informilo magazine for sibos 2013

7/29/2019 Informilo Magazine for Sibos 2013

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Many banks are trying to transform them-

selves for the digital age but few have goneas far as Polands BRE Bank, which re-booted earlier this year by scrapping itstraditional brand and redesigning itselffrom scratch.

BRE, which launched in Poland in the1980s and later became a strategic invest-ment of Commerzbank, rst tested Internetservices by launching mBank, a pure-playonline bank in 2000. As an Internet-onlybank, mBank rose rapidly to become Po-lands biggest online bank and its third larg-est retail bank and then expanded into theCzech Republic and Slovakia.

Today mBank is so successful that BRE,the parent company, has decided to changeits name to that of its Internet subsidiary.The commercial bank and its two retailbrands will soon be using the name mBank.

The m signies not only that the bank hasincorporated mobile but that it has under-gone a true metamorphosis.

It took courage to rebuild the bank, says

Michal Panowicz, who spent three years atHarvard Business School and ve years atMicrosoft in the U.S. before becoming man-aging director of the mBank project. Pano-wicz was brought on board to spearheadthe radical transformation because BREBank determined that Big Data analytics,social networking and mobile are not justnice-to-have add-ons these technologiesneed to permeate everything it does.

Change is necessary because interoper-ability and hyperconnectivity are allowingcustomers to switch providers easily. Peer-to-peer services and social network referralsand critiques are changing how relation-ships and trust are built. Whats more, thereis a shift from a high-value low-frequency-based revenue model to one based on verylow value but extremely high frequency,

with micro-fees providing recurring rev-enue, undercutting the traditional bankingmargins and fees. Options for banks includeunbundling the current model and excel-

ling in one specic area, transforming intolong-tail business model organizations orpartnering with newcomers in the business.

Our industry is being challenged by ag-gressive newcomers who are experimentingwith creative strategies and dramaticallydifferent business models, says Peter Van-der Auwera, co-founder of Innotribe, theinnovation arm of SWIFT, the financialservices organization that each day han-dles wire transfers for over 10,000 banks.Vander Auwera is also the architect andcontent curator of Innotribe at Sibos, anannual banking conference which is organ-ized by SWIFT and takes place this year inDubai on September 16th-19th. The focusof the Innotribe sessions at Sibos 2013 willbe on preparing banks for a very differentkind of future, one which will be centered

around big data analytics, mobile, and soc

and which will require new tools, capabities, and non-linear ways of thinking, saVander Auwera.

The new mBank online service, whiwas opened to customers in June of this yeand won FinovateEuropes Best of Shogives a glimpse of whats to come. mBaoffers a state-of-the-art interactive usinterface; a search engine that allows bocommercial and retail customers to vietheir real-time transaction history as easas using Google to look up something the Internet; money transfers using phonumbers or social network connections istead of account numbers; personal nanmanagement services which clearly explawhen money was spent and on what a

forecasts overall spending by the end of tmonth; video banking an online, secuvideo stream connection to bank advisorsauthenticate contracts and transactions; agamication to encourage smart spendiand saving. Within three months the neservices have attracted over a million cutomers and accolades from banking industobservers. mBank is the rst bank-inventmobile social solution Ive seen that evcomes close to delivering the new retbank reality, banking industry expert ChSkinner, a scheduled speaker at Sibos, sain a blog posting.

Skinner, the author of a book schedulto be released at Sibos called BecomingDigital Bank Strategies for Success, cosiders that and other developments as

encouraging sign.I am pleased to say that in 2013 ban

have woken up to the 21st century chalenges of banking, he said in an interviewith Informilo.

The Polish bank took action because tbarbarians are at the gate, says Panowicreferring to start-ups offering innovativcheaper, more efcient ways to move, maage and exchange money. The last thi

SEE INSIDE:TOP 25 HOTTESTGLOBAL FINANCIAL

SERVICES START-UPS

BYJENNIFER L. SCHENKER

INDEPENDENT PRINT MAGAZINE DISTRIBUTEDAT SIBOS IN DUBAI SEPTEMBER 16-19, 2013 ANDAT LEVEL39 IN LONDON AUTUMN 2013

WWW.INFORMILO.COM

THE HYPERCONNECTED ECONOMY:

HOW TECHNOLOGY WILL RADICALLYTRANSFORM BANKS AND THE FUTURE OF MONEY

REBOOTING BANKING FOR THE 21ST CENTURY

CONTINUED ON PAGE 22-23


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WHERE BUSINESS

MEETS INNOVATION

02 INFORMILO.COM16-19 | SEPTEMBER | 2013

CONTENTS

JENNIFER L. SCHENKER:EDITOR-IN-CHIEF AUDREY MANDELA:CONTRIBUTING EDITORCONTRIBUTING WRITERS:JAMES SILVER,ERIC SYLVERS, DARCY DORANDESIGN:THEDESIGNSURGERY.CO.UK

THIS MAGAZINE WAS PRODUCED BY INFORMILO,A MEDIA COMPANY THAT SPECIALIZES IN CONNECTINGBUSINESS WITH INNOVATION. INFORMILO RUNS ANEWS SITE, WWW.INFORMILO.COM, AND PUBLISHESINDEPENDENT MAGAZINES CONNECTED TO MAJORINDUSTRY CONFERENCES.

22

23REBOOTINGBANKINGFOR

THE21STCENTURY

02

DIGITALINTERLOPERS

03

CANDESIGNTHINKING

TRANSFORMBANKS?

04 05 BANKSAREPARTNERING

WITHNIMBLERRIVALS

06 07 ONLINELENDERSAND

BANKSBECOMEPEERS

08 09 PREVENTINGTHENEXT

FINANCIALMELTDOWN

10 11 ACCELERATING

FINTECHSTART-UPS

12 13 TOP25GLOBALFINANCIAL

SERVICESSTART-UPS

14 GOINGMOBILE

15

CHRISLARSEN:

SERIALDISRUPTER

16

17 UDAYGOYALSVISIONOF

THEFUTUREOFBANKING

18

THEHAPPINESSECONOMY

19

RECREATINGCAPITALISM

20 21 HAYDNSHAUGHNESSY

ONINNOVATIONMODELS

THE INFORMATION CONTAINED IN THIS PUBLICATION WASCOMPILED USING ETHICAL JOURNALISM PROCEDURES.NO LEGAL LIABILITY CAN BE ACCEPTED FOR ANY ERRORS.NO PART OF THIS PUBLICATION MAY BE REPRODUCEDWITHOUT THE PRIOR CONSENT OF INFORMILO.

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While many retail banks are still tryingto layer basic digital services on topof clunky legacy systems Moven hasmoved into the market. The digital-onlybank is attracting young customers byusing mobile phones as primary pay-ment devices, replacing credit cards,debit cards and cash; offering its cus-tomers an innovative way of trackingtheir spending by categorizing transac-tions and creating a purchasing behav-ior prole that allows for adjustments;

and granting its customers the ability toimprove their nancial health by bring-ing in friends from social networks.There is also a Weight Watchers-likesystem of rewards and bonuses for goodnancial behavior.

Given its global ambitions and its ini-tial target customer base the over 80million millennials in the U.S. who areexpected to become a driving force inthe economy within ve years it is notsurprising that Moven, which launcheda beta product into the market in April ofthis year, was able to raise an additionalround of venture capital last month. (InAugust 2012, Moven announced $2.41million in seed round funding from An-

themis Group and Raptor Ventures.)The new investor is Life.SREDA, aventure fund owned by a group of eightRussian commercial banks, marking therst time that any of the digital-only neo-banks have raised money from a tradi-tional bank.

It is unlikely to be the last. I woulddenitely expect more traditional bankslooking to make digital investments,says serial entrepreneur Scott Bales,Next Banks Singapore-based directorof user strategy innovation and a Movenboard member. Many of the traditionalbanks are already very aware of the be-havioral shift driven by digital. So Id ex-pect them to make strategic investments,if not acquisitions, in the digital space.

(See the story about banks partneringwith payment and foreign exchangestart-ups on pages 4 and 5.)

While digital interlopers like Movenwere at first ignored or greeted withskepticism by traditional banks, this is nolonger the case. Some banks have alreadystarted copying their best-of-breed ser-vices. BNP Paribas, for example, recentlylaunched a standalone digital mobilebank, Hello Bank!, in Belgium, Germanyand France, with plans to open in Italyin October, to counter competition fromdigital-only banks.

Billed as a native mobile bank, HelloBank! accounts can be opened in just foursteps from an Android or Apple smart-

phone or tablet or over the Internet. Thedigital-rst approach is backed by a teamof staff working extended hours six daysa week to answer queries via chat, email,tweet and phone. Hello Bank! users alsohave access to BNP Paribass extendedbranch network and online brokeragevia Cortal Consors in Germany. BNPParibas has said it hopes to attract 1.4

million customers for the service overthe next ve years.

Ease of use, an engaged customer base,differentiated distribution (no branches)and strong digital (mobile and Web)support are all the rage, but it is a newapproach to the basic day-to-day bankaccount that is resonating with digitalnatives, Brett King, Movens founder andCEO, explains in a blog post.

