March 2015 Issue 711 www.retailbankerinternational.com GAMIFICATION

A WINNING STRATEGY OR A RISKY GAMBLE?

● COMMENT: BASEL III ● FEATURE: ONLINE SECURITY ● INTERVIEW: NICK LEESON ● STRATEGY: ACCESSIBILITY

RBI 711 March.indd 1 27/03/2015 16:32:25 Delivering innovative mobile & online financial services solutions to organisations that need to provide secure access

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IE-Advert-Dec-2014.indd 1 16/12/2014 12:25:21 Retail Banker International COMMENT: EDITOR’S LETTER

CONTENTS

2 COMMENT: NFC Contactless is firmly in the mainstream now, so much so that it is even entering The 2015 European Digital British soap operas. Marshall Haldane examines the tipping point Financial Services Power 50 3 COMMENT: BASEL III With Basel III fully in play, banks need to adapt their habits to become fully compliant. Damian Young looks at exactly what needs to change and how it ow I need your help. Criteria for inclusion on The European can be done The Digital Banking Club is Digital Financial Services Power 50: 4 FEATURE: ONLINE SECURITY delighted to announce the launch of • The most influential thought leaders Security is a service, not a product. The the 2015 European Digital Finan- within European financial services quicker banks realise this, the quicker N cial Services Power 50, the only independ- providers, and they can keep their customers happy ent ranking of the most influential people in • Regulators, consultants, analysts, and, more importantly, actually keep them. Michael Nuciforo argues digital - and we’re talking mobile and online innovators and influencers. - financial services in Europe. I am not seeking nominations for individ- 6 INTERVEIW: NICK LEESON The 2015 listing of the important people uals working for payments providers (unless Fergus Ewbank speaks to the former ‘Beast of Barings Bank’ about his time at in European digital financial services today their work is part of a broader digital finan- the top, his quick fall to the bottom and will build on the success of last year’s inau- cial services offering), digital and/or mobile what financial firms need to do to avoid gural Digital Banking Club European Digi- platform providers and back office technol- another Barings disaster tal Financial Services Power 50. ogy suppliers. 7 ANALYSIS: GSMA I want to hear your views on which indi- Nor nominations for journalists or PRs, Mobile financial services are now viduals deserve to be recognised as the most although nominations by these groups on available in 60% of developing countries, but there is still work to be powerful influencers and innovators. behalf of others are welcome. done. Patrick Brusnahan dives into the Voting is initially open to members of The GSMA’s recent report on this topic Digital Banking Club and to subscribers of The European Digital Financial Services 8 REPORT: GEMALTO Retail Banker International, Electronic Pay- Rising Stars: Patrick Brusnahan investigates ments International and Cards Internation- Everyone loves to spot the stars of the future Gemalto’s look into the mobile banking al. This is your chance to have a say about and The European Digital Financial Servic- behaviour of the younger generation. As mobile is firmly in the popular mindset, who should make it onto the final list! es Power 50 will also list 5 Rising Stars aged what do banks need to do to take Public nominations will close on 23 April 35 years or under who are changing the way advantage of this opportunity? and will be followed by a final vote by an their financial services firms do business. 10 STRATEGY: ACCESSIBILITY external judging panel including Roy Vella, Finally, the Power 50 will honour The As payments, and banking in general, Alessandro Hatami, Jerry Mulle (Intelligent Digital Banking Club Power 50 Personality gets ever easier for the general public, Environments), Chris Skinner and Kieran of the Year to recognise outstanding service there are some sections of society being left out. Patrick Brusnahan talks to Hines (Ovum). to digital financial services. the head of the RNIB to see what can European digital financial services mov- Power lists often start more arguments be done to aid the visually impaired in Britain ers and shakers will be fêted in the final list than they settle so let the debate begin. to be revealed on www.thedigitalbanking- Email me in confidence your nominations 11 DIGITAL BANKING CLUB: SECURITY club.com in June. to [email protected] Accessibility v.s. Security. Who should win in this battle or does this battle even need to exist? Patrick Brusnahan Douglas Blakey writes about the Digital Banking Club’s [email protected] latest live debate

14 FEATURE: GAMIFICATION John Schaffer speaks to industry experts on how banking is starting to become more fun for the consumer, or so they would hope

18 PROFILE: APS Anna Milne speaks to Rich Wagner, the man who got the first non-bank into the Post Office’s branch network about the state of fintech in London

20 COMMENT: NUISANCE CALLS Gabriel Hopkins from FICO considers the annoying act of cold calling, how the UK government is tackling this issue and how the financial sector will benefit

www.retailbankerinternational.com January 2015 y 1

RBI 711 March.indd 1 27/03/2015 16:32:28 COMMENT: NFC Retail Banker International

Contactless- the Age of Convenience Marshall Haldane, director of global card manufacturer, allpay Card Services, talks about contactless and how the latest UK soap opera plug by Visa Europe further demonstrates how the technology is becoming more readily accepted by consumers and retailers alike

Contactless payments have made their big increasingly use their cards over cash for Contactless Statistics screen debut since prime time British soap other small payments too. However, with operas Coronation Street and Emmerdale consumer confidence rocketing, the banks • 58 million contactless cards have both agreed deals with Visa Europe to use cannot afford to drag their heels. been issued that can be used to make the technology during the shows. According to the UK Cards Association, a contactless payment. These cards With contactless transactions hurtling more than 94 million contactless transac- are split between 35.3 million debit towards the mainstream – and even making tions were made in 2013 – treble the number cards and 21.2 million credit or charge an appearance in the UK’s prime time soap during 2012. cards. This is an increase of 3.8% on opera– this is another example of how the Additionally, more transactions took place masses are continuing to embrace the tech- in the first 10 months of last year than those the previous month and 52.2% over nology that’s set to rise again this year. registered over the previous six years put the year; “According to the UK Cards Association, more than 94 million • £380.8m ($567m) was spent in the contactless transactions were made in 2013 – treble the number UK in December using a contactless during 2012” card. This is an increase of 25.8% on the previous month and 330.8% over Initially the market was slow in its adop- together. While banks such as Barclays and the year. The value is split between tion, punctuated by initial security scares TSB have seized the moment, others have debit (£343.6m) and credit / charge and a chicken & egg scenario between banks been slower to embrace contactless, a posi- cards (£37.2m); and retailers, but it looks increasingly like tion they can ill afford to take. we will see 2015 become the year in which The technology is also accelerating the • 46.1 million contactless transactions contactless payments is widely embraced. decline of cash as the dominant force on were made in December 2014. This is Recent Data from WorldPay revealed the high street, particularly for lower value contactless transactions leapt by 150 per transactions – the average contactless trans- an increase of 15.6% on the previous cent over the last six months, as the tech - action being nearly £8. month and 255.1% over the year. The nology became adopted across London’s Figures from the British Retail Consorti- volume is split between debit (40.5 transport network and the word itself was um show that the availability of contactless million) and credit or charge cards adopted into the Oxford Dictionary. cards has contributed to the increased use (5.6 million); of debit cards to 50% of retail sales value So what has been the tipping point? in 2013, up by 11% over the last five years. • 215,380 bank-owned terminals are Did convenience conquer, did the banks take Over the same time period there has been a available in the UK where contactless a leap of faith, or did we all just get fed up of decline in the average debit card transaction cardholders can make a contactless counting change? value, and in use of cash by 14%. transaction. This is an increase of Certainly, the roll-out of the technology on allpay Card Services is fully approved 3.3% on the previous month and the tube and bus networks in the capital has to manufacture and personalise both 22.7% over the year; made a huge impact, not just practically, but MasterCard and Visa cards – including in the mind-set of consumers. More than 19 contactless and dual interface products – and million journeys using contactless payment both of the processing networks have lofty • On average, each contactless cards have been made on the tube since ambitions for contactless. transaction is worth £8.26. This is Transport for London introduced the pay- Visa Europe, for instance, predicts that split £8.48 on a debit card and £6.68 ment method in September 2014. Brits will make 500 million contactless on a credit or charge card, and Additionally, this is now widely-accept- payments in 2015, while MasterCard has ance at retailers from Waitrose to Lidl, food announced that all its shop terminals across • On average, each bank-owned and drink outlets from McDonalds to Star- Europe will accept contactless payments by terminal has processed 191 bucks – and the evolution of the smartphone the start of 2020. transactions and taken £1,768. as an enabler of card-like payments has ulti- And with the limit on payments increasing mately created a perfect storm of industries, to £30 this year and the further widespread Source: The UK Cards Association banks and consumers coming together to enablement of contactless payments via NFC (December 2014) drive the technology forward. built into phones and wearable technology, Research also consistently shows that the age of convenience has arrived. We have once people use contactless for travel, they lift off.<

2 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 2 27/03/2015 16:32:28 Retail Banker International COMMENT: BASEL III

The three key strategies to overcome Basel III

The implementation of Basel III creates a new set of unprecedented challenges for the financial industry. Customer types, relationship types, channel types and many more will need to be categorised. A possible solution to these challenges is accurate and versatile data. Damian Young explains why this is the case

asel III is having and will have a profound impact on bank and increasing the growth and focus of retail deposits. Banks must operations; from reporting requirements and balance-sheet approach pricing for all segments in a data-driven manner to fully management to customer pricing and lending capacity. factor in costs in FTP, or use customer pricing to maintain margin B The positive changes that Basel III will make to the control. Categorisation and calculation of LCR/NSFR in deposits finance world are more than welcome for banks and customers portfolios must be done in a dynamic fashion and lead to appro - alike, but the road to achieving change effectively will have its priate pricing strategies fitting with bank balance sheet and P&L challenges. strategies. In a nutshell, Basel III is designed to improve banks’ ability to absorb shocks, improve risk management and governance of Product Strategies balance sheets and to improve banks’ transparency. These new Product pricing strategies will enable banks to maintain mar - measures will change capital requirements for banks, introduce gins through reflecting the costs of LCR outflows and/or stable new liquidity and funding measures, and implement new leverage funding value. Developing and/or changing products may assist ratios. in establishing this differentiated pricing structure within port - The two new ratios, Liquidity Coverage Ratio (LCR) and the folios and many banks are approaching product strategies and Stable Funding Ratio (NSFR) that measure short-term and long- realignment in light of Basel III in stages on their overall customer term resilience respectively will be implemented gradually to avoid deposits book: a shock to the system in the guise of harming economic growth through reduced lending and funding issues. • Reduce LCR and increase stability for non-retail balances; Answering Basel III means that customer types, relationship types, channel types, etc., will need to be categorized resulting in • Move retail balances from higher outflow and lower stability a new set of challenges for deposit managers and treasury manag- with due reference to cost, and ers. To answer these challenges; having accurate but versatile data is essential. • Grow retail balances in overall portfolio mix

How prepared are we for Basel III? The result is more stable balances and reduced costs. In 2014, Nomis Solutions completed an audit of 40 senior retail Enhancing or changing the product mix in the non-retail seg - bankers from Europe and the Middle East where we found that ments first, followed by retail segments and a growth strategy only 8% felt that they were “highly prepared” for pricing differ- for retail customers, will lead to lower total outflows and higher entials as a result of Basel III. Highly prepared would mean that stability overall. these banks had fully embedded Basel III metrics in funds transfer or customer pricing, of the remaining 92%, 9% said they had lit- Data-driven market strategies tle or no preparations at all, 50% had some preparations, and the In our experience, gathering and using this data to drive specific remaining 41% said they were prepared but not fully embedded. strategies is largely underdeveloped. Most banks have a significant repository of customer, account, behavioural, and market data Three key strategies for deposits under Basel III that can help them determine appropriate methods of product cat- The impact of Basel III is highly likely to be acute on strategies for egorisation, pricing execution, and market opportunities. deposits. A greater focus will be placed on gathering retail-type Using data analytics to support the development of business deposits to provide a sustainable base on which to lend and as the strategies must be supported by deploying the right internal and markets begin to pick up, and lending returns to normal levels it external market strategy. Data-driven reporting, business intel - will be essential that banks are positioned to take advantage of ligence, and performance metrics are key components and drivers this. We feel that the following three strategies will help banks to of such strategies. It is our experience that many banks lack the have the capacity to lend and thrive in this environment. requisite portfolio view of their deposits and as a result do not have the key insights they need to drive strategies. Pricing strategies As new Basel measures become more critical in the business, Basel III means that deposits will now see a complex segmentation deposits portfolios must have the appropriate Basel III segments, that will determine their true value to the bank. Pricing such seg- calculations, and categorisations within their reporting. The ments will differ significantly with non-retail-type deposits being implementation of Basel III measures in the business needs to be less attractive for banks. embedded in the strategy of the business as well as the treasury Given that non-retail sources will attract higher outflow costs function. < and lower stability measures, the deposits book of a bank should be managed holistically, reducing the costs in non-retail segments Damian Young is the director of Banking EMEA at Nomis Solutions

www.retailbankerinternational.com March 2015 y 3

RBI 711 March.indd 3 27/03/2015 16:32:29 FEATURE: ONLINE SECURITY Retail Banker International

