1、INDEPENDEN T P U B L I C AT I O N BYRACONTEUR.NEThe French revolution took a while to get going in earnest.After the storming of the Bastille kicked offproceedings in 1789,it was three years before the guillotine entered service.Then things really gathered momentum:Louis XVI lost his palace,then his

2、 head,and Maximilien Robespierres reign of terror ensued until the radical-in-chief got the chop himself in 1794.How safe are the venerable members of the UKs banking establishment from the much-trumpeted fintech revolution?Only a few years ago,the outlook for them was worrying.Upstarts such as Atom

3、,Monzo,Starling and Tandem were aiming not only to compete with them,but to beat them.Even the normally understated Deloitte was warning that the big high-street play-ers would struggle to shrug off this threat to their dominance,as theyd managed to do many times before.In its 2014 research report,B

4、anking Disrupted,the firms bank-ing leader in the UK,Zahir Bokhari,wrote:“Deloitte sees this time as being truly dif-ferent.Banks core competitive advantages over new entrants are being eroded.”07/08/2022#0822Jon Axworthy A journalist specialising in science,technology and the future,with work publi

5、shed in T3,TheAmbient and Wareable.Tim Cooper An award-winning journalist,withbylines in The Guardian,The Spectator and The Telegraph.Marianne Curphey An award-winning financial writer,columnist and blogger whoused to be a staffer with The Guardian and The Times.Nick Easen An award-winning writer an

6、d broadcaster who has covered business,economics and tech forthe BBC,CNN and Time.Ian Fraser A former business editor on TheSunday Times Scotland who covers financial and commercial matters for a wide range of media.Sam Haddad A journalist specialising in travel,with work published in TheGuardian,Th

7、e Times and theEconomists 1843 magazine.Charles Orton-Jones An award-winning journalist and former editor of EuroBusiness whospecialises in the fintech sector and high-growth startups.Daniel Thomas A writer with work featured inarange of publications,includingThe Telegraph,NewsweekandFund Strategy.D

8、istributed inPublished in association withAlthough this publication is funded through advertising and sponsorship,all editorial is without bias and sponsored features are clearly labelled.For an upcoming schedule,partnership inquiries or feedback,please call+44(0)20 8616 7400 or e-mail .Raconteur is

9、 a leading publisher of special-interest content and research.Its pub-lications and articles cover a wide range of topics,including business,finance,sustainability,healthcare,lifestyle and technology.Raconteur special reports are published exclu-sively in The Times and The Sunday Times as well as on

10、line at .The information contained in this publication has been obtained from sources the proprietors believe to be correct.However,no legal liability can be accepted for any errors.No part of this publication may be reproduced with-out the prior consent of the publisher.Raconteur Media/future-finan

11、ce-2022FUTURE OF FINANCET E C H N O L O GYD E C E N T R A L I S AT I O NN E O B A N KSS U S TA I N A B I L I T YExploring the potential of fintech in the metaverseCould DeFi sound the death knell for traditional finance?How the challengers are becoming the challengedWhy banks must do more to manage

12、climate ContributorsF I N T E C HPublishing manager Jamie OglesbyDeputy editorFrancesca CassidyHead of productionJustyna OConnellDesign and production assistantLouis NassManaging editorSarah VizardDesign directorTim WhitlockIllustrationCelina Lucey Samuele Motta HSBC,for instance,has signed an anti-

13、money-laundering contract with Polish fintech company Silent Eight.The bank isa serial investor in fintech startups and runs an accelerator for them.Last year it signed a multi-year deal to work with CloudBees,a specialist in continuous soft-ware delivery a serious improvement on the big-bang IT upg

14、rade model thats been common in the industry for decades.This June,HSBC announced the creation of“fintech 101”,a course run by the University of Oxfords Sad Business School to give its staff a thorough ground-ing in the sector and its latest devel-opments.But McManus points out that most high-street

15、 incumbents,despite hav-ing integrated fintech into many of their services,do still face a significant tech-nological threat.“At their core,they are still running on legacy systems,”he says.“So,while they have weathered the storm so far,there is In 2018,Nikolay Storonsky,co-founder and CEO of the ap

16、tly named Revolut,was bullishly predicting the end of the old order.“In the next five to 10 years,we wont see as many banks,”he declared.“We will see a few global players,in the same way that Google and Facebook domi-nate advertising.”And today?The challengers cris de guerre have faded and calm is r

17、eturning.The high-street banks have fended off their initial assault and no ramparts have been breached.Lloyds Bank,for instance,recorded a pre-tax profit of 6.9bn last year.By con-trast,Monzo posted a loss of nearly 115m.Starling,a solid performer in the business sector,made a profit of 32m for the

18、 year ending March 2022,having raised funds at a 3.7bn valuation in December 2021.These are respectable numbers for a well-regarded enterprise,but theyre still dwarfed by those of the high-street behe-moths.Even the fusty old NatWest Group,bailed out by the taxpayer during the financial crisis of 20

19、07-08,is still valued at about 24bn.“All of the big banks are still alive,well and posting healthy profits,”observes Charles McManus,the CEO of ClearBank,which he founded in 2015.“They have certainly weathered the first fintech storm to a large degree.”They have achieved this mainly through modernis

20、ation,he adds.Theyve updated software,launched apps and collaborated,rather than competed,with emerging fintech providers.McManus points out that several fintech firms have engaged in“symbiotic relation-ships with banks rather than eating their lunch.They have filled technology gaps for banks,while

21、banks have become major buyers and distributors of fintech.”Charles Orton-JonesTTHE INCUMBENTS ARE SIGNIFICANTLY MORE CREDIBLE THAN THEIR CHALLENGERSPercentage of global consumers who say they completely or somewhat trust the following financial services The interesting battle is whether the smart b

22、anksget big before the big banks get smart amajor question mark over whether they can continue doing that.”Consider the impressive growth in the number of new customers that some chal-lengers have been attracting,suggests McManus,who adds:“The likes of Monzo boast millions of customers already and t

23、hey are only continuing to grow.Thou-sands of people are flocking to open accounts with them each month.”His assessment chimes with that of Michael Mueller,founder and CEO of Form3,a specialist in payment process-ing.Established in 2016,his company has attracted clients ranging from Lloyds to German

24、 challenger bank N26.“The interesting battle is whether the smart banks get big before the big banks get smart,”Mueller says.“At the moment,the tier-one banks are probably in a stronger position than they have been in the past six or seven years.Some of that has to do with the rise in interest rates

25、 big banks like them high.And a lot has to do with the fact that theyve started their transition to better technology,although that process is far from complete.”Theres also the fact that several incum-bents have invested in challengers,he adds.“If you look at Chase by JP Morgan in the UK or Goldman

26、 Sachs Marcus,there are some really interesting projects in that area.”The high-street banks not only have scale on their side.While some income streams will have dwindled over the course of the pandemic,the sheer breadth of their offerings from commercial loans to life insurance has diversified the

27、ir risk and enabled them to keep turning in decent results.Nonetheless,the competition isnt going away.The challengers will reflect,learn,improve and return.New ones will emerge.Its a prospect that McManus relishes.He points to Bank North,which secured a banking licence in August 2021.Part of a new

28、wave of regionally focused lenders,thebusiness is“myopically focused on sup-porting consumers in the north.In times of economic uncertainty,we may find that customers look to banks that are built to solve their specific problems,rather than the more generalist bigger players.”The longer-term outcome

29、 is far from obvious,according to McManus,who says:“While traditional banks may make some gains in the current economic storm,the big question is whether they will be equipped for what comes after.”The French revolution took 10-and-a-half years to play out.Inevitably,over such a long process,there w

30、ere lulls in the action,but these would always be followed by periods of great upheaval.The high-street banks may well be sitting pretty today,but its distinctly possible that a second act is in store.Chief sub-editorNeil ColeSub-editorsLorraine Eames Christina RyderReports editorIan DeeringDesignKe

31、llie JerrardColm McDermottSean Wyatt-LivesleyYouGov,2022Lloyds Banks pre-tax profit in 2021-22Will bankings insurgents everpush the giants off their perch?A cadre of subversive challengers has been striving to overthrow the industrys old guard since the mid-2010s,but the incumbents have stood remark

32、ably firm against the fintech-fuelled onslaught so far,at least32m6.9bnStarling Banks pre-tax profit in 2021-22Lloyds Bank and Starling Bank,2022Sustainable investments31%Cryptocurrencies16%Traditional banks66%Digital wallets56%Digital-only banks37%Buy-now-pay-later finance providers36%raconteurraco

33、nteur_londonraconteur-mediaDisclaimer:content in this publication should not be taken asfinancial advice.Please ensure that you always seek the help ofaqualified investment adviser or financial professionalF U T U R E O F F I N A N C E02Commercial featureFrom zettabytes to deep insights Big data is

34、key to the evolution of financial services,but most players in thesector have yet to come anywhere near harnessing its full potentialany financial services firms have gained access to huge volumes of new data as a result of their digital transformations,but theyve barely started to extract maximum v

35、alue from the wealth of material at their disposal.The average company collects and analyses only 24%of the operational data available to it,according to a global survey by Seagate and the International Data Corporation in 2020.There are several reasons for this,rang-ing from concerns about regulato

36、ry compli-ance to difficulties getting all the relevant material in the right format for crunching.The first big challenge facing financial services firms seeking to get more from their data is“the data ecosystem,the second is talent and the third is data management”.Thats the view of Edouard Legran

37、d,chief digital officer at BNP Paribas Asset Man-agement.The almost unlimited capacity of the cloud is helping to address the first chal-lenge,while cloud-based tech has also intro-duced many new capabilities,yet Legrand believes that,“even if progress has been made regarding the extraction,handling

38、 and governance of data,there is always room for improvement.Most of the focus has shifted to implementing cross-functional platforms that enable everyone in the organisation to make the most of the data.Ultimately,all information should be available seamlessly,as should the tools to exploit it.”Whe

39、n Legrand talks of the talent challenge,hes referring to the industrys inability to attract enough people with the right IT skills.Nick Broughton,chief information officer at Novuna,agrees with this assessment.“Technology alone does not generate value;you need data-literate people with good ideas,”h

40、e says.“Data science skills in Nick Easenparticular are key to obtaining real insights from the wealth of data we have.Attracting,retaining and growing our internal talent pool around these new skills is an additional challenge when the demand for them in our market is so high.”A survey of more than

