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Four key takeaways from Money 2020: the "greatest fintech show on earth"

Ian Merrington, Cape Innovation and Technology Initiative CEO, discusses four key takeaways from Europe's pre-eminent fintech show that took place from 4 to 6 June.

By Ian Merrington
Johannesburg, 15 Jun 2018

Ian Merrington is CEO of The Cape Innovation and Technology Initiative (CiTi), a 19-year old impact organisation that brings together business, government and society to use innovation and technology to positively shape the future economy and society.

CiTi runs bespoke technology incubation and skills programmes (national); technology innovation clusters (fintech, edtech, data, traveltech); and also supports business with cultural digital transformation and innovation. Its Bandwidth Barns are innovation and start-up hubs at the centre of Cape Town's vibrant technology ecosystem. He attended Money2020 Europe from the 4th to the 6th June.

It's no longer mobile first! AI first is the new mantra

This was a key message coming out of Europe's pre-eminent fintech conference held in Amsterdam from 4th to 6th June. The smart use of data has become an imperative for banks and all financial services companies, in order to remain in touch with the competition and to keep customers happy. The underlying assumption and expectation is that the business/bank/financial services company needs to have its data house well in order before even contemplating using AI.

Something that really struck me and was a consistent take-out across all three days and across different forums, was that the issues being grappled with regarding rapid digital disruption and customer-centricity in a digital world are not at all unique to financial services companies and banks, but to all businesses operating in a new digital economy. Banks are probably our "canary in the bird cage" as they are feeling the effect of digital disruption and start-ups/challenger banks so much more acutely, but the same pain is on the horizon for other legacy business.

The breadth and depth of fintech and digital disruption covered during the three days in Amsterdam preclude me from doing justice to the quality of the content and insights on offer so I have covered the three key themes which resonated the most with me and which I believe are applicable to all business grappling with digital disruption in South Africa and Africa.

Becoming the bank of the future (aka the business of the future)

Customers don't have time and they live their lives on their mobile phones. Banks have no choice but to become open platform businesses, data-obsessed, digital and mobile first (after AI of course).

It's absolutely no longer about the bricks and mortar, but mobile engagement. If you are going to excel at mobile engagement then you are competing with the best in the business, including Amazon and Facebook.

A platform business model is the most compelling way to tackle that challenge. A platform business offers the opportunity to scale at close to zero marginal cost, it creates value by getting subscribers on the platform which in turn creates value to other subscribers. However, this means you need to be data-obsessed if you want to be successful as a platform business (typically platforms don't, to use a common phrase, own the means of production: instead, they create the means of connection.)

The magic ingredient for your platform to have a competitive and credible advantage, is that it must be OPEN to both consumers and producers. This means it must also be open to services that are not necessarily banking and to services that competitors may deliver. This requires banks to not only unite in the way they act globally with their customers but that they need to unite internally, both people and systems.

The HOW is predicated on changing your legacy culture! Companies have to adopt agile working, be collaborative, purpose-driven, be highly innovative and encourage risk and experimentation.

Ralph Hamers, CEO of ING, said it has 360-degree partnerships with fintech, but only those who are aligned with ING's purpose. ING, in turn, is making sure that it is attractive to collaborate with, they are building a co-learning and open campus to facilitate this engagement and collaboration. His organisation has become purpose-driven and that purpose is "to empower people to stay ahead in life and business". There is no mention of banking.

The most impressive 'challenger bank' at the show was Revolut. Founder, CEO Nikolay Storonsky, says digital customer centricity lies at the heart of Revolut's offering, where it has demonstrated an amazing understanding of the needs of a digital savvy consumer and also the use of data.

While traditional banks, and indeed legacy financial services companies may see Revolut as their competitor, Revolut sees its primary competition as Apple, Amazon, Facebook and Google. Revolut already generates $2 billion a month in transaction volume. Its account holders can not only transfer money between currencies for zero fees but can also transfer in and out of major crypto-currencies including Bitcoin, Litecoin, Etherium, XRP and Bitcoin Cash.

Revolut's growth in customer acquisition is evidence of a winning strategy using digital customer centricity as a core tenet of its strategy. Interestingly enough, Revolut is now also offering a business banking service which demonstrates that it's not just the cool kids who want a seamless, cost-effective digital banking experience from a challenger digital bank.

Making the data work for you

The data is probably there, but how will you use it? Andy Maguire, Group MD of HSBC, highlighted how most businesses are not yet making the most of data that they already have. He is of the view that the problem with big data and the data analytics industry is that they think getting it 30% right is good, whereas we should be 80% right based on the data touchpoints which we already have: Amazon being the most compelling and scary case for getting it right.