Among the neo-banks only Germa-nys Fidor Bank has a banking license.Others like Simple and Finlands Holvirely on the back offices of traditionalbanks. Although they are proving at-tractive to digital natives the neo-banksremain niche players. Some may end up

licensing what they do best to traditionalbanks, says Uday Goyal, a co-founderat Anthemis Group, an investment andconsulting group specializing in 21st-century nancial services. Anthemis isan investor in Simple, Moven and FidorBank and recently revealed that it hasraised an undisclosed amount of invest-ment from Life.SREDA.

But not all neo-banks are ready tocontent themselves with just a slice ofthe market. I think in the short termdigital-only banks will start with suc-cess in one product vertical, but quicklydiversify to other verticals as they scale,just like Amazon did, starting in books,and spreading to all online retail, saysBales, who is also a scheduled speaker atSibos. Right now there are key engage-ment verticals in which the neo-banksare nding success, and in time that suc-cess is only going to grow, fast.

Digital Interlopers

BY JENNIFER L. SCHENKER


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HOW TECHNOLOGY WILL RADICALLY

TRANSFORM BANKS AND THE FUTURE OF MONEY

0316-19 | SEPTEMBER | 2013INFORMILO.COM

Vince Voron, a scheduled speaker atSibos in Dubai, has more than 20 yearsof design experience at two of the

worlds most iconic brands: Apple andCoca-Cola. He recently took on a job asVice President of Dolby Labs, leading amarketing team which includes design,brand management, digital/experientialmarketing, content, production and theDolby Theater. Voron has an engineer-ing degree from Pennsylvania State, anMBA from San Jose State and a humanecology degree from the University ofParis. While at Apple he lived in Cali-fornia, Singapore, Ireland and Franceand was the senior industrial designmanager up until 2006. He then joinedCoca-Cola as head of design, a positionhe held until earlier this year. Voronrecently spoke to Informilo Editor-in-

Chief Jennifer L. Schenker about howdesign thinking can transform any busi-ness including banks.

Traditional banks are beingtold they need to be more like

Apple. On a practical level how canbureaucratic, staid organizationslike traditional banks make such aleap? What specifcally can theylearn rom Apple?

It is not really how can a bank belike Apple but how can companies

large and small learn from any myriad ofindustries and how the role of the creativedesigner should change: how she or he

can inspire other folks in the organiza-tion. One of the things we did at Apple iswe actually spent time working with ourdesigners and building cross-functionalcapabilities. We taught designers aboutnance and actually sent the designersout of the design studio into the organi-zation. We had to prove that we couldbe accountable and we understood hownancial decisions were made in orderto show the company how they got valuefrom design.

We brought the leaders, the directorsinto the design studio. It was an interest-ing experience observing nance leaderscoming into the design studio and uncom-fortably mixing with colleagues that not

only dressed differently but were operat-ing effectively in an environment of loudmusic and dynamic surroundings. It was

equally enlightening to observe seniordesign leaders maneuvering awkwardlyin the boardroom. This has been a keyto Apples success and it was somethingthat when I moved over to Coke I tookvery seriously.

At Coca-Cola, over a period of sevenyears, the design team came to be viewedas business drivers. We talked to peopleabout the value of art and beauty and itsability to increase customer allure andmake the product more efcient. We wereable to build these metrics into the deci-sion process and convince an unlikelygroup of individuals to work together andbehave in a very different way.

How do you plan to applydesign thinking at Dolby?

One of the reasons I came to Dolbyis that it is something so different

from Apple and Coca-Cola. Dolby is anengineering-driven company with aglobal brand; an ingredient brand. We arebeginning to use design thinking at Dolby,a type of pinball strategy. It is really abouttaking an idea, bouncing it to a partnerand having them bounce it to someoneelse. As the idea bounces like a pinball itis growing and has the ability to scale. Itis called open innovation. This can bereally valuable for an organization but itis scary for the banking industry or any

industry because playing pinball risksexposure to new ideas.

Design thinking is a term thatis in vogue now. But what

exactly does a bank have toincorporate into its business model,its strategy and its managementteam to truly embrace it?

Until recently there had not beenmuch academic research relative to

design but an academic dialogue has beenopened up with businesses at Stanford andother prominent business schools so todaytop-notch MBA students take design think-

ing classes that will include collaborativeprototyping and idea generation. The ideais that everyone is a designer it is not

about having a degree in design it is anapproach to problem solving and how youintegrate brand, products and services. Aslarge nancial institutions begin hiringthese young MBAs this thinking will startto be incorporated.

I you were hired by any o thebig traditional banks

tomorrow what is the frst thingyou would do?

Cut my hair. No, I probably wouldntdo that. One of the rst things I did

at Coke when I was hired was to help leadone of the largest R&D innovation projects,helping Coca-Cola Freestyle transform

soda fountains in restaurants globally andmake this new brand alluring to teens. Oneof the key things I did was to go around thecompany and asked all the executives whatwas the most memorable experience theyhad with Coke when they were a teenager.They spoke about the Coke Machine thebuttons, the lights and I realized thatinteraction with a particular machine wastheir rst retail experience with Coke the rst time they were spending their 50cents without their parents. I took thatback and we spent signicantly more thanwe planned on the design overlay.

If I were going about this for the bank-ing industry I would start by asking whatis my big task: to redefine how certain

types of data are collected and used, howteams are built, how consumers are en-gaged? I would sit down with the top lead-

ers and ask them targeted questions abouttheir experience as a consumer or as anemployee and then try to pull from theman unanticipated solution and take thatback to them to show them that they hadthe answer they just didnt realize it.When designers are empowered to gobeyond traditional boundaries a lot ofamazing things can happen.

What is your adviceto bankers?

One of first things I would chal-lenge them to do is to emulate my

experience at Apple and Coke and reachout into other parts of the organization

to really learn about what drives themand makes them successful. If you lookat polar opposites within an organizationand take the time to understand what theydo you can identify an underlying threadthat will help them both achieve theirgoals. One other thing which is really,really important is to try to make otherindividuals successful on your agenda.It is something that has taken me about25 years to gure out. Check your ownego forget about getting credit takeyour idea on to the organization and bringyour dream to life.

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How Design

Thinking CouldTransform BankingAn Interview With Vince Voron


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WHERE BUSINESS

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04 INFORMILO.COM

Square, the first start-up to enableself-employed professionals and smallmerchants to accept card payments viasmartphones and tablets, processedpayments of over $10 billion in 2012.Its phenomenal success did not escapethe attention of Banco Santander, theleading bank in the Eurozone by marketcap and the largest nancial group inSpain and Latin America.

But the bank, which also has a sig-nificant presence in the UK, Portugal,Germany, Poland and the northeast U.S.,did not try to develop a competing systemin-house. Instead, it invested in and part-nered with iZettle, a Square competitor.Such alliances are part of a growing trend:banks are realizing that they cant do it alland if they are to retain the millenniumgeneration as future customers they willhave to partner with nimbler start-ups inorder to develop the types of services thatare attractive to digital natives.

While the small army of fast-growingstart-ups across the payments and for-eign exchange (FX) landscape isnt yeta signicant threat to nancial services

institutions, theres little doubt that theywill forever change the nature of bank-ing. For example, Google Wallet, whichenables customers to send money usingGmail to friends and family in the U.S.,and Dwolla, which replaces hiddenbank transaction charges with low, atfees, are gaining traction with consumers.So are a growing number of consumermobile payments services such as Square,iZettle, Stripe, mPowa, SumUp, paylevenand others which target small and me-dium-sized businesses. Cross-border

payments companies such as Transfer-Wise, a peer-to-peer service that allowspeople to transfer money more cheaply;B2B international transfer services likeThe Currency Cloud and Earthport; aswell as direct debit processor GoCardless,which enables smaller merchants to setup interbank transfers for customers, arealso disrupting the market.

By forging strategic partnerships withsuch start-ups nancial institutions arehoping both to piggy-back on start-upinnovation and to counter the threat totheir future market share.

The model of the market used to be hi-erarchical so the payments systems werepart of the hierarchy they were like

building blocks and owned by the samepeople: the banks, says economist andtechnologist JP Rangaswami, chief scien-tist at Salesforce.com. But now there arenew entrants in their market, doing things[the banks] used to do, faster, cheaper,better. Before our eyes the hierarchy ismorphing slowly into a much more adap-tive ecosystem, into a network of smallpieces, loosely joined, and not all thosepieces will be [controlled by the banks].The way you deliver a service now is notby full vertical integration, but by the right

partnerships and alliances and weveonly seen the beginning of that trend.

As Square, PayPal and other U.S. com-panies gear up to expand internationally,iZettle announced, in February, a strategicinvestment of5 million ($6.6 million)from Banco Santander. The deal enablesself-employed professionals and smallmerchants to accept card payments viasmartphones and tablets using iZettlesChip & PIN reader. For Banco Santanderthe interest is clear: in Spain alone thereare more than one million self-employedprofessionals and micro-companies thatneed an option that is more exible thanconventional card terminals, accordingto the bank.