41、 250 financial ser-vices firms in November 2021 by recruitment giant Hays revealed that 83%had struggled to recruit data scientists,even though they were typically offering annual salaries of more than 100,000 for such jobs.More than a quarter of respondents reported that they didnt have all the ski

42、lls they required to achieve their commercial objectives.The sector will have to become more flexi-ble with its employment policies and prac-tices if it wants to attract and retain the data specialists it so sorely needs.Knowing that they are in such great demand,these pro-fessionals can dictate the

43、 terms.Many prefer to work at home and not on the usual nine-to-five schedule,for instance,so its up to employers to make allowances for that.Some firms are going to great lengths to establish a reliable pipeline of talent by,forinstance,establishing relationships with data science communities and s

44、etting up apprenticeship programmes.When it comes to tackling Legrands third challenge data management firms are working hard to put more effective govern-ance systems in place.Their aim is to provide a holistic view of their products and custom-ers using data collected and processed in real time.It

45、s crucial to make analysis tools acces-sible to everyone in the organisation who needs them,since no one wants to be calling the tech team for help every five minutes.One of the main opportunities arising from all this work is that it helps companies to come up with new ways of satisfying their clie

46、nts,according to Broughton.“Creating outstanding customer experi-ences should be central to any data-driven initiative,”he says.Providing ever-more personalised services is one obvious area of development,but the potential of augmented advice,whereby data insights complement human interactions,is al

47、so exciting some companies.By combining several sources of data,for instance,they can generate investment signals and intelligence that relationship managers can use to keep their clients better informed.With the help of AI tech such as machine-learning systems,client-facing employees can identify t

48、rends that theyd never be able to spot unaided.Intelligent tools can also help customers to better understand their financial health and the risk/return profiles of given investment opportunities.“We see a future where clients can use tools to experiment.AI models can show them how investments could

49、 change over time,for instance,”says James Brake,interim chief data officer at Hargreaves Lansdown.“Yet we find ourselves in a world where regulation often lags behind technological innovation.With this in mind,financial services busi-nesses must be careful in their approach to AI-enabled services,s

50、ay,to preserve their clients trust.Its why Hargreaves Lansdown recently created the role of head of data eth-ics.This helps to ensure that our approach to AI is transparent,repeatable,unbiased and able to deliver the best outcomes for clients.”Financial services firms are already using virtual assis

51、tants and chatbots powered by natural language processing,an AI tech-nology thats fast becoming standard fare.Natural language processing also enables them to run automated searches of informa-tion sources ranging from news feeds to earnings reports,which will quickly identify potential problems suc

52、h as profit warnings and cases of greenwashing.The use of alternative data sources for instance,satellite cameras and smart sen-sors for climate-sensitive investments is also likely to become a standard way to inform performance forecasts,for instance.Open banking with data-sharing is another exciti

53、ng area to watch,says Broughton,who adds:“As the world moves towards thinking about data as a product,we must start build-ing services with the data they serve in mind.Making our data products more interopera-ble,secure and governable will be crucial to the success of future initiatives in this fiel

54、d.”Once data becomes the product in this sector,expect to see a whole new ballgame.Technology alone does notgenerate value;youneed data-literate people with good ideasCommercial featureduardo Martnez and Mike Galvin were working as strate-gic technology consultants for a range of blue-chip companies

55、 in the insurance sector during the late 1990s and early 2000s when they noticed an interesting trend emerging.“At first,every firm was trying to build their own bespoke,on-premise tech-nology solution,but it was proving to be very slow and expensive after all,these were insurers,not tech companies,

56、”says Martnez.“At that time,the CRM and ERP systems they were using were transform-ing themselves into platforms.This is what happens with technology to start with,people build their own.But,as an industry matures,platforms emerge that allow companies to buy these solutions,saving time and money.”He

57、 points out that,thanks to the emergence of software-as-a-service(SaaS),companies are now able to com-bine a variety of apps to create a solu-tion that is much more affordable and faster to implement than anything origi-nated in-house.Retailers,for instance,used to develop their own ecommerce techno

58、logy but now they will almost always choose a ready-made solution such as Shopify.Martnez and Galvin quickly realised that this SaaS model could be applied to fintech,thereby providing similar ben-efits to financial institutions,many of which were struggling to develop their own technology and wasti

59、ng time and money in the process.The success of Salesforce was already demonstrating that companies didnt have to create their own CRM solutions.Why not apply the same thinking to fintech?“When we talked to financial institu-tions in the invoice financing and trade financing space about why they wer

60、ent working with SMEs,for example,many explained that they lacked the rele-vant data and the right products they also didnt have access to the necessary financial technology,”says Martnez.“A lot of these financial institutions didnt have the capacity or the desire to become technology companies and

61、to spend tens of millions on developing the best solutions themselves.After all,it wasnt their business,they wanted to stick to what they were good at.”Having sold their startup which digit-ised administration and business pro-cesses for SMEs to Grant Thornton,the two went on to launch Toqio which o

62、ffers neobanks,traditional banks,and finan-cial institutions a range of fintech solu-tions in a SaaS format.Based on the principle that its better to buy than to build,as companies can save money and implement their solutions much faster,Toqio enables companies to create their own B2B,B2C,or in-hous

63、e finance solu-tions,providing functions such as online banking,foreign exchange,expense management,and many others.Financial institutions can also embed their existing products in Toqio through the companys API,enabling them to create unique solutions.Companies can turn their unique integrations in

64、to mod-ules and make them available on Toqios Marketplace,as well as incorporate mod-ules produced by other firms.“Were the Salesforce of fintech,”explains Martnez.“We help companies to digitalise their products and services in a faster,more cost-effective way.”Toqio is working with a growing number

65、 of financial institutions to help them better serve their clients,for instance,by wrapping their trade finance or pay-ment services around a central banking proposition.Others are more focussed on their own internal financial opera-tions.In either case,these institutions are ensuring that they rema

66、in technolog-ically agile and competitive.But isnt the drawback with buying rather than building a solution that organisations end up with a generic,off-the-shelf product?Martnez rejects this idea.“Its about offering a range of off-the-shelf tools that a company can com-bine to create their own besp

67、oke solu-tion,”he explains.He adds:“The companies we work with like the fact that its us,not them,who are constantly investing large amounts of money to create the next generation of fintech tools.The other day I was talking to the chairman of one digitally advanced bank who told me that theyd spent

68、 five years and over 100 million euros developing their systems.But,he pointed out,not many compa-nies are large enough to do that.”More and more forward-thinking financial institutions are approaching Toqio because theyve reached a cer-tain level of digitalisation but they now want to expand their

69、product offering.This will enable them to increase rev-enues,to serve their customers more comprehensively and to engage more deeply with them.Another new devel-opment is the number of retailers and cooperatives that are approaching Toqio as they understand the need for excellent,state-of-the art fi

70、nancial ser-vice capabilities but want them via this fast emerging medium.Toqio already has successfully helped launch over 60 solutions for clients in over 13 international jurisdictions with more than 15 major financial service providers already participating in their marketplace.This success look

71、s set to increase as more financial institutions and other organisations benefit from buying rather than building their own fintech solutions and concentrate on what they do well the fin while leav-ing the tech to the specialists.To learn more about Toqio,visit toqio.coFintech:dont make the“fin”worr

72、y about the“tech”The use of platforms and software-as-a-service(SaaS)have transformed solutions such as CRM and ERP for customers now its the turn of fintechCommercial featureE A lot of these financial institutions didnt have the capacity or the desire to become technology companies and to spend ten

73、s of millions on developing the best solutions themselvesAn enhanced fintech solution suite and savings of 1.4mAs one of Spains leading alternative business financing and banking organisations,Crealsa serves over 4,000 businesses in Spain,most of which are SMEs.The Spanish neobank has built a strong

74、 brand and established itself as one of Spains market leaders in invoice financing.However,the relationship with clients was often transactional as they moved between Crealsa and other business financing providers to satisfy their evolving funding requirements.The answer to this challenge was to dev

75、elop a much broader range of business banking solutions and to become a one-stop fintech shop aimed at SMEs and freelancers.With Toqio as its fintech partner,Crealsa launched a full range of neobank business financing solutions,differentiating it from the competition.“The timing from application to

76、receiving funds in the SMEs or self-employed professionals account has been cut from an average of seven days to less than one hour,and even as little as five minutes.Compared to the market average of building such a product and rolling it out to market,we estimate a cost saving of 1.4m,”says Jos Mo

77、lina,Crealsa founder and CEO.A N A LY T I C SMBANKING LEADS THE WAY ON MONETISING DATAPercentage of organisations across sectors that are doing the following Capgemini,2020We monetise data assets/insights through our products and servicesWe quantify the value of data in our accounting systems60%28%B

78、anking47%21%Automotive46%30%Telecoms43%19%Insurance42%14%Consumer goods manufacturing41%26%Public services41%18%Life sciences and healthcare40%25%Energy and utilities40%16%Industrial manufacturingLiliia Shalena via iStockR A C O N T E U R.N E T03FINANCIAL SERVICESFOR GOODAfter the global financial c

79、risis of 2007-08 shattered the publics faith in its probity and competence,the sector has had to work hardover many years to rebuild trust.The UKs cost-of-living crisis presents an opportunity for it to stand up and show some integrity.Asrampant inflation forces millions of households around the cou

80、ntry to tighten their belts,which financial institutions can be counted upon to support the most vulnerable members of society?UP,UP AND AWAY:HOW INFLATION HAS TAKEN HOLDConsumer Price Index in the UK for all items022121.8June 2022Office for National Statistics,202271.272.172.773.674.575.

