Visiting FinTech Connect at the ExCel complex is the closest you’re likely to get to the Star Wars bar at the end of the universe this year.
Wandering around the show floor, you’re as likely to bump into a KPMG partner or representative of one of the big five high street banks as a bearded AI programmer, blockchain boffin or startup entrepreneur.
The event confirmed fintech as one of the year’s big buzzes, even though it is an industry still trying to define itself. One lecture theatre focused on payment technologies, while another was devoted to “insurtech” (insurance) and “regtech” (regulation).
The biggest lecture space was devoted to “accelerating digital transformation” and focused mainly on Open Banking - one of the main draws for AccountingWEB, which signed up as a media partner for the event to explore how this new phenomenon is likely to affect the accounting profession.
The unruly assortment of exhibitors and delegates lent a Wild West feel to FinTech Connect. But unlike the Star Wars cantina, any weaponry has been checked at the door. As HSBC’s Open Banking programme director Hetal Popat told the audience at his talk on collaboration and partnerships, everyone at Fintech Connect was there to make new friends.
On the trail of Open Banking
The Payment Services Directive (PSD2) raised the flag for Open Banking earlier this year, but both within the profession and the wider business marketplace, adoption remains sluggish.
As interpreted by the Competition and Markets Authority, the UK’s nine biggest banks (known as the CMA9) will have to make banking details available to third parties via a set of public domain Open Banking application programming interfaces (APIs). These will cover basic account details, balances and credit lines, beneficiaries, direct debits, standing orders, and the transactions themselves.
So far, APIs have been published for personal and business bank account transactions, but the intention is to extend the standardised APIs to cover loans and commercial cards.
According to industry insiders, the big banks are the main stumbling blocks to adoption. Since Open Banking is not in their long-term interest, they have been dragging their feet to meet the basic compliance requirements of PSD2.
The banks are also handicapped by legacy computer systems. Many of them still run business-critical banking applications on hulking 1970s mainframes that very few people know how to operate or program. To be frank, they’re probably looking at these old boxes and wondering how they can possibly interact securely and reliably with networked cloud systems.
HSBC’s invitation to Open Banking fintech developers drew a few rueful smiles in the room, but Hetal Popat promised things would get easier as PSD2’s standardised authorisation and clearance model would eliminate a lot of the regulatory bureaucracy that currently holds high street banks back from more active partnerships.
But it’s not just legacy and regulatory issues that are holding back Open Banking. Even as the API standards hit the street, many in the field are still trying to work out the potential opportunities. Consultants at Magna Carta Communications surveyed 5,000 people within the fintech sector and found that 56% were still trying to define their value propositions around Open Banking.
Gunfight at the AI corral
The first wave of fintech focused on faster, flexible payments and access to finance, but the number of respondents planning major investments in payments in 2019 was 37%, down from 71% in last year’s survey. For more than half of the survey participants, Open Banking will be a focus for spending, but the most dramatic switch has been among the 57% who identified AI, automation and digitisation as their key investment focus.
According to Seph Mard, head of risk modelling at DataRobot, artificial intelligence technologies such as deep learning and natural language processing are already making “million dollar differences” by taking human bias, inefficiency and inaccuracy out of activities such as portfolio management, product recommendation and risk and credit assessments.
Validis, which some accountants may know for its management reporting analysis and audit solution, is one of many developers working in the margins where fintech and AI interact. Where 5-10% of accountants were receptive to the tools that Validis could offer, fintech lenders were proving to be more enthusiastic customers. Validis is now working with several of them to import and interrogate financial data to speed up credit scoring and loan processing.
Challengers stake their claim
Boosterism is characteristic of commercial frontiers like fintech. While the top tier banks and some niche application developers may be tentative about their next moves, the most gung-ho messages at the event were coming from the middle tier of challenger banks.
Starling and Oaknorth, representing the “established challenger” tier of banks are beginning to make waves. Starling’s Julian Sawyer said the bank was growing at 20% and that outgoing payments from her platform had increased 28% year on year.
