[The SME sector is] So Hot Right Now

For Fintech Insider’s news show Simon and Jason are joined by 11:FS NED Chris Skinner, Tanya Andreasyan, Editor at Banking Technology; Kristian Luoma – Head of OP Lab, in town from Helsinki for one night only and Cliff Evans, Head of Digital Banking at Capgemini, to take on the week’s top stories. This week they look at the monumental shifts in both global stock exchanges and crypto markets; the US take on Open Banking, and exciting developments in the SME space both here and abroad.

Listen in full here, stream below or read on for highlights!

Global stock market and crypto price tumbles

We couldn’t not mention the biggest news of the week in all industry sectors: the global stock market “crash” started on Wall Street on Monday. Not only that but the cryptocurrency sector has also been affected with Bitcoin plummeting to lows of £4000, before (slightly) bouncing back. What’s been going on?

• FTSE 100 lowest since April 2017
• On Monday, the Dow had plunged by nearly 1,200 points or 4.6%, triggering losses in Asia and Europe.
• Monday's decline was the largest in percentage terms for the Dow since August 2011
• As of Tuesday Bitcoin prices had fallen 14% to $5,920 (£4,250) before bouncing back to $7,265 – up nearly 6% on the previous day. Now sitting around $8,300.

"Bitcoin is dead. Long live Bitcoin." says Simon. Jason says that despite the big fluctuations in the FTSE 100 and global stock markets, they look like "the smallest blip" compared to the volatility shown in the same week in the crypto markets. Kristian takes a more realistic perspective: “Trends are still well up from 12 months’ ago - fluctuations are normal”. Tanya bemoans the "bland" reaction from all news outlets and commentators, essentially saying the same things about this story - "everyone was so bland, they were all using the same words and phrases..."

“The FTSE volatility looks like the smallest blip compared to the crypto market” - Jason Bates

Open Banking

It’s the time of the week again - sound the Open Banking klaxon! This time the story in question took a slightly different angle, it was this one in American Banker, discussing how the U.S. can avoid U.K.’s mistakes in open banking. The article states that the US must heed the negative press reaction in the UK and tread carefully when it comes to their own offerings. “U.K. media, along with consumer advocacy groups, have called attention to the increased risks of fraud and cyber attacks that could result from the new data-sharing model. This kind of negative coverage will likely stoke existing consumer concerns about banks sharing their data with third-party providers."

The author of the piece decides that dedicated marketing campaigns and customer outreach describing the positive aspects of open banking is what's needed: “To get ahead of the issue, banks in the U.S. should invest in broad customer outreach campaigns that explain what open banking is and what it means for customers, including the new types of services and experiences it will enable for them. Most importantly, those campaigns will need to clearly communicate the ways a bank is ensuring that customers’ data is shared securely to mitigate fraud and identity theft risks.”

"[The focus should be on] finding use cases and killer apps, then building customer trust" - Kristian Luoma

But did our panel agree? Tanya says this advice "makes perfect sense", although she debates whether Open Banking will actually work in the US as the models are so fragmented on a state-by-state basis. Cliff Evans disagrees, he thinks the outreach programme won't help, the user engagement will need to be "consumer driven, as per the WeChat/Alipay uplift in Asia" - ie when the customer find a product/service they really like and enjoy, that will spread the word much faster than publicising regulation ever could. Kristian concurs, saying the focus should be on "finding use cases and killer apps, then building customer trust". This brings Jason onto talk around adjacencies in banking - services and integrations around banking and customer services that could be made better. These, he says, are the low hanging fruit in the wake of Open Banking, there are multiple opportunities in the gaps between banks and customers.