Security is a Service In a time of new online attacks, security should be treated as a service, not as a product. If you get it right, and promote it appropriately, security can be a key factor in your bank achieving above normal performance. Michael Nuciforo argues for this approach and explains the reasons behind his stance

he very foundations of banking are is to not make the customer work while start to follow. In its '2014 Threat Predic- based on the concept of money and reducing any risks. The security solution tions' report, McAfee forecasts that over security. If you were to look back needs to be integrated and consistent with the next 18 months attackers will improve at the history of banking, from the the form factor of the device and if that on their skill set. Attackers are likely to T means setting up a tailored approach – go bypass PCs and go straight after mobile very first coins, to loans and the advent of cash, the very purpose of banking was to for it. banking apps. be a secure store of value. Giving customers the flexibility to cus- So always keep one eye open through And even though customers expect their tomise their security controls to cater for effective identification and assessment of money to be secure, they don’t often get their own personal preferences is vital. the emerging security threat landscape, excited about it. Due to this a lot of banks Specific rules, limits and treatments based from both closed and open sources. Don’t invest heavily in new innovations while on the customer’s location, direction or assume that because you have strong meas- reducing expenditure in security. A change situation should all be available. Finally, ures in place today, that they will be strong in mind-set is required. simple, clear and accessible guidance in the future. With more and more threats emerging for customers to ensure safe and secure Most product, strategy and marketing every day, it is becoming clear that hav - banking whilst on the move is becoming teams have extensive roadmaps outlining ing a secure and robust security platform increasingly important. Customers want to what features they aim to launch over the is going to be a key enabler to achieving be told what best practice is. next few years. Have you ever seen some- competitive differentiation in the banking With new banking technology most thing similar for security? Rarely. Banks industry. banks have an excellent opportunity to must set a clear mobile security strategy In a recent US study, the primary reason maintain control of their environment. that links together with the channels prod- given for not using new forms of digital Banks can utilise the latest device, behav- uct backlog. Remember what your poten- and mobile banking was security. Four in ioural, location and transaction profil - tial customers are telling you. The number ten respondents had concerns that prevent- ing techniques to protect their ground. one reason they are not adopting your new ed them from using these services. Security Organisations such as Trusteer offer banks online services is because they maintain also closely relates to how quickly a bank advanced Malware and Jailbreak detection security fears. can bring new services to market. API’s which can be updated without subse- One of the number one reasons secu - One of the longest lead times on any quent client releases. rity is not a primary scope candidate is project is security approval. With security These can be coded into native app that fraud losses are generally tracked at assessments and penetration testing being builds using standard code libraries. Final- group level, not at an initiative level. This on the critical path, the more robust your ly banks can use firms like Melbourne IT is also linked to how security initiatives are security platform is, the less time you need for rapid identification, takedown and structured. They are generally managed to spend debating whether your feature is analysis of fake apps and websites target- as group initiatives and benefits are not going to create additional security loop - ing mobile products and services. tracked accurately. holes. As more and more people start to use By treating security as a service, you can The key to a successful security strategy mobile and online banking, fraudsters will start tracking its impact on hard benefits

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RBI 711 March.indd 4 27/03/2015 16:32:31 Retail Banker International FEATURE: ONLINE SECURITY

such as improved customer acquisition and face recognition or finger print scanning done by a third-party also adds a layer of most importantly a reduction in fraud. If has been touted for years. Australian protection, as a significant amount of bank the product manager for your mobile pro- bank, ANZ, recently announced that they fraud is performed internally. ject felt accountable for these benefit areas, then security would automatically get a higher priority. “Giving customers the flexibility to customise their security controls to cater for their own personal preferences is vital” Fraud guarantee Do you know that all major UK banks offer a fraud guarantee? They guarantee to refund are looking to deploy finger print based During the development lifecycle it is customers who suffer from legitimate acts of ATMs. In the UK we have seen excellent important to set standards with our devel- fraud via their online and mobile channels? traction in schools with WisePay who are opers and testers about the appropriate I firmly believe that banks need to start pro- deploying finger print scanning technology protocol. One step you can take is to pub- moting this service. They should develop that allows children to purchase goods in lish a set of guidelines and rules to assist an icon that is consistently presented across school canteens around the country. Why developers in building websites and appli- digital channels at all relevant opportunities aren’t banks doing this yet? Not sure. cations that are absent of the majority of – especially login. There has been a significant improvement security vulnerabilities. Banks also need to ensure that the way in biometric security over the last few During the testing phase, static and they design their mobile service should years, and of any option available, biom - dynamic automated code review tools give an immediate impression of strength etrics is likely to be the solution capable of can detect security vulnerabilities during and safety. Use icons, colours, gradients converting the unconverted. the development and testing phases of a and tone of voice to improve the percep - Mobile applications present many secu- project. This coupled with penetration tion. Customers will subconsciously notice. rity challenges, but also opportunities. By testing, and code obfuscation, should be Banks should also provide simple, clear and augmenting the inbuilt platform controls enough to protect your systems and render accessible guidance for customers to ensure provided by Android and Apple, and inno- the code unreadable to a hacker attempting safe and secure banking whilst on the move. vatively exploiting native mobile capabili- to understand how it works. One of the great advantages of mobile ties, we can improve our customers’ secu- Recent advancements in the market, banking is that it’s with your customers all rity and provide a more frictionless user such as Apple’s recent launch of Apple Pay of the time. It is the greatest communica- experience. and Touch ID also shift the game in terms tions tool ever invented. Mobile should not of security and convenience. As part of just be treated as a vertical channel but a Three-way trust Apple’s iOS 8 preview, it was announced horizontal capability that can be leveraged The “3-way trust” that is established during that the Touch ID fingerprint capability across the bank. App Enrolment can be used as a transparent would be opened up to developers to allow From a security perspective it can be second factor of authentication (something apps to use this as a user authentication used as a delivery channel for services such the user has). method. as card fraud alerts or to validate card not This provides a more frictionless expe - This technology is very unique because present transactions. It can also be used to rience for customer logon and payment it scans sub-epidural skin layers in the fin- validate overseas transactions. Customers journeys (c.f. Online Web channel). Lev- ger, therefore making it less susceptible to can be notified when their card is used, or erage and augment existing platform data false readings and rejections than optical by validating that they are overseas, they protection controls to protect confiden - solutions in the market. By using a multi- can ensure transactions are not blocked by tial and highly confidential information. faceted skin layer approach, it is harder for the banks fraud systems. Implement authentication controls which a hacker to spoof than optical – it almost makes it impossible. Apple insists they “One of the great advantages of mobile banking is that it’s with your do not store the fingerprint itself, which customers all of the time. It is the greatest communications tool implies it is stored as a non-reversible encrypted one-way hash for comparison ever invented” against subsequent scans.

The security landscape is constantly leverage existing mechanisms and exploit Security as a service moving, as soon as you think you are one new opportunities that mobile presents, If you treat security as a service, rather than step ahead, you are one step behind. Banks improving customer experience and advo- something that you just have to do, you need to be ready to act so they should cacy wherever possible. Protect inbound change the mind-set of your organisation. establish a dedicated mobile security team and outbound communications between In this way, you will also ensure the cus- that is empowered, funded and resourced the application and our server-side com - tomer experience is better. With the risks of to deliver tactical changes in response to ponents or third party sites or components a major cyber-attack being more prevalent, evolving mobile security threats. Proactive monitoring of digital store - it’s time for banks to start working together The last thing you want to do when an front for unauthorised applications is a to deliver a cross-competitor solution. The issue goes down is be haggling over budg- domain that is becoming increasingly good news is that technology is constantly ets and resources. By having funding and important. With this in mind, there is improving and also reducing the load on the resources allocated at the start of the year, increasing demand for security specialists customer. Ultimately, security is becoming small changes, minor enhancements and to review site and application source code the most aspect of banking services. Cus - tactical fixes can be deployed rapidly. and perform custom tests to detect security tomers demand and expect their money to Biometrics technology such as iris scans, vulnerabilities. Getting these assessments be safe; so what are you going to do? <

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RBI 711 March.indd 5 27/03/2015 16:32:32 INTERVEIW: NICK LEESON Retail Banker International

Nick Leeson: Taming the Beast of Barings

Twenty years ago, the world of rogue trader Nick Leeson crashed spectacularly. When it was revealed that Leeson had gambled away hundreds of millions, stock markets reacted with sheer terror and his employer, Barings Bank, was torn to shreds and left in pieces. Fergus Ewbank speaks to the former ‘rising star’

ith his name on the front page ders if, really, such a thing could ever happen. bankers against making the same mistakes of every newspaper, Leeson, the He says: ‘The capitalist animal that we he did. His admission of the wrongdoings he man who ‘broke the bank’, fled built in financial centres around the world made is genuine; he is under no false impres- W the scene of his crime, leaving a is always going to be a problem from time sion when it comes to the fall of Barings, he note for his employer that said simply ‘I’m to time.” was the spark that ignited the flames. sorry’. As the incident came crashing into Whatever the route of a problem - be it a The collapse of Barings “is a story of neg- the public eye, a mixture of opinions about rogue trader or a product that doesn’t work ligence and incompetence on a grand scale, Leeson began to emerge. Some saw him as as intended - for Leeson, the controls are just with my incompetence and negligence is very a ‘brilliant’ trader, a confident 28-year-old not good enough. “There is no silver bul- much at the forefront”, he openly admits. who had been responsible for 10% of Bar- let that is going to make everything ok,” he “Sometimes you have to admit your mistakes. ings’ total earnings. says, believing that the only real solution is I do that openly, I never lecture, it’s about Others saw Leeson as a ‘high flyer’, some- to mitigate the propensity for problems “as storytelling, and that story brings with it one who had carelessly squandered the for- much as you can, as quickly as you can”. some serious messages that people can learn tunes of others for his own gain. Twenty Without a serious upheaval of current from.” years on and the Leeson of today is neither systems of regulation, Leeson views another Leeson’s own culpability, his self-admis- of those things; both out of obligation and debacle as inevitable. “We’re talking about sion, has allowed him a good deal of respect out of choice, he keeps a measured distance something that is always going to blow up within an industry he once brought crash- from the industry. Now very much reformed, from time to time, hopefully never again to ing down. “I never get a problem from other he possesses a clear understanding of “what the extent that we saw in 2008.” bankers,” he says, “if you stand up and tell is right and what’s appropriate”. He views The problem is an inconsistency within lies, you get seen through. I told enough his past actions as the result of a lack of clar- banking culture as a whole, the only way to lies years ago and I’m not in that game any- ity, on his own part and that of the industry address this would be to, in Leeson’s words, more.” Despite all the embarrassment and as a whole. “rip up the rulebook and start again.” strife it eventually brought him, Leeson A few months after the incident back in However, this is a century old rulebook clearly misses the industry. Crooked though 1995, Chancellor Kenneth Clarke presented and while, from the outset, the public he may once have been, there’s could be a report on bank regulatory systems to the become increasingly suspicious of the banks, no arguing Leeson’s talent for the market – House of Commons. The report blamed the on the inside it’s a different story. Lee - something that, despite his wrongdoings, he fall of Barings on ‘serious problems of con- son believes “there’s a lack of appetite for will always be respected for. trols and management failings within the change”; the problem is one that is deeply Leeson knows he cannot, and will never, Barings group’. Obviously, the consequenc- ingrained within the system under which we return to the industry. For him, banking es of wrongdoing weren’t, and for him still live, trickling all the way down from the top “was the thing that made me sick, ending aren’t, spelled out clearly enough. to the bottom. As Leeson puts it: “If you’re up with me being in jail.” Allowed to run a politician and your party is being largely wild, then torn forcibly from his habitat and In 20 years, what has changed in the financed by a huge hedge fund or a very suc- placed in captivity, Leeson has no desire to industry, if anything? cessful financier, why would you have any once again tread the floors of the banking desire for change?” institutions – the great monetary Savannah. Reflecting upon his own failings in an Now tamed, he sees the industry as impos- attempt to guide the actions of others, Lee- What is Leeson doing now? sible to control: you can tame a lion but you son fears the same underlying problems exist Often speaking at banking events, Leeson can’t single-handedly take on the entire today as they did back then. He sees the uses his own experiences to advise other pride. < regulatory systems in place today as futile, “everything that has been tried over the last The Barings Bank Disaster 20 years is not moulding the culture in the Barings was brought down in 1995 due to unauthorised trading by its head derivatives trader in Singapore, way that it should be.” For Leeson, the cur- Nick Leeson. Leeson was supposed to be arbitraging, seeking to profit from differences in the prices of rent practice of fining banks is ineffectual, Nikkei 225 futures contracts. However, instead of buying on one market and immediately selling on another he points out that there has been £166bn market for a small profit, Leeson bought on one market then held on to the contract, gambling on the future ($246bn) worth of fines made in the last six direction of the Japanese markets. His unhedged losses quickly escalated. Leeson’s activities had generated years. “Has it really changed anything?” he losses totalling £827m ($1.3bn), twice the bank’s available trading capital. The collapse cost another £100 asks, “the evidence suggests that it has not.” million. ING eventually bought the bank for a mere £1. Leeson was arrested in Frankfurt that same year, but Leeson believes that the current regulatory was released in 1999 due to having been diagnosed with colon cancer, which he went on to survive. system needs to undergo change but won-

