We were delighted to be joined by the Marc Meyer, Senior Director of Product at Crowdz on the second instalment of our brand new webinar series, Wired-In. In a thought-provoking session, Marc shared his insights on the future of fintech and the most pressing issues facing the sector in 2023 and beyond.
Below, you’ll find a full transcript of the session. If you’d rather watch the session on-demand, simply click here to catch up on the recording from the webinar.
Reece Baggott, Digital Marketing Executive at NorthRow: Hi everyone, thanks for joining today. Welcome to Wired-In. I should say good afternoon, good morning, and good evening – I know we’ve got a few different time zones with us today which is great to see.
I’m Reece, the Digital Marketing Executive here at NorthRow. If you joined last time, you may have seen Chris Bourne, our Head of Marketing but as we continue to go through the series, we’re going to continue to switch things up as well.
I will apologise in advance for my very strong Birmingham accent! You won’t hear from me too much today, I’ll be shutting up soon, don’t worry!
This is the second instalment in our brand new series which we’re very excited about. If you’d like to see any guests or topics in particular covered, please do let me know. I do a lot of work on the back-end of the webinars so send a message on to email@example.com and I’ll be able to sort that out for you!
So, let’s get into things!
On the call with me today, you’ll see Marc Meyer. Marc is a Senior Director of Product over at Crowdz. Crowdz are one of our customers here at NorthRow, we’re doing a lot of great work and collaboration with them, and this is only the start of a few things we’re working on together.
Marc has been working in strategy, innovation and product development for several years now, specialising in the payment industry. He brings experience from working at Barclaycard and ACI.
With the new year right around the corner, Marc is going to be sharing his insights on the most pressing issues facing fintech in 2023 and beyond.
So before we jump into things, there are just a few slides, a few bits of housekeeping to address. This is just a bit of an introduction to who NorthRow are. As mentioned, this is only the second in the Wired-In series! We provide software that empowers compliance professionals to make faster decisions and onboard customers in seconds, not days while also complying with ever-changing legislation. If you are interested, please do check out our website.
But that’s enough from me. Are you ready, Marc?
Marc Meyer, Senior Director of Product at Crowdz: I am! Good morning, good afternoon everyone.Thanks very much for the introduction. As mentioned, I work in financial services, with fintechs, with Barclaycard where I looked at the strategy and also ran the innovation hub for Barclaycard in London, ACI and now Crowdz.
Crowdz are a marketplace for invoice financing. Basically, we bring together companies in need of capital by allowing them to sell invoices or receivables on a marketplace with investors on the other side.
As mentioned, we work closely with NorthRow for everything related to compliance. I was asked to talk about innovation, fintechs, what’s happening in the market – and I used to do that a lot at Barclaycard. One constant is that I’m always wrong – but I’m going to try, because it’s very difficult to forecast what will happen. But I can tell you what the pressing topics that banks and fintechs are looking at.
Back then, we were talking about blockchain, blockchain taking over the world. We talk about AI which is now on the path of becoming more mainstream. But also, fintechs are taking over banks, which hasn’t happened yet.
So, as usual, let’s take it with a pinch of salt and just take a look at the trends of the industry.
First thing, as mentioned, when I look at 2017 – nothing has really changed much in terms of the key topics or key things that banks are looking at regarding digital. Financial firms are looking at digital transformation. They have been spending billions changing their tech stack with, I would say, marginal benefits.
It keeps the business compliant, and there have been many projects – just to name one, PSD2 – to keep them compliant, but it has been very difficult for them to create new products and new services.
On the other hand, fintechs came with new tech stacks, with the benefits of having a clean sheet to create the tech that works better for customers. In terms of ‘the tsunami of fintechs’, this has not really happened. None of the fintechs, I would say, have really replaced the incumbents.
And there are several reasons for that.
I think the first one is that the barriers to entry are very high in this industry. Talking about compliance, but also the customers. When you are working with a bank or any other financial organisation, you don’t necessarily change so the cost of switching is quite high. Also, to create meaningful financial products, you need data, and that is what the large financial institution has.
So what would happen, and what has happened over the last year is a symbiotic core relationship between large financial organisations and fintechs. Just to name a few, 10x, the banking service based in London building the retail bank in the UK for JP Morgan Chase. Mastercard working with Finicity. Citibank is working with us, for example.
What’s happening is the large banks are leveraging the technology while the fintechs are leveraging the channel to market of these organisations. There is partnership, but also many acquisitions. I just wanted to point out Visa and Mastercard are acquiring many fintechs on the market just to make sure they acquire the technology and knowledge.
So we’re going to see more and more of this type of relationship in the future between these two entities.
