Payment infrastructure: a call for fair and equal access to FinTech

  • Rich Wagner , CEO and Founder at APS

  • 01.04.2016 01:39 pm

Interviewees: Rich Wagner, CEO and Founder of APS (RW) and Tony Craddock, Director General of the Emerging Payments Association (TC)

Financial IT: Rich, could you please explain who and what is APS?

RW: Advanced Payment Solutions (APS) is not a bank.We are a digital platform that provides banking services. We have been in operation for over 10 years, and have a strong position in the UK. We are certainly the leading independent e-money issuer, issuing debit cards to consumers, SMEs and the public sector throughour partnership with MasterCard.

Although we are not a ‘bank’, we have all the regulatory permissions required to perform a near full range of banking services. We are regulated by the FCA, we have an electronic money issuing license from the Electronic Money Association (EMA), a Consumer Credit License, and MSP (Member Service Providers) membership withMasterCard.

By putting all those things together, we are becoming a challenger to traditionalbanking models, offering digital banking products to those segments that we serve.

Financial IT: Great. What does APS look like from the point of view of the customer?

RW: APS provides a software and a hardware platform that delivers services to customers online and via mobile devices. We are one of the first to provide a truly online digital banking experience through our unique Cashplus Business Account. An SME owner or director can apply online for a business current account, which will be opened in real time in just seconds to give them their account number and sort code, once they have been authenticated.

We are able to do this, as all necessary approvals - KYC (Know Your Customer), KYB (Know Your Business) checks – are executed electronically. We also provide multi-currency and pre – paid card solutions for SMEs.   

We deal with the majority of existing and new customers online. We do not have branches, but know that many consumers and businesses need to be able to deposit physical cash. For this reason, we fought hard to be the first non-bank to offer banking services via the Post Office, delivering our banking services at over 11,500 branches across the UK.

Financial IT: What other benefits does APS offer to its customers?

RW: Our real competitive edge is the transparency of our pricing model, and the simplicity of the offering. This is particularly true for our SME customers, sole traders and companies operating with fewer than 10 employees.

For example, we have three main price points – and that is it. This is totally different to the complex pricing terms and conditions at some of the High Street banks: these can be three pages long. Unlike the banks, we offer products with single annual fees. Other than that, we charge a small ATM fee, a small foreign exchange fee to clients who making transactions with currencies other than Sterling.

We also do not do credit checks, but simply identify the customer and validate their address in line with regulatory requirements. A customer does not necessarily need to have a good credit reference to get access to our products and services as we have the flexibility to consider each applicant individually and understand that each business is unique in its needs.

Financial IT: What security standards and certifications does APS support? 

RW: We have a continuous programme of activities to maintain Payment Card Industry (PCI)compliance.We also seek to provide best practices in terms of what is prescribed by the Data Protection Act (DPA).As a regulated entity we have a robust auditing and governance process to protect customers and provide a high level of security when making transaction or services their accounts online.

Financial IT: Rich, can you please tell in more details about APS’ partnership with Emerging Payments Association (EPA) and your appointment as its Chairman?

RW: We realise that collaboration provides the best chance of progress. From withinthe EPA (Emerging Payments Association), we can work with other alternative payments providers, and non-banks, in order to achieve better access to the wider community.

I am delighted and proud to hold a leadership position within the EPA, in addition to my role as CEO of APS. The white paper that we published on the 8thFebruary is the first result of our collaboration.

Many of the opportunities and solutions presented in the paper depend on equitable access by the non-banks to the payments infrastructure that is already in place. Much more work needs to be done to break down the barriers.

Financial IT: You have told us about APS. Who, exactly, are the “non-banks”?

RW: We have an e-money issuing license through the Financial Conduct Authority(FCA). I would define non-banks as a group of FinTech companies that are subject to restrictions that would not apply to a High Street bank. There are around 1000 of us in the UK. We do not hold deposits in a traditional sense, but we hold customer funds in safeguarded accounts for making and handlingpayments. For now, though, we do not have access to the infrastructure that has been set up and monopolised by the High Street banks: and that is the principal challenge that the EPA seeks to overcome.

Financial IT: Do you deal with crypto – currency?

RW: No, or not yet. I think that distributed ledgers will play a part in the future. Right now, we are focusing on digital, tangible payment products that operate in traditional realms. As mentioned, our priority is ensuring that non-banks have greater, and direct, access to core payments infrastructure.

In the world of payments, the passage from buzzword to reality is a long one. Look at contactless payments, for instance. This was a buzzword for around 20 years before we got anywhere near the mainstream adoption levels we see today.

Crypto-currency is the latest buzzword, along with Blockchain, butwe have not seen clearly what the regulators and businesses want to do. When I hear that distributed ledgers are going to revolutionise financial services in the short term, I am (perhaps unsurprisingly!) less optimistic than the players who are directly involved with the technology.