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RBI 711 March.indd 6 27/03/2015 16:32:32 Retail Banker International ANALYSIS: GSMA

The developing world’s unbanked turn to mobile

As mobile phone penetration grows in the developing world, so does the potential for mobile money vendors. With mobile financial services now available in 60% of developing countries, it is a time of great opportunity for the market according to the GSMA’s new report. Patrick Brusnahan examines the study

he GSM Association (GSMA) has mobile money services sustainably; collaboration are hindering mobile money launched its ‘2015 State of the Indus- • Providers have begun to expand into from reaching scale. try: Mobile Financial Services for the adjacent markets for mobile financial 54 developing countries do not have a Unbanked’ report with some interest- services, leveraging their strengths in live mobile money service. 70% of these T countries have a population of less than 10 ing insight into the 2.5 billion people cur- mobile money to provide mobile insur- rently unbanked in developing countries. ance, mobile savings and mobile credit million. Due to the relatively smaller popula- This section of society has to rely on cash to customers who previously never had tion size, it is harder to build a business case transactions or informal financial services, access to formal financial services; for investment in mobile money. It becomes which are usually expensive and unsafe. • The number of registered mobile harder for a mobile money service provider Traditional banking infrastructure has yet money accounts globally grew to reach to achieve scale and actually make a profit. to adapt their business model to work to nearly 300 million in 2014. While this This severely reduces the desire of operators serve low-income customers and many do is steady growth, there is still much and banks to invest in new mobile money not make the effort. room for further increases as these launches. The silver lining, however, is that over accounts only represent 8% of mobile However, 13 of the 54 developing markets two fifths of the unbanked have access to a connections in the markets where without mobile money services have a popu- mobile phone, which can extend the reach of mobile money services are available. lation of over ten million. 14 launches are financial services such as payments, transfers, 2014 saw seven new markets join the planned in these 13 markets, proving that insurance, savings and credit. Now estab- ranks of countries where mobile money the interest is still there for new launches. lished in the majority of emerging economies, accounts outnumbered bank account. The barrier now is regulation. mobile has become a maturing industry serv- The number of markets with this status Without regulators creating an open field ing new business areas and enabling a wider is now 16, and for mobile money services, market uptake range of digital payments. • Active mobile accounts stand at 103 and customer adoption is hindered. Even in The report highlighted a number of key million and an increasing number of markets that contain an enabling licensing trends concerning the mobile financial ser- services are reaching scale. 21 servic- or authorisation framework for non-banks, vices industry in 2014: es now have over one million active there are barriers. Respondents highlighted • 255 mobile money services are now accounts. three key regulatory priorities: available across 89 countries. This is set For those invested in the financial sec - to increase as the level of smartphone tor, these signs of growth are encouraging. 1. Transaction/balance limits too low penetration rises; Investment in improving and expanding and/or onerous customer identification • Competition is tight in markets where mobile money services is continuing. Provid- requirements; mobile money is available but a grow- ers are strengthening their capability in han- ing number of mobile network opera- dling a rapidly increasing number of users 2. Not allowed to earn interest on pooled tors (MNOs) are becoming interested and transactions through platform migra- funds or to utilise interest earned, and in interoperable solutions. In 2014, tions and extension of application program- MNOs interconnected their services in ming interfaces (APIs) to third party users. 3. Restrictions on international remit- Pakistan, Sri Lanka and Tanzania. This 2014, additionally, recorded a steep tance business. follows the work of MNOs in Indone- increase in the number of international sia which has had interoperability since remittances via mobile money. The GSMA While obstacles remain, the mobile money 2013; attributed this rise to the introduction of industry continues to progress. In order for • Regulators are beginning to recognise a new model; using mobile money as both mobile financial services to reach more peo- the importance of non-bank providers the sending and the receiving channel. In ple and achieve the scale it needs, the indus- of mobile money services in fostering turn, mobile money is reducing the costs try will need to continue strengthening the financial inclusion. As a consequence, of international remittances for consum- foundations for mobile money services and more are establishing more enabling ers. Respondents to the survey said that the instil best practices in order to continually regulatory frameworks for the provi- median cost to send $100 was $4, less than improve quality of service. Mobile financial sion of mobile money services. Reforms half of the average cost to send money glob- service providers have to engage with regu- have been passed in Colombia, India, ally via traditional money transfer channels. lators and standard setting bodies to create Kenya and Liberia in 2014. Currently, Despite the progress made in 2014, the more enabling regulatory environments to 47 out of 89 markers where mobile mobile money industry still has hurdles it foster sustainable investment in the service money is available, regulation allows needs to overcome. Regulatory barriers, low that will, eventually, underpin a balanced both banks and non-banks to provide levels of investment and the lack of industry strong digital financial ecosystem. <

www.retailbankerinternational.com March 2015 y 7

RBI 711 March.indd 7 27/03/2015 16:32:32 REPORT: GEMALTO Retail Banker International

Banking embraces the mobile Millennial generation

Gemalto’s study into the mobile banking behaviour of young individuals (aged 16 to 24) shows the huge impact that mobile phones have made on the banking sector. This surge in popularity is set to continue as the younger generation ages and technology develops. Patrick Brusnahan reports on the findings

n the modern day, it seems that a use the app’s most basic features. transfers and paying bills, which 26% and mobile phone is around every corner This, however, is not simple as not only 40%, respectively, of young customers are in every hand. Gemalto, an interna - do young people want something secure, doing already. tional digital security company, polled but something convenient. These two fac- User experience is crucial to keep the I tors do not necessarily go hand-in-hand. younger section of the market happy. If 1,184 16-24 year-olds and revealed that the devices are in near constant use. 1.2 billion 30.6% of those surveyed were completely the mobile banking app was hard to use, people across the world use mobile phones happy to access mobile or online banking 68% of respondents would use the app less to go online and 25% of them are young services via public Wi-Fi and, in turn, put- and 37% would switch banks altogether. adults. ting themselves in risk of cyber crime. It is Gemalto said: “Banks need to realise that While it’s no revelation that young peo- a common assumption that younger people a fiddly, unresponsive or unreliable app ple like mobile phones, a startling 97% of are informed about online threats, but the could well cost them customers quickly. respondents owned a mobile or a tablet or report deemed it ‘surprising’ that so many Apps need to be thoroughly tested, regu - both. 70% of respondents used their phone risked their own online safety. larly reviewed and benchmarked against for over two hours a day. 38% used their This generation is also ‘far more likely’ to competing services to make sure that qual- mobile devices for over five hours a day. In air grievances over social media. According ity of service is the best it can be.” fact, 27% would rather go without a bank to communications agency Echo Research, Security measures must be considered account than a mobile phone. The time 36% of young people had used a social when calibrating the user experience, espe- where a smartphone was merely a gadget is media platform to contact a big company. cially in terms of speed. As everything well and truly over; it is now, according to 65% believed it to be a better way than call online is designed to be done in as few the report, ‘a way of life’. centres to get in touch with companies. clicks as possible, young consumers will While the security concerns remain pre- not tolerate going through several security The concerns of the younger consumer sent, trust in banks among young people is barriers to carry out simple transactions Mobile phones are clearly having an impact high. Only 16% of respondents said that on an app. Gemalto said: “Security cannot on young consumers’ banking choices. they trust their mobile provider more than be an afterthought when designing an app; 37% said that they would change bank if their bank. Gemalto believed this to show it must be included in the discussion and they were not able to conduct their banking that ‘banks have an opportunity to have a designed right from the start to ensure a on their mobile device. 24% of respondents fresh start with the younger generation and positive user experience; whilst ensuring believed that banking on their mobile or use them as a vehicle to build greater trust compliance needs are also being met.” tablet was absolutely ‘essential’, while 36% among their entire consumer base’. believed that mobile banking helps them The report also focused on the changing The evolving challenge of customer keep better control of their finances. habits of young consumers. When it comes retention This rise in digital alternatives is in stark to the quality of mobile banking, young Traditionally, customer retention was fair- contrast to the decline of the bank branch. people wanted a fully featured service with ly simple. People just stuck with the bank Over a quarter (27%) of respondents said access to all the functions and access they they had always used. Nowadays, with the that they never visit their branch and only have grown accustomed to in-branch and financial crisis of 2008 and the emergence 14% of young people preferred doing online. This is not just balance checking, of new technologies, the situation has sig- their banking in person. However, 77% but advanced tasks. For example, domestic nificantly changed. of young people bank online monthly, at least, and 62% use the mobile apps at least once a month. n RESPONDENTS CONCERNED WITH MOBILE n RESPONDENTS WHO WOULD CHANGE BANK IF Not everything about mobile bank - BANKING SECURITY IT DID NOT OFFER MOBILE BANKING SERVICES ing was praised. Security was a worrying Country % of respondents Country % of respondents issue as 67% of respondents were actu - Brazil 84% Mexico 49% ally concerned about the security risks of using their mobile for banking. Expecta - Singapore 77% Brazil 42% tions for security were incredibly high as Mexico 71% USA 32% nearly 90% felt that mobile services should USA 54% UK 29% incorporate the same security features as UK 49% Singapore 28% existing online services. 48% would switch Overall 67% Overall 37% banks if they felt that the banking app’s security was poor while 38% would only Source: The GSMA Source: The GSMA

8 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 8 27/03/2015 16:32:33 Retail Banker International REPORT: GEMALTO

