Knowledge Circle podcasts

The Risks of De-risking


In this podcast, a panel of experts discuss the threats facing FinTechs and Payments businesses as a result of the risk-averse strategies that big banks are implementing around the world, asking the question: what are the risks of de-risking?  Hosted by Sarah Francis, Payments Advisor and Senior Consultant at Polymath Consulting, the panellists discuss how banks are engaging with today’s FinTechs and payments businesses, what’s really at the root of de-risking, and how to get the best from a banking relationship.

The panel included:

1/ Mitch Trehan, UK Head of Compliance & MLRO, Banking Circle

2/ Mark Hewlett, Director of Product & Infrastructure, GC Partners

3/ Jonathan Bell, Group CFO, PXP Financial

4/ Mike Southgate, Chief Compliance Officer, Paytrix (formerly COO, Hamilton Court FX)

5/ Sarah Francis, Payments Advisor and Senior Consultant, Polymath Consulting [Moderator and host]


Russell Goldsmith [00:00:05] Welcome to the Knowledge Circle podcast from Banking Circle, my name is Russell Goldsmith, and, in this episode, we’ll hear the highlights from our webinar on The risks of de-risking, which was hosted by Sarah Francis, Payments Advisor and Senior Consultant at Polymath Consulting, so over to Sarah to introduce the show.

Sarah Francis: [00:00:25] We’re going to kick off this afternoon by asking the panellists one by one to provide a brief introduction for themselves. So perhaps, Mitch, as you’re the closest panellist, if I can kick off with you.

Mitch Trehan: [00:00:41] Thanks, Sarah. And hello, everyone. My name is Mitch Trahan. I am the UK Head of Compliance and Money Laundering Reporting Officer for Banking Circle. I’ve been involved with this game for around 20 years. Previous places have been Citi, Barclays, JP Morgan and for the last ten years I’ve been heavily involved in one way, shape or form in the de-risking movement so I’m glad to be speaking to everyone today.

Mike Southgate: [00:01:01] Hi. I’m Mike Southgate. I’m the Chief Operations Officer at Hamilton Court Foreign Exchange, which is a foreign exchange business, as the name suggests. In operations here, comprises Chief Compliance Officer role, IT and settlements and payments operations. I also sit on the executive of AFEP, a trade body which represents payments firms in this space.

Jonathan Bell: [00:01:22] Afternoon, everybody. My name’s John Bell. I’m the group CFO for PXP Financial Group, which is a payment service provider. I have worked across a range of financial services, banking, insurance and payment, other payment service providers in the past.

Mark Hewlett: [00:01:40] Yeah. Hi, everyone. My name is Mark Hewlett. I am Director of Product and Infrastructure at GC Partners. Been in this industry for about nine years now. Previous stints at Ebury, building out their proposition and Revolut. I’ve been here for eight months and building out our global expansion.

Sarah Francis: [00:02:06] De-risking is a big word, really. It covers so many different things. What do we really mean about de-risking? Is it all about banks in fear or are there commercial aspects to it? Mike, what’s your thoughts?

Mike Southgate: [00:02:22] Yeah, I think we’ve got to accept underlying in all circumstances that the banks are a commercial entity, and they are there with the intentions of making money. We’d be naive to think anything else. And so in all situations, banks will be taking a commercial view on this and choosing whether the risks and the rewards are commercially viable for them. And what I would say is whilst we see a fairly slick API or something for us to interact and engage within the back end, banks are layered with complicated technology and some of that is very old technology. And they may struggle to keep up with some of the newer FinTech players in what they’re offering. And the question for the bank is, is it worth it for them to take their historical systems and make them compatible with those new systems? And in some cases, it simply isn’t.

Sarah Francis: [00:03:06] Is it that the FinTech business, the payments business of today, is just really too complex for many of the banks to understand and be able to commercially engage with?

Mike Southgate: [00:03:16] I’d say it’s certainly faster I wouldn’t say necessarily it was more complicated. In the back end of all of these things, if we look at somebody like Revolut, the reality is they’re simply engaging with existing platforms that are connected to Swift, and they’re not offering any services which are revolutionary contrary to the name. But the reality is they’re doing it a lot faster with a lot more volume and for a much lower cost. And so, whilst I think the bank fundamentally understands their business model and what they need to do, whether they can keep up with them and their demand is a different matter.