Financial IT: So, what are the changes to payments infrastructure that we can look out for in the coming year or so?

RW: Look for greater speed of access to the infrastructure. Look for smaller FinTech companies that are actually raising enough funds to build new and scalable systems. I anticipate that they will raise more money than they could ever have done in the past.

The current environment is very favorable to FinTech companies. This is why so many have emerged in the UK – and, particularly, in London. The number and vibrancy of these companies means that it is now much easier for the non-banks to garner the momentum and status they need to really start taking business from the banks.  

Another big trend that I see emerging is what I call ‘niche banking’. Particular players will find particular activities where they really have a competitive edge. At APS, we think that we offer better current account solutions than the banks. We also think that we offer better remittance solutions. Currency Cloud, to take another example, offers better infrastructure for corporates to send and receive money internationally. There will be many other examples that emerge over the next year or so.

Financial IT: Is it possible that providers like you could replace the banks?

RW: In some areas, yes. We are focusing on providing basic current accounts, overdraft products and lending products to meet SME and consumer needs. There is an opportunity for us to replace the banks in those particular categories. I would stress, though, that we will not replace all activities of banks. I think people who say the banks will go away in next twenty years are wrong. Banks will continue to play a major role in the ecosystem.For instance, I think they provide higher value activities to the larger corporates where we might not be able to provide the full service solution that they require.        

Financial IT: Tell us about the report that APS and EPA have developed together 

RW: Our main message is a simple one. It is: “give FinTech companies direct access to the existing infrastructure.” However, the report also identifies some short-term solutions that could work in the interim. As the saying goes, we can’t let perfection be the enemy of progress. We want to change people’s mindsets – away from very long-term goals and objectives (although they are important) towards more pragmatic changes that will help FinTech companies in the next 12 to 18 months.

Financial IT: Does the report cover regulation, as well as technology?

RW: It looks at both. And it looks at risks. There are two areas of concern associated with providing FinTech companies with direct access to the existing payments infrastructure. One is compliance risk: that is of course a concern for the Bank of England and the regulators.

We believe that some FinTech players are doing a good job in this area and that there are some that need to do it better. We feel that the solution comes from placing the onus of compliance on the part that is making or initiating a transaction, rather than on the party that is executing or settling the transaction.

The second main area of concern is the possibility that FinTech companies – and issuers of e-money in particular – create greater financial risk within the entire financial system. This is actually rather perverse. We are tightly regulated. We can only use customers’ deposits for the settlement of payment transactions. We always hold all customers’ money in a central account to be used solely for that customer. If any, or all, of our customers want their money back tomorrow we are one of the few providers that could actually make all the payments. That would not be good for our business, but we could satisfy this need. We are quite unlikea bank in that way, which uses customers’ funds for lending and other things.

Financial IT: Tony, please tell us about the EPA.

TC: The EPA isthe voice of the emerging payments industry. Our vision is to help make London the global hotspot for innovation in this area. We are a vibrant, thriving community made up of companies who sit outside the mainstream banking industry and who are entrepreneurial and passionate about customers - and typically more progressive. Our members include people from established giants such as MasterCard and Visa as well as FinTech entrepreneurs.

We do three things for our members. We run events for these industry leaders and innovators to get together and discuss developments in the sector, share ideas or even do business together.

We have a series of projects that are driving change and improving the payments infrastructure. For example, one of the projects sets out to create a payments platform for non-settlement banks and financial institutions so that they cangain direct access to clearing and settlement at a fair price. Overall, our projects allow entrepreneurial companies to collaborate so that they develop a more efficient payments system - not only in the UK but also around the world.

And thirdly, we promote the views of our members, emerging payments and the EPA to important stakeholders, like the government, the regulator and retailers.

Financial IT: Does the EPA advocate technology vendors’ interests or those of end users? Or maybe you try to reach balance between the two?

TC: You cannot champion the interests of the technology industry without championing the interests of consumers. But you cannot champion the interests of consumers at the expense of the technology industry either. Everybody can and should be a winner. On one hand, the investors continue to invest in the technology companies, because there will be some reward for them and profit. And the consumers will benefit because of our progressive and innovative products and services.

Financial IT: What are the benefits of association membership for the providers?

TC: Membership of the EPA gives membersthe chance to grow their businesses faster at lower cost and risk. They can network with industry experts through our 35events each year. They can participate in the change projects such as the one we discussed in our report with APS. And they can have their say in influencing the views and opinions of the technology providers, regulators as well as user groups such as retailers and entrepreneurs.

In addition, nine years ago, the EPA establishedan annual ceremony to celebrate innovation, quality and best practice called the Emerging Payments Awards. The changing nature of its awards categories are a reflection of how the industry haschanged over the years – we make changes each year, and will continue to do so no doubt, as this exciting industry continues to shift and develop.



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