This new generation is more demanding or parents. to adopt mobile banking services as only than previous ones. 37% would change The benefits to this approach are many 53% of them use the services. Young Brits banks simply because the mBanking expe- and varied. Gemalto said: “First and fore- tend to be more trusting and accepting of rience is inadequate. In the UK alone, 1 most, mobile channels cost less to serve. their bank though. Among the countries in million people switched bank accounts in According to the TowerGroup, the average the survey, they’re the least worried about 2014, a rise of 20% year-on-year. While cost per transaction of the mobile bank- mobile banking security with only 49% regulation made it easier to switch than it ing channel in the United States is 2% of expressing concern. Less than 10% trust has been in the past, the report claimed this branch-based transaction costs. their mobile operator more than their bank mass exodus purports a sense of dissatis - “And for course the right marketing and and only 26.2% of young people would faction with the consumer experience. advertising campaigns will boost revenues. switch bank if the app is hard to use. For customer retention, Gemalto high - But there is also an incredible return from Gemalto said: “Whilst this should seem lighted two key priorities: the recognition and excitement that comes promising, it contrasts significantly with from being seen as an innovator by existing the rest of the British adult’s population 1. Building out the service catalogue and prospective customers.” confidence in the banking industry as a and user experience for this genera - whole. [According to Ernst & Young], this tion, and Regional differences has continued to decrease dramatically The report honed in on five regions in their since the 2008 crash – 37% in the last 12 2. Using engaging techniques and tools research; Brazil, Mexico, Singapore, the months alone, and 10% more than any to engage and upsell to your upcoming United Kingdom and the United States. other countries included in this research. audience, from social media platforms While trends were largely the same world- “This suggests that British banks have the and engaging digital content to intel- wide, there were some key differences. most work to do to regain overall consumer ligent mobile marketing techniques. Brazil’s young people with smartphones trust. Perhaps the younger audience is sim- or tablets used them more than in any ply a little more apathetic about the issue Old tactics, such as offering a package other country. Almost half (45.9%) used and apathy and distrust in the banking sys- of bundled products for consumers in a them for more than five hours a day. With tem develops with age.” branch, are no longer relevant. Fewer and that level of usage, it is not a surprise that In the United States, behaviour is simi - fewer people are going anywhere near a security and ease of use were key concerns. lar to the United Kingdom with closely branch now that much more convenient 84% were worried about the security of low levels of mobile banking adoption and access is available on their phone. their mobile banking services, more than concerns about security. They are also the Gemalto said: “Banks should be using any other country in the survey, and 49.9% second most trusting of banking as only the mobile channel to cost-effectively stated that they would switch banks if an 13.2% trust their mobile provider more engage and deliver product offers and gen- app was hard to use. Gemalto posited the and only 45.9% were prepared to switch eral content to the right customers at the theory that security concerns were high due bank if their mobile app was not secure right time, driving organic growth and cus- to the prominent levels of criminal activity enough. tomer retention and, ultimately, increasing in Brazil, but this was merely speculation. In regards to this lack of concern, the revenue.” Mexico polled fairly similarly to Bra - report said: “Perhaps education and There are various options to make this zil, with comparable reactions for overall awareness campaigns are necessary to help happen. From dynamic messaging pro - mobile banking usage and results for poor American youth understand the risk cyber grams to deliver ‘tappable’ tailored offers security or ease of use. One difference was crime represents and encourage them to and content to the pre-login mobile apps the trust factor. 22% of Mexican respond- take protective measures accordingly. screen, to contextual messages to custom- ents trusted their mobile provider more “Indeed, many of the banks invest in ers based on their activity, there’s a wide than their bank, more than in any other anti-fraud organisations, such as Financial range of opportunity for banks to differen- surveyed country. Fraud Action in the UK, focused on raising tiate themselves. According to the Mexican Internet Asso- consumer awareness and understanding of Mobile can also be used for engagement ciation (AMIPCI), 47% of those who do the issues and how to protect themselves not related to sales. There’s an opportunity not use online banking give distrust of the from social engineering and other criminal to educate consumers further on finance security as their reason. This could be a attempts to separate consumers from their with, for example, messages about digital heavy concern for the unbanked customers money.” fraud prevention or value-added content who may not have experience with secure The smartphone and tablet boom has such as guides for first-time homebuyers traditional financial services. heavily affected the financial services sec- Singapore’s technological astuteness tor. Many believe that banking through comes across in the report. A greater per - these pieces of technology is absolutely n TIME SPENT ON MOBILE DEVICES centage of the population in Singapore use crucial. Their influence will only grow as Time % of respondents mobile banking services than in any other the younger generation of digital natives Less than an hour 4% country (71%). Singaporeans are also the grows older and its needs expand. Procras- most intolerant of security issues with tinating when it comes to this issue would 1-2 hours 10% more than half (50.3%) prepared to switch be a major misstep. As the report conveys, 2-3 hours 15% bank if its app is not secure. mobile is ‘a rapidly accelerating, unstoppa- 3-4 hours 18% The United Kingdom’s young people ble force’. 4-5 hours 15% use their mobiles and tablets less than The report concluded: “This generation their international counterparts with demands innovation, quality and security Over 5 hours 38% only 27% using them for more than five in mobile, and if you don’t give it to them, Source: The GSMA hours. They are also the slowest surveyed they’ll find another provider who can.” <

www.retailbankerinternational.com March 2015 y 9

RBI 711 March.indd 9 27/03/2015 16:32:33 STRATEGY: ACCESSIBILITY Retail Banker International

More accessible banking in sight While the banking industry continually focuses on delivering a more accessible user experience, there are still sections of society that remain neglected. One of these is the blind and partially sighted. Patrick Brusnahan talks to the head of strategy at the RNIB about the steps that need to be taken by the banks

s user experience improves in qual- technology. While it opens up possibili - their own pitfalls, for example, talking ity with each passing year, through ties, it also adds barriers. For example, automated teller machines (ATMs). A ser- products such as mobile banking contactless cards make payments easier vice that you would presume hands more apps and contactless cards, there and quicker. However, from a blind per - control over to a blind or partially sighted A spective, if you can’t see the screen and customer can end up taking it away. are some sectors of the market still not catered for; including the two million blind there are no other notifications apart from On this issue, Tyler explained: “People and partially sighted people living in the a beep, it can be unclear if the transac - were worried about the idea of making UK. In fact, some of the new services out tion went through twice or how much was cash dispensers accessible because they there are making banking even more frus- actually taken from the card. Tyler added: were thinking,:‘crikey, what issues does trating for the visually impaired. “It’s so easy to make payments, which is a this raise?’ How about if you’re on the Steve Tyler, head of strategy and plan - breakthrough in itself, but that can come street and plug an earpiece in, people will ning at RNIB (The Royal National Insti - with accessibility challenges or massive surely know that you can’t see the screen tute of Blind People) Solutions, told RBI: potential benefits.” and you might be more susceptible to being “The current state is that we’re doing pretty The third key struggle is that sight loss mugged or attacked. well, but there’s room for improvement. is often accompanied with other problems, “Another aspect is the sheer amount of Today, we’re in a place where if you’re a particularly with the elderly. This could people who reported that they needed to blind or partially sighted person, you can range from anything associated with mem - withdraw money, went to an ATM and approach any bank and get your state - ory loss or even frailty. Tyler said: “There’s asked a passer-by to help them. That’s ments or letters in Braille or large print or a real challenge around this because with fraught with issues. Some of the accessibil- in audio. In terms of access of information, the processes that allow people to make ity solutions were adding to the problems, I think we’re doing pretty well.” decisions about money, these people are rather than alleviating them.” There has been progress. This is largely relying on friends and family to help. This The trend surrounding all of these issues due to the RNIB and the banking indus - problem’s growing all the time as the popu- seems to be the banking sector’s difficulty try communicating more on the issue. lation grows older. We’ve got some work in thinking outside of the box and stepping Tyler said: “We’ve had some major break- to do around the nicest, easiest and most into a cross section of society’s shoes. throughs around talking ATMs and we’ve efficient processes to engage with friends Some banks are taking small, but sig - got a bunch of commitments from the and family supporting that individual.” nificant, steps. RBS and NatWest recently industry around making more of those A greater problem is the fear of losing launched new accessible debit and savings available in more locations. We’re expect- control of one’s own personal finances if cards specifically designed for the visually ing that by 2016, or the end of 2016, pretty the visually impaired population need to impaired. The features of the card include much every location will have at least one rely on others. Tyler said: “It certainly Braille markings to identify which card is accessible cash dispenser.” leads to people being afraid and not deal- which and a notch cut on the right hand Despite the advancements made recent- ing with it themselves, despite a want to side of the card to help visually impaired ly, there are still hurdles that need to be do so. customers insert their card into ATMs and addressed. Tyler highlighted and explained “One example is cheque books. A few PIN pads correctly. the most crucial three. years ago, there was a whole push back Ross McEwan, CEO of RBS, said: “We Firstly, banks have to understand that all from the general public surrounding want to be recognised as a bank that lis - customers are different and everyone has cheque books, but not from the visually tens to its customers and responds to their their own particular needs. This includes impaired. I mean, what does a cheque book issues. It’s really important to me that we staff at branches being informed of the do for you? It means you’ve got control. make banking as simple and easy as possi- options available for the visually impaired You agree a certain amount you’re going to ble for all of our customers and our accessi- so they can, in turn, inform consumers. pay. If you have any doubts, you can cancel ble cards are another step towards us earn- Tyler added: “Blind and partially sighted it. There’s a control aspect, you can reverse ing back the trust of the public.” people are, first and foremost, individuals decisions or at least feel as if you can. In It seems to be that things are moving and they want to be treated as genuine the new era of electronic banking, that’s are in the right direction. Tyler concluded: customers. They want to be treated with less obvious to individuals. It’s one of those “People are very different and have different respect and dignity. A lot of that comes less tangible challenges that are a problem.” needs. Of course, visual impairment comes down to staff training and understanding It is a tricky balance to maintain. How in all shapes and sizes from blindness to around accessibility. We’ve got a way to go do you maintain control for the consumer tunnel vision to colour-blindness. We’re on that.” as well as making it more accessible? Even just trying to educate the banking sector The next challenge relates to new some of the more accessible services have a bit more around these certain needs.” <

10 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 10 27/03/2015 16:32:33 Retail Banker International DIGITAL BANKING CLUB: SECURITY

Digital Banking Club security debate: “The perimeter has already been breached”

The Digital Banking Club’s latest debate focussed on the topic of progressive security. Clayton Locke said that financial institutions must go beyond perimeter defences to deploy new technologies smart enough to defeat current and emerging threats, keep their data safe and protect their customers. Patrick Brusnahan reports