The second thing is, if they want to keep up in terms of digital transformation, I think one of the issues large financial firms are facing is the fact that they still think as old-fashioned financial services firms. There is a massive change in culture. Just to give you an example, the KPIs are still very short-term: return on tangible equities, next quarter revenue. And it doesn’t really work. When you’re trying to change your organisation, you need to change your KPIs to be longer-term, looking at the type of tech you’re trying to build. One that is secure, compliant but also scalable which is not always the case.
Working to foster innovation in your organisation, but to also foster relationships and you can see many organisations have incubators, like Barclays for example, trying to work with fintechs. Also, the culture. Working in large organisations, we used to think we do everything in-house, we control everything end-to-end. This needs to change and is changing, but we’re still in this mindset that “we are big banks and we can control everything.”
Finally, appoint more technical skills in management, on the board or in the senior leadership team. People that understand the technicality and what we are trying to implement. It’s changing, but again, to give you an example, whilst I was working in the innovation hub, sometimes it took three to six months just to onboard a partner! And that doesn’t work if you want to move fast in this environment.
The last thing in terms of culture, is also to learn to fail. I know it’s complicated when you manage money, but you need to learn to fail in a contained environment by making sure that you can fail and learn and improve very quickly which has not really been the case in the past.
And to the last two points which I would like to emphasise is one of the things that we’ve been talking about for the last 10 years: the power of data.
There is something there, but there is still work to do. Large financial institutions still have messy data, no clear data pulls, and they need to clean this up to make sure that they create datasets for any machine learning they want to use in the future. And I will come back to machine learning later on in terms of what is happening. But there is a clear tangible benefit of leveraging data combined with AI and machine learning. But also leveraging what’s happening with open banking, for example. Open banking is now deployed, but I don’t think we’re leveraging what’s happening enough.
And finally, organisations need to open up what they have a bit more to create new products for the markets and try to commercialise their data and not just keep it for themselves.
A good example is to compare what is happening in Europe and the US. In the US, you don’t have the power of innovation that you could have in Europe, because the banks are not opening up to their market, they’re not forced to do it. That is a key point I want to make regarding financial institutions in terms of their digital transformation.
The technology shaping the future of compliance, such as RegTech, is not my area of specialisation but what I can say is that since everything is becoming more and more digital, obviously you have increasing risk of breaches: data breaches, cyberattacks, money laundering and so forth.
So, RegTech is usually not the most displayed ‘poster child’ of financial industries. Having said that, it is clearly important because they protect financial institutions, they protect customers, but also they are key in terms of the overall customer experience.
I will start with ‘global eKYC’. I’m sure all of you now experience almost instant onboarding, taking a picture or video of yourself, leveraging digital onboarding. It’s great, and creates a much better customer experience, I think we all acknowledge that. The only problem is, it’s still not there yet, whether it’s some of the suppliers I am using for example, not all of them are using electronic KYC. And it’s not globally adopted in all countries.
There is still work to do but it’s definitely the way forwards in terms of compliance and KYC.
The second thing is closer to what we do at Crowdz because we use a lot of credit scoring from different credit bureaus. And, to be honest, many of them are still in an old-fashioned way of operating. Some of them are self-reporting tools, some of the data is 18 months old, so it’s difficult, particularly for a company like ours that is lending money to organisations, to have an accurate view of what’s going on.
We see more and more companies, including ours, trying to leverage different data sources: IP address, social media, or any other types of data to make better decisions on the risk we take. Combine that with machine learning or AI will improve the way we assess and understand risk.
The next two points are something I would like to see in the industry. The first one is data sharing. I’m sure everyone here, when you’re onboarding in services, you do KYC with your bank, then you want to get a loan for a car, you get another onboarding process. You want a card with someone else, it’s another onboarding process. It’s starting to become a very clunky and annoying experience. Even within the same organisation, sometimes you have to onboard several times depending on the products you would like to take.
What I would like to see is more data sharing, and more standardisation into this industry. Within the rules of GDPR and data protection of course, allowing data to be shared and standardised to simplify, as a customer, as a business, the onboarding process and make the customer experience better.
Which brings me to the next piece, which is one of the buzzwords and something that has been up in the air for a long time now, five or six years, which is self sovereign identity.
It’s basically giving power back to the individual. The idea is leveraging cryptographies and blockchain, allowing us to own our identity and share this with whoever is requesting it. The power of leveraging the blockchain makes the information you share immutable, and also trusted. It’s been complicated, because to create this type of self sovereign identity, you need a network of companies all working together which turned out to be quite challenging. But that is something that we might see in the future.
And finally, we talked about AI and machine learning which are part of compliance, to make better decisions. We should not forget that, although some are scared about replacing the human workforce with robots or AI, it is not necessarily the case. You still need to have a very skilled human workforce to work alongside the machines. Machines can make decisions, analyse and work quicker than us, but once it becomes more complex, you still need the human touch or human brain to identify issues that you can face in compliance.
