bank and seek information required for payment initiation.The PIS will use APIs to link to the merchant’s website or app with the customer’s bank.

Fig. 1 – PIS workflow, merchant acting as a Payment Initiation Service Provider (‘PISP’) – Taken from: https://www.temenos.com/globalassets/mi/wp/16/temenos_psd2_whitepaper_v2.pdf

Fig. 2 – PIS workflow, merchant goes through a PISP to collect money from a customer’s bank account – Taken from: https://www.temenos.com/globalassets/mi/wp/16/temenos_psd2_whitepaper_v2.pdf

Reinforced customer protection

As a direct consequence of the data sharing and integrations that PSD2 enables, customer protection will be increased. For example, all payment service providers will need to prove that they have put specific security measures in place to ensure safe and secure payments. PSD2 requires “Strong Customer Authentication” (‘SCA’), which is also known as two-factor authentication. Two-factor authentication is already a common feature of lots of digital products and services (see the Google example in Fig. 3 below). Typical components of two-factor authentication are (1) knowledge (something you know, such as a password) and (2) possession (something you have, such as a card or mobile device) or ‘inherence’ (something you are, such as a fingerprint or voice recognition). Each element must be independent from the others so that if one is breached this does not compromise the integrity of another.

Fig. 3 – Google 2-factor authentication example – Taken from: https://paul.reviews/does-two-factor-authentication-actually-weaken-security/

Main learning point: My biggest, initial takeaway from learning about PSD2 is that digital payment services will become a lot more seamless and easy. APIs will act as key ‘enablers’ of new opportunities to integrate customer’s financial activities and online behaviours.

Related links for further learning:

Cobalt uses Blockchain tech to process FX trades

February 26, 2017February 26, 2017 marcabrahamLeave a comment

It was around this time last year when I first started looking into blockchain technology and its capabilities. Even though blockchain technology was initially developed to accommodate Bitcoin transactions, my personal interest has been much more in its potential to act as “shared ledgers” for a wide variety of transactions or ‘contracts’ (see Fig. 1-2 below):

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Fig. 1 – High level outline of smart contracts via shared ledgers – Taken from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/492972/gs-16-1-distributed-ledger-technology.pdf

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Fig. 2 – High level outline of distributed ledger technology – Taken from: http://www.thegeniusworks.com/2016/02/blockchain-from-geeky-bitcoin-technology-to-a-revolution-in-everyday-processes/

In the past year, I’ve seen a lot of initiatives and companies pop up in the shared ledger space. I’ve looked at the likes of Abra, Ripple and R3. London based Fintech startup Cobalt is another promising player in the shared ledger arena. Andy Coyne, Cobalt’s Co-Founder and CEO, explains the problems that Cobalt is looking to solve:

“The speed at which trades are executed between participants across every corner of the globe has altered on a scale that previously seemed unimaginable, while competitiveness has increased and costs related to market access and execution have shrunk.

In contrast with execution technology, associated post-trade infrastructure has failed to keep pace. Legacy systems and practises being used to support these processes have changed little since their inception; they are now so inefficient and unfit for purpose that they introduce risk and unnecessary cost, having a serious impact on trading institutions’ profitability. This comes at a time when there is a move away from revenue to a real focus on true profitability.

The root cause is a glaring mismatch, where back office processes that evolved to support profitable voice and proprietary trading of 25 years ago are failing to support high volume, low margin electronic trading.

This is exemplified by the huge degree of unnecessary replication. A single transaction executed in today’s trading environment creates multiple records for buyer, seller, broker, clearer and third parties, introducing inconsistencies throughout lifecycle events such as affirmation, netting, allocations and confirmation, through to trade finality and nostro reconciliation. This hugely increases the probability of creating discrepancies, caused by multiple system hand-offs, normalisation and reconciliations. High frequency trading firms are particularly vulnerable, incurring huge costs for high volumes of low value tickets.”

Fig. 3 – Andy Coyne, Co-Founder and CEO of Cobalt on his company’s mission – Taken from: http://www.cobaltdl.com/blockchain/

In short, Cobalt are trying to remove any inefficiencies and unnecessary (operational) costs or risks related to the processing of foreign exchange (‘FX’) trades. Using the blockchain and its shared ledger functionality, Cobalt aims to simplify the way in which foreign exchange transactions are being processed. Instead of creating multiple records for one and the same transaction, Colbalt creates a single view. It this thus looks to significantly reduce the number of system hand-offs and reconciliations for one transaction, typically inherent in current processing of FX trades by legacy systems.