Mitch Trehan: [00:03:50] I think also there’s two parts just to add to what Mike was saying and somewhat almost contradictory. Mike was saying about risk and reward. I think further to risk and reward is risk and cost to serve. So, there is a de minimis threshold whereby when banks are providing this offering, there’s a certain amount of control environment that’s required and needed and implementing any control environment has financial costs with it. So, there’s the reward piece. Indeed, definitely. But there’s also that de minimis cost to serve. Which links to your other question, Sarah, of complications. Is this industry just too complex? I’m not sure complex is necessarily the right word, but it is certainly filled with more risks than having a direct relationship with the consumer. So, if you think of a bank that has a direct relationship with a consumer or a business or a bank that has a relationship with another financial institution who then maintains the consumer or corporate relationship, the risk profile for the bank providing the service at the top is different, not necessarily more complex, but certainly different and riskier in ways of reliance. So, I think those are the two parts that are very important and comes to the banks of who really understands how to do that, do that well, has the tech to do it as Mike alluded to.

Mark Hewlett: [00:05:02] It’s about expertise and scale for dealing with FinTechs. There’s lots of banks out there that would love to deal with the next Revolut or the next unicorns that are being born now. But it’s – do you understand that sector? Do you have the expertise in house? And only a few banks really have it. You know, I’m sure anybody that’s dealt with banks to ask them for services will probably have a good list of banks that are approachable, understand the business and can serve it well, and banks that don’t. And that is key. And as the markets mature, there are a lot of people now that understand this business in banks that can do it and some that actually now understand they don’t. There are some banks out there that simply put something on a website to say we don’t serve the sector. They step back, understand that they can’t serve the sector, don’t have the people, don’t have the processes, don’t have the scale to be able to make that affordable for them or appealing to the FinTech on a cost point of view. De-risking means two things, just going back to your original question. To me, there’s two de-risking events. One is a bank deciding it’s going to offer limited to no services to FinTechs, and then it’s being de-banked, which is a little bit different to de-risking because the risk is more systemic or systematic, whereas debanking is quite a painful event for anybody that’s been through it.

Sarah Francis: [00:06:18] And there is a factor, isn’t there, that, you know, not every company out there is the next Revolut. There is a crystal ball factor to deciding on who you’re going to commit your resources to working with, isn’t there?

Mark Hewlett: [00:06:30] Yeah. That’s where skill and expertise comes in I suppose from the people that are asking for that and looking. And again, as the market matures, I’m sure some bankers can spot what businesses are ones to watch and have got that X factor when it comes to banking them. And that’s a good thing as well. The market is maturing more.

Jonathan Bell: [00:06:52] I think there is an onus on the business to make sure that they really understand their business, their risks, how, what systems controls, etc. the bank is going to expect to see in place because, that then comes down to being able to really clearly, I think, explain the business and the way in which, not only the sort of customers and industry targets, but also the way in which the business itself has sufficient control systems, etcetera, that are going to give, I think, banks more assurance around the risk that they are taking on to sort of Mitch’s point about not having the direct link into the end consumer.

Mike Southgate: [00:07:41] During my time consulting, one of the big issues that banks had was, again, back to a crystal ball factor, which was they had to provide accounts and services to those firms before they really had any flow or any customers. And I know some of the firms now offer like a friends and family period, where you sort of demonstrate the systems and capabilities for due diligence by onboarding a very small and limited number of clients. But in reality, that sort of slow pace of forcing them to on board to test over three months is typically not where FinTechs want to be. They’re very rapid in their nature, but I think they have to sort of accept those limitations before you can run. But that’s a very hard sell, I think for the tech firms.

Mitch Trehan: [00:08:22] Coming back to de-risking in the industry, one key part for me that sums it up, it comes down to appetite. De-risking is maybe happening across the entire industry as an entire event, but each firm has its own appetite and that’s what it comes down to. There’s no such thing as good or bad. It’s: does that institution have the appetite to work with this client base or does it not have that appetite? And that’s what feeds these de-risking events. Some banks have the appetite to work with particular clients, whereas another bank will not have the appetite. Now, that’s driven by a number of factors. How much regulatory scrutiny there is there, how many previous fines they’ve had, what emphasis the regulators are putting on them about the high-risk clients they may even have and how much they’re willing to invest in technology. I think appetite is what drives a lot of this conversation.