Banking chiefs call for regulation of tech giants

Big Tech’s move into banking is threatening financial stability and the biggest US and Chinese technology groups should be subject to some of the same regulation as big banks, according to top European finance chiefs, in this story from the FT. BBVA Chairman, Francisco Gonzalez called on a global body such as the G20 to take action, saying “authorities [need] to bring order to this massive change” that could “pose risks to financial stability”. He and many like him fear Facebook, Amazon, Alibaba and Tencent could replace many banks, calling for changes in the law for greater regulation of the tech giants and the data they hold, saying “If I need capital to lend then let’s have the same rules for everyone — for the internet giants too.” "Platforms have to be regulated" says Chris, Kristian agrees on grounds of data security. Jason talks about the "visionary" BBVA chairman who spotted the change towards platform services coming way back in 2007, however Tanya counters that this move towards regulating the tech giants under the guise of data protection may have self-interest at its core - "Are they protecting the consumer or themselves?".

"Platforms have to be regulated" - Chris Skinner

TSB investment in the SME sector

TSB and its parent, Spain-based Sabadell, will start with an initial tranche of £30 million, to be invested via a new investment vehicle, BlueWaves, as documented in this story from Banking Tech.

BlueWaves will provide equity funding to early stage businesses and start-ups with a focus on small businesses across the UK.

TSB is also bidding for a share of the £750 million fund set up by Royal Bank of Scotland (RBS) to boost business lending in the UK (the fund replaced RBS’s failed attempt to shed 300 branches and carve out a separate bank under the Williams & Glyn brand). TSB is aiming to get three grants worth £60 million, £100 million and £20 million. - Good for them, says Tanya, as she and Simon agree that the SME sector is "so hot right now." We caught up with TSB’s commercial banking director, Richard Davies to tell us more: "[the funding will help] SME's to thrive and be productive which helps the UK economy going forward".

"[the funding will help] SME's to thrive and be productive which helps the UK economy going forward" - Richard Davies

He tells us that for now they have pledged a £30m commitment, scaling up to £100m over time, and he also sets the record straight on the RBS bids - these have not yet happened, they are leading the charge on the bids but the funds raised so far are all from their own money. He also praises the SME ethos from Investors, Sabbadel, and reveals that backend changes for TSB are going to make all the difference to their offerings in the future: "We're throwing off the shackles of Lloyds' legacy IT platform, this give us the chance to mix up the market going forward".

China cracks down on credit scoring

China’s central bank is reining in efforts by Tencent and Alibaba to create contentious “social credit” scores from data on citizens’ purchases and social behaviour, in this story from the FT. PBOC is trialling their own scoring system and Tencent had to pull their beta test after less than a day after accusation of “jumping the gun” and pressure from the PBOC. This does not mean that China are having second thoughts on the scoring system, just on who gets to provide the definitive scores, and Beijing plans to roll out a nationwide system by 2020.

"This is a look into the world's future" - Kristian Luoma

Kristian calls this "a look into the world's future". Jason is concerned that with so many social factors being piped into social scores, does it "does it create a false veneer and another system to game"?

Alipay does a thing in Finland

This fantastic headline "Alipay crosses Finnish line for cashless payments" from Banking Tech sums up Alipay's latest foray into Europe. Ant Financial’s mobile payment platform Alipay reveals that a group of Chinese travellers have concluded (or Finnished!) the first ever cashless journey to Finland, with all transactions made via their Alipay accounts. Finland becomes the first country outside of China where all transactions can be completed using Alipay Alipay has a partnership with a Finnish taxi company Lähitaksi as well as Santa line, the taxi and bus service to Lapland - "are they visiting Santa" asks Simon? Finnish Kristian is not impressed by this story - "as a Finn, a story about going cashless is kind of plain" he says, as Finland has been one of the leaders in cashless-ness adoption, going on to say “I haven’t used a single cent of cash for 7 years". Tanya points out that many countries adopting Alipay can take advantage of the income from Chinese tourism if they're attracted by the ease of Alipay usage, and the panel debate where Alipay will go to next? "I for one, welcome our Alipay overlords" quips Jason.