Others have announced similar ar-rangements. In October 2012, UK-basedmobile payments rm mPowa signed adeal to supply its devices and paymentsinfrastructure to First National Bank in

South Africa. It has also signed an agree-ment with Portugal Telecom. mPowasCEO Dan Wagner says further, similardeals will follow. Were in negotiationswith many banks and telcos around theworld right now and we have plenty ofopportunities that are under negotiationglobally, he reveals. Meanwhile, anotherSquare competitor, SumUp, which ena-bles merchants to take debit and creditcard payments with their smartphonesor tablets, announced a Series B invest-ment round led by American Express andGroupon in May. That was followed bynews, in July, that BBVA, which providesnancial services in more 30 countries,had also invested in SumUp to help thecompanys planned rollout into the South

American market.All the banks have checked the box

for things like mobile apps and P2P butthere is a difference in checking the boxand truly living and dying it and puttingyour resources behind it, says Jay Reine-mann, executive director at California-based BBVA Ventures, which recentlyannounced that it has set aside $100 mil-lion to take minority stakes in start-upsin payments and other related spaces. Sofar the bank has invested in two venturefunds and four start-ups. Looking ahead,he says, the bank plans to rely on thestart-up community to help us to bridgethe gap in product or marketing in anyareas they can help.

Its taken start-ups to shake up theindustry because banks have plainly hadno incentive to disrupt themselves, saysTyler Sosin, a London-based associatewith venture capital rm Accel Partners.Sosin works closely with the GoCardlessteam, in which Accel led a $1.5 millioninvestment round last year. Its one ofthese innovator dilemma issues: whywould you disrupt an existing businessmodel thats worked so well for you?he asks. The new players in the space,who dont have the fixed costs of thebanks, can come in and offer somethingthats focused on one area and be able toprovide much better value.

iZettles CEO Jacob de Geer says thatwhile banks, such as Santander, have

been very effective at servicing mid-tierand larger companies with payment so-lutions, they have been rather less adeptat nding ways to reach merchants andmore mobile small businesses. Thatswhere companies like iZettle are reallydisruptive, he says. We can reach outto these smaller companies. There arestill 20 million companies across Europewhich still dont accept card payments,and typically they account for 20%-30%of GDP of any given market. Then if youlook at a market like Mexico, you can seealmost all companies are SMEs and theyaccount for about 70% of all employ-ment, so they are very signicant, butvery hard and expensive to reach for a

Sleeping WithThe Enemy

Fearing Market

Disruption, Banks

Are Partnering

With Their

Nimbler Rivals

BY JAMES SILVER

Start-ups not banks have come up with ways or sel-employed proessionals and small merchants to accept card payments via

smartphones and tablets. The chip and pin reader eatured in this photo is made by iZettle, which recently partnered with Banco Santander to

roll out its technology in Mexico. Other banks, such as BBVA, are also partnering with start-ups in this space.


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16-19 | SEPTEMBER | 2013

Innovation in the payments space isharder than in most markets: it re-quires pushing boundaries from botha technological as well as a regulatorystandpoint. Naturally, as we look atless technologically-oriented compa-nies (like major banks), this problembecomes more pronounced. Becausethey focus on providing services towell-established businesses, not afast-moving base of start-up clients,they arent required to challenge thestatus quo or relentlessly root outinefciencies in existing systems.

Ironically, while major banks havesignicant clout in discussions withregulators, its becoming increasinglyclear that start-ups, not banks, are theones driving changes in regulation toaccommodate innovative products.

In 1999, PayPal changed the face ofonline commerce and drove the direc-tion of much of the online paymentregulatory landscape. Today small butfast-growing companies such as Squareand my own, Stripe, are challengingareas traditionally dominated by largenancial institutions.

Innovation comes from the ability torespond quickly to changes in the mar-ket and environment. While talking tocompanies in the collaborative con-sumption space, we learned that muchof their operational overhead came notfrom accepting payments, but fromdisbursing funds to the supply side of

the marketplace: Lyft, a ridesharingapp, needed to send funds to drivers,while Postmates, a mobile deliveryapp, wanted to send money to couri-ers. So in less than four months, wedeveloped and launched our Payoutsproduct. Rather than undergo a time-consuming and error-prone processof sending manual payments throughtheir banks, marketplaces could nowmanage multi-party payments with afew lines of code.

Banks have seemed wanting inagility and innovation in financialtechnology, especially when it comesto that used by sellers. Why is this?We think these banks are in the dol-drums thanks to a lack of emphasison technical expertise (includingreliance on outsourced technology).

They are ignoring the very tellingleading edge of the market and failingto empower the types of people whodrive progress.

Stripe has benefited from livingdirectly in the center of a generationof entrepreneurs, who are pushingtechnology boundaries. In order tounderstand the developments of themarket and build products that solveneeds and drive change, you need two-way interaction with fellow disruptivebusinesses. By narrowly focusing onexisting big players and large accounts,banks have lost the connection withthose who inspire innovation.

traditional bank, given their set-up andsales methods.

So why this cooperation is so excit-ing for Santander, and us, is being able toreach out to a totally new target group in a

very cost-efcient way. Its also a fantasticway for them to leverage their installedbase of issued cards in the markets. Theinfrastructures already there and theycan boost their revenue by bringing moreacceptance devices to the markets.

Besides, legacy businesses, such asbanks and telcos, find it hard to inno-vate, argues de Geer. Their scale, his-tory, heritage and hierarchical systemsall mitigate against rapid technologicalchange. [Innovation] is not really in their

DNA, he claims. Its extremely hard toinnovate from within an organization.The payments industry right now is beingdisrupted from many angles. Every partand aspect of banking will be challengedin the next few years; just look at what[online social trading and investmentnetwork] eToros done for trading itgives a pretty good indication of whatsto come in banking services. So the com-bination of the incumbent and innovatoris extremely dynamic.

Another underlying reason for bankspartnering with start-ups is speed. In anage of disruption, says mPowas Wag-ner, rst-mover advantage is critical.[Banks] recognize that market entrants

could come into their space and cap-ture a large chunk of customers beforetheyve had a chance to get their acttogether. That gives an opportunity tonew market entrants like us, who are

providing a service to them, to say youdont need to build this yourself, wellbuild it for you. In fact weve alreadybuilt it for you, we just need to integrateit into your ... infrastructure and thenyoure off to the races.

In FX, too, start-ups, including Trans-ferWise, which strips out the hiddenfees banks and others levy, and thecloud-based cross-border paymentsservice Earthport, which enables us-ers to pay money into almost any bankaccount in the world are snapping atincumbents heels. The banks have twochoices, says Hank Uberoi, Earthportsexecutive director and a scheduledspeaker at Sibos 2013 in Dubai. Eitherthey can try to do everything themselves,

in which case theyll never be able tosolve [the challenges they face] becausethey can never move fast enough relativeto other nimble players. Or a solutionlike ours will allow banks to solve a dif-cult problem, and then they can focustheir efforts on what the consumer andtheir clients actually want, in which casethey can move pretty fast.

FX companies are, in fact, alreadyforging strategic partnerships withbanks. The Currency Cloud, for exam-ple, has already done deals with Fidorand Sofort banks in Germany and CEOMike Laven says the company is cur-rently in discussions with three othermedium-sized European banks. Our

thesis is that in the cross-border pay-ments area, people pay too much andits too difcult. Our intention is makeit easier and cheaper and if we canhelp a bank to do that instead, then insome ways weve achieved our purposeas well.

Accels Sosin foresees a landscape inwhich banks and start-ups operate along-side one another. Banks and start-upswill be able to coexist, but banks will justnot be able to generate as much profiton some of these smaller customers, likeSMEs and consumers, as they have in thepast, he says. They will be importantproviders in the space, theyll still workwith much larger businesses and theirFX needs, and theyll still be partners

to a lot of these end FX companies, interms of providing them liquidity in themarket. Its just that instead of the banksdealing with end consumers, companieslike TransferWise and [Accel-backed]OzForex will aggregate a lot of demandand be able to negotiate better with thebanks and go into the exchanges with alot more leverage.

Jennifer L. Schenker contributedreporting to this story.

Stripe Co-Founder

John Collison On WhyBanks Are Not LeadingIn PaymentsStripe, whose investors include Peter Thiel, Max Levchin,

Elon Musk, Sequoia Capital and Andreessen Horowitz, is

available in the U.S., Canada and the UK and is in private beta

in Ireland and France.

The model o the market usedto be hierarchical and thepayments systems were parto the hierarchy they werelike building blocks and ownedby the same people: thebanks, says economist andtechnologist JP Rangaswami,chie scientist at Salesorce.com. But there are newentrants in their market,doing things [the banks] usedto do, but aster, cheaper,better. Beore our eyes thehierarchy is morphing slowlyinto a much more adaptiveecosystem, into a network osmall pieces, loosely joined,and not all those pieces will

[be controlled by the banks].The way you deliver a servicenow is not by ull verticalintegration, but by the rightpartnerships and alliances and weve only seen thebeginning o that trend.

John and Patrick Collison,

co-ounders o consumer

mobile payments

company Stripe.


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WHERE BUSINESS

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For Renaud Laplanche, it began with abank statement or a pair of statements.

Laplanche, then an executive at Oracle,was reading the ne print on his bank-issued credit card statement and anotherfor his savings account and comparedthe two. If he didnt pay off his creditcard, the monthly interest on what heowed would be 18.99%. Meanwhile, hisinterest rate on his savings was a mere1%. Thats a big spread, he says. So,he started making calls and talking topeople in the industry to nd out why.

