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Collaboration for survival: the rise of partnerships between banks and FinTechs

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Collaboration for survival the rise of partnerships between banks and FinTechs

Martijn Hohmann, CEO and co-founder, Five Degrees 

A challenging disruptive landscape

The landscape which traditional banks and financial institutions operate within is changing and now is not the time to re-establish nostalgic ways of working if they are to survive.

Evolving customer expectations caused by digital disruption are resulting in traditional banks struggling to stay ahead of new challenger competitors. Banking customers including startups, scale-ups, large enterprise and blue-chip companies are asking for a more diverse range of products and services as one end-to-end solution.

The involvement of big techs in the banking and finance market, such as Google, Apple, Facebook, Amazon (GAFA) and Alibaba, are intensifying competition. Consumers are now used to fast, personal, safe and always-available portable solutions, and banks need to adopt this approach too.

At the same time, the introduction of regulation has created an obligation for banks to open up their APIs to third parties, or face risking non-compliance and heavy financial penalties. If these institutions are to keep up with changing customer demands while ensuring regulatory compliance, they need to ensure they have the right technology in place. 

Collaborate or die

To overcome challenges caused by a fully digital and highly personalised era, we’re seeing the formation of partnerships between banks and FinTechs across the world becoming the norm.

Martijn Hohmann

Martijn Hohmann

These ‘smart collaborations’ enable banks to align with customer expectations much quicker as they enable more intensive research and development (R&D) that focus on the testing of market strategies, while minimising the risk of reputational damage. The bank is able to act as an incubator establishing a clear overview of the project lifecycle, before launching the new product or service to its customers.

Partnerships between banks and FinTechs accelerate the process of‘Open Banking:’ the opening up of banks’ APIs to third parties, providing a greater array of services for banking customers, and in turn make it easier to achieve full visibility over data to align with GDPR and PSD2 regulation. 

Key steps to collaborating smarter

There are clearly many merits of banks and FinTechs working together. To ensure collaborations operate a best practice framework, the following steps must be taken:

Staying agile: Banks and FinTechs cannot afford to rest on their laurels as the market is rapidly changing. They must continue to ensure that their systems constantly adapt through staying agile.

Innovating: The innovation process is not easy and it takes a long time to get ideas to market. However it’s a pre-requisite and a focal point for future partnership investment. Only innovation can ensure that banks and FinTechs are ahead of customer needs.

Play to your strengths: Banks and FinTechs must play to their strengths with constant and regular dialogue to align strategically, both between themselves and with any stakeholders involved. 

Regulation: Banks should demand a strong partnership with their fintech partners that keeps them both up to date about compliance, regulation, and licensing requirements that could affect business and collaboration.

Culture: Banks and FinTechs need to deploy a  culture that is focused on continual improvement and adaptation to stay ahead of customer expectations and regulatory change.

Data: Banks and FinTechs need to take full accountability for existing customer data, big-data models and automated decision making, working closely on testing business resilience.

Security: Banks must not be afraid to demand the highest level of security from their FinTech partners, with a focus on continuous testing. 

The impact of Banking as a Service (BaaS)

An emerging technology which will re-shape the way banks operate is end-to-end Banking as a Service (BaaS), making it much easier for banks to deliver a full range of products and services over the Web.

End-to-end BaaS is the next step in banking strategy, and it will play a crucial role in the banking industry, accelerating digitisation and providing flexibility that customers are demanding without having to implement costly solutions.

By harnessing the power of end-to-end BaaS, banks not only cater better for evolving customer needs but achieve greater process efficiencies in strengthening their own businesses.

By 2020, smart collaborations are expected to impact up to 80 per cent of existing banking revenue pools, presenting an opportunity for those who are willing to open their doors to partnerships, embracing disruptive technologies and new ways of working.

Banking

Bank of England told to stop buying ‘high carbon’ bonds

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Bank of England told to stop buying 'high carbon' bonds 1

By David Milliken

LONDON (Reuters) – A group of British members of parliament said on Monday that the Bank of England should stop buying bonds from businesses whose activities accelerate global warming.