Sarah Francis: [00:09:12] Could more be done for those banks to actually publish what their appetite is for business? I mean, it does seem something of a big mystery sometimes to know exactly what banks are willing to work with, what kind of companies.

Mitch Trehan: [00:09:25] So that’s an interesting point. And that’s been a point that’s been around for a long time. It’s actually a requirement in the UK now. So the payment systems regulator and anyone listening can Google, Payment Systems Regulator last year, March 2020, I believe released Specific Direction One and Specific Direction One said that if you’re providing these services, you must put on your website, your eligibility criteria and that risk appetite associated with it – what you will and will not work with and the hurdles people need to address. Now, there was a piece of work undertaken back end of last year and it’s the access to payment accounts guide that the EPA, now the Payment Association, released and that actually gave information to the public about which banks are and are not complying with the PSR requirement. So, Sarah, to your point, should banks be doing it, they actually have to under the specific direction from the regulator. Are they all? I think you can go to that document and see who is and who is not compliant.

Sarah Francis: [00:10:27] And let’s put it this way risk is about decision making, and it’s not exactly a static concept, is it? In any way, shape or form?

Mitch Trehan: [00:10:36] Completely not. I mean, it’s not static at all. But there are certain data points that will always be reviewed that are consistent. And those consistency of data points, there are certain banks and Mark, I think I might even turn to Mark for this one, Mark’s got experience of certain banks that will work with certain industries and certain banks that won’t work with certain industries. And knowing that upfront and having that means you know who to… Mark, I’ll hand over to you because I know you’ve got a lot of experience in that area. We’ve had this chat.

Mark Hewlett: [00:11:02] Yeah. So, it’s, it’s interesting. So, when it comes to risk moving, it is very fluid. You know, we’ve had conversations with banks where their risk appetite is decreased. Sometimes it’s increased. They’re adding new verticals that they’d like to do. Mitch mentioned the Payment Association Guide. We worked on that is it this year?

Mitch Trehan: [00:11:19] Nearly a year ago now.

Mark Hewlett: [00:11:21] And that was a really good guide. The banks, a lot of the banks gave a lot of information. It took them a lot of time and we really appreciated the work put in by the banks to do that because a lot of them are obviously turning away a lot more business than they keep. So that was interesting. But yeah, it’s very fluid. The feeling I’m getting, and I speak to dozens of banks across the globe is that risk appetite is, it’s falling and not in a good way. Because, if you’ve got this, there’ll only be a few providers that are providing the vast majority of services to the majority of FinTechs. So, the products that we start receiving over the last ten years, we’ve seen some really fantastic innovation, but now we’re starting to see some concentration. And my fear is that everybody gets the same underlying capabilities just with a different skin. So, depending on what you’re interested in, what age you are, you’ll have a very similar product. That’s my massive concern that innovation is starting to be stifled.

Sarah Francis: [00:12:21] And what actually happens to a payments business when they’re engaged with the bank, they’re working with banks, and one of those banks turns around and says, you’ve got three months’ notice. What effect can that have?

Mark Hewlett: [00:12:33] I’ve only had that once and it was painful, and it was out of the blue. And I’d like to think I’m a good relationship manager, but this was incredible. It was with a bank that compliance team does not speak to customers, which is one of the most frustrating things. Anybody that’s been through it will know you’re trying to plead your case. You’re trying to, trying to discuss what, why or how. In actual fact, our risk appetite had fallen, but the banks had fallen further than ours it turned out. So looking at the grid, our EDD was done. We had less high risk customers than we did the year before, but the banks, their risk appetite had fallen further. And then the situation we were in was quite painful. You have to get lawyers involved because they give you three months. And if you don’t have redundancy in certain currencies or corridors, it’s going to take you much longer than three months to open an account. So unfortunately it can get quite nasty. It’s like a horrible divorce, I suppose, in that respect when it happens. So, in my experience it wasn’t pleasant. It was a good relationship, a number of years with the bank. And then in actual fact we got the letter 1st of April. I honestly thought it was an April Fool’s joke, I promise you. I thought that. I said, Oh, good one thank you. And then you make the phone call, actually we’re serious. Oh, that’s not a cool day to be sending it, first of all, just yeah, it’s painful. But I’ve just got to say lucky I’ve worked in the works with large FinTechs, and we had ample redundancy. But if you pick out for a year, two years and you’re putting 90% of your business or 100% of your business through one bank, and you don’t have the deep pockets to afford expensive lawyers to get extensions, that puts you out of business and other people out of a job. It can be horrific.