It became quickly apparent that mostof the spread comes from cost and inef-ciencies in the banking industry, saysLaplanche, who gured there had to be abetter way. The result was Lending Club,which was launched in 2007 and is now one

of the worlds leading peer-to-peer lendingplatforms. Lending Club which is backedby Google has more than doubled its an-nual loan volume each year since launchingin 2007 and expects to extend more than $2billion in personal loans this year.

Services from companies like LendingClub allow consumers to bypass banks

and borrow money from other individu-als. They aggregate supply and demandin a more cost-efcient way than banks;the savings allow them to offer borrowersloans at lower interest rates than bankswhile offering investors who choose tolend a higher rate of return typically6% or higher.

Laplanche keeps checking his state-ments to see if his bank is catching up.I dont think the banking industry hasreally embarked on any massive cost re-duction that would help lower the spread,which is why we are growing so fast,he says. Were really capturing marketshare from the credit card issuers and thelarger banks.

Following the financial crisis banks

have retreated from the unsecured loansmarket and requirements that they holdmore capital against riskier forms of lend-ing. U.S. peer-to-peer lending platformshave lled the gap: this new industry ison track to loan out $3 billion in 2013, ac-cording to Ron Suber, the head of globalinstitutional sales for Prosper Market-place, the second-largest American peer-to-peer lending platform. Suber releasedhis forecast at Lendit, the sectors rstconference in New York in June. Pros-per saw its fifth consecutive month ofrecord growth in July with more than $30million in loans more than double theamount the loans it made possible a yearearlier. As of July, Prosper had originated

loans of more than $580 million since it

began in 2006.The total market opportunity is about$85 billion a year, Suber said, based on themost creditworthy borrowers served by thecredit card industry. But online P2P lendingplatforms dont have to be competitors.

Lending Clubs message to banks at-tending Sibos is, partner with us, saysLaplanche. We have proven we canoriginate loans at a lower cost than thebanks. The banks should benet from itand become investors in our platform andcapture the extra spread.

U.S. lenders Titan Bank (based in Min-eral Wells, Texas) and Washington, DCsCongressional Bank have already signed onto offer consumer loans through LendingClub. This is the future of bank lending,

Titan Bank Director Jonathan Morris saidwhen the deal was announced.

The banks benefit not only from thelower costs of nding and vetting loansbut also from the diversity of loans. In theU.S., Laplanche says, Lending Club allowsregional banks like Titan to lend beyondtheir traditional local territory. LendingClub, meanwhile benets from the bankslow-cost access to capital.

To combine the banks low cost offunds with our low operating costs, youcreate the lowest possible cost structureand that really helps us deliver lower inter-est rates and better service to customers,Laplanche says, adding that Lending Clubis in discussion with other banks.

Lending Clubs message tobanks attending Sibos is,partner with us, says CEORenaud Laplanche. We haveproven we can originate loans at

a lower cost than the banks. Thebanks should beneft rom it andbecome investors in our platormand capture the extra spread.

BY DARCY DORAN

Peer-to-Peer

Lending PlatformsBegin PartneringWith Banks

LENDING CLUB:PURPOSE OF U.S.P2P LOANS

Credit Card Pay O

Medical ExpensesHome Improvement

Moving ExpensesOther

VacationBusiness

BusinessMajor Purchase

Car Financing Learning & Training

Wedding Expenses

Green Loan

VALUE OFFUNDINGCIRCLE LOANORIGINATIONBY YEAR(MILLIONS)

2010(Aug-Dec)

2011 2012 2013to date

49M

17M

2M

64M

Source: Funding Circle


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16-19 | SEPTEMBER | 2013

Its a model that is being watched closelyby online lending platforms and banks over-seas. For example, Banco Santander, theEurozones biggest bank by value, has beguninitial talks with the UKs Funding Circleabout collaborating. Funding Circle ChiefExecutive Samir Desai told The Daily Tel-egraph in August that although talks werein early stages, it is a sign that social lendingwas transitioning to the mainstream. Thetalks follow the British government givingFunding Circle a vote of condence by al-locating 20 million (about $31 million) tobe loaned through its platform.

And Funding Circle, a British peer-to-peer lender focused on lending to small

companies, says it has had some informaldiscussion with banks. The U.S. model iscertainly a blueprint for how it could beworking in the UK, says Funding Circlespokesman David de Koning.

In Britain, the peer-to-peer businesslending market has the potential to growmore than ten-fold to 12.3 billion ($19billion) in annual loans within a decade,according to Nesta, a British charitableenterprise that promotes and fosters in-novation and invention. Seventy-sevenpercent of borrowers interviewed byNesta said they would return to a peer-to-peer service for their funding needs.

De Koning says Funding Circles plat-form is better for growing businesses be-

cause it can provide a loan within a week,whereas at a bank it could take 15 to 20times longer. What they need is actu-ally someone who can provide them withthe finance and enable that business tocontinue with the full momentum andgrowth, de Koning says. What they ndwith a bank is the process just stops themdead in their tracks.

Online lending platforms are dis-rupting the banking industry the wayiTunes reshaped the music industry,de Koning says. At rst, the Sonys andUniversals of this world rejected themodel and said, it doesnt work, werecompletely against it, he says. Then

in time, slowly you had U2 started torelease an album through iTunes andthen you had publishers who were get-ting onboard and partnering. Nowadayseveryone uses iTunes and it accountsfor 50% of the market.

The banking industry is going througha similar process with peer-to-peer lend-ing platforms, says de Koning. Now werein the middle stage where a lot of peopleare embracing it as the future and a muchbetter way to do nance. Youre gettingbusinesses, institutions and banks lookingat it and saying, Okay thats interesting.Its here to stay. Is there a way we couldpossibly partner with it? Or is there a waywe could cohabit?

Banks can nd comfort in the fact thatalthough peer-to-peer lending platformsdo not need to hold reserves becauseindividual investors carry the risk, theirbusiness model depends on strict riskmanagement, Laplanche says. LendingClubs Chief Risk Ofcer Chaomei Chenpreviously oversaw all risk managementfor JPMorgan Chases WaMu creditcard portfolio.

As we get more data, our risk modelsare becoming more sophisticated and wehave better risk management now thanwhen we started; but the objective hasalways been the same to deliver a low-

volatility product to the investor base,Lending Clubs Laplanche says. A lot ofour investors are investing through a re-tirement account so its really important tomake sure we deliver a predictable return.

Like other investors, banks that part-ner with Lending Club choose how ac-tively they select loans from the platform,Laplanche says. Banks can set their owncriteria or superimpose their own creditpolicy on Lending Clubs and choose asubset of loans that meet their guidelines.Automated loan management options canhelp banks further cut costs and benetfrom economies of scale, he adds.

Its inevitable that more banks willpartner with online lending platforms,says Peter Renton, co-founder of the

LendIt conference and CEO of LendAcademy, which teaches peer-to-peerinvestment strategies. These online plat-forms have discovered a way to protablypursue borrowers with loan amounts ofless than $50,000, something that bankshave not gured out how to do other thanwith a credit card, Renton says. In thelong term, I expect to see banks becomemore heavily involved in online lendingby either buying existing platforms orlaunching their own.

PEER-TO-PEERLENDING IN THE U.S.REACHES $2 BILLION

500

1000

1500

2000

0

Sources: Propser, Lending Club

and Lending Academy

2007 20082009 2010 2011 2012 2013

Propser

Lending Club

With a air wind blowing or P2P lending, providers like Lending Club are inviting banks to come on board.

Its inevitable that more bankswill partner with online lendingplatorms, says Peter Renton, co-

ounder o the LendIt conerenceand CEO o Lend Academy, whichteaches peer-to-peer investmentstrategies. These onlineplatorms have discovered a wayto proftably pursue borrowerswith loan amounts o less than$50,000, something that bankshave not fgured out how to doother than with a credit card,Renton says. In the long term,I expect to see banks become

more heavily involved in onlinelending by either buying existingplatorms or launching their own.


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08 INFORMILO.COM

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Building An Early Warning

System For The Global EconomyCombining big data, news streams, scenario thinking and network insights could help nancial institutions stay ahead of the curve

Just as Sibos delegates gathered inVienna in September 2008, LehmanBrothers led for bankruptcy, sendingshockwaves through the global nancialsystem. Theres no point rening ourexisting risk models, Till Guldimann,then Senior Vice President of Strategy

at Sungard Capital Corporation, told fel-low attendees as they questioned howthe worlds biggest institutions failedto see it coming. We were all looking atthe nodes, Guldimann said, when theproblem was the network.

The nance world wont fail to see thenetwork for the nodes again. Institutions ofall sizes, from the smallest local bank to theUnited Nations, have devised new waysto handle the sea of data that is growingat exponential rates. There is a recogni-tion that we now live in this hyper-con-nected world where information movesat the speed of light, and a crisis can beall around the world very, very quickly,Robert Kirkpatrick, the director of Global

Pulse, the Big Data research agency the UNestablished as a result of the crisis, told theInternational Peace Institute.

This year big data is once again at theforefront at Sibos, as experts discuss what

has changed in ve years and how betterdata, better algorithms and better analysiscould help banks create early warning sys-tems that could prevent another meltdown.

