Place your bets at the fintech casino
Returning to the annual Fintech Connect event in east London, John Stokdyk channels his inner James Bond. It’s like walking into one of those casinos where you know the all the arcane rules and rituals are stacked against you.
A couple of weeks ago, several thousand accountants visited ExCel in London’s Docklands for Xerocon, where one of the ongoing challenges for the profession is how to stay on top of the ever-expanding ecosystem of add-on apps.
If you think that’s a complex environment, fintech introduces a whole new level of complexity involving digital banks and their data sharing APIs, payment rails, distributed ledger technology (aka blockchain) and artificial intelligence (AI). It all connects to money, so it should matter to accountants.
The annual December pilgrimage to Fintech Connect is a good opportunity to assess where the different components are on the famous technology hype cycle. It’s also a chance try to pin down the year’s innovative breakthroughs.
Since last year, however, it feels like Fintech Connect has become even less accountant-friendly, with fewer relevant exhibitors.
However, a morning’s trawl among the stands identified a few friendly faces who were able to talk in a language that accountants could understand. These included:
- Accountable – A Belgian startup brought across to put its case to the London fintech community. Accountable has created a specialised accounting app for sole traders, taking in expenses capture, accounts and compliance reporting. Co-founder Alexis Eggermont echoed the prevailing feeling that London was a year or two ahead of other European markets when it came to fintech. In spite of the potential for catering for the growing gig sector in the UK, his first destination for expansion was likely to be Germany.
- Avrium – A reporting tool that connects to cloud accounting systems to help businesses identify cash flow issues. Like many of the emerging products in this area, Avrium has a partnership to connect its reporting system to online funding sources (via Atradius in Ireland). As with Chaser and Satago, it also helps with dispatching reminders and final demands.
- ACA – A French systems integrator with 20 years experience in the SAP world, ACA has used its data wrangling expertise to construct ISIE, a system that brings together a huge battery of data feeds to give CFOs and corporate treasurers a consolidated view of their bank and cash positions. This environment connects to a Payment Factory module to manage disbursements from the different accounts, and a third tool allows finance teams to build three year cash forecasts – or any other model constructed from source data ACA can plug into.
- ReceiptHero – ReceiptHero isn’t quite the classic expenses capture app. Instead, it is designed as a funnel to pass transaction data between merchants, banks and payment providers. The software can take data from PoS terminals to match transactions with receipts and then send them through to approved banking and accounting applications.
- Codat – While catering more for fintech insiders than ordinary businesses or accountants, Codat is a more familiar name as its API digital switching yard service connects to all of the main accounting systems. “We do for accounting data what open banking does for banks, and most fintechs need accounting data more than they need bank feeds,” said commercial manager at Codat George Webb.
The £425m banking remedies jackpot
Codat was one of the recipients of the £425m in Banking Competition Remedy (BCR) awards doled out this year – probably the most significant fintech trend in 2019. Codat is working with several other award winners, including platforms and providers offering online finance to small businesses such as iwoca, Modulr, Swoop and Funding Options. Most of these operators are able to speed up their finance processes by running risk assessments on live accounts data from the software systems small businesses use – Xero, Sage, FreeAgent and QuickBooks.
Clear Bank CTO Andrew Smith, another recipient of BCR funds, explained how smaller businesses have been underserved by both banks and fintechs. The fintech grants were designed to redress this imbalance, and the pool A awards have helped stimulate new business banking services at Tide, Starling, Metro.
“Every one of the organisations got awards because they came up with new ways to solve those problems for small businesses,” Smith said.
UK fintech 2019 trends
Comparing the signals from different market segments, the volume of exhibitors and presentations at the event indicated that business-to-business (B2B) payments were the most active branch of fintech this year.
B2B payments is a big market with a strong international dimension, but cross-border jurisdiction issues are just one of the complexities slowing down progress in this area. As well as fragmentation across borders, different businesses use different accounting platforms and bank settlement systems.
However, business transactions involve more than just money. Clear Bank’s Andrew Smith said during one session: “Reconciliation is crucial for tracking transactions – particularly between banking and accounting packages.”
Currently, there is a chasm between banking and accounting systems, so there is no guarantee that if you put information in at one end of the transaction that it will come out the other end.
“How do we ensure the data flows with information to reconcile invoices?” asked Maria Parro, Barclaycard Commercial Payments chief product officer Maria Parpou. “Unless we find a way to marry those two, there will always be friction in the system. Faster Payments only have one reference. Try to reconcile that if you’re looking at a payment for more than one invoice.
“We’re trying to marry whatever data is in the software environment with the payment process to enable businesses to make payments in a more seamless way – like we do in consumer payments.”
So progress is being made, but by different actors operating on different frontiers.
The same could be said of Open Banking, where different sectors are applying the application programming interfaces (APIs) in different ways.