The Panellists eld at the prestigious Law Society on Chancery Lane, the Digital Banking Shashidhar Bhat, head of digital products EMEA Consumer Club’s first debate of 2015, before a Citibank packed room of over 120 attendees, Shashidhar is head for Citibank Consumer in EMEA for all digital products, a role in which he champions H debated the challenges relating to security. the roadmap for digital channels. He has worked in operations, sales and extensively in digital in many According to Intelligent Environments, 87% geographies across the globe. of customers would change provider if they Shashidhar has a passion for improving digital engagement and enhancing the customer experience. thought the security of their digital banking application wasn’t good enough and 65% of Peter Neufeld, UK & EMEIA head of digital advisory consumers want to see their current provider EY deploy more security measures, so this side Peter is EY’s UK & EMEIA head of digital advisory within the financial services practice and has, over the last of financial services is clearly non-negotiable. 20 years, provided strategic insight, creative thinking and reliable technology to some of the world’s most Chaired by Douglas Blakey, group editor successful financial services businesses. of Timetric’s consumer finance titles and During his career, Peter has helped organisations to build digital capabilities through to maturity and Chairman of The Digital Banking Club, the steered award winning digital experiences, programmes and solutions for Global Fortune 100 brands. He led debate covered many aspects of this theme, the digital function for a Global Fortune 100 company for EMEA delivering significant digital transformation including security vs. usability, the evolv- programmes to clients in the financial services industry and he developed and oversaw the multi-year ing nature of cyber-crime, the consumer as digital end-to-end transformation of a major UK retailer. a possible weak link and financial services’ Orna Joseph, head of cyber communications (serious and organised crime) attempts to improve security on all sides. Office for Security and Counter Terrorism, Home Office Orna is a communications professional who has worked in central Government for the past five years raising What exactly is progressive security? the public’s and SMEs’ awareness of fraud and cyber-crime prevention. She currently runs HM Government’s ‘BE Cyber Streetwise’ campaign which is a cross-government initiative funded by the Cabinet Office’s An application armed with progressive secu- national Cyber Security Programme that aims to improve the public’s cyber hygiene by encouraging them to rity uses a ‘nervous system’ of sensors and adopt basic good online behaviours. detection points to build up an understand- Previously, Orna spent over seven years in the law environment world as PR Manager for City of London ing of what a user is doing. Since the con- Police, where she advised on media communications and delivered awareness campaigns for the force on text of the user’s actions is well understood fraud and other security issues. Her background before joining City Police was in charity communications. within a business application, the accuracy of the risk assessment can be improved. Michael Soppitt, director of digital risk and information security For example, a network security moni- Parker Fitzgerald tor might understand that a user is sending Michael is a director within Parker Fitzgerald’s digital risk and information security practice focusing on the data from a particular port, but progressive design and implementation of market leading capabilities to support clients throughout each stage of their digital transformations. He has over 10 years’ experience delivering major architecture and business process security uses specific domain knowledge initiatives at leading financial institutions and consultancies including Santander, Co-operative Financial to understand that they’re making a large Services, Accenture, Lloyds Banking Group and American Express. CHAPS transfer to an unknown account. He has helped develop the firm’s approach to cyber security, credit decisioning, fraud detection and This knowledge changes the risk assessment digital risk and is a recognised expert in the field of digital risk, lecturing on MSc courses at Warwick associated with that user’s behaviour. University. Within an application, user behaviour is Michael holds an MSc in Human Centred Computer Systems, a BSc in Neuroscience from University of monitored and a risk assessment is made of Sussex and is a published academic in the field of digital research. the session based on an overall pattern of behaviour. Suspicion may be raised by indi- Clayton Locke, CTO vidual events, such as a user trying to access Intelligent Environments an account that doesn’t belong to them, or by Clayton joined Intelligent Environments in 2012, taking charge of the company’s technology team. He a collection of small events that are individu- brings over 30 years’ experience in the software development and consulting industry. He has delivered ally innocuous but might indicate a systemic innovative products and solutions to clients n the financial services and telecommunications sectors, probing for vulnerabilities by a hacker. including online banking, FX trading, enterprise architecture and mobile application development. Applications can also create a broader con- Clayton is responsible for technology strategy, development and delivery of the Intelligent Environments text by including infomation from outside product suite. He does this passionately, leveraging a lean software development approach to build high the application such as location data from quality software products for the company’s solid base of blue chip clients. the device or alerts downloaded from the

www.retailbankerinternational.com March 2015 y 11

RBI 711 March.indd 11 27/03/2015 16:32:33 DIGITAL BANKING CLUB: SECURITY Retail Banker International

Cloud. A continuous security monitor, with “Progressive security seeks to establish a user’s degree of detectors placed at critical points within the application, provides a higher level of secu- trustworthiness and makes applications more nuanced and rity than perimeter defences alone. When analogued. Users are no longer trusted or untrusted in a single binary deployed correctly, progressive security can decision” actually enhance the user’s digital banking experience as well. help if there are holes in it. Attackers don’t in the number of declared data breaches and have to break through the perimeter if they 7 of the 10 worst data breaches of all time, Perimeter security can trick a user into letting them in. Despite including one attack on JPMorgan Chase, years of end-user education, people continue according to the Breach Index Level. Shock- Clayton Locke, CTO of Intelligent Environ- to pick dreadful passwords and fall prey to ingly, over 500 million financial records ments, opened the debate saying banks must simple-phishing attacks. The weakest point were stolen in 2014. move beyond an all-or-nothing authentica- in security systems is the human element. One example of the developing nature of tion perimeter. What was needed, he argued, “Banks and financial services compa - hacking was the Sony Pictures breach. Hack- was a continuous assessment of risk. nies must go beyond perimeter defences to ers were able to range far and wide through An attacker who makes it through an exte- deploy new technologies smart enough to the Sony coporate network, compromis- rior perimeter into a corporate network is defeat current and emerging threats, keep ing the entire organisation and leading to let into an implicitly trusting environment. their data safe and protect their customers. a multitude of leaks. The thieves made off Although systems are often segregated into By focusing only on the perimeter, the user with everything from employee social secu- VLANs, an undetected hacker is in no rush experience takes a hit.” rity numbers to unreleased films as well as and can take their time to penetrate each Michael Soppitt, director of digital risk caches of highly embarrassing emails that one. The similarities to computer gaming are and information security at Parker Fitzger- resulted in a constant stream of bad PR all there to see; hackers can enjoy the freedom ald, agreed and added that perimeter-based over the world. of undetected activity in pursuit of a stimu- defences don’t work as digital changes the Whoever broke into Sony Pictures used lating challenge. idea of risks themselves. He said that the spear-phishing to breach the organisation’s Locke said: “In our increasingly net - ‘economics of crime have changed forever’. security perimeter. Having got past the worked world, we can no longer rely on Locke added that progressive security company’s security at the gate, the attack- perimeter defences to protect our digital could be the answer, but only if the software ers enjoyed significant freedom of movement assets. The information stored in our sys - was malleable, such as being able to work in for an elongated amount of time. They spent tems has significant value and the criminals real time and not as a static rule. One exam- months undetected within Sony’s systems. It trying to steal it are technically sophisticated ple he gave was that certain banks deem it is a significant illustration of the painful lim- and well organised. unacceptable to show something as simple as itations of a perimeter-centric security policy. “Banks and financial service companies a bank balance without logging in. Peter Neufeld, UK & EMEIA head of digi- tal advisory at EY, believed that consumer education was critical in security otherwise ‘some policies would do more to irritate cus- tomers than protect them’. Consumers’ role in their own security was an interesting point. Orna Joseph, head of cyber communica- tions (serious and organised crime) at the Office for Security and Counter Terror - ism in the Home Office, said that her work involves bringing ‘responsibility back to the individual’. Shashidhar Bhat, head of digital products EMEA at Citibank Consumer, argued that ‘the customer is the weakest link’ in the secu- rity process. However, he added that there’s no ‘definite answer’ to this problem, but the situation is improving. Soppitt suggested that one possible answer must go beyond perimeter defences to deploy The persistence of cyber criminals was ‘organisations doing more so the cus- new technologies smart enough to defeat tomer has to do less’ and that ‘consumer current and emerging threats, keep their The security issue is a serious one. Despite education is absolutely key’. data safe and protect their customers.” there being more security tools than ever, He continued: “Progressive security holds cyber-crime has shown no sign of halting in The biometric question the promise of banking applications that tai- the financial sector. Online fraud increased lor the balance between usability and secu- by 71% in 2014. In 2013, 62% of records Of all the possible solutions offered, one that rity dynamically for each user, in the user’s stolen in online data beaches were credit and was shot down fairly quickly was biomet- context, in real time. debit card data. rics. Soppitt suggested that ‘biometrics have “Increasing the height of the wall won’t The last 12 months saw a 50% increase merely reduced friction’ and nothing else,

12 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 12 27/03/2015 16:32:35 Retail Banker International DIGITAL BANKING CLUB: SECURITY

“Traditionally, security and usability have been viewed as opposing priorities that need to be traded off against each other. However, there is a growing body of thought that suggests this is wrong. Security that sacrifices usability is not secure in practice”

that if a bank claimed to have better security, wise by sharing information? Neufeld felt it was just an invitation for hackers to attack. that ‘there’s already a lot of sharing in the In fact, if banks did start competing on this industry’, but Locke put forward the argu- issue, it could be a ‘race to the bottom’. ment that ‘there needs to be more informa- Soppitt argued that while security itself tion sharing about cyber-threats’. was not a differentiator due to security being He continued: “Cooperation requires a ‘not a product, but a process’, the security common language and collective under- experience is in fact a differentiator and standing of the threats and risk. Today, there banks should hone in on that. are many basic security questions that banks Locke said that there needed to be a don’t agree on, from acceptable PIN length ‘standard for progressive security across the to balance before log in. entire industry’ He said: “The industry must “This causes confusion for customers who resist the temptation to make security a point are not in a position to judge what is secure. Clayton Locke of differentiation. We should share best prac- A practical way forward is the creation of while Bhat said that ‘biometrics are weaker tice and work together to gather intelligence a reference standard for progressive secu- than passwords’ but they were ‘one brick in that helps all players in the industry indentify rity. This standard could build upon CBEST, the solution to this challenge’. threats to banking services.” ISO27001 and BSI to become a reference for Bhat stated that ‘from a banking perspec- Joseph concurred and thought that a financial services firms seeking to build bet- tive, we are making significant investments ‘neutral brand’ would help with the security ter security into their infrastructures.” in progressive security’. Soppitt shot back debate. One thing that the panel did agree on was and said: “From a consumer perspective, that security will never be 100% secure. they are yet to see this expenditure affect The mutual trust between user and device There will always be cybercrime. On this them.” subject, Soppitt quipped: In terms of cost, perimeter security is Locke added: “Progressive security seeks to “The only way to avoid fraud is to not sell expensive and burns a large part of cyber- establish a user’s degree of trustworthiness anything." security budgets. The RSA said that 80% of and makes applications more nuanced. Locke concluded: “Customers are making security spending is spent on the perimeter “Users are no longer trusted or untrusted in faster and more frequent contact with their while it only thwarts 30% of threats. Next was the debate of usability vs. secu- rity and whether the two terms were actually mutually exclusive. Bhat believed that ‘usa- bility is a way to keep the good users happy’. Locke added: “Traditionally, security and usability have been viewed as opposing pri- orities that need to be traded off against each other; users want freedom of access, security demands checkpoints and controls. “However, there is a growing body of thought that suggests this is wrong. Secu- rity that sacrifices usability is not secure in practice. It’s no coincidence that two of the most pressing problems keeping corporate IT up at night, phishing and poor passwords, are problems caused in large part by poor usability. Passwords require us to create and Orna Joseph and Shashidhar Bhat remember large and random strings of char- acters; something humans find difficult and uncomfortable, so we don’t do it.” a single binary decision. Security and creden- banks and getting more used to devices with tial requirements can be dialled up or down excellent standards of design and usability. Can a company’s level of security be used to depending upon context and risk assessment. “They expect the highest standards of pro- stand out in the market? “To support that concept, the application’s tection and demand a fast, seamless experi- interface has to become malleable. It must ence unhindered by awkward security pro- Another point of discussion was whether a be able to change in real-time to support a tocols. financial institution’s level of security could range of different countermeasures such as “In the past, security and usability were be used as a differentiator in the market - different authentication factors, alerts and often viewed as mutually exclusive. Now we place. Bhat believed that security should not warnings or restricted access.” are compelled to move beyond that way of be treated as a competitive advantage and Could banks help each other out security- thinking: we need more of both.”<

www.retailbankerinternational.com March 2015 y 13

RBI 711 March.indd 13 27/03/2015 16:32:38 FEATURE: GAMIFICATION Retail Banker International

Gamification: Is it a winning strategy?