Sarah Francis: [00:14:16] Yeah, there’s two aspects to this, isn’t there? There’s banks de-risking who don’t want to take on certain types of business. And there’s banks who change their mind about businesses and de-bank them, as it were. So, it’s finding a bank account and losing a bank account is the difference really between de-risking and de-banking, isn’t it?

Mitch Trehan: [00:14:37] The one thing that Mark mentioned there about the difficulty between smaller institutions that have one relationship and those larger FinTechs that have been going and some of the institutions that have multiple relationships can weather that storm much, much better. Banking Circle recently, we’ve undertaken a white paper on what is actually happening to the industry, what are the effects of de-risking? And we find that, you know, we reviewed 700 people, so we got 700 respondents and 77% said that they have more relationships now than they’ve ever had. And that’s mainly because of that fear of what if? And 65% of those have come back saying they feel it’s too many. But to Mark’s point, if they don’t have that, they’re carrying that risk of what if. And I don’t think that, that to me just doesn’t feel right.

Mark Hewlett: [00:15:28] Yeah. And that could be expensive, yeah? Because every bank wants to make money out of that relationship, and I have and do pay banks money just to have that redundancy. But a lot of firms, again, don’t have that opportunity. So again, that increases costs for FinTechs. So, it becomes a very expensive way of running a business because you’re having to keep lots of relationships going. That’s fine, if you equate it to relationships, it’s fine if you’re a billionaire and you’ve got lots of relationships in lots of different countries and you can afford it. But a lot of FinTechs, you know, might be divorced previously and not have much money. You know, who knows? But incredibly expensive way of running what is supposed to be an agile, nimble business. So as the market matures, it’s getting a little bit messier.

Jonathan Bell: [00:16:14] But I think that situation, that isn’t beneficial or clearly isn’t beneficial for the FinTech business. You know, to Mark’s point, where you’re paying for, effective to have accounts that are more there for redundancy and where you probably can’t actually provide the level of the business that the bank is looking for, but it’s not beneficial to the banks either because, you know, worst case, there might be only making sort of like minimum monthly fees or the volumes that are being routed a way lower than they, than they would otherwise be. So, it’s kind of it’s a no-win situation on both sides of the equation.

Mitch Trehan: [00:16:58] You lose economies of scale.

Sarah Francis: [00:17:00] But it’s not just cost, is it? I mean, I know we’ve spoken about this before. It’s the time because what do you have to invest? And Jonathan, you’ve spoken about this before, but what do you have to invest in these relationships with banks in terms of communication?

Jonathan Bell: [00:17:20] Yeah. No, I think I think the relationship management piece is incredibly important. And I know, certainly what we try and do is to, is to really sort of maintain a regular flow of, you know, information, keeping working with our banking partners, having regular conversations. I think, you know, as with many things, you know, it should be on a no surprises basis. So i.e. probably the worst thing in lots of ways for banks or for, you know, risk and compliance teams is something that comes as a surprise. And I think to some extent that’s just common sense to say, well, if I was putting myself in the shoes of, the risk and compliance team at the bank, is this something that they might look at and said, well, that’s either new or that’s unusual or that’s a particularly large transaction? I mean, the kind of common sense is, well, tell them in advance and say this is coming or we’ve got a new you know, we’re moving into a new sector, or we’ve got a large new customer. I mean, it I think, you know, that avoids surprises and questions a lot of the time. But I think it also it’s about building that trust that, with your banking partners that you’re keeping them updated and informing them on what’s going on.