Oaknorth, meanwhile, recently raised $100m on the back of a $2.3bn valuation and was hailed by Forbes magazine as one of the fasted growing challenger banks.
Clydesdale Yorkshire Banking Group (CYBG) has taken over the Virgin Finance brand, and like Starling, its executives talked about how they were building an API-based ecosystem to support small business customers with add-on services and applications. Oddly, however, these banking ecosystems appeared to “own brand” variants rather than based on the Open Banking APIs.
Just a few weeks before at the very same Docklands venue (albeit across the hall and down a bit), we heard a very similar message from Xero as it launched its new banking API and ecosystem. So are businesses going to be faced with a chaotic showdown between the rival camps for its loyalties, or will these emerging ecosystems find ways to co-exist?
Facing down the Wild West imagery, a representative from Oracle NetSuite said the proliferating ecosystems were less like farmers and legislators trying to rope off particular territories for themselves than intersecting networks that could overlap and interact.
But the sense of stepping into a saloon where you don’t know the rules prevails. There is no question that banking, payments, finance and accounting are going to change rapidly in the next few years. But the problem for accountants and businesses is not knowing how it’s going to play out.
This puts businesses and their advisers at risk of backing a particular player, only to discover too late that they chose the wrong option.
AccountingWEB can’t help you make that call at this point, but to help get you started on your fintech adventure, we have put together this short glossary as an introductory guide.
Glossary: Bluff your way into fintech parties
AISP – Account information service provider. An entity authorised under PSD2 to access data from an ASPSP (accounting servicing payment service provider or “bank” in old money). PISPs - payment initiation service providers - can also plug into this acronym-laden digital workflow to effect a transfer of funds from an ASPSP via a PSP (payment services provider) to their customers.
Disintermediation – An old friend for anyone worried about alien incursions into accountancy’s sphere of influence. But like “convergence”, disintermediation is a good, all-purpose way to describe how new technologies tend to absorb different processes. Tech frequently sidelines existing business models when practitioners of activity A find that new tools make it possible for people from group B to do what they do too – often faster, better and for less money.
DLT – For those of us of a certain age, the initials immediately call to mind a bearded DJ with a line in mawkish tales of tragedy and triumph. But for the digital generation, the acronym stands for distributed ledger technology or “blockchain” for short. According to fintech fans, single, shared online ledgers are going to disrupt banking as we know it, and the accounting tools that are currently used to record transactions.
Ecosystem - These days everybody wants an ecosystem – the must-have for anyone building a business platform. The phrase originates from the “platform as a service” concept pioneered by giants like Salesforce, Amazon and Google, where third parties hook their applications into the platform via application programming interfaces (APIs). Accountants first encountered ecosystems from online bookkeeping suppliers such as Xero and QuickBooks. But as we discovered at Fintech Connect, now banks are getting in on the action. But how many ecosystems can the API economy ultimately sustain, and how does a business user find the ones that might be useful for them?
Inclusion – Fairness has reared its head in AI/fintech circles around whether the technology will reinforce market inequalities or eradicate them; most obviously seen in credit score algorithms that perpetuate unfounded assumptions about prospective borrowers. If you don’t want to look like a Luddite, but don’t like where the automation conversation is heading, playing the fairness and inclusion cards will indicate that you have been thinking deeply about the implications of fintech.
NLP – Natural language processing. Not to be confused with neurolinguistic programming, which is more about guiding human rather than artificial intelligence. The computerised version of NLP is based on interpreting language inputs so that the system can come up with relevant and correct answers or identify significant trends. In the words of one practitioner, NLP systems “translate language inputs into vectors of words that you can analyse for AI processing”. Got it? Within fintech, NLP is commonly being used for analysing loan applications and contract terms.
PSD2 – The revised European Payment Services Directive enacted in the UK on 18 January 2018. The legislation dictates that in order to encourage competition, banks must make it possible for third parties operating under client authorisation to gain access to their banking data. This will be made possible via a standardised Open Banking application programming interface when the banks get around to implementing and supporting it.