“I haven’t used a single cent of cash for 7 years" - Kristian Luoma

Penta's fundraising round

Penta, the German digital-only bank account for startups and SMEs, raises €2.2M seed, so says TechCrunch. Funding will go towards further hiring, product dev and growth as they look to serve the underserved SME sector. Part of the seed round will be used to launch the Penta marketplace of third party products. These will include automated accounting, low-cost FX, and multiple MasterCards with limits and permissions that can be given out to an SME’s various employees. “We want to help businesses get off the ground as quickly as possible without them having to worry about annoying banking bureaucracy or paying pesky fees. That’s why Penta is free to open and free to use,” says CEO Lav Odorovic "That's a tough market to crack", says Jason, highlighting that there's a large number of startups in the same market doing the same thing. Cliff says that of all the features Penta is planning to roll out "the accounting is the most important feature", once again highlighting the importance of integrated services and the gap between the bank and their customers - "everything is in that gap" agrees Simon.

"The accounting is the most important feature" - Cliff Evans

Unfamiliar with Penta? Check out how it looks and works on our 11:FS Pulse competitor insights platform. We have a good range of Penta user journeys from their beta release available to view with full video and analyst’s commentary. To find out more about Pulse head to 11fs.com/pulse.

Digit ditches the chatbots

From German fintech funding to an American fintech that’s reinventing itself, this story in American Banker describes how Digit are redesigning their app and ditching the chatbots. Digit launched in 2015 to help young adults get in the habit of automatically saving money through a chatbot. Ethan Bloch, CEO: “We think [chatbots] haven’t lived up to their promise... we are done believing they will.” As a result, Digit are redesigning their whole app to remove the chatbot interface - that was the whole of their USP in the first instance. ("Yayy!" says Jason.) Tanya says that while this is good, many companies and especially banks are still really keen on chatbots "one bank removes a chatbot... I can give you 20 stories about adding chatbots in". Cliff concurs that removing chatbots is probably a good thing saying that the real innovation and the future is the conversation interface, not the chatbot. " As one bank removes a chatbot, I can give you 20 stories about adding chatbots in" - Tanya Andreasyan

The UX revolution that nobody noticed

Following on from Digit, is UX having a shakeup in 2018 Leda Glyptis thinks so, in her piece "The banking UX revolution happened when you weren't looking". Our favourite quotes from the article are here:

• On removing legalese and text-heavy T&Cs: “Don’t get me wrong: the revolution isn’t in the design. It’s in the belief that there is another way that doesn’t make the customer feel small when faced with bureaucracy; It’s in the belief that things can be serious and important without being forbidding and scary.
• On putting the customer first: “If the client is your starting point and their needs are your driver, your organisational foibles, requirements and preferences no longer occupy the driving seat. Move over and sit quietly at the back.”

Simon succinctly sums this up with "arse-covering is not good product design. Putting your customer first is good product design."

"Arse-covering is not good product design. Putting your customer first is good product design."

ATM thieves hit the jackpot

A number of 'jackpotting' hackers have stolen over $1 million from ATMs across the US, as reported in this story. Coordinated groups of hackers have been attacking ATM machines all over the US to steal cash from them. The hackers have been able to hijack the ATMs by gaining physical access and using special equipment to trick the machines into spitting out cash. To execute the cyberattack, a thief needs physical access to an ATM and will use malware, physical hacking tools, or both, to take control of the machine and force it to dispense cash quickly. If it works, cash pours out of the ATM like the hacker won a jackpot. Machines running Windows XP have been reported as the ones most at risk, but Windows 7 machines aren't entirely safe either...which means, as Simon points out, the real story in this piece is actually about the need to upgrade banking systems from such old programmes!

"Upgrade your systems!" - Simon Taylor

As always, thanks to all our guests for participating as well as our community on Fintech Insider News for submitting stories to the show, sign up and join the conversation now! Listen back to the episode in full here. To ensure you never miss an episode, subscribe to Fintech Insider now! Come talk to us @11FSTeam or @FintechInsiders on Twitter or hello@11fs.com if you want to send us an email.