Mitch Trehan: [00:18:40] There are no secrets, right? You can’t if you’ve got a banking provider because you have to put the name of the beneficiary and remitter on the payment, so, and that goes through the bank. So, if it’s something your firm is trying to hide, maybe the bank won’t see or don’t tell teacher or whatever the concept is. It’s always in the payment message. It will eventually get to that.

Jonathan Bell: [00:19:00] And that’s the sort of thing that then just undermines a relationship.

Mitch Trehan: [00:19:04] Relationship.

Mike Southgate: [00:19:05] To look at this from the other side and talk about risk to the banks, there is also the possibility that the…Sarah your original question was what happens to these firms when they get de-risked? And one option is they simply move further downstream. So, they become, they are a service of an aggregator or somebody else that isn’t linking directly into a Tier one bank. And they are underneath a currency cloud or a Railsbank or somebody else’s, an agent or something further down. And realistically, a bank somewhere is still carrying that risk, but it’s now several steps removed from that provider. Now, that typically increases that firm’s cost, that payment services firms cost because they’re not dealing directly with the bank. But they may be able to get away with smaller turnovers, smaller revenues for that firm. But as an overall for the banking industry, it’s moving people further and further down the chain.

Sarah Francis: [00:19:53] And it sounds old fashioned because we’re talking about technology, and we talk about innovation. But really, how much of working with the banking and the financial services industry still relies on the concepts of trust, empathy, and communication?

Mark Hewlett: [00:20:09] It’s everything. It is absolutely key. You will not succeed in this sector if you do not have banks looking after you and wanting you to do well as a business. Have some empathy for your relationship manager. They’re putting in a huge amount of work, putting you through lots of forums for what is in theory quite a low reward, high risk/ low reward business. Because the forums, if you look at the departments most banks plop us in, it’s non-bank financial institutions and that’s hedge funds, that’s insurance firms, higher volumes, higher wallets, a high volume of wallets to share. So have some empathy. Understand that this is not an easy job for a relationship manager in the NDFI team or the FinTech team. Call it what you will. There’s a lot of work that goes in and there are going to be sticky points in your relationship that you need to overcome. So, keep them tight. Never surprise them with flow. Like Mitch says, they see everything. Ultimately. For God’s sake, don’t, don’t surprise them with a vertical you said you’ll never touch. And then all of a sudden, you’re putting through, discuss it, look at your due diligence, approach them beforehand, do it together. Most banks have seen most verticals. They can actually add a huge amount of value to your own due diligence processes as well. So, keep them close. So, it’s very old fashioned, I know. My liver has suffered for it. But you really need to keep your relationship managers close.

Sarah Francis: [00:21:34] If you’re advising companies or looking at companies, FinTech companies looking for bank relationships, what kind of information, what kind of package, how should they approach this new relationship with the bank?

Mark Hewlett: [00:21:48] When they ask for a presentation about your business, present it as if it’s going to the chief compliance officer, because ultimately that is the only person you need to get a green light from. That’s the only person that really matters that reads anything about your business. The salesperson, the relationship manager understands your business. They want to make revenue. They want it to be good business. But ultimately, anything that anybody reads goes up to the compliance person that will do the, see’s the, thumbs up or thumbs down. Or, if you’re presenting to a bank, just present it as if it’s only for the compliance person.

Jonathan Bell: [00:22:15] Yeah, I would agree. I mean, in lots of ways. It’s information about your business. But effectively, it’s also pitching it in the sense of being really clear what it is you do, what’s your business about? what is your customer base? What are your industries? What services are you going to need? What currencies are you going to need? Because it’s, there is a degree of if this is a new relationship, it’s about building trust early on, but also confidence as well. Because if somebody is reviewing the information you’re providing and has big question marks or would say there’s lots of things missing here that in itself could, you know, does not go to get that relationship off to a good start. So, I think it is trying to build that trust and confidence at the very sort of early, early stages.

Sarah Francis: [00:23:06] And is it really enough to say, to walk into a bank now and say, well, look, the regulator thinks I’m good enough to be regulated? Isn’t that enough?