81、576.578.179.981.884.786.689.493.496.198.5100.0100.0100.7103.4105.9107.8108.7111.6Annual average02000420052006200720082009200001920202021THE FINANCIAL SERVICES SECTOR IS AWARE OF ITS RESPONSIBILITIESPercentage of global financial services organis

82、ations saying that they believe the industry can provide the following as ways to support consumersPwC and the Confederation of British Industry,202244%41%24%22%13%7%5%3%63%Improved access to financial products56%Financial wellbeing assessments48%Consumer protection Product innovation(implementing t

83、ech to automate the delivery and use of services)Financial inclusion policiesFinancial education in deprived marketsSimplified decision-making processes for choosing financial servicesCooperation with governance/complianceMarket regulationCatalyst investment policies in under-served marketsOtherPUTT

84、ING ITS MONEY WHERE ITS MOUTH ISResponses of financial services organisations when asked whether they have put initiatives in place to support their clients during the cost-of-living crisisPwC and the Confederation ofBritish Industry,2022Yes,we have initiatives in place for both retail and commercia

85、l clientsYes,we have initiatives in place for our retail clientsNo,we dont have any initiatives yet,but we intend to put some in placeNo,we dont have any initiatives and were not planning to put any in place22%26%21%18%HOUSEHOLDS ARE STRUGGLING TO KEEP UPPercentage of GB adults reporting that their

86、cost of living has increased in the preceding monthHOW THE GOVERNMENT IS HELPING State support packages per person/household announced in response to the cost-of-living crisis this yearWHERE CONSUMERS ARE FEELING THE PINCHPercentage of UK households reporting their cost of living has increased over

87、the preceding month in the following areas Office for National Statistics,2022House of Commons,2022Office for National Statistics,2022Extra disability benefit150Council tax rebate150Cost-of-living payment650Energy bill grant400Extra winter fuel payment 350The price of my food shop has inc

88、reasedMy energy bills haveincreasedThe cost of fuelling my vehicle has increased88%83%77%My public transport costs have increasedMy income has fallenMy working hours have been reducedOtherI have lost my job or stopped working My rent or mortgage costs have increased15%8%8%4%1%17%66%69%76%81%83%87%88

89、%91%88%88%88%91%91%16 Jan 30 Jan13 Feb 27 Feb 13 Mar27 Mar10 Apr24 Apr8 May22 May5 Jun19 Jun3 JulH1 2022F U T U R E O F F I N A N C E04Computing17%That might mean being able to walk around in a world where your pension ambitions are realised,say,or where you already own the dream car that youre stil

90、l saving for in the real world.“Generations coming into the employ-ment market today have been born and raised in the world of gaming,”he says,predicting that this factor will change how they choose to interact with brands.“Many of them find it hard to budget and visualise their savings goals,”Pattm

91、an notes.“So this is a really interesting space,where you can see people gamifying real-life finance.”Another significant development in the metaverse will be the wider adoption of digital currencies.For these to be accepted more widely,they must first become more reliable and less volatile,he stres

92、ses.While the metaverse offers many oppor-tunities for businesses,not all of those businesses will be legitimate enterprises.As Pattman notes:“Wherever money goes,crime follows.We already understand the sophistication of cybercriminals.”How,for example,do you reliably verify a persons identity in th

93、e metaverse when part of its appeal is that you can be some-one different there?There are also concerns about the regula-tory risks surrounding data collection and privacy.If you create an avatar to live,work and play in the metaverse,for instance,your behaviour may be monitored and analysed in a wa

94、y that would be considered highly intrusive in the real world.Wheatley points to another couple of sig-nificant risks facing fintech companies in the metaverse.These are:over-expansion(for instance,by offering too many prod-ucts to too many people through too many channels too quickly,which can easi

95、ly become unsustainable);and becoming a me too player,with an insufficient focus on differentiation.The very regulations that have helped to ensure that financial services providers are trusted in the real world may be hindering their access to the as yet unregulated metaverse,according to Pattman.I

96、f a trusted and known bank appears in an unregulated environment,there is the potential for its brand to be harmed in the process.He suggests that metaverse start-ups have the advantage here because they arent regulated and dont have a real-world reputation to protect.In addition,cybersecurity risks

97、 in the metaverse differ from those elsewhere in the digital world and businesses would do well to remember this,stresses Kevin Gosschalk,founder and CEO of cyber-security specialist Arkose Labs.“Attacks targeting metaverse pioneers significantly increased in number during the first half of 2022,”he

98、 reports.In their pursuit of rapid growth,fintech firms want to make it as easy as possible for customers to sign up with them,which means keeping ID checks and so on to a minimum.This tends to increase their risk of being defrauded.Master fraudsters are already attacking consumers who are active in

99、 the metaverse,Gosschalk warns.“Fintech firms investing in the metaverse must put a premium on trust and safety,”he says.“They need to ensure the security of all their account log-in,registration and in-platform actions to protect avatar identities in the world where real-time VR,AR and 3D merge and

100、 become an experi-ence like weve never seen before.”Theres a land grab under way in the metaverse.Some have likened it to a digital version of the 19th-century westward expansion in the USMasters of the metaversemagine a digital realm in which you,in avatar form,can stroll into a bank branch at any

101、time you like,meet a member of staff and arrange a mort-gage,before heading to a virtual mall tobuy some trainers with your crypto wallet.Welcome to the metaverse an online world that will soon be within our grasp,ifMark Zuckerberg is to be believed.Now is the time for financial services firms to ch

102、oose whether to get metaverse-ready or not.It offers them great opportuni-ties,but also significant risks.There are two areas that fintech compa-nies have been focusing on so far in the metaverse:making it easier for consumers to interact with banking staff and buy products and services;and experime

103、nting with the gamification of financial services to enhance customer engagement.Owen Wheatley is lead partner for bank-ing and financial services at Information Services Group,a US-based research and advisory firm specialising in IT.He reports that several large and well-established fin-ancial inst

104、itutions are investing heavily in establishing a virtual presence.“These players include BNP Paribas,Citi and Fidelity,”he says.“They are trying to tap into new customer segments and,frank-ly,attempting to look cool.”JPMorgan is another notable early adop-ter.In February,it became the first bank to

105、enter the metaverse when it opened a lounge in a blockchain-based world known as Decentraland.A month later,HSBC which has closed numerous branches in the physical world bought a digital plot in The Sandbox,a digital gaming platform.Wheatley says that,for the fintech sector and neobanks in particula

106、r,the metaverse represents an extension of their use of tech-nology to engage with customers digitally in a way that feels easy and fun.“Theres a land grab under way in the metaverse,”he says.“Some have likened it to a digital version of the 19th-century westward expansion in the US.Real estate seem

107、s to be one of the areas gaining the most traction.”The metaverse offers fintech players a chance to expand new products to existing customers(who tend to be more tech-savvy gen Xers and millennials).Examples inc-lude crypto trading services,investment advice and loyalty schemes in partnership with

108、metaverse retailers.One vision of the metaverse foresees a realm in which businesses offer parallel virtual experiences including banking,insurance and mortgages selling digital products and enhancing their brands.Dave Pattman is managing director of customer services at Gobeyond Partners,part of th

109、e Webhelp Group,which is already providing services in The Sandbox.He believes that a big benefit for consumers in the metaverse will be the gamification of budgeting and financial management.“For many people,money management can be confusing and stressful,”Pattman says.“The metaverses immersive nat

110、ure creates opportunities for them to engage with their money in a more visual and per-sonal way.In a virtual world,your savings objectives and life goals can be visualised in ways that provide more impactful motiva-tion and behavioural changes.”Financial institutions are investing large sumsin digi

111、tal plots of land toestablish a presence in this much-hyped virtual world.But will the rewards justify the risks?Marianne CurpheyT E C H N O L O GYICommercial featureouve been waiting for some-one to say this your whole life its not your fault.So many of us feel guilty for not building the long-term

112、 habits that lead to fi nan-cial success.It might be reassuring to know that basic human psychology is not helping you.Scientifi c studies have shown behaviours are still infl u-enced by ancient short-term survival instincts,which doesnt align with modern-day fi nancial planning.A famous example is

113、the marshmal-low test,where children are told they will be rewarded for resisting eating a marshmallow placed in front of them.For many,the temptation is too strong to override the logic of prioritising delayed gratifi cation,demonstrat-ing that impulse control doesnt come easily to us.Today,the eas

114、e of instant gratifi ca-tion has meant younger consumers are even less likely to save,despite facing much harder retirement burdens than their parents.This has left two in three people in the millennial generation already feeling theyre not on track when it comes to saving for retirement,a TD Amerit

115、rade study found.But,with the help of AI-assisted coaching and psy-chology-based personalised planning,we can counteract some of our fallacies.Like millions of people,Katherine Salisbury and George Friedman,co-founders and co-CEOs of Qapital,found building healthy fi nancial habits diffi cult.Along

116、with more than 60%of consumers worldwide,they sought out a personal fi nance management app to help them gain control of their fi nan-cial situation.After years of searching the market for a product that would help them build healthy fi nancial habits,factor in their unique behaviours,and automate h

117、ow they moved their money between accounts,they realised it simply didnt exist.Largely because,despite per-sonal fi nance solutions attempts to improve money management among consumers,most products offer one-size-fi ts-all solutions,which invariably fail to adapt to peoples unique needs and behavio

118、urs.This has resulted in a costly lack of fi nancial literacy and long-term planning.“I was a lawyer,then ran a sports agency.I was living in New York with a good income but my husband kept saying:why dont you have any sav-ings?.It was hard to pinpoint,”says Salisbury.“I always felt like once I star

119、ted to focus on penny pinching,something else slipped,like I didnt go to the gym or I didnt eat so healthily.”Salisbury has noticed this trend applies to her peers too.“Its not that were fi nancially illiter-ate or lack self-discipline,”she says.“Psychologically,saving is really hard today.The lack

120、of friction in contactless payments doesnt help,and the fact were marketed to constantly today.Add a gig economy,different income streams and two-income households and things are just much more compli-cated.So its not so much that people dont know what they should be doing to save its trying to make

121、 space for saving so you dont keep having this leakage in your day.”Salisbury and Friedman set out to fi nd a solution to this problem.Turning to behavioural economics,they built Qapital:an app that utilises automation and behavioural psychology to help users better understand their saving,spending

122、and investing habits by high-lighting the tradeoffs made when man-aging money.Qapital allows users to save and invest for their real-life goals with customisable,automated depos-its.More than that,the app is creating a unique framework to help rewire con-sumer signals by anticipating and com-pensati

123、ng for innate human instincts.“Qapital is designed to fi t the users goals and lifestyle,”says Salisbury.“Ultimately,it does not just offer a path to saving money.It provides the frame-work to help people manage their emo-tions and temptations in a way that resets their relationship with money,leadi

124、ng to greater success in saving,budgeting and investing.Individuals and couples can fi nd money happiness.”Users of Qapital are motivated to save for their goals through visualis-ations of both the goals and the trade-offs required to achieve them.The app makes saving automatic by setting up rules t

125、hat trigger automatic deposits into goals every time you complete an action,like buying a coffee.Qapital can also round up purchases to contrib-ute toward goals or set aside money for specifi c debts,reducing peoples recurring burdens without having to think about it.“We decided theres really noth-i