On the Crowdz side here, this is what we’re trying to do with the blockchain. I’m not going to go into details on the blockchain, not trying to say it is easy, it’s not! It’s a fantastic technology, it requires a lot of time to understand what it is.
To give you the lay of the land about how the trade finance industry works, and how invoice financing works. For many organisations that are controlled by banks, they still work with spreadsheets, phone calls, fax, which creates a lot of overheads in terms of the cost, as well as difficulties in moving assets from one customer to another. It is a very old-fashioned, clunky industry.
On the other hand, what blockchain brings, makes it very simple. Blockchain is just a ledger, an organised ledger, with all the transactions placed one after the other. It is immutable, and that is the main value of it. It is very organised, immutable, but also allows us to do transactions, peer-to-peer, potentially getting rid of the ‘middle man’ and reducing cost.
What we’re trying to achieve here with blockchain is when we have an invoice or receivable, we create a copy of this invoice onto the blockchain as what we call a non-fungible token which is just an image of what it is. The value of this is that we can transfer this token with anyone who wants to buy it and it keeps a record of who owns what, and when. This makes it easy for us to manage what is going on, makes it easier to reconcile because we know it is transparent, and makes it easier for audits eventually.
This is why we are trying to leverage the power of blockchain, to create more complex transactions because, as mentioned, the ledger is very structured so we can create more complex transactions. But this would require a full presentation to really go into the details on that! But we believe in the potential of blockchain at Crowdz.
Another thing is what we have been developing at Crowdz is a smart decisioning tool or smart credit score. The SuRF score is a number that gives us the risk associated with an invoice. We leverage the network of credit bureaus to understand the risk we take, but don’t do only that, we download information from different sources, like accounting systems, bank accounts, or any other sources. We compile that into our decision scoring tool which helps us to make better decisions on how ready we are to take risks, how much money we’re ready to give to the customer whilst we fund them. This score decreases whenever we see more and more transactions. If someone repays on time, this will improve their SuRF score to make sure that this particular individual can get more funding. Whereas, if you have a lower score, you don’t repay on time, the score will decrease.
The idea, in the future, is to be able to leverage what we see and what we aggregate to re-sell the SuRF to other organisations, allowing them to make better financial decisions.
Finally, if we look to 2023 and the things I believe will be top of mind for every financial organisation out there. I come from a B2C world, and it has seen tremendous innovation over the last 10 years. You’ve seen companies like Klarna and Stripe emerge as true innovators, making the customer experience better but also reducing cost of operations.
You see innovation in the B2B world, but not to the level of B2C. I think we will see, in terms of B2B payments, innovations such as the wide adoption of a real-time payments network. I think everybody sees the value, every government across the world is trying to implement a real-time payments network, combined with innovations such as deploying QR codes for payments. You see new cross border payments solutions that are cost-effective. TransferWise is one that I am thinking of, even companies like GoCardless that does debit but does it very well. So really creating a better experience to collect money, send payments, and also to create more transparency across the different payments networks across the world. I think we will see significant innovation in this area in the future.
The second one is alternative financing. As mentioned, alternative financing remains the banks’ battlegrounds. And post-COVID this hasn’t changed, 79% said they’ve not reduced the amount of capital dedicated to financing. Having said that, there is still a gap, particularly with the small and medium enterprises that we serve at Crowdz. You see more and more alternative financing like us, but many of our competitors are now bringing capital to small and medium organisations at a cost that is more appealing than a payday loan for example.
This is good for the economy, good for GDP because there is no extortion to SMEs via these alternative ways of financing. I should mention crowdfunding as well, which is also a big one.
The next one is an interesting one: buy now, pay later (BNPL). You’ve probably come across a lot of news and buzz around BNPL, and it’s really interesting because, especially with the deep recession we are facing, credit cards and BNPL are good alternatives to manage your cash flow better. But the BNPL will probably face heavy regulation next year. It’s, in my opinion, nothing different to a credit card, and as such, they are operating in an environment where they probably have too much freedom. Doesn’t mean it is a bad idea, but it means that we need to better protect the end customer, and the regulators are probably going to be all over them next year.
Blockchain adoption: it has been a very bumpy year for blockchain. Lately with FTX, BlockFi is filing for bankruptcy. You might say this is the end of crypto and blockchain, I don’t think this is the case. Usually, when you have the innovation hype, you have the dip and then the wider adoption of real use cases. And that is what will happen. Blockchain will emerge with use cases where it really creates value. We believe in that, we believe that there is a place in the financing world. The technology itself makes so much sense that there will be a place for it, for real and tangible cases.
Not to mention that most of the developed countries’ central banks are working on what we call CBDC: Central Bank Decentralised Currencies which is basically issuing their own coins as opposed to printing money as we usually do. It’s issuing a digital coin, leveraging the blockchain technology which has other implications but they are all looking at it at the moment.