Mike Southgate: [00:23:15] So that’s an interesting problem because in a world where the regulator was regularly getting rid of people and removing them, then you might say that they were. But the reality is the regulator is light touch. They’ve published that they are a light touch regulator, and they are there with the belief that people are putting the right controls and things in place. And the reality is the bank is the first firm because they can see all of the flows and all of the transactions who are likely to spot something going wrong. The alternative, by the way, is if you ever try and get regulated in Italy is a process called AUI reporting, which requires that you report the details of every single transaction you do inbound and outbound to the regulator. So, if you want to have a regulator with teeth, you have to do a lot of reporting in order for them to be able to do something with it. I think the reality is that the banks are the first, the first people to go, the first red flag and see something going wrong. But I think the point that if the bank is, if you’re unaware, if you don’t have an open relationship, an open dialog with your bank, and this letter comes suddenly out of the blue, that suggests there was something wrong with the relationship that you had that they didn’t tell you, you didn’t get any inkling or any sniff that anything was going wrong in advance. And that possibly says more about your controls than about banks.

Mitch Trehan: [00:24:32] And then, to your points Sarah about the regulators. Let’s think of the point in time when these things happen. Regulators do it when a business is opening. They haven’t got their customers. They haven’t, they’re not active because – chicken and egg. You need to have the license and the permissions from the supervisory and the authorizing body before you can do business. That’s that stage in the process. What happens after that? Do the supervisors and authorizers, regulators check? They do, but they do it on a risk-based approach themselves. Everything in the world revolves around money, right? That’s my point. And the supervisors, these bodies only have a certain amount of funding from government or whomever it might be. So, they have to choose who they’re going to target, who’s going to have the most impact on society at large. So as a result of that, they will pick certain institutions, certain banks and certain correspondent banks, because they know that all of this flow is going through those institutions. So, by default, if you check it at that level, these banks are obliged to check beneath them. And you get that control environment going through the ecosystem at large without the supervisor having to check all the smaller firms. The reality is the reliance by the supervisors are now on the banks to actually check these underlying institutions. It’s not enough to answer your question that someone’s just authorized. It has to be ongoing. And to what Mark said earlier, what does the, I mean, I’m a compliance officer. What do I ask and what do I want to see? It’s three very simple things. What does your business do? Who do you provide it to and how do you do it? How do you onboard them? How do you check them? How do you monitor them? And compliance. Just by ticking a box once of getting authorized. It’s like cleaning your teeth. You clean your teeth every day and multiple times a day, hopefully most people. You don’t do it once and leave it. That’s the exact same thing with compliance reviews and checking that a firm’s okay. You don’t do it once and leave it. You have to keep checking.

Sarah Francis: [00:26:26] But then, isn’t there a chicken and egg scenario? Should the government or the regulators enforce that there has to be the opportunity for newly regulated companies to get bank accounts, because after all, can you be regulated without a bank account? What happens in that scenario for the new companies coming into this environment?

Mitch Trehan: [00:26:47] On to Mike. I was going to answer. But I want to let Mike go first.

Mike Southgate: [00:26:50] Yeah, I was just going to say, you are in an unfortunate situation now, which is that a prerequisite is that you have a bank account and there is the possibility that the regulator thinks, well, they got given bank accounts by a tier one bank. It should all be okay. And I think there’s a risk inherent in both sides of that. And firms need to be, new start-ups need to realize easy come, easy go. If you get the license easily and get the bank account easily, then you also have to accept the ability for them to retract those very, very quickly. So, I wouldn’t want to be in a situation where banks were both forced to give people bank accounts, but also forced to hold on to those accounts where they thought that there was a risk. And I think those two things are mutually exclusive. You either have to make it easier for banks to exit people. And then force them to give people accounts. But that’s not good for the consumer. You know, the situation whereby all of those bank accounts are retracted with very little notice because of compliance failures leaves a lot of consumers kind of up in the air.