126、ng better than automation,”says Salisbury.“If someone just managed your money for you,it would go a lot further.The early version of Qapital,and a lot of what were solving for now,is how do we make the money manage-ment experience one where youre set up for success.”Since launching seven years ago,t

127、he app has evolved beyond checking and savings into robo-investing,enabling users to invest on autopilot accord-ing to the risk profi le they desire,with zero management fees.Qapital simpli-fi es the investing process by handling all the complicated work behind the scenes.By adding an investment por

128、t-folio to a savings set-up,bigger goals are likely to be reached sooner.Since 2013,Qapitals over 2 million users have collectively saved almost$3 billion.The behaviour-based data from these interactions is enabling Qapital to innovate further.The direction of travel is fi rmly towards self-driving

129、money.Like self-driving cars,this technology will guide people to their destination,helping them manage their money and reach goals they would struggle to meet on their own.The fi ntech and fi nancial services sectors have thus far struggled to create trustworthy AI technology to move peoples money

130、safely and cor-rectly.However,Qapitals data points are facilitating a breakthrough.The key:human psychology and behav-ioural economics the heart of the Qapital product.Regardless of fi nancial expertise,effective fi nancial coaching is vastly dependent on understanding individ-uals habitual decision

131、 making,goals and motivations.As such,to provide effective AI solu-tions,the product must understand the users habits around money,while also allowing them to have full con-trol over their fi nances.The result?AI-assisted money management that is truly tailored to the individual.Like a household CFO

132、 that sets you up for fi nancial success.“Everybody wants to build a per-sonal fi nance super app,but the chal-lenge has always been feeding the right products at the right time to the cus-tomers in a way thats good for every-one.Thats pretty hard,”says Salisbury.“A lot of people get nervous about t

133、he idea of a super app because it just feels like an overwhelming resort buffet.It needs to be more bespoke.Salisbury explains that if you dont understand peoples goals and intent,you hit a ceiling with AI.“If I move 20,000 into my checking account to pay my kids tuition,and the AI sud-denly invests

134、 that money for me,thats a problem.But thanks to data and tech-nological advancements by Qapital,self-driving money is now very much a crackable nut in the next couple of years.When we achieve this vision,it will unlock fi nancial freedom and money happiness for a lot of people.”To fi nd out more,vi

135、sit QHow psychology-based AI can transform your fi nances Humans might not be wired to make the best money management decisions,but with customisable solutions and self-driving money,the road to fi nancial satisfaction is in sightYQapital is designed to fi t the users goals and lifestylessaved in to

136、tal by users$2.8bnQapital,2022fi nancial goals createdcreated user accountsexternally linked accounts4million2.3million1.6millionMANAGING FINANCES WITH AI SUPPORTQapital by the numbers WHOS REALLY BEEN MOVING INTO THE METAVERSE?Percentage of players in various sectors worldwide that had invested in

137、the metaverse by March 2022Sortlist,2022Defence1%Entertainment0%Retail 2%Creative arts and design2%Services3%Food and hospitality3%Manufacturing3%Customer service4%Transport5%Construction5%Tourism6%Technology7%Healthcare9%Marketing 10%Finance11%Education12%R A C O N T E U R.N E T05Commercial feature

138、Commercial featureraditional banks increasingly rec-ognise the need to innovate and embrace new technologies to remain relevant and competitive in a world of rapid digital disruption and the emer-gence of challenger banks.Yet while there is a willingness to transform,organisational culture can somet

139、imes get in the way.“There is a lot of desire to innovate and change and thats very different from a few years agoincumbent banks know that they need to change but the reality is they have to remain focused on safeguarding their customers funds and on being compliant and on things not going wrong,”s

140、ays Lewis Nurcombe,global vice-president of sales at Currencycloud,a cross-border pay-ments provider.Regulators also say it is essential.Pentti Hakkarainen,member of the European Central Banks Supervisory Board,said in a speech earlier this year that digi-tal transformation is a must for banks as ch

141、anging customer demands and pressure to reduce costs and increase efficiency leaves them no option but to embrace modern technology.“The desire is there to change,but its just they have to prioritise protecting what theyve got already,”adds Nurcombe.Much of the legacy infrastructure that banks have

142、is focused on those prioritieskeeping the lights on and protecting the status quo.“Culture falls in behind that because invariably when innovation projects dont work,we blame it on culture,”says Nurcombe.“But usually its just someone from a technical team saying you cant do it because it exposes the

143、 system to risk.So culture and legacy technology as a blocker to innovation are completely intertwined.”One of the challenges that large finan-cial institutions face with their corporate How a cultural mind shift can help traditional banks innovate fasterPartnering with third-party tech providers an

144、d creating standalone fintech units can enable banks to rethink their approach to innovationculture is that they tend to focus on spe-cific skills,experience and education when hiring staff,rather than on personal traits that could indicate a more creative mindset.“What you tend to find within corpo

145、rate culture is that people become dispensable from the perspective that if you are unable to perform a specific function,they will replace you with somebody who can,and that decision is usually based on a couple of checkboxes,”says Arno von Helden,head of Shyft,Standard Banks FX-focused fintech app

146、.“The reality is there are more significant factors to an individuals suc-cess or failure such as drive,ambition and passionthings that you cant measure by ticking a box.And so it is very much through that lens that corporate culture struggles to advance significantly and be innova-tive and entrepre

147、neurial in their thinking,because banks are looking for individuals that tick certain boxes.”Part of the issue is that when organisa-tions reach a certain size,they often lose the entrepreneurial spirit that led to their creation in the first place.Take Standard Bank as an example.When it was founde

148、d in the 19th century,it was created to fill a gap in the marketproviding loans for sheep farmers in the Eastern Cape of South Africa.Yet as organisations grow in size and stature,risk-taking naturally starts subsid-ing,says von Helden.“You become more focused on protect-ing your brand and not losin

149、g customers,”he says.“At that point,you start filling the organisation with individuals that see the world from that perspective.Theyve come in to protect that and start present-ing risks to organisations such as how can this damage our brand if something goes wrong?So organisations become very risk

150、-averse and that is not a fertile breeding ground for innovation.”That means banks need to find a bal-ance between this risk-averse mindset and having a more innovative culture.“The culture of the organisation needs a level of risk aversion because if it was just a bunch of cowboys or mavericks runn

151、ing all over the place,chances are that would do some damage,”says von Helden.“Banks shouldnt be switching from a risk-averse culture to a risk-on culturethere needs to be a happy medium.”Some incumbents are attempting to solve this problem by creating standalone fintech businesses that operate inde

152、pendently from their wider organisation.“The banks that were seeing be most suc-cessful at doing this are actually siloing off business units or creating brand new busi-ness units that look a lot more like a startup organisation,”says Nurcombe.“What that does is it allows them to cut away all of the

153、 politics that you typically see in a huge organ-isation where youve got conflicting organisa-tional or departmental priorities.”It can also enable organisations to hire people who have a growth mindset,for instance those that have worked in a fin-tech or startup environment rather than someone who

154、has been at a traditional bank for a long time,Nurcombe says.“Most importantly,it means that they can step away from that environment where they need to protect what they already have into saying were a brand new organisation,we need to grow and create something that drives value and that people wan

155、t,and as soon as you switch to that mindset,thats when you can really build new things,”he says.That approach is something that Standard Bank has adopted through the launch of Shyft.“The reason why we created a fintech within an organisation is because the organisation itself struggled to actually s

156、olve problems that required innovative and entrepreneurial thinking,”says von Helden.“The organisation was putting in place strategies and technical capa-bilities in the hope that they would solve those things,but they werent actually solving them in the way that they needed to be solved.”By operati

157、ng as a fintech startup,employ-ees can be more creative and adopt a more entrepreneurial mindset because they will have a vision about what they want to achieve and how they want to grow the business,and that gives them a greater sense of ownership,says von Helden.“Banks need to create vehicles and

158、opportunities to explore new endeavours,”he says.“Large organisations dont need to all of a sudden reinvent their culture,but they must create environments where ideas have a forum and there are people that can nurture and grow those opportu-nities when required.”The advantage of this approach is th

159、at it can enable banks to test new ideas and fail without it adversely impacting the wider business.“You dont need to build the final solution from day one,just innovate for a very tiny sec-tion of your customer base or maybe its cus-tomers that you dont even have yet and build an MVP(minimum viable

160、 product)that solves a really specific customer problem,”says Nurcombe.“Theres no reason to expose your existing bank to this innovation,you can do it on the side and remove all the risk.”Banks can then develop new products at their own pace and slowly move customers over when they are ready rather

161、than rushing to migrate all customers in one hit and then risk destabilising existing business lines.“One thing that the fintech community sometimes overlooks is that banks make huge amounts of revenue already today and theyve got brilliant business models that work,”says Nurcombe.“Sometimes,it does

162、nt actually make sense to innovate and cannibalise a brilliant revenue stream.”The traditional banks that are doing the best job at this are innovating in small steps.Nurcombe says this approach mirrors what Kendall Roy in the HBO show Succession calls the Strategy of a Thousand Lifeboats,where an o

163、rganisation builds lots of little life rafts that are moving away from the big sinking ship and one by one,they innovate.“Thats what the successful banks are doing at the moment,”says Nurcombe.Incumbents can also learn from chal-lenger banks around how they approach innovation,he says.“A lot of the

164、neobanks have been created with an innovation mindsetits been about growth,its tech-firstso theres a differ-ent culture built in,”says Nurcombe.“But the main thing that digital banks have done well is that,through necessity,they hav-ent tried to build everything themselves,theyve been very receptive

165、 to partnering with third parties and pulling together dif-ferent solutions.Traditional banks could still learn a lot from that.”There are three main reasons why banks should consider partnering with third-party providers rather than trying to develop their own technology in-house.The first is speed

166、 to market.“If youre a bank with a huge customer base,its really important that you focus on taking something to market and adjusting it to your customers,”says Nurcombe.“What you dont want to be doing is trying to build everything from the ground upby the time youve done that the market has moved o

167、n or the opportunity has been lost or someone else has built it already.That speed to market is something where the really successful neobanks have been so fantastic.”The second benefit is that banks need fewer resources to maintain third-party software,helping to reduce running costs.“The old schoo

168、l way of thinking was that every organisation must own and control every aspect of what they do,”says von Helden.“Now that were in an age where technological advancement is happening at such a rapid pace,it becomes almost impossible for one organisation to have all of these different systems and be