Britain’s central bank doubled its holdings of corporate bonds to 20 billion pounds ($27 billion) last year as part of efforts to support the economy through the coronavirus pandemic.

The House of Commons’ Environmental Audit Committee – which looks at public bodies’ impact on global warming – said buying bonds from firms such as energy companies with high carbon emissions contravened government goals to reduce global warming.

“The Bank must begin a process of aligning its corporate bond purchasing programme with Paris Agreement goals as a matter of urgency,” the committee’s chairman, Philip Dunne, wrote in a letter to BoE Governor Andrew Bailey.

The parliament committee has no formal power over the BoE, which is operationally independent, but finance minister Rishi Sunak could potentially change the BoE’s remit to require a greater focus on environmental issues.

Britain will host the global COP26 climate summit in September and Dunne said the BoE should set a good example.

Bailey said in July that the central bank would review its corporate bond holdings once the coronavirus pandemic was over, but said the BoE was right to provide financial support to a wide range of businesses in an economic emergency.

The BoE holds sterling corporate bonds roughly in proportion to the amount issued on markets.

This means 19% of bonds it holds were issued by electricity companies, 6% by gas companies and 3% by other energy companies, while 11% were issued by industrial and transport businesses that are often energy-intensive too.

Bailey has said financial institutions such as insurers need to pay greater attention to environmental risks and said a green ‘stress test’ of their business models to take place in June.

(Reporting by David Milliken, editing by Andy Bruce)

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Banking

Crown Agents Bank names Bhairav Trivedi as CEO Designate

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Crown Agents Bank names Bhairav Trivedi as CEO Designate 2

UK-regulated bank appoints fintech-leader to complete its digital transformation

London: Crown Agents Bank is pleased to announce the appointment of Bhairav Trivedi as CEO Designate. His appointment is subject to the usual regulatory confirmations in due course. Bhairav and current Group CEO Albert Maasland will jointly oversee the transition.

Bhairav joins Crown Agents Bank as it completes its comprehensive modernisation and transformation programme, becoming a digitally-enabled, globally-focused payments and FX specialist for frontier and emerging markets. He brings over 30 years’ experience in financial services, with a core focus on digital payments, cross-border remittances and fintech development. His previous roles include that of Group CEO of Network International Payment Solutions, a UAE-based payments provider for the Middle East and Africa. He has been President and Chief Operating Officer of Sigue Global Services Ltd., a global moneytransfer company, and was Managing Director, Global Head of Remittance Services at Citi’s

Bhairav Trivedi

Bhairav Trivedi

Global Transaction Services from 2008 to 2010. He also founded PayQuik (later acquired by Citi) and has worked at McKinsey and Company, Fair Isaac and Providian Bancorp. He joins us after a nine-month stint as Group CEO of Finablr, having been appointed to oversee the sale of this LSE-listed payments provider, which was successfully completed in December (with Finablr sold to Prism Advance Solutions).

 “I am delighted to be joining Crown Agents Bank at such an important moment in its development,” said Bhairav. “Albert Maasland has done a fantastic job to lead the bank towards its stated objective of becoming a leading provider of digitally-enabled FX and payments for emerging and frontier markets. Our goal moving forward, as an institution, is to continue to expand the business in the markets we serve while providing our customers with fully compliant, state of the art products to meet their needs. I am honoured to now play my part in this journey.”

Albert was appointed a non-executive director of the bank when the London-based private equity fund Helios purchased the bank in 2016. In February 2017 he took on the role of Group CEO, overseeing the bank’s transformation.

The bank has become a digitally-enabled and multi-award-winning leader in frontier and emerging market FX, payments and financial services for its unique wholesale client base. Since 2016 the bank has experienced a four-fold increase in revenues, is profitable, with bolstered governance, robust compliance, a stable credit rating and a programme for sustainability and diversity. Thanks in no small part to the 2019 Segovia acquisition the bank now provides a much wider range of digital payment and FX capabilities across a muchexpanded geographical reach: all while maintaining and deepening the bank’s core wholesale client base and focus on frontier and emerging markets.