And of course, data privacy and trust were big topics. Millennials now trust tech companies more than banks: Amazon and PayPal particularly (18-24), but Facebook's trust took a significant knock as a result of the Cambridge Analytica scandal. The focus is not on the benefits of data to the business, but the benefit to the customer.

South Africa's Discovery Health was held up as a worldwide example of a positive model of using data to benefit the consumer and customer. BBVA, as another example, will be more than 50% digital next year and more than 50% mobile, moving from a money bank to a data bank that adds value to their customers' lives.

And Monzo, a digital only "challenger bank", knows that you are buying a train ticket daily because you can't afford a cheaper season ticket so it makes a financed season ticket available to you in the app.

Legacy systems and ICT infrastructure are a major constraint to effective collection and use of data, and in creating an open platform. Much 20th-century infrastructure can't be renovated for the 21st century and the leaders of the pack believe that any infrastructure older than five years should be scrapped. Real vision requires fast change. Fintech is in fact reframed as techfin: the technology should drive the competitive advantage and how to deliver financial services. Visa in Europe was down for eight hours in early June, a glaring example of the inefficiency of legacy infrastructure. "Legacy systems with a conservative approach will not lead us to success," said Andreas Hahn, Credit Suisse.

Digital transformation and cultural transformation

The other major constraint to digital customer centricity is legacy culture.

Senior leaders at the conference all focused on the need for cultural change within organisations in order to adapt to a new digital value chain and digital customer centricity. In many cases, this was a bigger challenge than the technology.

Cross-discipline agile working methodology is seen as an absolute prerequisite to successful digital innovation. A collaborative internal culture is an essential ingredient of successful innovation. It is widely recognised that the immune systems of our organisations are resistant to change, according to Benoit Legrand, Chief Innovation Officer ING.

It takes vision, courage and perseverance to be a disruptive leader. He said that one of the biggest challenges to innovation is to lead the organisation to the Unknown while delivering in the short term. ING's 3C's Innovation Strategy is a key success factor to creating impact, Customer, Culture and Connection.

The main challenge for the digital revolution is not digital. It is human and cultural. ING places a strong emphasis on agile, lean start-up and design thinking methodology and has 150 partnerships with fintechs. "It's tempting to say let's build it ourselves, but they are already doing it". In order to get this right, leaders have to allow time for topics that will not generate revenue in the short term and you have to deploy your best resources on those.

Banks need to embrace risk-taking and experimentation, and innovation teams need to have diversity of thought, age, race and gender. Diana Reyes, Global Head Liquidity and Cash Management HSBC, said that it was up to the senior executive team to showcase the digital innovation projects and to structure each in such a way that they are cross-functional.

She spoke of the need to "protect employees doing fintech" and to co-locate them together. HSBC guarantees the employees on these teams their old positions back if their projects fail, thereby reducing the fear of failure. The teams must be encouraged and empowered by the C-level, giving them blanket approval to hire as they please were one major paradigm shift which she embarked on.

She felt that it was very important for the C Level to be there for them as much as possible and whenever needed. "Allow people to take risks, give them a safety net, keep pace with the younger generation by way of reverse mentoring, communication, communication and showcase."

Bob Van Dijk, Group CEO of Naspers said that you had to find entrepreneurial people to run fintech.

Sigridur Sigurdardottir, Chief Customer and Innovation Officer of Santander UK, explained how they have created "Speedboats", which are stand-alone businesses with a separate CEO to enable Santander to move faster.

The core themes and message from the C level of Europe's leading financial services companies and most successful "start-ups" are applicable to every organisation seeking to be customer centric in a digital world, and as relevant in SA as in Europe.

In summary:

* Get your data collection and use in order so that you can maximize the benefits of AI. It's all about the ability to analyse the sentiment of your customer. If you don't have a core data capability, don't talk about AI.
* Build trust around data by using it only to benefit your customer.
* Design for the customer solve for everything else.
* Be mobile and digital customer centric but do it well: you are up against the Amazon user experience.
* Customers must decide what kind of channel they need, don't enforce "omnichannel".
* Align internally and externally and embrace an agile working environment.
* Scrap legacy architecture and ICT, start with the technology and then figure out how to provide financial services.
* Place convenience first, especially if your client is a small business.
* It's not an IT problem, it's a mindset.
* Open banking and API's.

Fintech "start-ups" which made an impact on me at the show included:

* Revolut (UK but of Russian Decent);
* Klarna (Sweden);
* Square (USA);
* Ant Financial (China) (formely AliPay); and
* Monzo (UK).

Twitter: Ian Merrington - Cape_Innovation

Twitter: CiTi - Cape_IT

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