When Lehman Brothers collapsed,everybody was without a map, explainsKimmo Soramki, the founder and CEOof Financial Network Analytics, or FNA, ascheduled speaker at Sibos 2013, an annualconference that gathers over 8,000 banks

from around the world. After 15 years inpolicy-making and multidisciplinary re-search at several central banks, includingthe European Central Bank and the FederalReserve Bank of New York, Soramki nowcalls himself a nancial cartographer. Hisjob is to help central banks and other largeinstitutions make sense of the oceans ofinformation they collect by mapping thedata and creating visualizations.

When you have a map youre going tomake different decisions and youre going tocommunicate, as a central bank, differentlyabout how youre proceeding, Soramkisays. The banks would also better knowwhat their actual risk positions are and soforth. There was a lot of uncertainty before

because there wasnt the data. No one knewthe data and no one had the connections.Post-nancial crisis, the focus particular-

ly among large institutions and regulatorshas been on how big data can spot problems

and weaknesses, Soramki says. They areinterested in managing risks. They are fo-cusing by design on the downside.

But big data can also be a powerful toolfor spotting opportunities. If youre acommercial bank, or someone active inthe financial markets, these maps canprovide you with information others donthave, Soramki says. They can showyou things that others havent spotted yet.

Thats the idea with the correlation maps

that we do. We put a lot of data into onevisualization so that a trader can quicklyspot opportunities, like when some assetsare in locations where they shouldnt be.Thats a trading opportunity.

The potential for big data to improveour understanding of the world by un-covering hidden connections is onlybeginning to become apparent. Mobilephone data can predict household in-comes, within 90% accuracy, based on theamount people use their phones; creditcard companies can predict unemploy-ment from looking at changes in whendrivers routinely ll up their cars with

fuel; and payments data has the potentialto help predict GDP in real time.

SWIFT, a global organization that eachday handles nancial transactions, suchas wire transfers, for over 10,000 banks, isusing big data to look at payment ows sothey can give an early indicator for GDP(see illustration). There are lots of op-portunities like that to create informationproducts from the big data that banks andinfrastructure operators have, says FNAsSoramki.

One of the best-known big data pro-jects is Googles Flu Trends, which usesanonymized, aggregated web search key-words to display near real-time estimatesof u outbreaks. But trying to identify the

early symptom of a nancial crisis to buildan early warning system for the globaleconomy is a lot more complex, says DanielErasmus, the founder of the Digital Think-ing Network, or DTN, which works with

This year big data is onceagain at the oreront at Sibos,as experts discuss what haschanged in fve years and howbetter data, better algorithmsand better analysis could helpbanks create early warningsystems that could preventanother meltdown.

The OECD SWIFT Index monthly

indexed payments volumes and

their year-on-year growth rates.

Published monthly, the SWIFT Index

gives an early and reliable

indication o economic activity

based on the volume o SWIFT

customer payment

messages. The SWIFT Index is a

reliable barometer o the Gross

Domestic Product (GDP) evolution o

OECD countries. This prime indicator

is used by analysts, economists and

decision makers within fnancial

institutions, corporates, government

institutions and academia.

OECD SWIFT INDEXYEAR ON YEAR

BY DARCY DORAN

0%

-2%

-4%

-6%

2%

4%

6%

8%

10%

OECD SWIFT Index

OECD GDP growth


9/24


09




16-19 | SEPTEMBER | 2013

institutions to work out scenarios and ana-lyze data on a web scale.

You have much looser problem setsout there, Erasmus says, comparing thechallenge of tracking nancial contagionversus something like a u outbreak. It ismuch more philosophy than it is program-ming. How you think about the problem isreally important and how you approach theproblem is really important.

An early warning system is really a setof insights, a set of eyes and its a set of ac -

tions, he adds. It is the brain, eyes, hands.Youve got to know what youre lookingfor, youve got to be able to look for it andyouve got to act based on that.

To better detect the unpredictableand the unknown, Erasmus, a scheduledspeaker at Sibos 2013, and his colleagueshave spent nearly a decade developing asystem called NewsConsole that monitorshundreds of thousands of news sources.

We started asking the question of ana-lyzing all the news in the world and Imean all the news in the world, not justa subset, not just the nancial press, butreally bringing all of that together and be-ing able to analyze specic patterns thatemerge and being able to indicate early on

that were moving in one scenario directionor another, he says.

A blogger in India might have veryinteresting things to say about whats hap-pening in the gold market in India, muchmore than The Economist at a certainpoint in time. Theres no newspaper thatcan cover the world in the level of granu-larity than the whole of the Web does,Erasmus adds.

For an early warning system, the chal-lenge is to create a system that matches the

qualitative and quantitative data owingin against scenarios to generate crucialinsights, Erasmus says.

His team has already had success withbuilding scenarios. In 2006, NewsCon-sole helped them construct a scenario thatforetold the U.S. sub-prime mortgage crisisfor a large Dutch nancial institution anda sequel scenario detailing how the U.S.situation could lead international banksto retreat to more conservative territorywithin national borders.

In the scenario, we described fourcauses that could lead to a nancial crisisand any combination of them would resultin a nancial crisis ... one of them was thehigh levels of debt which were being held

in the U.S., Eramus says. So we walkedthrough the steps, the initial issues, theresponses and, then nally, a much lessglobalized, much more inward-lookingsociety that would emerge in political andpossibly economic realms. Were certainlyseeing the outlines of that in European poli-tics in the past three years.

But a blanket tracking of keywords basedon scenarios of what might happen wouldnot be enough to constitute an early warn-ing system, he stresses. Computers, for

now, would not be able to effectively ndstrong correlations.

You need a social technical system:something in which people are somewhatinvolved in working together with techni-cal capabilities, on the one hand, and on theother hand, you need a system which is ableto understand at some level.

Financial Network Analyticss So-ramki says the red ags for an eventualearly warning system could lie in the net-works themselves. FNAs Chief ScientistSamantha Cook was previously a memberof the Google Flu Trends team and nowworks on problems such has predictingthe magnitude of disruption a bank failurewould have on payment systems. Soramki

believes monitoring key data like paymenttimings late payments in particular could underpin an early warning system.

A lot of these maps we create are de-signed to detect anomalies, detect outli-ers; you can start to see things out of placeonce you see how that map of that data setshould normally look like, youre very quickto spot theres something odd here so theyalert you to take a look, Soramki says.

But for now, Soramki agrees comput-ers alone cant provide an early warning

defense system for banks. Intuition isvery important here. Intuition is a veryspecic skill, you can only have intuitionabout things you know very well. Peoplewho are familiar with the data that is beingvisualized immediately see things: some(of the data) is familiar which lets themknow the map is correct, some informationis new, he says. Those in the know willimmediately ask: What is this doing here?

In sum, the more youre tracking, thelikelihood that you as an organization aregoing to be better prepared is certainlygoing to be higher, concludes Erasmus.

LEHMAN

COLLAPSE

Kimmo Soramki, the ounder and CEO o FinancialNetwork Analytics, calls himsel a fnancialcartographer. His job is to help central banks andother large institutions make sense o the inormationthey collect by mapping the data and creating

visualizations. The snapshots below come rom FNAsvisualization o the international impact o LehmansCollapse. Readers can fnd the interactive versionat http://trunk.na.f/na/data/kimmo/charts/public/lehman-correlation-tree-sliding.html

The visualization shows backbone monthly correlations between daily returnso a wide range o assets two months around the collapse o Lehman Brotherson 15 September 2008. Each node is an asset. A long link between two assetsmarks a low correlation and a short link a high correlation. The size o the nodes

scales with volatility o returns during the month. The assets are colored by class:

Government bond yields

Corporate bond spreads

Currency exchange rates

Equity indices

Source/Credit: FN A

AFTERWARDS(OCT 17 - NOV 15, 2008)

BEFORE(JULY 16 - AUG 14, 2008)

COLLAPSE(SEPT 16 - OCT 15, 2008)


10/24


WHERE BUSINESS

MEETS INNOVATION

10 INFORMILO.COM

In its earliest days, when it was basedabove Londons Smitheld meat-marketand opposite the huge Fabric nightclub,UK cyber security start-up Digital Shad-ows had a hard time establishing cred-ibility with banks, an important partof its target customer base. When wewere in Smithelds they were literallypower-washing the blood off the streetsin the morning, says Peter Jaco, an an-gel investor, entrepreneur and now the

companys commercial director. Weused to get some [banking] people vis-iting us in those ofces, and they didntlook too comfortable there to be honest.

The start-ups relocation to Level39 which bills itself as Europes largest ac-celerator for nance, retail and future citiestechnologies not only transformed theway Digital Shadows is perceived; it helpedthe company land contracts with threeTier-One banks and raise new funding.

Opened in March of this year, Level39,a Canary Wharf-based ntech accelerator,has rapidly established itself as a xture of

Londons fast-growing tech scene. With29,000 square feet of space, hosting 30resident start-ups as of September, Lev-el39s purpose is to create a much-needednexus between start-ups, investors andthe big banks, in the heart of one of Eu-ropes key nancial districts. Accordingto TheCityUK (a membership body thatpromotes the nancial sector), nancialservices (and related professional services)account for nearly 14% of UK GDP. Yet de-spite this, ntech companies in particularhave not had a clear leader to championthem to the wider industry. Eric Van derKleij, Level39s head and a former CEOof Tech City the government-backed

organization charged with boosting EastLondons growing cluster of tech start-ups spied a glaring gap in the marketand decided to ll it.

