We’re all in this together

“What is the next big trend in our lives? The next big disruption will be at the heart of the finance industry, which is credit,” said Udayan Goyal, co-founder of Apsis Partners, whilst opening Innotribe’s 2015 ‘Future of Money’ session.

To ensure a ‘crossfire’ of ideas on the future of credit, the panel was split between bankers and disruptive technology providers, who were placed on either side of a busy conference room. “The people you see on this stage are fundamentally disrupting credit, but the big pools of capital sit within the global institutions,” said Goyal, referring to panellists on the other side of the room.

But was this about the disruption or the transformation of credit assessment and provision? Goyal went on to propose “co-opetition” as a model for the future – the idea that we can compete and collaborate at the same time. “There are innovators on both sides who are making that happen. Also, outside this room, there are the telcos, who are starting to engage in this industry. We have Google, Amazon and Apple. Standing still is not an option.”

What is needed is not so much a confrontation, but active and creative engagement between very different players, all with substantive contributions to make.

Rules of engagement

A number of messages were emphasised throughout the session. Bankers need to work together, and together with innovative startups (and with others, such as telcos); bankers also need to recognise that they can be innovators too. And innovators need to recognise that they need banks as much as banks need them, not least because banks offer scale.

Claire Calmejane, director of innovation at Lloyds Banking Group, said: “We have a strong view about the need for collaboration between the various actors, not just startups and banks, but also governments and regulators, incubators and tech channels such as Google and Facebook.”

In short, we’re all in this together. Steve Ellis, group head, innovation group, Wells Fargo, said: “The smartest people in the world don’t work for your company. If you’re not looking outside your company, figuring out who to partner with, who to learn from, who to invest in, who to partner with in strong or weak networks, you may be missing the boat.”

We have to work together, possibly with unexpected partners, possibly in unfamiliar ways. But work together on what?

“It’s really about data and analytics, and it’s about committing a lot of resources, and if you’re not focused on that, you’re not going to be relevant in five years, perhaps even three,” Ellis added.

Notably, those in attendance heard that technology could not only bring new efficiencies, but could also be customer-friendly. Alexander Graubner-Mueller, founder and CTO, Kreditech, said: “From a customer point of view, it’s very painful to apply for credit. It’s hard to explain why the process and the documents are necessary when the customer can buy anything online very simply.”

For Kreditech, a simple, pain-free credit application process can be achieved via the use of big data for credit scoring. Graubner-Mueller said: “We use machine learning to work out which of up to 20,000 data points have predictive power.”

The application of big data to credit scoring can be applied to small to medium-sized enterprises, retail customers and even those currently excluded from credit. Discussing the typically mobile-owning unbanked, who by definition can’t offer any credit history, Jojo Malolos, managing director for Asia at credit-scoring solutions provider Cignifi, said: “We gather rich data on how individuals use their phones, when they send an SMS, when they call, for how long, and how often they recharge. With that, we use machine-learning algorithms to develop behavioural models as a basis for credit scoring.”

As Malolos pointed out, Cignifi’s methodology rests on its own relationships with telcos, as well as on individuals’ relationships with telcos.

The user cases were convincing; these innovators are already developing commercial relationships and have already raised significant finance. Gottfried Leibbrandt, CEO, SWIFT, sitting amongst the innovators, capped their presentations with a challenge.

Leibbrandt said: “The hard part is not making the loan; the hard part is getting the money back.” And that was where the creative engagement really broke out. The innovators asserted the ability of their credit-scoring methodologies to correlate behaviour with a tendency towards repayment; the global bankers then led the discussion on the full range of issues that will have to be addressed prior to the industry’s widespread conversion to a tech-enabled future for credit scoring.

There were contributions from Neal Cross, chief innovation officer at DBS Bank; Leda Glyptis, head of EMEA Innovation Centre, BNY Mellon; Anju Patwardhan, global chief innovation officer, Standard Chartered Bank; and Angus Scott, head of product strategy and innovation at Euroclear. SWIFT’s Leibbrandt also triggered an important discussion with the simple question: “Are we allowed to use all this data?”

Beyond innovation

This was a session that went well beyond innovation. Delegates heard practical, real-world discussion around privacy issues, regulatory blocks to change, prospects for policy buy-in to what the future of money could be, legacy issues around technology, and process and products already held by customers. We were also reminded that innovation isn’t just the preserve of startups.

In his closing remarks, addressed to the innovators, Ellis said: “Online banking was created by banks, and so was mobile. The behaviour analysis you’re doing is very interesting, as is using data in brand-new ways, but I think partnering is the way that this will play out, probably more than you think.” The startups are making a valuable contribution, but the future will arrive at a pace dictated by the banks’ ability to address their real-world issues, he suggested.