Mitch Trehan: [00:27:54] And that’s the thing about these compliance failures. If a bank is told, you must do this, if something goes wrong, the bank can turn around and say, but I didn’t want to do this. You can’t punish me, or I can’t do anything about it. You made this happen. So, which then means who takes the risk? Who’s responsible for paying for the control environment? It could start making things implode amongst themselves, because if you’re forced to do something, you have a defence. And actually, this is a key part that comes through. And Mark, you’ll know this from DCNSP where actually the instantaneous direct clearing, settled, the funds and the crediting is happening in the schemes, but the funds settle later. There is a criticism on an area there of actually how much control environment can you put in when the funds have already cleared? And actually, it is starting to change. The ecosystem is starting to change this part, Sarah but what you’re saying about where does that risk, and should they be forced? It’s getting to the point of if you allow institutions beneath you to do this, the ability to stop changes. And that’s an interesting area in my point.

Mike Southgate: [00:28:57] I will also say you can also apply for direct clearing accounts with the Bank of England. And if you think that the bank’s level of due diligence is extensive, if you ever try to go through the Bank of England’s process, it’s exactly what I described. It’s much harder to get into, but you are much less likely to be de-risked. But you’ve got to have that standard right at the start. And I think a lot of start-ups would struggle to hold themselves to that standard.

Mark Hewlett: [00:29:21] Yeah, so with a bit of old hat on, we did do the DCNSP. We were the first ones to do it. So, if you think it’s painful now, try to be the first one through that gate. It’s horrific.

Sarah Francis: [00:29:30] Should Banks publish what it actually costs them? Should it be clearer what it costs them to work with FinTech industries?

Mike Southgate: [00:29:38] I’m not sure, you, what the argument for that would be either. I mean, what I do like and one of the reasons I had a great conversation with, with some alternative banks who aren’t particularly looking to move, but we were exploring a market, a price list, just an upfront open price list was a very refreshing thing, whereas other firms are like, well, you need this much flow, we’ll look to make this sort of revenue off of you. But realistically, a start-up firm isn’t going to be able to, to meet those turnover requirements and to give the firm 2 billion in flow. So actually, a price list also means that you can submit that as part of your application for your costings and your business plan for the first year. So, an upfront pricing schedule would be good, if not details into costs and revenues.

Mark Hewlett: [00:30:32] It’s interesting because that does lead on to the firms that sit in the middle and I won’t name names, but I think everybody knows the types of firms we’re speaking about that give these start-ups that aren’t regulated yet the foot up to get some flow and then you can move it away and get your own bank accounts. And who underpins those? The same banks that some of us larger FinTechs work with. So, there is, you know, if you think with kids learning to swim, you’ve got the kids that sit in these firms that provide that service through a bank. So, it’s being aggregated by an aggregator, so it doesn’t price them out of the market so much, but it’s an upfront price. This would be great. Some banks are quite open and it’s the same names that say, we need to make a million a year out of you or half a million a year, which is nice, and you can pay that how you like to be honest. But yeah, price list, is quite interesting seeing how the different banks might make money out of our sector.

Sarah Francis: [00:31:28] OK. Can I ask perhaps in each one of the panel, to come out with one or two or a sentence that describes the most important thing in their mind for the future of FinTech businesses and continued innovation with banking. In the case of, you know, if we’re going to keep innovation going, if we’re going to push boundaries, which suggests innovation does. How do we make this work with banking relationships?

Mitch Trehan: [00:32:00] I think you need to find the right banking partner for that. Some banks analyse risk based upon historic data. By definition, innovation is something new so there is no historic data which makes it really difficult for those. So, you need to find a bank that has that appetite, which I came back to at the start of supporting and helping and believing in someone’s idea. A FinTech bank has gone through that. So, if you’ve got a FinTech bank that is using innovation and technology to change things, they’ve already got that empathy for your business model. So that would be my advice. If you want to innovate, you want to do something, you have to find a bank with appetite to do that. Banks that analyse risk based on history, you’re already broken because you have no history. And that would be, that would be my way to approach it.

Mike Southgate: [00:32:43] I’d always be looking at it as a mutual relationship. And actually, Sarah, you asked earlier as a question, what would you put in your pitch deck? And my starting point would be what’s in it for the bank? There seems to be a general sentiment and a general feel that banks should be forced to provide this service. But they’re not utilities, they’re not public companies, they’re commercial organizations. And the reality is there has to be something in it for the bank in order for it to make it worth their while, in order to service you. So, I would simply say a mutual relationship of any description is what’s needed.

Sarah Francis: [00:33:16] Jonathan?