Cobalt’s focus is predominantly on the “post-trade” phase, and the risks and costs currently associated with this phase (see Fig. 4 below):

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Fig. 4 – Potential benefits of Blockchain for capital markets – Taken from: http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/feb/BlockChain-In-Capital-Markets.pdf

Main learning point: By providing a single view of a transaction between multiple parties, Cobalt aims to significantly increase the transparency of FX trades and remove complex back-end systems and processes i.e. banking legacy systems.

Related links for further learning:

App review: Plum

February 4, 2017March 6, 2017 marcabrahamLeave a comment

When I reviewed Cleo a few weeks ago, I also came across Plum. Plum describes itself as “your personal savings” assistant and lives in Facebook Messenger.

How did Plum come to my attention? – I came across Plum whilst reviewing Cleo, another virtual savings assistant. I then spoke to Victor Trokoudes, co-founder and CEO of Plum, who gave me a first introduction to Plum.

My quick summary of Plum (before using it) – I expect Plum to not only monitor my spending and saving habits, but to also do my saving for me and transfer savings directly to a savings account of my choosing.

How does Plum explain itself in the first minute? – From the headline to smaller print on the landing screen, it’s apparent that Plum is all about saving, helping me to save. Plum “monitors your daily spending and automagically sets money aside for you.”

Getting started, what’s the process like? – After I’ve clicked on the “Sign up for free” button, I’m taken to Facebook Messenger where I see a landing page that explains about Plum; “I’m a robot. I was built to help you save money so you don’t have to worry about it.”

At this stage, I’m not entirely sure about how exactly Plum will help me to save money, but I decide to click on the “Get Started” button to find out.

On the next screen, I’m presented with the choice between signing up and learning how Plum works. I decide to do the latter and click on “How it works”.

And I’m pleased that I asked the Plum bot to explain how it all works, because I like the response that I get in return:

I now feel more confident about how Plum works and how it can help me with saving money, so I decide to click on “Sign up”. After entering my email address, the Plum bot asks me for some more information to complete my setup. After clicking on the “Complete setup” button, I’m taken to separate page where I can enter my personal details.

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After I’ve entered my personal details, the next step is for me to link my bank account to Plum. I like how Plum is keeping me posted on progress by striking through the previous two steps of the onboarding process. There’s copy there to assure me that my bank login details will be treated securely by Plum; making it clear that Plum “will never, ever store it (my bank login, MA) on our system.”

Did Plum deliver on my expectations? – Once I’ve managed to sync my bank account info, and have completed my Plum set up, the app starts helping me to save money. For me, Plum’s biggest draw is that I can add money to my Plum savings. Plum tells me how much of my cash is still available for withdrawal, and prompts to me decide on how much money I’d like to set aside.

Similar to the standard account and transaction info that your traditional bank offers, Plum provides a neat overview of my monthly and total savings, and I can see my most recent transactions at a single glance. Ultimately, I feel I can only truly answer the question about Plum delivering on my expectations once why I’ve achieved a specific savings goal. In the meantime, I feel that Plum does offer a pretty smooth onboarding journey and a clear path to actually saving money. If you’re struggling to save or understanding how much you can save in the first place, definitely worth checking out Plum and start setting money aside!

As I learn …

This site is about everything digital, giving an update on new things as I learn

Category: FinTech

How PSD2 is set to change banking up as we know it …

App review: Vipps

App review: THEO

App review: Tide

Learning more about what’s coming under PSD2

Develop new payment solutions – Account Information Service

Develop new payment solutions – Payment Initiation Service

Reinforced customer protection

Cobalt uses Blockchain tech to process FX trades

“The speed at which trades are executed between participants across every corner of the globe has altered on a scale that previously seemed unimaginable, while competitiveness has increased and costs related to market access and execution have shrunk.

The root cause is a glaring mismatch, where back office processes that evolved to support profitable voice and proprietary trading of 25 years ago are failing to support high volume, low margin electronic trading.

App review: Plum