We want to help the fintech sectorstake its rightful claim on the world stage,says Van der Kleij. By making such a size-able investment and creating the largestaccelerator space of its kind in Europe,our goal is to give the ntech industry aclear sense of direction.

Level39 was full just 15 weeks afteropening. After receiving more than 280enquiries, this summer the acceleratordecided to open a high-growth oor cov-ering the entire 42nd oor of the build-ing. When start-ups outgrow the early,

hot-desk phase, they can move upstairs toscale up in the same building, he explains.We werent sure, when we started, whatthe uptake would be but the sheer volumeof enquiries that weve had has blown usaway, says Van der Kleij.

One of the rst companies to take upLevel39s offer to move upstairs is DigitalShadows, which was founded in 2011 andcounts the UK Government among itsclients. The company originally moved toOne Canada Square because it had wona place in Accentures new acceleratorprogram known as the FinTech Innova-tion Lab London, a collaboration betweenAccenture, 12 of the biggest banks, the

Mayor of London, the City of Londonand the Technology Strategy Board. Ac-centure was Level39s rst corporate resi-dent and Digital Shadows its rst residentstart-up. Being the first occupants ofLevel39 was fantastic because we hadsubsidized space from January to Marchand we got to trial our technology withfour of the Tier One banks, says DigitalShadows CEO Alastair Paterson. Threeof them ended up in commercial relation-ships with us off the back of the program and a big part of that was becoming partof Level39; we got on so well here thatweve decided to stay.

The move to Canary Wharf has also ena-bled the company to host events that would

Fintech-Start-up Nexus

With 29,000 square feet of space, hosting 30 resident start-ups as of September, Level39s purpose is to create a

much-needed nexus between start-ups, investors and big banks in the heart of one of Europes key nancial districts.

BY JAMES SILVER

Alastair Paterson (let), and James Chappell (right), co-ounders o UK cyber-security start-up Digital Shadows.


11/24


11




16-19 | SEPTEMBER | 2013

Innotribe, the innovation arm of SWIFT.Innotribe organizes nancial servicesstart-up competitions around the worldin order to spur better collaboration withthe banking community.

PINSTRIPES MEETSANDBOX IN THE SKY

Over the summer Informilo was invitedto an executive breakfast of fruit, croissantsand coffee at Level39. Attended by a smallgathering of bankers and other nancialservices executives, the event was entitled,The 3D FinTech Challenge 2013 andsponsored by Dassault Systmes, a Frenchsoftware company.

The purpose of the breakfast, whichwas held under Chatham House rules, wastwo-fold: rst, executives from nancialinstitutions could discuss industry-widechallenges in neutral territory to furtherthinking about the future of nancial ser-

vices regulation.The other goal was to kick off a start-up

challenge focusing on giving banks, whichhave a hodgepodge of 30 or 40 legacy sys-tems, a single three-dimensional view ofclients so that they can more proactivelydevelop tailored financial services andimprove risk assessment.

Dassault Systmes, which specializesin developing such systems for variousindustries, has created a fully-regulatedplatform for the nancial services industry.It is opening that platform to start-upsthat can develop services on top while re-taining their intellectual property. Theaccelerator program will allow start-upsto stand on the shoulders of a big brother

to help them get into the market, saysVan der Kleij.Participating start-ups can either use

Dassaults technology platform or takean independent market entry approach.The prize for the start-ups is traction and

access to nancial services customers,says Van der Kleij.

One perennial challenge that start-upsface, and that Level39 (which does not takeequity in the companies in its program)

has already gone some distance towardssolving, is the brick wall encountered byyoung companies trying to land meetingswith decision-makers in large nancial ser-vices institutions. Van der Kleij recalls thatwith his own ntech start-up, Adeptra, itwould sometimes take six months to set upa meeting with a bank. But, here, you ndCEOs will pop in at lunch time to mentor astart-up and thats happening almost everyday now, he says. Chance encounters areboosted by huddle rooms and sandboxes,spaces where hackathons and coding daysare held. The Club39 Executive Lounge andboardroom for mentors and investors alsohelps keep corporate foot-trafc levels high.

Once visitors take an express elevatorto the 39th oor their rst stop can be the

coffee bar; they can use an iPad to person-alize their java orders or use one of the oldphone booths that have been updated toallow privacy while Skyping. The spaceincludes a technology tunnel, capableof showing live data and incorporatinginteractive technology prepared by Lev-el39 companies. The tunnel leads to a new200-seat event space for hosting regularindustry meetings and demonstration days.

Ive been in start-ups for 15 years andIve seen a lot of these innovation pro-grams come and go, says Jaco, DigitalShadows commercial director. Some ofthem think, lets create a cool space andput a pool table, dartboard and a funkycoffee machine in. But the successful ones,

like Level39, really add something else.[For them] its more about the network.Digital Shadows should know. The start-

up, which was just closing a funding roundat the time Informilo went to press, mettwo potential investors at Level39. One wasintroduced personally by Van Der Kleij. Theother was rather more down to serendip-ity. Paterson spoke at the recent WIREDMoney conference, hosted by Level39, andgot talking to an investor at the networkingevent afterwards. I cant be specic aboutthe amount or source, but I am preparedto say that we are lucky enough to havereceived term-sheets from several well-respected venture capital rms, says Pat-erson, Digital Shadows CEO. This roundwill enable us to make a number of key hires

to accelerate our growth into 2014.The accelerator has also helped create

encounters with potential clients, he says.We keep bumping into people from bankshere which really helps. Theyre in ourofce, you see them getting a cup of tea,you go over and have a chat, you bumpinto them in the lift. I really believe in allthose interactions, says Paterson. If wewere shut away somewhere else, they justwouldnt happen.

Jennifer L. Schenker contributedreporting to this story.

have been unthinkable at their previouspremises, says Paterson. Theres a group

of the banks who share information oncyber threats. They had their second-everchapter meeting in Europe recently, andwe were able to host it at our ofces. Thatsa fantastic thing for a small company. Itallows you to punch above your weight.

The Digital Shadows experience ad-ditionally helped to formalize the rela-tionship between Level39 and Innova-tion Warehouse, the Smitheld incubator.The two enterprises now have a friend-ship agreement in place that gives theirrespective start-ups reciprocal rights toeach others lounges. More importantly, itprovides Innovation Warehouses ntechstart-ups with a path to move on to Level39when theyre ready to grow.

For Tom Gatten, CEO of another Lev-

el39-based start-up called Growth Intel-ligence, which tracks the performance andactivity of businesses in real time for sales-people, being based in the same buildingor across the street from Tier One banksensures that bankers will often come tothem. We had a meeting with two peoplefrom HSBC, who were one level belowthe global CEO, and we were able to havethat in our boardroom, here at Level39,which was very impressive, he says. [Be-ing based here] puts you on the same pageas the people you are selling to.

One of the great disadvantages of work-ing in a small company is that the powerdifferential is very stark, says Gatten. Ifyou want to do business with a big rm,

you are physically handicapped, becauseyou are a long way away, and you are hand-icapped in prestige, because your ofcesare so different. One way to get aroundthat is to pretend [the differential] is not

there, and a good way to do that is to havereally good-looking ofces. It sends a re-ally clear signal about how you want to beperceived, he says.

Van der Klei j knows all about t hatproblem rst hand. He founded Adeptra(formerly Realcall), a technology companythat pioneered the automation of creditcard fraud detection and alerting. The en-trepreneur raised seed, angel, and venturecapital nance and moved the businessto the U.S. before the company was suc-cessfully sold to FICO for $115 million inAugust 2012. Getting to an exit took over10 years, in part because it was so difcultto connect with big players in the nancialservices industry, he says.

Level39s differentiator is that it is

providing space for the two sides to worktogether on an on-going basis, says Vander Kleij. London can become a globalleader in ntech, he says that is oneof the goals. We want to help the sectortransform, and in some cases reset, andhelp it nd the right kind of innovation.

Level39 hopes to attract big corpora-tions which want to either connect withoutside innovation or supercharge theirown internal R&D outside the strictures ofcompany headquarters.

Along with Accenture, SWIFT, theglobal organization that organizes Sibosand each day handles nancial transac-tions such as wire transfers for morethan 10,000 banks, has signed a partner-

ship agreement with Level39. Level39is an important catalyst for innovation inthe nancial industry and is instrumen-tal in positioning London as the hotbedof new and strategic initiatives, saysNektarios Liolios, Innovation Leader of

Sandbox In The Sky: The view rom accelerator Level39s spacious quarters.

The Level39 coee bar, where

start-ups can use an iPad to

personalize their java orders.