There has been a large amount of hype centred on gamification and its application to financial institutions. Although predictions have been made of a widespread uptake, has the innovation left a real mark on the banking industry? John Schaffer speaks to industry experts on the trend and where it seems to be heading

he consumer appetite for video games gamification to it to get people to do that financial goals and making savings, and cre- has grown exponentially over the past process more regularly.” ates a game around the process. Customers few years. Video games have over- The integration of gamification into a can gain real world benefits by attaining taken film as the biggest entertainment financial context usually centres around points in the game to redeem against incen- T either branding or education. The educa- industry. Clearly interactivity is paramount tives such as concert tickets or vouchers. in the digital age, so can this addictive pas- tion element will be predominantly centered The benefit for the bank is that it encour- time be utilised by financial institutions in around personal financial management. ages DSK customers to make regular savings. the form of gamification? Financial institutions have used gamifica- Misys, a financial software development According to a 2014 survey from the tion in a purely branding context, but it is company, have developed the technology entertainment software association, 59% questionable how effective these applications used by DSK. of Americans play video games. The demo- can be. A spokesperson from DSK Bank told RBI, graphic of players has also changed. Com- Barclaycard launched its waterslide that alongside the expected benefits such puter games can no longer merely be associ- extreme app in 2009 and attained 3 million as improvements in market perception and ated with children and male teenagers, with downloads within two weeks of release. The greater customer engagement the gamifi- the average gamer age is 31 and 48% of game saw users navigating slides whilst col- cation app allows the bank to improve its them are female. lecting coins and avoiding dangerous obsta- Corporate Social Responsibility profile. The The rise in popularity of video games cles. Although the game was clearly popular spokesperson said: “Realizing the low finan- has meant that the sentiment behind it has and had an addictive element, the experience cial literacy in Bulgaria, we designed a series become more pervasive. Gamification takes had no relation to any of Barclaycard’s ser- of questions which will help our custom - game mechanics and applies them to a non- vices. ers about personal finance for which they gaming context by using features such as col- However, current banking apps are cer- receive reward points.” lecting tokens, competition with friends and tainly not amongst consumers’ favourite, addictiveness. so gamification could potentially be a way Gamified internal training Gamification has been successfully adopt- to improve consumer engagement. Current Brian Burke, research VP at Gartner, sug- ed in scenarios such as learning applications. banking apps are, in the most part, seen as gested that the focus has moved away from Apps such as Duolingo, where users can purely functional. On the other hand, as customer engagement to internal staff train- learn a foreign language, or Codecademy, games are not usually seen to be a serious ing: “While there was an initial flurry of where numerous computer programming pursuit, the image of gamification is per- activity in banks around gamification, it has languages can be learnt, utilise gamification haps incongruent with customers’ fears over somewhat died down. whereby users can compete with each other financial security. “Clearly where it has shifted is to train - and share their stats over social media. This There has certainly been a degree of hype ing for banks. There have been a number of incentivises the entire experience, as users around gamification over the past few years. vendors and applications that have sprung are more likely to improve in a more com- However, there has not been a mass uptake up fairly recently. Vendors such as Morph petitive environment. of gamification technology by banks and Media, True Office and Banker’s Lab pro- Using gamification in a financial context financial institutions. Although services vide specific training for banks and financial does not have to mimic the feel of a video such as BBVA’s ‘game’ have had successes, institutions.” game. The interpretation of what gamifi- with 100,000 active users six months after Burke commented on the relative lull in cation is can be different for both financial its release, gamification has not become as advancement in gamification: “The over institutions and customers. pervasive as some had predicted. inflated expectations are adjusting back to Alex Bray, retail channels director for Online fraud was up 71% in 2014, accord- reality. I think that when you look at how banking at Misys, told RBI: “It is always ing to Financial Fraud Action UK, despite gamification is being leveraged, there is a bit very interesting how we define gamifica- the release of numerous gadgets to tighten of a lull in terms of the hype. But, ultimately tion and what people mean by gamification security. So the ‘fun’ image of gamification there is value in terms of engaging in moti- because it means very different things for is perhaps met with scepticism as consumers vating people using gamification, so we’ll different people. The way I define gamifi- fear the reliability of financial security. eventually see that turn around.” cation, is to look at any application of the principals of gaming within a business pro- Bulgarian bank uses gamification The name of the game cess. For some banks they see it very much Bulgaria’s DSK bank uses a gamification app Gamification brings up connotations of a as a defined, ‘I have launched a game’ sort of called Gameo, giving customers a personal novelty item. Although banks and financial thing. For some banks its very much about financial management tool. The application institutions will not disregard the effective- taking a process and adding the concepts of takes everyday banking tasks such as setting ness of entertainment for increased customer

14 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 14 27/03/2015 16:32:39 Retail Banker International FEATURE: GAMIFICATION

engagement, gamification can conjure up a “You’ll find examples in Asia, you’ll find juvenile image. Although there have been examples elsewhere, but the scale is fairly Impulse Saving some instances of gamification, uptake has low in North America.” Nationwide, the UK’s largest mutual, has been modest, especially amongst the larger added gamification features to its smart - banks. Demand in the Asian market phone app. The ‘Impulse Saver’ feature, Bray said: “The name gamification does Where there has been little uptake in the encourages customers to save small amounts not do gamification any favours. When peo- American market, gamification has had some regularly with minimal effort. Customers are ple talk about the cloud, people freak out appeal in Asia. Video games are ingrained not required to enter the regular authenti- because they imagine some sort of amor- into society in the east, where the vast major- cation requirements and can save without phous blob that’s incredibly vulnerable, and ity of gaming technology has originated. entering a passcode. we know that the cloud is not like that at all. Brian Burke, research VP Gartner, told The functionality of Impulse Saver is The name has not helped the concept here. If RBI: “If I had to guess, I would suggest that almost identical to PNC’s Punch the Pig app. it was called something else, it would prob- banks in North America want to be per - Impulse Saver rewards customers with an ably have been adopted much faster.” ceived as being more serious, and they think interactive piggy bank graphic to provide Banks are slow to adopt technology inno- that gamification may detract from that, tangible feedback. Nationwide released the vations but, in this case, it is understandable. whereas in the east, its not that banks don’t added gamification feature in June 2014 and Financial institutions hold some of the most perceive themselves as being serious, but they the building society claim that £7m ($10m) sensitive information about individuals. The don’t engage with their customers in as seri- has been saved since its launch. similarities to the adoption of cloud technol- ous a manner.” Paul Cooper, head of digital banking at ogy are clear, as the name of an innovation PlayMoolah, is a Singapore headquartered Nationwide, told RBI: “The benefits of gami- could understandably deter customers if it technology company who create interactive fication are clear; Impulse Saver is specifical- promotes a lack of trust. games for mobile devices. The games are primarily educational and assist users in the ly designed to promote and reward savings Slow uptake in the US management of their finances. The company behaviours making saving fun and engaging Banks and financial institutions in America has partnered with two banks in Singapore, whilst encouraging customers to create a have been slow in their uptake of gamifica- OCBC and DBS. PlayMoolah’s applications nest egg. tion. There have however been some moder- have been used by approximately 65,000 “We have seen over 52,000 customers use ate success. PNC Bank released ‘Punch the people since launching in 2011. the feature of the last few months, showing Pig’ in 2010. The app encourages customers PlayMoolah’s partnership with OCBC the popularity of saving on an impulse.” to save by punching a piggy bank that pops uses the technology company’s Moolahverse What makes an app effective? mobile app. Access to the game is given to up, and a saving amount is suggested. Money Andy Lees, member of the UK board at is transferred from the spend account to the new account holders with $50 deposited. Camgemini, told RBI: “The rules I give my growth account. The app can be set to pop The game is aimed at children aged six and clients are: up spontaneously, encouraging customers to above and is a learning tool for children to save small amounts at regular intervals. cultivate their money management skills. • Keep it simple; Bray talked about gamification in the Parents can monitor their child’s activ - • Make sure its engaging through to American market: “If we are talking about ity through their own dashboard which is addictive; does every bank have a stand alone appli- linked to the child’s account. cation saying, ‘here’s my gamification app’, Bi Ying Wong, marketing lead at Play - • Make sure that their friends or social then yes the uptake has been slow in the Moolah, told RBI: “For each license that was group can also access it (because com- American market. given away, three times as many new cus- petition is only fun if it’s your mate that “I think what banks should be thinking tomers were acquired through this campaign” you’re playing against), and about is more subtle. It’s about how you The start-up fintech company also has a • Give it some purpose to the outcome, take the concepts of gaming and deploy game named WhyMoolah, released in 2013. them against your existing processes. Clearly The game is targeted at young adults and (i.e. there’s something to celebrate in we’ve seen some banks start to do this from is a real life simulator which emulates sce- that success).” the internal training perspective. narios such as paying back student debt and Lee added: “I think the ones that haven’t “Then we are seeing some banks using budgeting. Wong said: “We ran four cam- worked so well are the ones that are almost it for education. We’re seeing it in patches paigns with DBS Bank. This generated over too corporate and too obvious in terms of the here and there, but I think people are slowly 1000, leads for them in the time span of four message or what they are trying to push to starting to come alive to the fact that it is months.” the audience base. not a stand alone thing that you deploy, it is Ramakrishnan, Capgemini, told RBI: “If “So if you play the game and I’m going to something that you have to look across your you see banks in Asia, there’s a whole range end up being sold a loan, I’m probably not processes and see how you can improve them of new banks, many of whom don’t have going to play it. It creates implicit awareness by deploying those principals. It’s less of a what would be fairly mature internet bank- as opposed to a direct and obvious sell. So thing that you do, its more of a concept that ing options, they did not have fully fledged keep it simple, keep it engaging and give me you apply.” internet banking capability and they’re just some purpose to celebrate.” Kartik Ramakrishnan, senior VP at coming around to starting to build more Gamification still has a long way to go Campgemini, gave RBI his views on the internet facing banks. until it is completely mainstream. Only time uptake in America: “You’d be hard pressed “What I see in three or four years time is will tell if the major banks become more to find examples of gamification at the major the next wave of digital hits. The US will see serious in their uptake and the innovation banks. Its the start ups and the new entrants a high increase in these methods as part of becomes less of a novelty. < who’ve probably adopted it more. what they are rolling out to the market.” <

www.retailbankerinternational.com March 2015 y 15

RBI 711 March.indd 15 27/03/2015 16:32:39 NEWS: DIGEST Retail Banker International

PRODUCTS allows our customers to decide could take years to complete according to EY’s European how best to use their time. By owing to its large size. Banking Barometer 2015. removing standing queues and “It’s not an exact science, but The increase, attributed to an DBS debuts SMS queue providing seats for our custom- on some measures it’s bigger anticipated 3.75% uplift this system in Singapore ers, we also hope to make the than all the privatisations of year, represents over thrice the Singapore-based DBS and POSB, branch visit more comfortable the 1980s put together. Second, rise forecast in mainland Europe a consumer banking services for all our customers.” I think people want to see they (1.09%). brand of DBS, have launched a get their money back. The Brit- Estimates imply that UK lend- new SMS queue system which STRATEGY ish taxpayer wants to feel they ers will be able to cover their will relieve customers from the haven’t suffered some enormous cost of equity (9.1%) for the hassles of waiting in lines. Standard Chartered to loss. first time in six years if the pro- The new service, dubbed SMS Osbourne continued: “So jected figures are achieved. ‘Q’, is the first to be launched by cut bonuses by 9% there are constraints around it, EY lead global banking ana- a bank in Singapore. British lender Standard Char- but it’s certainly something I lyst Steven Lewis commented: It will enable customers to tered has reportedly decided would want to get moving on in “Strong revenue figures herald request for a queue number to cut its bonuses by a smaller the summer after the election. I a positive message of a changed through SMS before they visit percentage than its decline in would want to see a review on a industry, which is on a more sus- DBS/POSB branches. Customers profits. plan for disposal.” tainable footing for future per- will also receive notifications on According to a Sky News The lender is currently 79% formance. Although achieving the number of customers ahead report, the bank will shrink its owned by taxpayers after the an ROE of 9.5% and exceeding of them which will significantly bonus pool by approximately government bailed it out in end the cost of equity depends on the reduce waiting times. 9% from the previous year’s of 2008 and early 2009 to pre- banks delivering on their reve- For using the service, custom- £786m ($1.1bn) putting it in the vent its collapse. nue and cost targets and contin- ers have to text “Q” to the num- range of £715m. Business secretary Vince ued growth in the UK economy, ber tagged to the branch they With the move, Standard Cable wanted to break up RBS it would be a welcome boost to will visit. Chartered will risk reigniting in 2012 but was overruled by UK banks that have been strug- Customers will receive an a row over banking industry Osborne who orchestrated the gling to deliver to shareholders. SMS menu where they can bonuses as the decrease amounts exit of the bank’s chief executive “Achieving ever greater ROE choose their required service. less than the 20% drop in pretax Stephen Hester in 2013. requires more than just an Following their selection, they profit analysts’ forecast for the improving economic environ- will receive their queue number bank. M&A ment. It is a balancing act, which and the number of customers The move will also welcome has been difficult to get right ahead of them. criticism for the bank’s out - Scotiabank offloads given increased capital require- Customers will get a reminder going CEO Peter Sands, who ments, a higher cost of capital, SMS when their turn approach- cut bonuses by 15% last year credit portfolio in Egypt more liquidity and an increase es, and can go directly to their while profits had fallen by 11%, Canada’s Scotiabank has sold its in the cost of compliance. But, it assigned counter when the turn reported the bulletin. credit portfolio in Egypt to local appears that we are finally get- is up. Standard Chartered will lender Arab African Internation- ting back on track to achieving Moreover, in case a customer replace Sands with the appoint- al Bank (AAIB). sustainable growth.” misses the turn, he or she will ment of Bill Winters, a former JP Under the deal, Scotiabank UK banks have been unable get an SMS providing the option Morgan executive, which was has sold its loan and deposit to reach double digit ROE since to rejoin the queue. announced earlier in 2015. portfolios, its portfolio of let- 2007, when they posted an aver- SMS ‘Q’ is slated to be rolled ters of credit and guarantees age ROE of 17.6%. out to all full-service DBS/POSB REGULATION and documentary collections to Notably in 2009, ROE branches by the end of this AAIB. reached 9.4%, but saw a sharp March. George Osborne admits AAIB will now be responsible decline to 1.1% in 2013. DBS/POSB is also replacing failure to reshape RBS for delivering banking services traditional standing queues for Scotiabank’s clients in Egypt M&A with seats to enhance customer and plans early sale through the Scotiabank’s office comfort. UK chancellor George or AAIB’s nationwide branches. Citigroup sells 9.9% DBS Bank consumer banking Osborne has admitted not radi- stake in Akbank for group head (Singapore) Jeremy cally restructuring Royal Bank RESEARCH Soo said: “As the largest bank of Scotland (RBS) in 2010 was $1.15bn in Singapore, our branches are a mistake and outlined plans for UK banking industry’s Citigroup has completed off- one of the most utilised and we an early sale of the government’s loading a 9.9% equity interest are constantly exploring ways to stake in RBS after the general ROE to hit almost in Turkey’s Akbank for about enhance our customers’ branch election. double digit mark in $1.15bn, its latest sale of non- banking experience. “When I say ‘get rid of it’, I 2015: EY core operations overseas to slash “We also understand that time mean put it into the good hands UK bankers anticipate that the costs and boost capital. is a precious commodity so the of the private sector”, Osborne industry will report a nearly Citigroup has sold 396 mil- crucial part of the SMS ‘Q’ ser- said in an interview with the FT. double digit average return on lion common shares in Akbank vice is that it provides queue Osborne highlighted that cut- equity (ROE) in 2015 at 9.5% through an equity offering for information in advance and ting down the government stake for the first time since 2009, TRY7.45 per share.