Onto the next point. Open banking has been launched for a few years now, and it hasn’t been taken up as it should have but with the ability to move money account-to-account with that, and getting data information, I think we will see more applications of open banking and payments initiation because it is an alternative to cards which are quite expensive for retailers. The other thing is embedded finance. You see more and more companies that provide services to businesses or consumers, embedding financial services within their environments so as they become the first point of contact when they sell something, they also offer additional financial services.
Lastly, as mentioned, real-time payments are going to be leveraged in every country where it is being launched. I’ll give you the example of India now, it is the country with the largest number of transactions in the world in terms of ACH or bank account transactions because they are being very smart about it and leveraged real-time payments. So it’s going to become the norm for us as customers, it is what we expect in terms of payments to be instant.
So I think that is pretty much it from me. As mentioned, if you have any questions, you can ask me! I will say, I do not have a crystal ball, probably half of what I’ve said won’t happen but that is the feeling we have in the market at the moment.
Reece B: Marc, just wanted to say that was amazing. Thanks for that insight, it was really good. We have had a few questions come in, if you don’t mind moving the slide forward. I’ve got a question of my own Marc, if I can start with that?
I’m quite big myself on NFTs and, I guess this is quite a broad question, but Louis Vuitton and Starbucks have started integrating NFTs into their customer loyalty programmes. Now you mentioned they could die off, or they could resurge and that happens with a lot of things. But do you think banks and NFTs have a future together in terms of loyalty programmes and incentives?
Marc M: I see value in the NFT for what we do. We have a receivable, and they’re non-fungible so we can share them across different partners, customers and so on. And the smart contract that is embedded gives the entire lifecycle of these. For digital loyalty programmes, maybe. Points are actually fungible so it’s interesting. Maybe if you can move and transfer the NFT from one loyalty programme to another, potentially. But I struggle to see the value case here, except if you have a nice picture alongside the NFT that might be digital art. But in terms of Starbucks doing it, I’m not sure. I’m also very picky with coffee, I don’t go to Starbucks!
Reece B: I can see where you’re coming from, especially in the payments industry. But thank you for that. We’ve had a great question come in. In terms of the KPIs that were mentioned, what specific KPIs need to be extended with a longer horizon? When this person extends KPIs to make them more attainable, there can be a reduction in drive and performance. They’ve asked if you can explain that a bit further?
Marc M: I’ll take my example of when I worked in the bank. Basically, all of our KPIs were made exactly the same: return on tangible equity, which I appreciate shouldn’t exist in isolation, return on equity, the deals we signed. But, moving forward, look at more project management types of KPIs, when we deliver, can we scale the platform, how scalable the platform is, and so on. This is the kind of thing we need to look at, I don’t have any specifics but I would say more tech lead KPIs in this regard, as opposed to pure financial metrics that usually drive a short-term view. At the end of the day, bonuses are driven by short-term views. Even though some of the incentive systems have changed due to the crisis in 2008, it’s still “how big will my bonus be based on what I’ve sold?”
If I give you an example of a bank that has a mobile banking app, the app is where they interact with the customer. The way some of these apps are built are not scalable at all so create a massive bottleneck of innovation and they launch two or three products a year as opposed to being able to launch many more if they had a modular, thoughtful architecture. That’s why you need to have more technical people holding senior positions in large institutions.
Reece B: Awesome, thanks for that. Hope that’s helped. We’ve had another come in as well: Do you think the investment will slow down for startup FinTechs in 2023?
Marc M: Yes, that is clear. We will have more difficulties raising money. Everybody doesn’t really know how deep the recession will be. What I see with VCs is usually post-recession, they’re not investing cash, they need to invest cash and then they flood the market with cash.
So, let’s hope it’s not too long, but the answer is yes, totally.
Reece B: Awesome. I think we will move on from the questions.
This is our next Wired-In webinar, happening in January. We did mention this might be a monthly series but with the busy Christmas period and a lot of annual leave taking place, we thought it best to start again after December.
So we’ve got Robert Brooker who is the Head of Fraud and Forensics at PKF GM. He is also the Chairman at the London Fraud Forum, which I had the pleasure of going down to to meet him. He’s going to be looking at fraud fight or flight and what we should be doing to combat fraud together. So it’s going to be a great session and we hope to see you there.
This is a new product that we launched at NorthRow, WorkStation. In terms of helping compliance teams with their digital transformation, with three core components: onboarding, monitoring and remediation. You’ll see many great features, such as KYC/B screening, ongoing monitoring, case management, risk scoring and the list goes on.
We do have a section on our website about it, so check that out or if you would like to request a demo, head over to our website and one of our specialists will be in touch.
I’d just like to say a massive thank you to everyone that attended, and Marc, it was a great presentation with lots of insight so we thank you for that.
I guess Merry Christmas to everyone as well, we’ll see you in the New Year! Thank you all for joining, stay safe.