169、at the forefront of the development of all of these systems.”A third reason is that third-party provid-ers like Currencycloud continually innovate and develop their products in line with cur-rent regulations,helping to ease the com-pliance burden for banks.Financial institutions should therefore foc

170、us on their core offeringproviding banking services to customers and part-ner on everything else.“Lets go to a third party that is 100%focused on,say,international cross-border payments,who can provide best-in-class technology and who will take ownership and responsibility of the development of that

171、 without us having to invest in the tech-nology ourselves,”says von Helden.All of this requires a new way of thinking that embraces a more collaborative oper-ating culture.“The initial feeling among incumbents was to protect yourself from this,”says von Helden.“Now the realisation has set in that it

172、s no longer about protection,its about partnership.And its about lever-aging those partnerships and being rele-vant.Thats a completely different way of thinking.It is an open,integrated,platform mindset,versus a siloed barricaded mind-set of protection.”To speak to a payments expert please visit The

173、re is a lot of desire to innovate and change and thats very different from a few years ago The old school way of thinking was that every organisation must own and control every aspect of what they doTChallenger banks have been able to disrupt the banking industry because of their innovative mindsets

174、 and their willingness to adopt new ideas.But it was their need to outsource their tech requirements to third-party providers that allowed them to move quickly and challenge the incumbents.Using third parties is something that traditional banks had historically been reluctant to do,partly down to ri

175、sk aversion,but also partly because they have vast internal resources at their disposal.“When a lot of the neobanks first started out,they had limited funding and they had to really pick their battles,and they needed to get to market quickly,”says Lewis Nurcombe,global vice-president of sales at Cur

176、rencycloud.Partnering with Currencycloud gave these neobanks,including Revolut and Starling Bank,an edge by allowing them to offer cross-border capabilities to their customers without having to develop that capability themselvesthey could just connect with Currencyclouds API and have an off-the-shel

177、f cross-border offering ready to go.That enabled them to focus purely on enhancing the customer experience and growing their business.“That was a real driver for a lot of the success of challenger bankscross-border was one of the most opaque areas of banking that was ripe for disruption,so a lot of

178、them led with that,whether it was for holiday spending money or migrants sending cash home,”says Nurcombe.Neobanks replicated this partnership approach across their organisations with other providers,ensuring they always had the most up-to-date technology in the market for their different product li

179、nes.“As everyone continued innovating,before you knew it you had a platform that just kept improving every single year,”says Nurcombe.Given the success of Currencyclouds technology,the company was recently acquired by Visa.That comes as traditional banks increasingly turn to third parties to power t

180、heir digital transformation efforts.Standard Banks FX app Shyft,for instance,is underpinned by Currencyclouds tech.The bank needed to build the app quickly to get to market before any of their fintech competitors and partnering with Currencycloud enabled them to move faster than developing the tech

181、in-house.“The partnership with Currencycloud has been vital to the success of Shyft,”says Arno von Helden,head of Shyft.“Currencycloud really understood the challenges Standard Bank was facing and delivered a solution that improved our speed to market,whilst reducing costs and delivering operational

182、 efficiency.”Partnership in action Barclays payments data,2020Currencycloud,2019LexisNexis,2021in payments processed since Currencycloud started$116bnpayments since Currencycloud started26.5millionin payments sent every monthOver$5bnCurrencycloud,2022BENEFITS OF INTEGRATION WITH A TECH PROVIDER Curr

183、encycloud integrated banks benefit from significantly lower operations&compliance costs due to automation,pre-validation and zero manual paymentspayments sent every month700,000OverAPI requests per second130Currencycloud payments have a payment failure rate ofCompared to an industry average payment

184、failure rate of1.3%5%100%of payments submissions are automatedof payments land within one daythe STP(straight-through processing)rate of CurrencycloudSavanta Research,2021INDUSTRY TRENDSThe view from financial services business leaders 50%are actively looking to invest in improving efficiency/produc

185、tivity32%are actively looking to invest in digital innovation,technology&automation of customer facing services73%of businesses believe offering online cross-border capabilities or FX is importantof incoming credits are available to customers within one second99%85%94%OverF U T U R E O F F I N A N C

186、 E06Venture capitalists reap the fintech whirlwindhe technology investment market came back down to Earth with a bump this spring.As Russian troops poured into Ukraine,the tech-heavy Nasdaq Composite index plunged alarmingly,while soaring inflation in some developed markets fuelled fears of a wide-s

187、pread recession,prompting some ven-ture capitalists to pause for thought and others to rediscover a sense of caution.Last year,venture capital funding of fintech ballooned to$131.5bn(109bn)worldwide compared with the$49bn that was invested in 2020,according to re-search by CB Insights.The consensus

188、among investors is that this annual total is unlikely to be repeated any time soon.“My gut feeling is that we will have less investment than in 2021,”predicts Sheel Mohnot,a founding partner in US fintech investor Better Tomorrow Ventures.At an event organised by the Founders Forum in June,he said i

189、t was clear that some investors especially the“tourists”who had only discovered an appetite for fintech investing since 2020 had already“checked out of the market”.Another Silicon Valley-based investor,Andreessen Horowitz,reported that valu-ations of publicly traded fintech compa-nies had collapsed

190、from 25 times forward revenues in October 2021 to a mere four times in May 2022 a bigger reduction than in any other tech sector.The valua-tions of many unquoted fintech firms have also fallen markedly.“I dont think anywhere near as much money is going to be flowing into the sector this year as we s

191、aw last year,”says Hussein Kanji,an analyst with venture capital provider Hoxton Ventures.“You have to be very vigilant about the macro-economic picture,especially at a time when the middle classes are getting hurt.”As they seek alternatives to the so-called cash-burn approach in a toughening fundin

192、g environment,some fintech companies will struggle to readjust their business models,according to Kanji,who expects to see“some wreckage”.One consequence of the downturn is that capital providers are taking longer Kanji adds that most members of the European investment community were generally slow

193、to recognise the deteriorat-ing conditions for the fintech sector.“In the US,investors were starting to get panicky in late February and early March,but we didnt seem to get that memo over here until late May,”he observes.tomake their investment decisions.Due diligence processes,which were taking on

194、ly a couple of days until recently,are lasting several weeks,Mohnot reports.Another is that investors are shifting their focus away from customer-facing fintech companies such as neobanks,whose customer-acquisition costs are often comparatively high.They are in-stead bec oming more enthusiastic abou

195、t infrastructure fintech firms,which pro-vide the so-called picks and shovels for incumbents and other financial compa-nies.But even these businesses wont be fully immune from the downdrafts.Henry OBrien,a fintech investor and co-founder of Mural Capital,says:“Ven-ture capitalists are looking for in

196、frastruc-ture and capital/asset-light business models that can be scaled up fast.”Kanji points out that investors are focusing on“two variables:unit economics whether the business is capable of making money and speed of growth.If a company is really lean,growing by 400%a year and generat-ing healthy

197、 margins,there will still be a queue of people wanting to invest in it.”A crazytime for investment in the sectorhas come to an abrupt end.Most firms insearch of funding arelikely to find far less money flyingaround in the second half of 2022 period that was,in effect,an aberration.“Owing to Covid,ne

198、ar-zero interest rates and a bunch of other things,we had a crazy time.Valuations were getting ahead of themselves and the second half of 2021 was just nuts.”Mohnot believes that the market is mere-ly becoming more disciplined and,indeed,normal again.“Weve just snapped back to an earlier time,”he sa

199、ys.“Europe has been a little behind the US in making that shift.”Mohnot adds that rising interest rates will benefit fintech firms such as Mercury,a neobank in which many startups deposit the proceeds of their funding rounds.“As a company that makes money from deposits,its suddenly earning a lot mor

200、e than it did before,”he notes.Kanji reports that the“top 5%or 10%of fintech companies are still getting trans-actions”,with proactive investors trying to persuade them to embark on further funding rounds.“You might have thought that,in a rec-essionary market,people would be pull-ing back and everyt

201、hing would stall.But,when you have really interesting compa-nies,deals are still being done,”he says.In the long term,the customer-facing and infrastructure sectors of fintech will continue to offer attractive investment opportunities,according to Mohnot.“If you step back for a moment,you can see th

202、eres a lot thats broken in finance.If theres a lot thats broken,theres also a lot of opportunity.From a macro perspective,massive chan ges that will benefit con-sumers will come from fintech,”he says.OBrien believes that,without question,fintech will remain an attractive sector.“The need for financi

203、al services under-pins so many business models,”he says.“When you tie in blockchain-related pro-jects and also decentralised finance,I think that fintech and all adjacencies will remain a core focus for most of us.”Share prices of listed fintech firms have generally fallen by about 70%since their in

204、itial public offerings.For some venture capitalists,this is a reliable proxy for the unquoted sectors fortunes.OBrien believes that investors appe-tites for deals and unlisted companies valuations will continue to decline,but he adds that this trend could lead to a series of trade sales.“It will be

205、worth watching out for major acquisitions by global banks,insurers and payments companies,”he says.Mohnot predicts a slowdown in mergers and acquisitions activity during the sec-ond half of 2022.Regarding trade sales,he says:“The acquirers stock prices are also depressed,so they wont want to make st

206、ock-funded acquisitions and they wont want to pay cash,since they dont know how tough its going to be for them to raise the next incremental dollar.”Mohnot adds that some overvalued com-panies should be able to use their stock to make acquisitions,but he suspects that the window for doing so is clos

207、ing rapidly.What we are seeing,he says,is a return to 2019 levels of market activity after a Ian FraserI N V E S T M E N TTTokarsky via GettyImagesA BUMPER PERIOD FOR INVESTMENTGlobal fintech funding increased by nearly 170%year on year in 202120202021$49bn$131.5bnCBInsights,2021 You can see theres

208、a lot thats broken in finance.If theres a lot thats broken,theres alsoa lot of opportunityR A C O N T E U R.N E T07 If there are incomplete orfaulty codes,its likely that funds canbe drained out by those who can exploit such weaknessesBanking on blockchainDefy(verb)to openly resist or challenge.DeFi

209、(noun)a widely used contraction ofdecentralised finance.ts fitting that the term for an alter-native financial ecosystem thats making waves in the mainstream sounds similar to one for a subversive act.From the outset,DeFi has been all about defying the established hierarchy of banks,brokers and vari