Under the revised payment services directive (PSD2), Open Banking APIs became mandatory for the UK’s nine biggest clearing banks. Most have complied, but the lingering impression is that they haven’t given the initiative the highest priority, with the result that implementations vary in quality and format – creating bottlenecks for the fintechs that want to access the feeds.
“Open Banking always sounded great in theory, but when it comes to taking out money, the banks put up walls,” complained Rahul Das, head of payments at online gambling operator LiveScore.
Two years on from its legal inception, Open Banking has caught on, according to Maria Parpou on behalf of one of the big banks, but more experiments and independent product development work needs to happen in the B2B payments arena. “If you’re too prescriptive you develop a one size fits all mentality that doesn’t serve every need,” she said.
Artificial intelligence (AI)
The boosterism around AI was more subdued this year. AI now plays a prominent role in fraud prevention, but it appears to have gone underground as the capabilities are being absorbed into other analytic functions. This is a common pattern that we have seen in the machine-learning pattern matching that now happens in accounting and expense management applications.
One of the big challenges of AI is that you need lots of data, corralled in a structured way to be able to get it to work. “Once they become visible, you can start running algorithms on all these data flows,” said Ed Adshead-Grant, director of payments at Bottomline. In his view, “real time control of cashflow” was driving electronic payments.
Harking back to Codat’s analysis, it’s worth looking more closely at whether Open Banking or accounting ledger data will play the biggest role in managing cashflow. On the accounting side of the fence, Xero and QuickBooks, along with Fluidly and Futrli, have all made their stance very clear on this point.
Facebook’s effort seems to have stalled in the face of universally negative reactions. “The principle behind it, backed by stablecoin, is very good and could be universally used. They’re talking about something that everyone agrees could be a problem,” said Tribe Payments CEO and co-founder Suresh Vaghjiani.
“But there is universal distrust of Facebook. They made the mistake of announcing too early without having any of the construction in place and that put them on the back foot.”
Nevertheless, Libra has been a catalyst for blockchain in the real world”, according to Gilbert Verdian, CEO of Quant Network. The company has developed a blockchain-based Overledger that it is using as the basis for a network of networks. This project will create a “hyperconnected world with trust and visibility”, he added.
Rather than going to banks and capital markets, Quant has plugged into their underlying networks, via the SIA financial infrastructure in Europe and the US-based Apollo alternative trading network, AX. The Quant Hyperleder network of networks is due to launch early in 2020 and will mean that users will be able to swap assets online, so JP Morgan coin assets can move onto the New York Stock and then to Wells Fargo, Verdian explained.
A look at the blockchain tax future
In a previous role, the Quant founder worked for the Treasury and commented that HMRC is now taking an active interest in blockchain developments. At the recent Blockchain Live event, for example, HMRC talked about how distributed ledger technology was going to fit in its “future borders” programme to simplify cross-border transactions.
This project is an initial step in Europe’s financial transparency strategy and points towards an era of electronic VAT returns. Centralised databases are already in place for government-controlled invoicing and sales tax systems in Italy, Portugal, Poland and other EU countries and is an obvious application for blockchain databases.
“Real time tax is where we’re heading,” said Verdian. “There’s a lot of manual overhead [in VAT] that you can automate with real time transactions. That’s coming and a lot of banks are looking at that policy. Once we become a true cash society and digitise all transactions, we’ll be able to build tax and transactions in real time and simplify transactions for individuals and corporations.”
Fintech roulette wheel is still spinning
Drawing on trends we have seen in accounting during 2019, we could speculate that out and out fintech innovation has taken a back seat as the industry absorbs all that BCR funding and the accompanying billions in private investment.
Thanks in part to the BCR awards, Metro, Starling, Monzo and other digital banks are building on the numbers of individual customer accounts they’ve recruited to start offering business banking services.
But with the exception perhaps of Quant’s Openledger, most of the things on show at Fintech Connect represented incremental steps, not big breakthroughs. AccountingWEB came to the event looking for coherence and examples of tools that are cracking customer needs in the real world, but left with a feeling that a lot of the talks were long homilies, but short on practical examples and advice.
Perhaps in 2019, the industry reached that peak of hype when its hopes and aspirations have run ahead of what it can actually deliver.
Wandering around the hall, comments FreeAgent founder Ed Molyneux made just a few hundred yards away at Accountex earlier this year sprang to mind: “A lot of people are putting bets on the roulette table, but who knows where the ball will end up… Will startups get clients before the incumbents get innovation?”
Investors have all put their chips on adjacent squares marked paytech, open banking, regtech, insurtech, AI and blockchain. Now we’re in that period of hushed expectancy just before the roulette wheel stops spinning and the ball drops. And whether you back the old banks, the neobanks, accounting platforms like Xero and QuickBooks or the new generation fintechs sprouting out of Shoreditch, nobody knows for certain who’s going to win.
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