12/24


WHERE BUSINESS

MEETS INNOVATION


To identiy the most promising fnancial services companies across the globe, Inormilo asked some o the most active investors in the

sector to nominate and evaluate 10 companies outside their own portolios. The other 15 companies are the fnalists in a competition

organized by Innotribe, the innovation arm o SWIFT, the global fnancial services provider. The start-up challenge aims to link decision-

makers in banks with entrepreneurs with creative ideas. The 15 Innotribe fnalists are split into two categories: start-ups (marked withan asterisk) and innovators (later-stage companies, marked with two asterisks). All have been invited to present at Sibos, an annual

conerence organized by SWIFT which gathers banks rom around the world, which this year is taking place in Dubai, September 16th-

19th. Some o the companies on the list are well established, others are below the radar but unlikely to stay there or long.

THE CURRENCY CLOUD

(WWW.THECURRENCYCLOUD.COM)LONDON, UKWhat it does:Makes international payments

and transfers simple.

Why its hot:The Currency Clouds service

enables businesses to send, receive, track and

automate their cross-currency payments

process, signicantly lowering costs and

reducing expensive payment failures while

increasing control and transparency. Over250,000 businesses and consumers have

access to the companys cross-border payment

capabilities through 100 application partners

and nancial institutions.

BETTERMENT

(WWW.BETTERMENT.COM)NEW YORK, NY, U.S.What it does:Goal-based online investing

tailored to individuals needs.

Why its hot:Founded in 2008, Betterment

simplies the process of investing and the

presentation of information on how consumers

investments perform. The company is backed

by $13 million in funding from BessemerVenture Partners, Anthemis Group, Menlo

Ventures and angels, and now has more than

$135 million in assets under management for

more than 30,000 users. Its unique selling

proposition: every one of its employees,

including the CEO, takes customer calls.

SIGNIFYD

(HTTPS://SIGNIFYD.COM)SANTA CLARA, CA, U.S.What it does:Fraud protection for e-commerce.

Why its hot:Signifyd calls itself the first fraud

prevention company to incorporate social graph

data into its platform. Founded in 2011 by a

team from PayPal, Fraud Sciences, Fedex, and

JPMorgan Chase, Signifyd helps online businessesbetter control fraud and abuse. In December

2012 the company raised $2 million in funding

from Andreessen Horowitz, Data Collective,

IA Ventures, QED Investors, and others. In beta

testing with online retailers the company cut the

amount of time spent on manually reviewing

transactions by 60% in some cases and increased

the fraud catch rate by 20% or more.

OPENCOIN

OPENCOIN.COM / RIPPLE.COMSAN FRANCISCO, CA, U.S.What it does:Virtual currency and distributed

payments system.

Why its hot:OpenCoin has developed a new

infrastructure for banks, individuals and

companies to send money. Its Ripple network

enables free instant transfers in any currency

to any other currency.The company also

aims to offer a cheaper, more efcient way

of handling merchant payments, direct

consumer payments, wire transfers, and

remittances. In April, OpenCoin received

funding from Andreessen Horowitz, FF

Angel IV, Lightspeed Venture Partners, Vast

Ventures and Bitcoin Opportunity Fund.Google Ventures and IDG Capital Partners

joined as investors a month later. In July

OpenCoin announced a BitCoin Bridge,

allowing Ripple to make Bitcoin payments

directly from the Ripple client.

STRIPE

(HTTPS://STRIPE.COM)SAN FRANCISCO, CA, U.S.What it does: Online payments platform

targeted at developers.

Why its hot:Enables websites to accept payments

online quickly and easily through its API.

Thousands of sites of all sizes use its services,

from start-ups to large companies, includingFoursquare and Boxee. The company has

raised close to $40 million from Sequoia

Capital, Redpoint Ventures, and angels Peter

Thiel and Elon Musk, and is currently valued

at an estimated $500 million. In March

Stripe launched a beta service in the UK, the

companys second foray outside its U.S. base

(Canada launched last year). More countries are

coming online throughout the year.

SQUARE

(WWW.SQUAREUP.COM)SAN FRANCISCO, CA, U.S.What it does:Free credit card reader for the

iPhone, iPad, and Android devices, allowing

anyone to accept credit cards anywhere, anytime.Why its hot:Over two million individuals

and businesses can now accept credit and

debit payments using Square. The company

is processing over $10 billion in payments

on an annualized basis. Closed a Series D

nancing round in September 2012 (investors

included Starbucks), and recently expanded

into Canada. In June Square launched an

online marketplace called Square Market to

enable local businesses to sell more goods and

services. Square will face some competition

in Europe from the likes of Adyen, SumUp

and iZettle, which is currently in seven

European markets and has nearly $50 million

in investment from American Express and

MasterCard.

TRANSFERWISE

(WWW.TRANSFERWISE.COM) LONDON, UKWhat it does:Foreign currency transfer services.

Why its hot:TransferWise keeps currency

transfer costs down by using the real exchange

rate and charging a low service fee. Taavet

Hinrikus, a co-founder, was one of Skypes rst

employees, and calls TransferWise the Skype

of money transfers. The company says it has

helped its customers to make foreign exchange

transfers totaling a combined 125 million so far,half of which were made in the past six months.

TransferWise plans to double the number of

currencies it supports, to 20. The company is

backed by IA Ventures, Index Ventures, Kima

Ventures, Seedcamp and The Accelerator

Group. In May, Valar Ventures, Peter Thiels VC

fund, led a $6 million round for TransferWise,

bringing the total raised to $7.35 million.

ETORO

(WWW.ETORO.COM)TORTOLA, BRITISH VIRGIN ISLANDSWhat it does:Social investment network.

Why its hot: 3 million traders in more than 140

countries have placed more than 50 million tradesthrough eToros award-winning OpenBook

and WebTrader platforms since January 2012.

Traders can learn from each other, share live

trading information and use their collective

trading power. Received Best of Show at

FinovateFall for its Social Trading Index, which

enables traders to create their own indices and

make them available to the eToro investment

network. In July eToro added fractional stock

investment to its platform, enabling users to invest

in the shares of large brands.

OPENGAMMA

(WWW.OPENGAMMA.COM)LONDON, UK

What it does:Creators of the rst open-sourceanalytics and risk management platform for

the nancial services industry.

Why its hot:OpenGamma aims to become the

new standard for Quantitative Finance, radically

democratizing the financial services industry and

making it more transparent. The company has

raised a total of $23.35 million from Accel Partners,

Euclid Opportunities, FirstMark Capital, and

ICAP, and has roughly 10 commercial clients,

mainly hedge funds and proprietary traders,

Platform 2.0 was launched in July, and is expected

to attract additional users. Demand for lower-cost

risk analysis tools like OpenGammas is growing

rapidly with increased regulation and rising data

volumes; the company is well-positioned and

well-funded to take advantage of market trends.

DWOLLA

(WWW.DWOLLA.COM)DES MOINES, IOWA, U.S.What it does:Online payment system.

Why its hot:Dwolla takes no percentage by fees;

it charges 25 cents per transaction over $10,

and transactions under $10 are free. Dwollas

mission: allow anyone [or anything] connected

to the Internet to move money quickly, safely

and at the lowest cost possible. Dwolla has

raised $22.5 million from investors so far, and by

year-end should have processed more than $1

billion for 250,000 consumers and businesses,

online and on mobile.

AZIMO*

(AZIMO.COM)LONDON, UKWhat it does:Social and mobile migrant

remittance network.

Why its hot:The rst player to enable individuals

to make direct money transfers between

international bank accounts via Facebook.

The company calls its solution, a digital wallet

within your Facebook prole. The $500 billion

remittance market is dominated by large players

that charge 10-20% per transaction; Azimo

offers a lower-cost social solution in more than

100 countries. The company raised a 300,000

angel round in January to expand its operations.

Committed to ethical trading, Azimo plans to

donate 10% of its prots to charity.

GIEOM**

(WWW.GIEOM.COM)BANGALORE, INDIAWhat it does:Helps businesses simplify their

view of their operating models.

Why its hot:Established in 2008, GIEOM offers

applications to help businesses improve their

way of working and decision making. GIEOM

claims to help customers increase revenues

and prots; create new business areas; and

reduce operational waste and error. Today over

30,000 users from seven banks operating in 35

countries use the GIEOM software product.


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16-19 | SEPTEMBER | 2013

GROWTH INTELLIGENCE*

(GROWTHINTEL.COM/)LONDON, UKWhat it does:Real-time-data sales tool.

Why its hot: Growth Intelligence automatically

generates qualied time-sensitive sales leads.

It tracks the performance and activity of every

business in the UK economy in real time. It

claims the result is highly-accurate real-time

sales recommendations and 250x times fewer

wasted sales calls. Clients include BP, IBM,

and Google. In July Googles Hal Varian joined

Growth Intelligence as an advisor. Growth

Intelligence recently went through Accentures

FinTech Innovation Lab, and is now based in

the Level39 accelerator. Today, 75% of the UKsretail banks are in or about to launch pilots with

the company.

P2P CASH*

(WWW.P2PCASH.COM)ROSWELL, GA, U.S.What it does:Worldwide mobile nancial

transactions.

Why its hot:P2P Cash is working with partners,

including the World Bank, to create and

propagate mobile banking standards to

enable three billion consumers worldwide

to access low-cost nancial services via

their cellphones. Instead of competing with

others mWallets, P2P provides the clearing

and settlement between all the variousproprietary mWallets. The companys

Trusted Agent Network enables any

authorized agent or retailer, on behalf of a

business or consumer, to send and receive

cash payments. P2P Cash has projects in

process in Africa, Asia and the Caribbean.