210、ous other gatekeepers of traditional finance.Jeremy Eng-Tuck Cheah,associate profes-sor of decentralised finance at Nottingham Trent University,describes it as“the latest disruption technology thats changing the archi tecture of finance as weknow it.”DeFi uses the revolutionary decentralised nature

211、of blockchain database systems to enable friction-free peer-to-peer financial exchanges.It uses so-called smart con-tracts in the form of if,then instruc-tions coded into a blockchains ledger.For instance,an instruction might be to meas-ure the interchange of supply and demand to set interest rates

212、and dictate the terms of specified financial exchanges accordingly.No intermediary or negotiation is required,because each party to the transaction is al-ready clear about the terms of the contract.“Smart contracts are stored on the block-chain and run when predetermined con-ditions are met,”says An

213、ton Mozgovoy,co-founder of DeFi savings platform Mover.“They are a revolution because of their composability because everything is open and accessible,anyone can build innova-tive things.That also makes the whole DeFi system transparent.”This gives DeFi an advantage over the established transactiona

214、l methods of cen-tralised finance,because it isnt subject to the opaque internal workings of incumbent financial institutions.There is,though,a caveat.DeFi has been described as the Wild West of finance not a phrase that promotes investor confidence.Several critics argue that certain aspects of DeFi

215、 amount to little more than get-rich-quick schemes.“This crypto space is lightly regulated,ifat all,”observes Igor Makarov,associate professor of finance at the London School of Economics and co-author of a recent work-ing paper on DeFi.“As a result,investors are exposed to numerous risks.The Beanst

216、alk hack is one of many colourful examples.”Makarov is referring to an incident in April in which a hacker extracted$182m(150m)of cryptocurrency from Beanstalk Farms,a DeFi project whose goal was to balance the supply of and demand for crypto assets.This was proof,if any were needed,that legitimate

217、endeavours could be exposed to bad actors set on exploiting the vulnerabilities of smart contracts.In the first five months of this year,there were$1.4bn-worth of DeFi hacks,according to cybersecurity auditor Hacken.Moreover,the fact that so much of DeFis infrastructure is founded on smart con-tract

218、s means that investors are vulnerable to software flaws that can erase token value.“If there are incomplete or faulty codes,its likely that funds can be drained out by those who can exploit such weaknesses,”Cheah says.“Apart from source-code vul-nerabilities,theres a lack of sophisticated due dilige

219、nce processes to ensure that codes are free from faults.Ultimately,smart contracts are only as good as the people whowrite them.”Perhaps the biggest investor concern is the lack of safeguarding baked into DeFi,especially when compared with traditional finance things such as deposit protection,govern

220、mental-level insurance and the various other guardrails that centralised finance investors rely on.But regulations cannot pre-empt innova-tion,argues Cheah,who adds:“If the princi-ples underlying innovation are regulated,they can be circumvented or they might end up stifling innovation.And there is

221、a lot of financial incentive to develop software veryquickly to replace the role of financial intermediaries.In short,there is money to be made by first movers.So its not surpris-ing to me that DeFi has earned its Wild West reputation.Thats the price you pay for all that innovation.”For all DeFis fl

222、aws,its hard to ignore how much attention it is attracting in many quarters.The interest of the big banks has certainly been piqued,for instance.They have commissioned a slew of studies to determine what effects DeFi might have on their businesses.Goldman Sachs published a report in October 2021 tha

223、t highlighted how DeFi had clear advantages over traditional finance with its ability to provide“access for under-banked populations and faster settlements for users”.But it concluded that DeFi was not the finished article,pointing to“hacks,bugs and outright scams”.Dutch bank ING also recently commi

224、s-sioned a white paper.This concluded that DeFi was“a coin with two sides”and that the two services combined could bring benefits to the centralised institution as well as“to DeFi and,more importantly,its customers”.So,what forms might such collaborations take?Cheah believes that banks have a stark

225、choice:adapt or die.“Banks slow down transactions and can be costlier in the services they provide because they defray costs arising from reg-ulatory compliance,”he says.“These higher costs need to be weighed up against the benefits of allowing banks to be part of theDeFi solution.It would certainly

226、 be wise for the banks to migrate away from their ageing systems and adopt blockchain tech-nology and principles.But this will not be a cheap endeavour.”Its likely that DeFi will continue to defy and challenge conventional banking with disruptive innovations,yet remain a fron-tier populated only by

227、the hardiest inves-tors.But,if incumbent financial institutions become less risk-averse and decide to em-brace blockchain innovation,they stand a much better chance of establishing a strong position in a digital-asset economy thats gathering pace.Meanwhile,the DeFi coin is still turning in the air w

228、ith plenty of interested parties watching closely to see how it will land.Does the rise of DeFi spell the end for centralised finance,or should the two systems borrow from one another to create abanking system thats fit for the future?Jon AxworthyCommercial featureCommercial featurerivate investment

229、 is big busi-ness.In Europe alone,there is 200bn in assets under man-agement in private companies in the early to growth and pre-public IPO stage.Driving that growth is the prolifer-ation of startups,with 3,000 UK busi-nesses every year seeking investment in the seed and growth stage.That growth,in

230、turn,is being fuelled by the current adverse economic and infla-tionary conditions,prompting firms to try to secure more funding and inves-tors to seek out better returns.Added to this,companies are stay-ing private for longer in order to try to realise greater returns.For example,in the technology

231、sector in 2020,on aver-age,firms went public after 12 years,up from four-and-a-half years in 1999,according to industry estimates.At the same time,private equity firms are looking to deploy their institutional capital.The problem,however,is that much of this capital is tied up in illiq-uid assets an

232、d doesnt have anywhere where it can be traded,except with other institutional investors.As a result,the Seedrs secondary market is quickly gaining popularity as it enables more people that didnt pre-viously have access to invest in private companies.Thats evidenced by the fact that there have been 5

233、2,600 sell orders worth 20.9m in the second-ary market to date.That amounts to 550,000 worth of shares traded per month in the last 12 months.Added to that,there has been a 32%increase in sellers listing share lots in the last 12 months.Over the same period,there was a 27%rise in share lots listed.T

234、hese share lots can produce huge returns.For example,one seller made a 21,000 profit from selling their Revolut shares in less than an hour the high-est margin achieved for a single share lot.In context,the average profit per seller was 513.Company listings on the secondary market have also soared b

235、y an average of 301 in the last 12 months.Concurrently,there has been a 61%increase in the total value of firms listed.Reflecting this,12 of the businesses listed have a valuation greater than 100m,including Revolut,Paysend,BUX and Perkbox.“There are many different segments of the market,”says Jeff

236、Kelisky,CEO of Seedrs.“There are the early adopters and angel investors who are prepared to take high risks,who will seek to get out when the company reaches a cer-tain maturity and sell to investors who want a safer investment.”Another growing trend is invest-ment in VC funds.That growth is being d

237、riven by VCs ability to tap into high-end wealthy investors looking to invest in private companies because of the returns they can achieve relative to the stock market.In this vein,VCs are seeking to make it easier for investors to come on board.Thus,they are taking on a smaller number of big-ticket

238、 investors,namely retail and ultra-high-net-worth investors.VCs are also increasingly opening up to crowdfunding.A prime example of this is Passion Capital,which recently sought crowdfunding for one of its mature funds.Such was the demand,it had to double its share allocation,which then sold out in

239、20 minutes.Among the investment sectors most in demand currently are fintech,food and beverage,sustainability,software as a service and wealth management.As people become more concerned about climate change and bring their lives online,that trend will only continue.Moving forward,investors are incre

240、asingly looking to get into alterna-tive asset classes as an affordable way to own a share of something that was previously out of their reach.Among the most popular are cryptocurrency,art and real estate.“There are a growing number of asset classes that are being made available to a wider group of

241、people,”says Kelisky.“Cryptocurrency is one such asset that investors are increasingly attracted to because of the returns they are able to achieve or the wider applications it can be used for,such as in providing cheaper insurance through the use of blockchain automation.”One of the biggest regions

242、 for poten-tial growth is North America,with pri-vate equity,private debt and real estate expected to account for more than 1tn in assets under management by 2026,according to Preqin.Leading the way here is New York City-based global financial technology firm Republic,which recently acquired Seedrs,

243、and has deployed more than 1.3bn in investments and supported in excess of 600 companies,with 2.5 million users across more than 150 countries.Republic has hosted 12 regulation crowdfunding campaigns worth 4m each,as well as 22 real estate deals.It also supports more than 50 crypto-currency clients,

244、guiding projects from seed to liquidity,in addition to operat-ing early and growth-stage institutional cryptocurrency funds.Seedrs launched initially in 2011 with a crowdfunding platform,helping com-panies find the capital they need to grow and enabling retail investors to invest directly in start u

245、ps and scale ups.Then in 2017 it established a sec-ondary market one of the first of its kind where investors can invest in,set the price of and trade out their shares,allowing investors to realise returns ahead of a public offering.Around 200 businesses currently trade their shares on the market ev

246、ery month.They are exclusively companies that have raised capital with Seedrs and include small retail and technology firms,and even big players such as Revolut.Seedrs has also helped no fewer than 28 VC funds raise capital between 2013 and 2022,including JamJar(102.1m),Passion Capital and Seedcamp.