“I feel now is a good moment to hand over,” said Albert, “especially as – in Bhairav – we have found a new CEO for the Bank with the experience and capabilities to complete the bank’s transition, all in line with Helios’s strong future-vision for transforming what was a traditional bank with deep roots in developing markets into a global, digitally-enabled specialist provider of FX and payment services to some of the fastest growing but often under-served markets around the globe.”

“The appointment of Bhairav points to both continuity – of the transformational process begun by Albert in 2017 – and towards the bank’s final destination as a UK regulated, globally oriented, fully-digital provider of payments, FX and ancillary financial services to some of the most exciting growth markets in the world,” said Jeremy Parrish, Chairman of Crown Agents Bank.  “In his ability to take the business to the next level, Bhairav has my personal and full confidence.”

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Banking

ECB stays put but warns about surge in infections

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ECB stays put but warns about surge in infections 3

By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) – The European Central Bank warned on Thursday that a new surge in COVID-19 infections poses risks to the euro zone’s recovery and reaffirmed its pledge to keep borrowing costs low to help the economy through the pandemic.

Having extended stimulus well into next year with a massive support package in December, ECB policymakers kept policy unchanged on Thursday, keen to let governments take over the task of keeping the euro zone economy afloat until normal business activity can resume.

But they warned about a new rise in infections and the ensuing restrictions to economic activity, saying they were prepared to provide even more support to the economy if needed.

“The renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity,” ECB President Christine Lagarde said in her opening statement.

Fresh lockdowns, a slow start to vaccinations across the 19 countries that use the euro, and the currency’s strength will increase headwinds for exporters, challenging the ECB’s forecasts of a robust recovery starting in the second quarter.

Lagarde saluted the start of vaccinations as “an important milestone” despite “some difficulty” and said the latest data was still in line with the ECB’s forecasts.

She conceded that the strong euro, which hit a 2-1/2 year high against the dollar earlier this month, was putting a dampener on inflation and reaffirmed that the ECB would continue to monitor the exchange rate.

The euro has dropped 1% on a trade-weighted basis since the start of the year, but is up nearly 7% over the last 12 months. Against the U.S. dollar, that number rises to over 10%.

MORE STIMULUS?

Opening the door for more stimulus if needed, Lagarde confirmed the ECB would continue buying bonds until “it judges that the coronavirus crisis phase is over”.

Lagarde also kept a closely watched reference to “downside” risks facing the euro zone economy, which has been a reliable indicator that the ECB saw policy easing as more likely than tightening.

But she signalled those risks were less acute, in part thanks to the recent Brexit deal.

“The news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns is encouraging,” Lagarde said. “But the ongoing pandemic and its implications for economic and financial conditions continue to be sources of downside risk.”

Lagarde conceded that the immediate future was challenging but argued that should not impact the longer term.

“Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term,” Lagarde said.

Benign market indicators support Lagarde’s argument. Stocks are rising, interest rates are steady and government borrowing costs are trending lower, despite some political drama in Italy.

There is also around 1 trillion euros of untapped funds in the Pandemic Emergency Purchase Programme (PEPP) to back up her pledge to keep borrowing costs at record lows.

The ECB has indicated it may not even need it to use it all.

“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” Lagarde said.

Recent economic history also favours the ECB. When most of the economy reopened last summer, activity rebounded more quickly than expected, indicating that firms were more resilient than had been feared.

Uncomfortably low inflation is set to remain a thorn in the ECB’s side for years to come, however, even if surging oil demand helps put upward pressure on prices in 2021.

With Thursday’s decision, the ECB’s benchmark deposit rate remained at minus 0.5% while the overall quota for bond purchases under PEPP was maintained at 1.85 trillion euros.

(Editing by Catherine Evans)

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