Jonathan Bell: [00:33:18] I was going to say, I think, the relationship is very you know, if we’re talking about innovation, then innovation is often from smaller and start-up businesses. So, I think, banks that are willing to work with smaller businesses and to, and that doesn’t mean necessarily offering everything, you know, in one go, but a relationship where that might evolve and grow and develop over time but where it is a genuine relationship of working together. And, both parties, I think, benefit from that growth that comes out of that.

Sarah Francis: [00:34:00] Mark?

Mark Hewlett: [00:34:01] Yes. I’ve been making some notes because I didn’t want to forget anything because I think this is quite key on developing, because I do as I mentioned at the beginning, I do worry that we get a lot of the very same products with different skins, but have regular touch points with your banking partner. I’ve been at firms, I’m aware of, firms that hardly ever speak to their bank. It might be the EDD call a session once a year. Arrange at least a monthly session with your relationship manager, and also make sure that the compliance teams are speaking to each other, or the operations teams are speaking to each other. Go through the stats, look at the STPs, look at the RFIs, manage that, try a target. With one of my banking partners, I’m trying to target that we have the best STP rates for next year. We’ll be implementing a lot of new tech. Do that sort of thing. So, I think that’s really key. And sometimes it’s just about speaking different languages. You know, there’s a firm I know well, response to an RFI.

One side is classing it as well, we told you we’re looking into it, whereas the bank actually wanted a response, which was an actual response, an answer to that, the information that they requested and just getting that right fixed a year’s worth of problems. Speak to other departments, is also important. Banks have got lots of products and the relationship manager doesn’t know them all. So, ask them, Can I speak to the team in your lending department? Can I speak to someone in your Swift team? Can I speak to someone in, and it could be anything, credit cards. And you’ll be amazed at what sort of things happen. You know, Mitch was with me at Ebury when we did the faster payments thing that was organized at a lunch on the 32nd floor with teams that we didn’t normally speak to. So, plenty of other teams, a lot of banks now have innovation teams. Again, there might be some new products that the bank doesn’t think that you need, but you do or you could productize something with that. So meet with other departments and all of this boils down to being inquisitive if you want. Most innovation comes from a different use for a product that already exists. So be inquisitive, look at that and then hopefully we’ll start seeing more innovation. Because I do feel that we’ve, we’ve had no new regulation for the last few years. And if you’d asked me ten years ago if I’d ask for more regulation, probably would have asked you to put me down.

But, you know, PSD2 has come out now. We’ve had PSD2, it’s maturing, we’re seeing some good use cases with PIS and AIS and open banking. We need something new so we can start looking at other ways. I know it’s crazy, but I think we do. I think that, as providers mature, we should be able to see a lot more products. But innovation is usually bred from…innovation comes from regulation. We had the banking crisis in 2008, PSD2 was supposed to be the answer to that, and it brought back, look at the businesses that have been developed on the back of that and the businesses of the future that are going to use open banking and third-party payment provider access. I think, yeah, that’s yeah, get close to your bank, have regular sessions, make sure you speak the same language.

Mitch Trehan: [00:36:49] And I think Mark in that little summary about get close to your bank, regular sessions, speak the same language that would answer the question of how do FinTechs help stop themselves being de-risked? Maintaining that language, maintaining the communication, being open and transparent. And not only that, to prevent yourself from being de-risked, but it was touched on earlier about multiple relationships. If you can actually just bring it down to the right few, few relationships of what you really need, then actually you will get economies of scale. You will help reduce your cost base. And in doing so, you need to find a bank that’s got the products that you actually need. So rather than having five or six or seven different banks for different things, find banks that can offer you those multiple currencies and those multiple payment avenues through one relationship and build that economy of scale and use Mark’s points of transparency, communication, knowing your business and knowing how to explain that to the compliance officers.

Russell Goldsmith: [00:37:49] Well, that’s it for another episode of the Knowledge Circle podcast. Thanks once again to our guests, Mitch Trehan, Mike Southgate, Jonathan Bell, Mark Hewlett, and, of course, to Sarah Francis for hosting. If you enjoyed the conversation, please do follow, like and share on your podcast platform of choice. Hope you can join us for the next episode. But until then, thanks for listening and goodbye.

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