KLICKEX*

(WWW.KLICKEX.COM)AUCKLAND, NEW ZEALANDWhat it does: Regulated, real-time clearing

service.

Why its hot:In June 2013 KlickEx acquired

PassportFX to bolster its global services.

PassportFX was a Y-Combinator start-up

based in California, with global, institutional

services. KlickEx is a currency exchange

service, where users avoid paying bank fees

by exchanging with other people. KlickEx

is currently ranked as the top cross-border

mobile money platform in Asia by IFAD & the

World Bank, in terms of cost and in-country

distribution, and is growing quickly. The

company serves over 25 million customers at

over 7,000 branches worldwide.

POCKETBOOK*

(WWW.GETPOCKETBOOK.COM)

SYDNEY, AUSTRALIAWhat it does: Makes personal nance simple.Why its hot:Pocketbook offers a free service and

app that enable Australian consumers to see all

their nancial information in one place. They

help users budget, manage bills, and reduce late

fees/payments. The app is currently ranked

second in the nance apps category of Apples

Australian App Store. Launched just over a year

ago, the company is in the process of closing an

initial round of up to $A700,000. Pocketbooks

ambition is to be Australias Mint.com.

QUANTUM4D**

(WWW.QUANTUM4D.COM)SAN FRANCISCO, CA, U.S.

What it does: Goes beyond data visualization.Why its hot:Quantum4D is an interactive

knowledge utility platform that delivers

knowledge in a visual way. The companys

stated mission is to open the bandwidth

between minds and machines. The software

turns data from various data feeds, databases

and other information sources into moving

visual representations that reveal trends,

anomalies and relationships in real-time

data. In-Q-Tel invested approximately $1

million in 2008. Customers include Global

Capital Compass, SWIFT, and the Bank for

International Settlements.

REALTY MOGUL*

(WWW.REALTYMOGUL.COM)BEVERLY HILLS, CA, U.S.What it does:Crowdfunding for real estate

purchases.Why its hot:Realty Mogul is a marketplace for

accredited investors to pool money online

and buy shares of pre-vetted investment

properties. The site launched in March 2013,

after incubation at the Founder Institute

and the Microsoft/TechStars Accelerator

in Seattle. So far its raised a $500,000 seed

round from several high-prole angels; raised

more than $3 million through crowdfunding;

is working with more than 1,000 investors,

and has invested more than $250,000.

The company plans to grow quickly but

conservatively, and to offer incredible

customer service; it aims to be the Zappos of

real estate.

THE ENTREPRENEURIAL FINANCE LAB**

(WWW.EFLGLOBAL.COM)CAMBRIDGE, MA, U.S.What it does:Credit scoring service.

Why its hot:EFLs mission is to bridge the SME

nance gap by helping nancial institutions

identify high-potential, credit-worthy

entrepreneurs. Its service combines non-

traditional data (such as questions based on

psychometric principles) with sophisticated

analytics and modeling techniques to deliver

a highly predictive credit score via a scalable

technology platform. The platform supports 24

languages, is available in 20 countries, and has so

far processed more than 60,000 applications.

TWIKEY (PAYMANDATE)*

(WWW.TWIKEY.COM/)BRUGES, BELGIUMWhat it does:Efcient eMandate and eContract

management.

Why its hot:Twikey aims to help companies

avoid manual admin work. Its initial focus is

on a solution for the 500,000 companies in

Europe that need to deal with SEPA Direct

Debit changes. Twikey offers an efcient way

to manage those agreements and interact with

banks and software providers. Twikey also

enables a seamless interface with third-party

CRM & ERP packages and is works with

internal mandate management systems.

VIRTUAL PIGGY LTD.**

(WWW.VIRTUALPIGGY.COM/)HERMOSA BEACH, CA, U.S.What it does:A safe environment for kids to

shop and save.

Why its hot:Virtual Piggy is an e-commerce

solution that aims to help kids and teens manage

and spend their money online within parental

controls. The companys platform enables

online businesses to function in a manner

consistent with the Childrens Online Privacy

Protection Act in the U.S. The Virtual Piggy

shop currently features around 40 brands. The

company is aiming for one million users by the

end of 2013.

V-KEY**

(WWW.V-KEY.COM)SINGAPOREWhat it does:Mobile app security.

Why its hot:Mobile devices and applicationsare the fastest-growing targets for new cyber

attacks. V-Keys guiding philosophy is to

secure mobile apps, rather than the mobile

device itself. The companys multi-layered

security mechanisms ensure companies can

achieve high levels of mobile security without

compromising the user interface. V-Key

has roughly 15 government and enterprise

customers today, mainly in Asia; its now

looking to connect with nancial services and

e-commerce players outside the region.

WARATEK**

(WWW.WARATEK.COM)DUBLIN, IRELAND

What it does:Brings virtualization to JavaVirtual Machines (JVM).

Why its hot:Warateks CloudVM provides Java

with features normally associated with the

cloud, including elasticity and multi-tenancy.

This can lead to reduced infrastructure

requirements, lower development costs,

and improved speed-to-market for Java

applications. The company is backed by 50

investors from around the globe; the largest is

Mangrove Capital Partners. Waratek took part

in the FinTech Innovation Lab London in 2013.

Its solutions are being considered for use in six

of the worlds top ten banks.

XYVERIFY CORP.*

(WWW.XYVERIFY.COM)NEW YORK, NY, U.S.What it does:Mobile payment authentication.

Why its hot:XYVerify delivers Fourth Factor

authentication, adding both where you are

and who you are credentials. Fraud risk is

significantly reduced based on authenticating a

mobile devices distance from a point of sale or

other business, home or postal shipping address

location, without any mobile app or download.

The geolocation verification service could well

become an essential part of the way people make

and accept trustworthy mobile transactions.

Z-CRD*

(WWW.Z-CRD.COM)SINGAPOREWhat it does:Modernizes the credit card

system.

Why its hot:Z-CRD provides an international

payment transaction system that competes

with Visa, MasterCard and American Express.

The company claims to cut out middlemen,

enabling merchants to activate its payment

system through a simple plug-in download

that works for almost all modern point-of-sales

systems. The credit card payments market

is currently worth $6 trillion; this solution

threatens to turn the industry on its head.

THE TOP 25

FINANCIAL SERVICES

START-UPS


14/24

WHERE BUSINESS

MEETS INNOVATION


Going MobileEric Schmidt, executive chairman ofGoogle, was recently quoted as saying,everything signicant we are work-ing on is around mobile. Banks andfinancial services companies woulddo well to consider a similar position.

According to a study released bythe Board of Governors of the FederalReserve in March 2013, the ubiquityof mobile phones is changing the wayconsumers access nancial services in

the U.S. : 28% of all mobile phone owners had

used mobile banking in the 12 monthsto November 2012, up from 21% inDecember 2011;

48% of smartphone owners had usedmobile banking in the previous 12months, up from 42% in December 2011;

10% of those mobile phone users notusing mobile banking thought thatthey would probably use it within thenext 12 months.Juniper research predicts that more

than one billion mobile phone users willbe using their mobile devices for bankingpurposes by the end of 2017, comparedto just over 590 million this year. In its

recent report, Mobile Banking: Handsetand Tablet Market Strategies 2013-2017,the researcher says that by 2017 15% ofthe global mobile subscriber base willbe using handsets for banking activities.

In a June 2013 report research firmGartner Group forecast that worldwidemobile transaction values will reach$235.4 billion this year, up 44% from2012. Gartner expects to see 245.2 mil-lion worldwide mobile payment users bythe end of this year, up from 200.8 million.

While its still comparatively earlydays for share trading on mobile devices,usage is increasing rapidly. Social invest-ment network eToro, a Top 25 FinancialServices Start-up for two years running,has provided Informilo with some in-

sight into the use of mobile devicesamong its investing community. (Pleasesee the infographic.) eToro has morethan three million traders in more than140 countries; theyve performed morethan 50 million trades since January2012. Growth in mobile usage is consist-ent with industry trends. Theres littledoubt that the use of mobile devices willonly increase as users demand anytime,anywhere access to all services, includ-ing banking and nance.

ETOROS ACTIVEUSER BASEWHICH TRADE

VIA MOBILEDEVICES

NUMBER OF USERS:ANDROID VS IOS

ETOROS MOBILE

USER BASE IN 2012

GROWTH IN MOBILE USAGE

SINCE THE BEGINNING OF 2013

TOP LOCATIONS FOR USERS OFETORO ON MOBILE DEVICES

IOS

BEFORE AFTER

ANDROID

11%65% 35%

SEPT2013

JAN2013

X2

GERMANYMIDDLE EASTITALYFRANCEUK

#1#2#3#4#5

30%


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Disrupting financial services has be-come something of a habit for entre-preneur Chris Larsen.

Connecting people who need capitalwith loans? Larsens rst two start-upse-LOAN and peer-to-peer lending plat-

form Prosper offer consumers easier,cheaper alternatives. E-LOAN, whichwas founded in 1997 then listed on thestock market before being bought in2005 by Banco Popular, a bank withoperations in Puerto Rico and the U.S,w

informilo magazine for sibos 2013

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