16 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 16 27/03/2015 16:32:39 Retail Banker International NEWS: DIGEST

However, Citigroup said it is M&A 2011/12 recapitalisation exercise, retail banking operations in the committed to serving its Tur- which led EU banks to strength- UK. key’s corporate and commer- Citi eyes sale of Central en their capital positions by over For some time now, the bank cial clients such as medium and American retail units €200bn ($218bn) and to start the mulled over the idea of shifting large corporations, financial to Banco Popular for 2014 exercise with a CET1 [com- its base to somewhere in Asia, institutions, public entities, and $1.5bn mon equity Tier 1] ratio of 11.5 either Singapore or Hong Kong, subsidiaries of foreign multina- per cent.” and converting its Indian arm tional companies even following Citigroup is planning to into a new completely separate the sale. offload its Central American DISTRIBUTION subsidiary. Citigroup acquired a 20% retail units to Spain’s Banco Pop- Last month it replaced its long- equity stake in Akbank in 2007, ular Espanol for $1.5bn. Credit Agricole’s retail est serving CEO Peter Sands with and in May 2012 sold 10.1% According to media reports, Bill Winter, an investment bank- equity stake for $1.15bn. the sale price is expected to banking arm to slash ing specialist who worked in JP slightly exceed the units’ book over 1,600 jobs Morgan Chase. DISTRIBUTION value. The deal is also expected LCL, the retail banking unit of to include the assumption of cer- France’s Credit Agricole, is plan- M&A RBS to slash 600 jobs tain liabilities. ning to axe over 1,600 jobs at its The deal value could however, branches and among back office Cedrus Invest Bank in Netherlands change as the decision is yet to roles. The Royal Bank of Scotland be finalised. The job cuts, expected by acquires Stanchart (RBS) is axing at least 600 of its Citigroup is set to exit con- 2018, will constitute nearly 10% Lebanon’s retail 650 jobs in its Dutch branch. sumer banking business in 11 of the unit’s workforce. operations The bank CEO Jan de Ruiter countries, in an effort to focus on The layoffs are expected to be Lebanon’s Cedrus Invest Bank said that the job cuts will be high-growth markets and simpli- made through retirements and has completed the acquisition of executed in a period of 18 to 26 fy operations. This includes five not through redundancies. Standard Chartered Bank’s retail months and compulsory redun- Latin American countries namely banking operations in Lebanon. dancies may be unavoidable. Panama, Guatemala, Costa Rica, STRATEGY Standard Chartered Lebanon Ruiter added that the lender Nicaragua and El Salvador. The will now become a subsidiary will now completely exit the bank will however, retain corpo- StanChart may shift of Cedrus Invest Bank and will Dutch market. However, it will rate banking operations in these be rebranded as Cedrus Bank. remain active in risk manage- markets. global headquarters to Cedrus Bank is set to increase ment as well as currency trading Asia its equity to $60m following the in the region. REGULATION British banking group Standard acquisition. Union CN Dienstenbond said Chartered may consider shifting Cedrus Invest Bank is the that there will be just 10 to 15 EBA delays stress tests its global headquarters to Asia majority stakeholder in Cedrus jobs at the Amsterdam office by and spinning off its India busi- Bank with a 85% holding, with 2018. until 2016 ness into a subsidiary at its board the remaining stake owned by The European Banking Author- meeting in India on March 23. the Beirut Traders Association’s M&A ity (EBA) has decided not to The two issues will be dis - head, Nicolas Chammas. run stress tests in 2015, which cussed in the board meeting Fadi Assali, chairman and co- Barclays Africa is in are targeted at gauging whether though there is no certainty on founder of Cedrus Invest Bank, European banks have adequate a decision either way as of now, said: “There will be two differ- talks to buy the parent core capital to withstand shocks. The Economic Times has report- ent managements for the com- company’s Egypt and The watchdog will instead ed citing two bankers familiar mercial and investment banks, Zimbabwe operations run another transparency exer- with the matter. and we are fully committed to Barclays Africa Group is cise this year, which will aim to Sunil Kaushal, who heads separating their activities and reportedly in talks with its parent provide detailed data on bal- the bank’s operations in South boards of directors. However, company to acquire the latter’s ance sheets and portfolios of EU Asia, said: “India is one of our there will always be cooperation Egypt and Zimbabwe businesses. banks. The exercise will be in key markets. Issues such as sub- between the two entities,” said “We’re keen to acquire them, line with a similar exercise car- sidiarisation have to be discussed Cedrus Invest Bank co-founder but it has to be done at a com- ried out in 2013. on an ongoing basis. I am in no and chairman Fadi Assali. petitive price and be value accre- According to the EBA: “The position to comment on what the About the existing staff of tive and that’s the process we’re decision not to run an EU-wide board would discuss at this point Standard Chartered Cedrus in with Plc. Our core priority is stress test in 2015 was driven by in time. Speculations on moving Invest Bank chairman Raed to extract value from our exist- an acknowledgement of the pro- headquarters have been going Khoury said, “We will retain the ing portfolio,” Bloomberg quot- gress that EU-banks have made on for years. This is reviewed on existing staff because we believe ed Barclays Africa CEO Maria in strengthening their capital an on going basis. Immediately that their knowledge of the local Ramos as saying. positions in response to the 2014 there is nothing on the table as and international markets will Earlier in 2013, Barclays asset quality reviews and EU- of now.” add great value to our group. Africa had purchased its parent wide stress test. The London-based banking We are not merging two banks company’s businesses in eight “Moreover, these efforts were giant generates almost 90% of together; rather we are acquir- countries on the continent in an preceded by several years of capi- its earnings from Asia, Africa ing a bank so we will need more all-share transaction. tal raising spurred by the EBA’s and the Middle East, and has no staff.” <

www.retailbankerinternational.com March 2015 y 17

RBI 711 March.indd 17 27/03/2015 16:32:39 PROFILE: APS Retail Banker International

Silicon Roundabout or Silicon Valley- it’s down to 5G Anna Milne speaks to Richard Wagner, the founder of Advanced Payment Solutions (APS), about the journey to become the first fintech non-bank to offer financial services through the Post Office network, the struggles that followed and what the main barrier for fintech progress is

“A 25% share for digital challengers, col- we’re very proud of. We have over one mil- branches and having been a direct member lectively, in five years’ time would be lion consumers, 30,000 SMEs and nearly of MasterCard for the last eight years, I still considered a raving success.” 30% of the local authority market use our don’t have direct access to the faster pay - The subscript there being that it is not services to facilitate their banking and pay- ments network; I still don’t have access to out of the question, according to Rich ment needs. BACS directly and that is an inhibitor for me. Wagner, whose company, Advanced Pay- “I’m lucky enough to have a partnership ment Solutions (APS), has just linked up What are the key barriers for fintech with NatWest, which allows me to have a with the UK’s Post Office, granting it players in London? sort code and account number but I’m not access to the Post Office’s banking ser - allowed the responsibility to own that sort vices across its 11,500 branches. “One of the main hurdles that the fintech code and account number range myself- I APS started in 2004 and, as CEO Rich players need to overcome is financial invest- need to rent it from NatWest. They will Wagner says, was trying to be a challenger ment. Anyone that actually has a banking have a certain risk parameter from a high bank before the term challenger bank ever environment has spent many millions and street bank legacy system, which I will still became nomenclature in the fintech world. probably billions of pounds to set up an have to operate under. If we had that direct Aps provides banking solutions for consum- infrastructure that we as a fintech player access, there is much more flexibility that we ers, business and the public sector. “I’m happy to be the first, it gives me a first mover advantage, but Cashplus and the Post Office also I recognise the need to do something for the industry and help Its digital account, Cashplus, serves one revolutionise the payments industry” million customers and with the service now linked to the Post Office, these customers and the end consumer enjoy today and the could provide to consumers, businesses and will be able to make real time deposits, with- bigger financial institutions certainly have a even the government- if we were allowed the drawals and instant balance enquiries over view that they would prefer us not having capability to build those innovative features the counter. direct access to capabilities that have been onto networks that have been there for the Wagner has been targeting the Post Office there for, and I hate to say it, the old boys benefit of banks for the last five to ten years. for seven years to secure this particular network, the high street clearing banks of “The CMA, whatever the outcome, will access to its branch services. When he ini- the UK.” provide an extremely informative view of tiated early conversation around it, the Wagner says this goes back to 2007 when the industry. The regulators are going to powers that be at the Post Office felt it was he APS became the first principal member of have to look at this as one small step that just for traditional banks it seems. Wagner MasterCard as a non-bank entity. says the bodies are going to have to be more returned two years later and while proceed- “We were able to break those barriers proactive in providing access to players like ings got a little further, talks fell down again down. It didn’t take as long as the Post us to accomplish the goals and the CMA- amid apprehension the project would not Office but it did require a two-year lobby- recommended outcomes. gain volume. It seemed to Wagner that the ing effort to make it happen. And I think “This link up was a large initiative, a nev- Post Office just didn’t see APS as a legitimate once they see the competency these fintech er-before done collaborative effort to grant player, not being a traditional bank. players have- with as much capability and access to a non-bank. We needed access to “Ultimately, in the last five to six years, certainly more innovativeness than the high the Bank of England; to the link network the Post Office has become more commer- street banks- they’ll also see that the volume and it was a combined IT undertaking cially minded and opened up to ask how are and growth are going to come from players between the Post Office, Vocalink as a pay- they going to monitise the great distribu- like us and not from the retail establishments ment gateway network and FIS, APS’ card tion channel that it has. They came around that we’ve seen over the last 50 years.” processing platform player. to the fact we were showing growth in the “I’m happy to be the first, it gives me a marketplace and credibility in providing an What part did the CMA play? first mover advantage, but also I recognise alternative solution. We may not be a bank we need to do something for the industry but our product is a current account in all Wagner certainly has temerity: “MasterCard also in providing similar solutions to con- name except cheque-clearing.” said no about ten times and the Post Office sumers and businesses in a much digitally- The deal was signed about six months ago about a hundred. But there are critical enabled way and will help revolutionise the and the service is now live following a small access points for fintech players to operate payments industry on behalf of the banking pilot among friends and family. in and by having external parties like the industry.” “I see ourselves as a First Direct in every- CMA pointing this out to the wider indus- thing they do, even the servicing side, which try. Despite now having access to 11,000 Any more lobbying efforts in the pipeline?