247、Five more are set to go live soon.“Essentially,we are doing for investors what Uber did for taxis,by bringing all of these investments into one place where its accessible for all,”says Kelisky.The performance figures in this article refer to the past and past performance is not a reliable indicator

248、of future resultsApproved by Seedrs.Capital at riskFor more information about Seedrs and private company,secondary market and VC fund investment,visit Opening up private investment to a wider poolThe secondary market,venture capital(VC)funds and alternative asset classes are now more accessible than

249、 they have ever beenP Essentially,we are doing for investors what Uber did for taxis,by bringing all of these investments into one place where its accessible for allthe amount one seller profited from selling their Revolut shares in less than an hour;the highest margin achieved for a single share lo

250、t21,000Seedrs,2022INTEREST IN THE SECONDARY MARKET FOR SHARES ON THE RISECumulative growth,in both value(total value of listed shares),and volume(total shares listed)on the Seedrs Secondary Market-from launch in 2017 to July 20220350,0000250,000,000Cumulative listed valueCumulative listed share lots

251、200,000,000150,000,000100,000,00050,000,000300,000250,000200,000150,000100,00050,000200020202020222Seedrs,2022D E C E N T R A L I S E D F I N A N C ECommercial featureIOscar Wong via GettyImagesIS DEFI DOMINANCE SETTLING DOWN?Total value locked in multiple decentrali

252、sed finance blockchains from Q1 2020 to Q2 2022($bn)250200150100500Jan 2020Feb 2020Mar 2020Apr 2020May 2020Jun 2020Jul 2020Aug 2020Sep 2020Oct 2020Nov 2020Dec 2020Jan 2021Feb 2021Mar 2021Apr 2021May 2021Jun 2021Jul 2021Aug 2021Sep 2021Oct 2021Nov 2021Dec 2021Jan 2022Feb 2022Mar 2022Apr 2022May 20221

253、 Jun 20223 Jun 20225 Jun 20227 Jun 20229 Jun 202211 Jun 202213 Jun 202215 Jun 202217 Jun 202219 Jun 202221 Jun 202223 Jun 202225 Jun 2022Defi Llama,2022F U T U R E O F F I N A N C E08“We have a sustainable business model that lets us generate our own capital organi-cally and expand into new markets,

254、”says a spokeswoman for Starling,which reported its first full year of profitability in July.While there has been no hint that any licensed UK challenger is in dire straits,Australias first ever online-only bank,Volt,has ceased trading.In July,it surrendered its licence and returned about A$100m(58m

255、)in deposits to customers.That came after it failed to raise enough capital to support its mortgage-lending plans.If a UK bank were to get into serious diffi-culties,Westminster would probably help it,according to Youel,who notes that some operators are highly exposed to government-backed Covid busi

256、ness loans,which would be written off in“implicit bailouts”.Despite the risks,neobanks should be able to weather the UKs cost-of-living crisis even if they sustain a few bruises along the way.According to Rich Wagner,founder and CEO of the digital bank Cashplus,the best-run challengers“should be in

257、a strong posi-tion to cope and even thrive”if the going gets as tough as the experts are forecasting.These are“well-managed businesses built on good economics”,he says.“They will fare better than those that have chased explosive growth or dizzying valuations at the expense of setting solid foundatio

258、ns.”Commercial featureMonitoring conversations to drive value and compliance How can organisations remain compliant in the new work anywhere culture?Oliver Blower,CEO of VoxSmart,explains the importance of tracking communication in fi nancial organisationsWhy do fi nancial services fi rms need to wo

259、rry about compliance in communication?I used to work in the fi nancial services sector and saw a lot of complex prob-lems fi rst-hand.Trading fl oors are quite easily the most ineffi cient working environment on the planet,and despite having instant access to global markets and visibility of what wa

260、s going on in the outside world,companies are often blind as to whats going on inside their own fi rm.For example,when I was a trader,part of my job involved fl ying around the world,restructuring deals for clients.But as far as my fi rm was concerned,because I was work-ing away from my desk,I wasnt

261、 compliant.Of course,that was very frustrating.With the introduction of more regulation after the fi nancial crash,I realised that many fi rms dont have any tools to manage visibility and risk,which increases liability for individual traders,and the reputational risk to each fi rm.VoxSmart was creat

262、ed to help fi rms build a view of internal risk,particularly risk deriving from employee-client interactions through email,instant messaging and telephone calls.regtech like ours helps to protect employ-ees and fi rms when mistakes happen.We approach this from a position of protecting the good guys,

263、not hunting down the bad guys.Does regtech help fi rms to avoid risk,or can it also drive value?Its about both.Risk is an inherent part of the industry,so we defi nitely want to reduce and mitigate risk.But those controls can also contribute to effi ciency and revenue growth,which is critical to bot

264、h traders and fi nancial institutions.The trading operating model is very inef-fi cient so its 100%probable that youll miss something at some point.How are you going to make sure that doesnt happen?Regtech can mitigate human error and protect employees when mistakes inevitably happen.As soon as youv

265、e harnessed that data,it can be used to drive value,moving beyond surveillance to deliver insights that could reduce P&L or optimise trading strategies,for example.The value of data to fi nancial insti-tutions is huge and largely unrealised to date.How will the growth of cyber currencies affect how

266、we use regtech?Our technology plays a huge role in the cyber currency space.We already have and benefi ts regtech can have,we encour-age fi rms to be inquisitive and open-minded about new technologies like monitoring and analytics,and to think longer-term about the potential value they can bring to

267、the business.What do you think is the biggest regulatory/compliance challenge that the investment banking community is facing in 2022 and why?Somebody once told me that banks dont manage money,they manage data.The biggest challenge for the industry right now isnt just monitoring the data,its about u

268、nderstanding the data.Because once you have cracked the monitoring,thats almost like your checkbox ticked for regulatory compli-ance.But if you understand the data you are monitoring,then you can start adapting your business based on what you know,what the data is telling you.You can understand tren

269、ds,you can understand insights,you can help your clients in a totally different way and be so much more effi cient once you achieve that.The biggest challenge for the industry right now isnt just monitoring the data,its about understanding the dataseveral clients in that space and as large global fi

270、 rms and retail banks adopt cryptocurrencies into their fi nancial offerings,the need for trans-parency into these trades is going to increase.Cyber currency can only remain largely unregulated for a short time,and there are pending regulations in multiple countries.We were recently approached by th

271、e worlds largest crypto exchange to build a capability to monitor Telegram communication ahead of upcoming regulation.That has meant that all of our 100-plus clients now enjoy the ben-efi ts of that new technology offering.Why have so many fi nancial institutions been relatively slow to innovate how

272、 they manage risk?It has been slow of course,but I think the situation is changing.Competition encourages innovation,and what crypto has done is introduce a new dimension of com-petition that has encouraged greater agility among traditional fi nancial organisations.Larger organisations face multiple

273、 chal-lenges that slow down the rate at which they adopt new communication channels but using regtech like VoxSmart does let them play catch-up in their own time.Technology evolves constantly and fi rms need regtech to enable change and innovation in a compliant way that helps them future-proof syst

274、ems and processes.What do you see as the main differences between challenger fi ntech brands and more established fi nancial institutions?We support the entire ecosystem of fi nancial markets,so that includes new entrants and traditional players.With new crypto exchanges,we see more use of new chann

275、els such as Telegram or signal,which are positively infl uencing traditional mar-kets.We often fi nd ourselves advising fi rms on future communication trends.During the pandemic for example,we saw that communication in the industry switched to WhatsApp almost overnight.Since WhatsApp recording is a

276、core offering for us,we were able to be there for larger clients who were facing a material shift in employee behaviour.In a sector where were only just scratch-ing the surface of the many applications For more information,Q&AQ&A800hoursof reporting time for Dodd-Frank Regulation compliance was cut

277、to under 72 hours for one global bank,using VoxSmartincrease in active audio monitoring(RegTech can support process automation,especially to review voice communications.Rather than listening to recordings manually,banks can monitor 100%as opposed to just 5%95%VoxSmart,2022Benefits of regtech in fina

278、ncial services A tier-one bank was recently required to report their dollar/ruble exposure.Using our technology,they could provide the data in a matter of hours,resulting in huge effi ciency gains.VoxSmart recently helped a global bank to reduce reporting time for Dodd-Frank Regulation compliance fr

279、om 800 hours to under 72 hours.Regtech can support process automation,especially to review voice communications.Rather than listen to recordings manually,banks can monitor 100%of communication automatically,with alerts to suspicious content or activity.Major investment fi rms are using VoxSmart to e

280、nhance data analysis in business intelligence tools,by extracting data points such as prices,counterparties or buy/sell instructions from audio conversations.How the challengers are becoming the challengedhallenger banks surged into the mainstream in the UK during the late 2010s by offering more inn

281、ova-tive services and,often,better savings rates than the high-street giants were prepared to give.But they have had a tougher time since 2020,first as the Covid recession constricted their revenue streams and now as the Bank of England continues to increase its base rate to control inflation,puttin

282、g a brake on the economy in the process.The next 18 months could be particularly bumpy for them.How they fare will depend on how well capitalised they are,the quality of their offerings and their exposure to weak-ening customer affordability as the cost-of-living crisis wears on.Several challengers

283、have yet to post a profit and still rely on venture capital backers whose faith in the sector is waning.Yet they continue to enjoy explosive growth.More than a quarter of adults in the UK about 14 million people hold an account with a digital-first neobank such as Atom,Monzo,OakNorth,Revolut or Star

284、ling.In theory,a period of rising interest rates ought to benefit challenger banks,because yields on their mortgages and other loans should,after more than a decade of ultra-loose monetary policy from the Bank,be increasing at last.It has put up its base rate five times since December 2021 in a bid

285、to curb inflation,which hit a 40-year-high of 9.4%in the year to June 2022.Some econo-mists believe that the base rate could rise from 1.25%to 3%next year.Despite this favourable trend,“not all lend-ers will benefit equally,given their different funding profiles”,according to Fitch.In a re-search no

286、te published in June,the ratings agency observed:“Larger high-street banks tend to benefit the most from rising interest rates,given their large market share in cur-rent account deposits Challenger banks will find it more difficult to widen their mar-gins.They rely more on savings deposits,for which

287、 savers will demand higher interest.”Regulators have told banks of every stripe to put more money aside to prepare for pot-ential shocks,which will further squeeze margins.More worryingly for neobanks,experts warn the mortgage market could slow down and loan defaults rise as more consumers feel the

288、pinch from rising prices.Simon Youel is head of policy and advocacy at Positive Money,a not-for-profit body cam-paigning to reform the banking system.He says that,while a period of higher interest rates“might be good for banks profitability,it also poses dangers.It is likely that more than a decade

289、of low interest rates encour-aged them to engage in all manner of risky lending in search of yield.We dont know The neobank sector has enjoyed explosive growth in recent years,but the return of high inflation to the UK represents a significant barrier to its progresshow much higher interest rates ca

290、n go before bubbles start bursting.There are worrying signs already coming from housing markets in countries such as Canada,for instance.”But the challengers seem confident that they can cope with such risks.Take Monzo,for instance.In its annual report in July,the bank declared that it had shown“ext

291、raordi-nary resilience”during the Covid crisis and was continuing to“grow at pace”.In the year from March 2021 to February 2022,Monzo gained 1 million customers and its deposits grew by 42%to 4.4bn,enabling it to pull in a record revenue of 150m.But it also posted a loss of 119m,following similar re

292、sults in the preceding two years.T S Anil,the banks CEO,wrote in the report:“While rising interest rates tend to benefit our business model we need to remain watchful for the impact of cost-of-living increases on our customers.Were yetto see a direct impact on our customers deposit balances,their sp

293、ending behaviour or ability to repay us.”Another risk facing the challengers is that investors,concerned about the faltering economy,are losing confidence in fintech generally.For instance,Klarna,the Swedish giant of buy-now-pay-later finance,saw its valuation plunge from$46bn(38bn)to below$7bn in J

294、uly.And British mobile pay-ments firm SumUp was valued at 8bn(6.7bn)at its June fundraising round a 60%discount on the price it had been aim-ing for at the start of the year.The signs are that numerous fintech firms will struggle over the next 18 months and some may even fail.Starling believes that

295、smaller“non-bank”operators could find lifehard,but stresses that it and its fellow licensed players are in a far stron ger posi-tion.The bank,which has about 2.1million customers,reports that it is“very well capi-talised”and not looking to raise more funds.Daniel Thomas We dont know how much higher

296、interest rates can go before bubbles start burstingN E O B A N K SCWHAT ASPECTS OF THE NEOBANKS DO PEOPLE WORRY ABOUT?Percentage of global consumers who say that the following are among their concerns about digital financial servicesI fear that my identity could be stolenI cant access my money witho

297、ut an internet connectionI cant easily speak to a person if theres a problemThere isnt enough protection against fraudThe sector isnt regulated strongly enoughNeobanks arent as reliable as traditional financial service providersI dont really understand themI have no particular concernsTheir exposure

298、 to hackers is too high43%43%42%40%37%27%23%22%10%YouGov,2022Qi Yang via GettyImagesR A C O N T E U R.N E T09ayment service providers can play a pivotal role in support-ing societys progress towards a low-carbon economy,yet several are struggling to attain their own net-zero targets.Some strategies

299、have been working well,but much more needs to be done even by the largest and best-resourced players in the sector.Payment providers ought to be well positioned to cut greenhouse gas emis-sions in their operations,supply chains and customer networks thanks to their ability to track spending and enga

300、ge with buyers at the checkout.They can use their data insights and influence to raise customers awareness of their carbon footprints,inform them of their options and persuade them to choose the most sustainable ones.Thats the view of Doug Sabo,chief sustainability officer at Visa,whose net-work“con

301、nects billions of customers”.Sabo believes that his company has a“great opportunity to use its assets to inspire climate action through enabling sustainable behaviour.This is also a chance for us and the payments indus-try to connect climate action to a busi-ness case,aligning with consumers demands

302、 and mitigating risks.We could achieve this by,for example,enabling seamless payments for the charging of electric vehicles.”Here are five tips from pioneering payment providers on how the entire industry can hasten its progress to-wards net zero.One of the biggest contributors to pay-ment companies

303、 carbon footprints is the electricity that they consume in their operations.To reduce its CO2 emissions,North American Bancard(NAB),parent of PayAnywhere,has consolidated its systems and operations from six sep-arate data centres into two,both of which use 100%renewable electricity.It has also equip

304、ped its call centres with energy-efficient Chromebook devices.“We have learnt that competitively priced,environmentally friendly pro-viders are out there,”says NABs chief information officer,Andy Bolin.“You just need to choose the right ones from the start.Its easier to build a more sustainable ecos

305、ystem now than to reverse-engineer it later.”Invest directly in removing carbon Buy-now-pay-later giant Klarna has introduced an internal tax on all its emissions,including in its supply chain.This entails setting aside money to spend on decarbonisation schemes.Last year the fund totalled$1.7m(1.4m)

306、.Initiatives have included four projects designed to remove 11,000 tonnes of CO2 from the atmosphere.Klarna believes that most carbon-off-setting activities arent as effective at combating climate change as those that extract CO2 already in the atmosphere,which is why it is focusing most of its atte

307、ntion on permanent carbon removal.For its part,Ripple has committed$100m to invest in carbon-removal innovations,building carbon credits and enabling users to reduce their carbon footprints through a digitised credit token system.Commit to science-based targets PayPal is targeting net-zero greenhous

308、e gas emissions,as defined by the Science Based Targets Initiative(SBTI),by 2040.It has already achieved its goal of procuring 100%renewable energy for its data centres.The company also has SBTI-based targets for reducing greenhouse gas emissions throughout its supply chain.It plans to achieve them

309、partly by per-suading vendors to set their own targets and work towards these.Visa has already achieved carbon neu-trality in its own operations,according Bring customers and networks on board Perhaps the biggest opportunity for payments providers to cut CO2 emis-sions lies in engaging with their bi

310、llions of customers and their huge supplier networks.A 2021 business briefing by the University of Cambridge recom-mends that providers work collabora-tively to shape new services that will counter climate change.The document,Payments for Net Zero,also highlights providers ability to use data-driven

311、 insights to support this by,for instance,producing more targeted products.Sendi Young,MD of payments settle-ment system Ripple in Europe,says:“Organisations should prioritise learn-ing from others and take advantage of partnerships.We must work as a collec-tive to make our industry sustainable.”Tim

312、 CooperFive ways topower anindustry towards netzeroA few key players are in the vanguard of the payments sectors decarbonisation charge.The insights they have gained so far are too important for them not to shareUse tech thats sustainable by design Payment providers using digital assets and blockcha

313、ins can choose the most sustainable partners from the start.Young acknowledges that the crypto sector has been put under scrutiny from the environmental lobby justifiably so,because the process of verifying transac-tions consumes huge amounts of energy.But she adds that providers have been working o

314、n more sustainable methods.“We see great potential for crypto to forge new paths to zero carbon,”she says.“For example,the XRP Ledger blockchain is achieving carbon neutral-ity byconfirming transactions through a low-energy consensus model.”to its reporting under the Carbon Disclosure Project(CDP)fr

315、amework.Moving all premises on to 100%renewa-ble energy has been key to its success.Like PayPal,Visa is targeting net-zero greenhouse gas emissions in its supply chain by 2040.It plans to do this by participating in the CDP Supply Chain programme,which encourages sup-pliers to measure their emission

316、s,set reduction targets and report on their progress towards these.Visa also uses its supplier code of conduct to state its expectations of them in this respect.To this end,Ripple has joined the Crypto Climate Accord,a group of crypto asset providers with the shared goal of decarbonising the industr

317、y.PayPal,meanwhile,is aiming to har-ness the power of its 400 million cus-tomers to advance science-based action and align its offerings with their grow-ing interest in sustainability.For exam-ple,its network of so-called return bars locations where shoppers can hand back unwanted goods enables prod

318、uct returns to impose a smaller carbon foot-print than they would make using any mailing system.A spokesman for PayPal says:“Weve learnt that enabling climate solutions is not just about individual businesses;its also about markets and ecosystems.Innovation and entrepreneurship are also essential.We

319、ve invested in startup companies that are testing ideas that can unlock new climate solutions and address scalability issues.”Sabo reports that Visas decarbonisa-tion strategy has“evolved outside our operations.For payment companies,the transformative opportunity is to enable others to transition to

320、 a low-carbon economy by inspiring and empowering the consumers and busi-nesses that use our services to make more sustainable choices.”Visa has done this directly with bank clients and through a partnership with Ecolytiq,which enables them to obtain estimates of the carbon footprint imposed by thei

321、r spending.Clients also receive tailored guidance on how they could make more sustainable choices.S T R AT E GYPRationalise and consolidate systems We need to work asa collective to make the industry fully sustainable12345SolStock via iStocktaranchic via iStocklechatnoir via iStockquerbeet via iStoc

322、kxavierarnau via iStockTo what extent has the pandemic changed the regulatorylandscape in financial services?The financial services market-place believes that the era of big regulation is over.No one in it expects to see another Mifid 2,Dodd-Frank or major incarnation of the Basel capital adequacy r

323、ules,which have dominated the thinking of big financial institu-tions with respect to compliance over the past decade.The whole industry has been in a heightened state of regulatory over-sight since the global credit crisis of 2007.That sparked a slew of new rules designed to prevent further failure

324、s of strategically important institutions such as Lehman Brothers,whose dem-ise had a huge knock-on effect across the world.Despite the doom and gloom of the cost-of-living crisis,the war in Ukraine and the continuing effects of the pan-demic,banking and finance executives are at least looking forwa

325、rd to working in an operational environment where their daily activities and investments in technology and data arent domin-ated by their regulatory obligations.But,while big reg may be behind us,there is still a lot of regulatory work to be done.The industry is bracing itself for a refit of the rul

326、es governing regulatory and trade/transaction reporting,for example.Regulators across the board from the European Securities and Markets Authority to the Commodity Futures Trading Commission in the US are revisiting their requirements for firms that are obliged to report their trades to market for g

327、reater transpar-ency and investor protection.For several financial institutions some of which scrambled to put report-ing solutions in place the first time around this is an opportunity to do the job properly.AQWhat are the most significant and urgent challenges facing the industry?There is a growin

328、g emphasis on tackling financial crime.During the Covid lockdowns and the global shift to working from home,financial crime mushroomed.Online fraud,bounce-back loan fraud,market ma-nipulation,money-laundering and the funding of terrorist activities have all been on the rise.New sanctions have been p

329、ut in place that prohibit regu-lated entities from dealing with clients and counterparties in Russia or with Chinese military companies.For financial institutions,all of this translates into a greater emphasis on understanding whom they are doing business with,whether its trading with a counterparty

330、,raising funds for a client or investing in a new business.The know your customer regime has emerged as a serious challenge for institutions,which are required to identify the beneficial owners of the entities they engage with.And then theres ESG investing.With the EU leading the way,asset owners an

331、d the firms that manage their invest-ments are being forced to understand the ownership and supply chains of thecompanies they deal with.So far,no single standard approach has been agreed upon,with myriad emerging rules and regulations threatening to trip market participants up with their nuances of

332、 approach.AQWhat can companies do to ensure that they stay ahead ofthe regulation curve?While all organisations need to comply with regulations,differ-entiation can come from the quality ofthe underlying data that feeds their regulatory reporting.But data can feed in from numerous third-party servic

333、e providers as well as from vari-ous internal platforms and,indeed,spreadsheets,often with different data formats,del ivery timeframes and dis-tribution methods.This is even more of a challenge when it comes to ESG investing,where much of the required information is not available and synthetic data of ques-tionable quality is created to try to fill that gap.To deal with this tsunami of data,many f