18 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 18 27/03/2015 16:32:39 Retail Banker International PROFILE: APS

“I’m an advisory member on the board of the Of Wagner’s 15 years in the UK, ten and a Emerging Payments Association and we’re half have been with APS. He also has experi- London’s internet speed passionate about getting equal access for ence of the US region and is well placed to The table Wagner refers to regarding non-banks. compare the fintech of both regions. London’s internet speed was part of an “This step took me seven years - I hope the “In terms of mobile, Europe and the UK article published by The House of Lords next one won’t: getting direct access to the are far more advanced. In terms of digital Digital Skills Select Committee, examing faster payments networks and BACS. If you and online customer experience, because of digital services, adoption and education asked me three or four years ago whether Silicon Valley and a lot of fintech hubs in in the UK. that was even feasible, I would probably the US and the technology in the US, they According to the report, a serious bar- rier for business is national infrastruc- “In another year or two you’ll be hearing of other firsts from APS ture, “we need a minimum of three Server because that’s what we’ve been doing for the last ten years and we are Farms”. certainly not going to stop now” Sean Williams, group director, Strategy, Policy and Portfolio, BT, said, “I think it have said no but with the emerging aspects still have a little bit of advantage over the is a shared responsibility between the of the payments system regulator, the PFR, UK and Europe. Government, the regulator, the industry and with the regulation momentum and the “But when it comes to core fintech, even and our customers. I think it is quite well CMA promoting more competitiveness, we my investor, who’s been a managing part- recognised in the UK that there is a com- no longer have headwinds. We have tail - ner of a private equity firm for well over 30 mercial case to take investment to about winds pushing us to the fact that these access years, loves the fact that we’re in London. two-thirds of the country, and beyond capabilities will be there. Everything you read, all the PR, it’s not just that the commercial case for investing in “Within the next two years you’ll be call- PR, it’s reality. new networks is uneconomic. We have ing me up talking about APS being the first However, one concern is that despite had support from the Government under non-bank to have access to BACS and faster the massive talent, the intellectual capital the BBUK scheme. As a result, we will get payments.” that’s in Silicon Roundabout and the City superfast broadband networks into more and certainly on South Bank where we sit- than 90% of the country.” Will non-banks overtake traditional the one concern is the internet speed. The Dominic Field, from the Boston Con- banks? UK’s internet speed is average, midmarket sulting Group talked about the bigger for all of Europe. And if the UK or certainly problem being mobile broadband speeds, Wagner is optimistic about the potential London wants to be the fintech capital of not the fixed variety. fintech non-bank challengers have to the world, they better be in the top tier of “In the infrastructure scores that I disrupt the monopoly of the big UK high internet speed in the world. I don’t think it’s talked about earlier, we place the UK at street banks, despite the market share they a big inhibitor but it is a misfit right now. If number 13 out of 65 countries around have established.“I think it would be a it continues without change, in five to ten the world. wonderful dream come true. The banks have years’ time then it will be damaging. “The area that held us back was not established a tremendous market share over “The UK ranks middle of the table which fixed broadband, which we have talked 50 to 100 years. We know the lethargy of the counters the fact you have so many fintech about so far, but mobile. Mobile broad- consumer base. Less than 3% will change companies coming for the talent that exists band access is actually the primary mode their current account in a lifetime, let alone here and it was quite interesting to hear peo- of access for many people in the country within a year. It’ll be interesting to see how ple talk about the sheer amount of traffic. It’s and is increasingly becoming so. That is the new generation will do their banking. so congested. The infrastructure for internet an area where we have lagged behind both in access and in price. That was the “Despite the massive talent in London’s Silicon Roundabout, a big factor that weighed us down and took us concern is internet speed. If it continues without change, in five to to number 13.” ten years’ time it will be damaging” 3G, 4G, 5G It could be that the UK is about to leap- The banking industry brings innovation speed hasn’t kept up with the growth of the frog from lagging broadband speeds every year to the table. Adoption of that fintech sector within the UK.” to leading the way with advanced 5G innovation sometimes takes a generation to Wagner concludes: broadband connectivity. take hold. That is speeding up. Adoption is “Never rest on your laurels. We have Marcus Mason, policy manager, going faster than I’ve ever seen in 30 years. been a leader for the last 10 years of opera- employment and skills, British Cham- tion; we want to be a leader for the next bers of Commerce, said, “While we have “I think adoption will be much faster than in ten years. Are we done with lobbying and done well in our 3G development, we the previous 25 years. There’ll be material further access into the payment networks? have begun to lag behind on 4G. Per - change happening and five years from now I No, this is a great landmark milestone for haps the development of 5G could be an still think the big banks will have a majority us as well as the industry because there’s no opportunity for the UK to take the lead share but they certainly won’t have a 90% question the Post Office will allow access to once again. A huge benefit of seizing the share. The fintechs will take a pretty large other players. In another year or two you’ll opportunity on 5G is that we’d then have chunk of that and if collectively, say, fintech be hearing of other firsts from APS because the infrastructure for new types of busi- players five years from now had a 25% that’s what we’ve been doing for the last ten nesses to develop off the back of it, ones share against major banks I think everyone years and we are certainly not going to stop with a global competitive advantage. would agree that would be a raving success. now.” <

www.retailbankerinternational.com March 2015 y 19

RBI 711 March.indd 19 27/03/2015 16:32:40 COMMENT: NUISANCE CALLS Retail Banker International

Calling out cold callers: The new threat

Gabriel Hopkins looks at the annoying and ever-present cold caller and what the Editor: Douglas Blakey Tel: +44 (0)20 7406 6523 UK government is doing to combat this nuisance to the benefit of consumers Email: [email protected] tarting on April 6, it will be easier for the increase customer contact in collections by 400% Senior Reporter: Anna Milne UK government to fine firms that perpe- without increasing staffing numbers significantly Tel: +44 (0)20 7406 6701 trate nuisance calls and texts. The fines run reducing bad debt. Email: [email protected] as high as £500,000. The government is Reporter: Patrick Brusnahan S Talking to Millennials Tel: +44 (0)20 7406 6526 responding to a tidal wave of complaints —more Email: [email protected] than 175,000 complaints last year, according to Mobile contact strategies are also important as a channel to reach younger borrowers. FICO has Asia Editorial: Sruti Rao the BBC. Email: [email protected] This glut of nuisance calls and text messages just released research that shows that Millennials are five times more likely to use mobile payment Group Publisher: Ameet Phadnis has caused annoyance, inconvenience and distress Tel: +44 (0)207 406 6561 for consumers. Anyone who has been hounded at services than other age cohort. In addition, twice Email: [email protected] home by cold calls, or mobbed on their mobile by as many Millennials (32%) reported that they are Sub-editors: Kev Walsh, Nick Midgley spam texts, will be glad that the law’s muzzle is likely to use mobile wallet services like Apple Pay Director of Events: Ray Giddings being removed. or Google Wallet in the next 12 months, com- Tel: +44 (0) 203 096 2585 But consumers aren’t the only ones cheered by pared to survey respondents who are 35 and older Email: [email protected] this move. Banks, card issuers and other large (16%). Additionally, 56% of younger Millenni- Head of Subscriptions: Sharon Howley als (18-24) report that they are already using or Tel: +44 (0)203 096 2636 enterprises should be grateful as well. Email: [email protected] very likely to use alternative payment services Nuisance calls impair the opportunity for Sales Executive: Alexander Koidis legitimate contacts between companies and their like Venmo and PayPal. Banks and card issuers Tel: +44 (0) 203 096 2586 customers. Many large well-known brands, such need to use SMS to communicate with younger Email: [email protected] as banks, successfully use automated customer borrowers through their preferred channel – the Customer Services: engagement to quickly and efficiently resolve mobile device. Without this, customer service for Tel: +44 (0)20 3096 2636 or +44 (0)20 3096 2622 Email: [email protected] issues, such as determining the validity of suspi- the customers of the future will be hobbled. The Financial Conduct Authority also recog- For more information on Timetric, visit our cious transactions, helping borrowers make pay- website at www.timetric.com. As a subscriber, ments or simplifying aspects of customer service. nizes the value of automated communications. you are automatically entitled to online access The FCA just released an occasional paper on to Retail Banker International. For more Automated contact – a valuable channel their research into what helps consumers better information, please telephone +44 (0)20 7406 By reaching customers in real time across a manage their current accounts and avoid unin- 6536 or email [email protected] range of channels, companies are simultaneously tended overdrafts. London Office improving customer experience and their ability 5th Floor, As shown in a handy infographic the FCA Farringdon Place, to tackle fraud, manage their accounts and collect posted on its LinkedIn page, annual summaries 20 Farringdon Road, overdue funds - helping customers stay current of costs and activity don’t help at all. What does London, EC1M 3AP with their payments. Using these tools, one major work? SMS alerts and mobile banking messages. Asia Office UK bank reduced the number of fraudulent trans- The FCA found that these together resulted in a 1 Finlayson Green, #09-01 actions per compromise from 5 to 3 on average. 24% reduction in unarranged overdraft charges. Singapore 049246 Another bank found that 94% of customers Tel: +65 6383 4688 As the paper reports: “We find that text alerts Fax: +65 6383 5433 would recommend them to friends following a reduce monthly unarranged overdraft charges by Email: [email protected] positive automated experience. 6% (£0.22) for Bank A. Mobile banking apps Financial News Publishing Ltd, 2012 Mobile communications can be extraordi - reduce monthly unarranged overdraft charges Registered in the UK No 6931627 narily useful in collections. By giving custom - by 8% (£0.33) for Bank A and by 5% (£0.23) Unauthorised photocopying is illegal. The contents of this publication, either in whole or part, may not ers more control and making it easier for them for Bank B. Signing up to both services reduces be reproduced, stored in a data retrieval system to pay, many more of them pay within a much monthly charges by 24% (£0.93) for Bank A, or transmitted by any form or means, electronic, shorter time frame. State-of-art mobile payment mechanical, photocopying, recording or otherwise, an effect greater than the sum of the individual without the prior permission of the publishers. For systems can not only manage standard customer effects of each service (an additive effect).” information on additional copies or syndicatedonline payments, but also payment plans. These systems access to this newsletter, please contact Customer SMS texts and other automated communica- Services. also feature a two-way text messaging system tions truly are a win-win-win; a lower-cost chan- that allows payment via regular mobile phones. nel for lenders, a better service for customers and Alerts are sent to customers as payments are due, a legitimate way for both parties to ensure and and customers can authorize repeat payments just protect the consumer’s financial health. It’s abso- by replying to the SMS, paying in real-time with- lutely critical that we encourage consumers to out any need to provide card details. Payment embrace this form of communications; not train reminders go straight to their pocket. them to shun it. That’s why so much of the indus- Mobile services often achieve better results than try stands behind stepped-up enforcement of the DID YOU KNOW? standard strategies. One leading utility found that nuisance call laws. on average customers pay six days sooner and For more information, read FICO’s new Your subscription to this newsletter entitles you to access its five-year online archive. Go to www. that they were able to volume of paper letters to research report on Millennial banking habits. < retailbankerinternational.com customers by 34%. A survey revealed that 55% of consumers said they preferred the automated Gabriel Hopkins manages customer communica- voice call, while just 29% said they would pre- tions solutions for FICO, the predictive analytics fer a call centre agent. A major bank was able to and decision management company.

20 y March 2015 www.retailbankerinternational.com

RBI 711 March.indd 20 27/03/2015 16:32:40

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