FinTech : Innovation in financial services

Interview with Marc HEMMERLING, Member of the Management Board of the Luxembourg Bankers’ Association

Source : Agefi
Date de publication : 26/10/2015

Mr Hemmerling, what does “FinTech” mean?

First of all, ‘FinTech’ is a word that is used quite often at the moment; it’s a lot of hype. However, it has a meaning: ‘FinTech’ is an abbreviation for financial technologies and a collective name for disruptive IC technologies used to offer financial services, such as banking applications or booking systems. ‘FinTech’ could therefore be equated with innovation in financial services, for instance offering more modern and user-friendly services through technologies.

As ‘FinTech’ is often used in the press, it thus covers different topics: new products, services and business models. These new products are only possible through the use of disruptive technologies, such as mobile phones or applications. It is often said that FinTech is only applied by start-ups, which isn’t true because banks and other traditional actors of the financial sector can make use of it as well. So it’s about new technologies that allow offering new and better financial services.

How do FinTech impact banks?

There are two main things that one must consider: On the one hand, banks have clients who are accustomed to using new technologies and who would like to apply them in banking services. On the other hand, there are lots of start-ups showing up new ideas and ‘snatching’ the banks’ clients who are not offered the required ‘tech-services’ from their banks, which means that competition develops. This is why FinTech strongly impacts banks, which must analyse the risks, dangers, advantages and opportunities of the use of FinTech. And if a banks decides to embrace FinTech it has to answer the question of how to proceed best? Alone or cooperate? Banks would need people qualified in both finance and technology, often young ones as this is a whole new business area. This is very difficult at the moment due to a high demand for highly ITand finance skilled employees. Furthermore in the new FinTech era, technical solutions such as mobile applications are rapidly out-of-date and must be upgraded regularly, what banks are not used to do with their current organizational set-up and existing legacy computing systems.

Why is FinTech important for the ABBL?

The ABBL defends their members’ interests and support their development. Moreover, as already mentioned, FinTech could raise a problem to banks, which is why the ABBL sees it as their goal to inform their members on the topic of FinTech and to provide guidance and support. It is about the transformation of the bank we know today so that it can survive tomorrow. Bill Gates once said: ‘Banking is necessary. Banks are not.’ This statement is only true when considering the banks that stick to traditional banking models without adjusting to new technologies.

What is the role of banks in FinTech? Are they involved in Research & Development? What are the challenges for banks in this context?

In Luxembourg, most banks are subsidiaries and thus not much involved in R&D. Compared to other banking institutions, such as ‘Deutsche Bank’ in Frankfurt or ‘Société Générale’ in Paris, these small entities in Luxembourg often do not have the required people concerned with innovation and research. Indeed, banks present in Luxembourg often belong to big groups and work with their respective mother company, which implies that they often do not have the permission to perform proper R&D. We try to motivate banks to think about innovation (and research) in cooperation with the University of Luxembourg, Luxinnovation and LIST (Luxembourg Institute of Science and Technology).

The challenges are quite simple to define: if banks do not emerge, they will miss important opportunities to offer new services demanded by the market, which implies the loss of clients. In this case they will lose market share; if a customer’s bank does not offer a certain service while several others companies do, the client will consider to purchase one of those companies’ service. Our aim is, in cooperation with the Government, LFF and Digital Lëtzebuerg amongst others, to make sure that Luxembourg remains an attractive, competitive and modern banking centre in the world.

How does the ABBL support FinTech development in Luxembourg?

We have internal working groups involved in FinTech development. The ABBL already has socalled ‘Clusters’ and we plan to establish a ‘FinTech cluster’, which shows that this is a very important topic as the chairperson of each cluster is represented in the board of directors of the ABBL. Working groups are subordinated to this cluster and have the mission to solve and answer specific problems and questions related to FinTech, such as the main activities, training and education in this sector etc. The ABBL then brings these ideas to the attention of the Government and gives recommendations and advice on what they could or should enhance, such as supporting projects and education related to FinTech. Moreover, the ABBL does the same at European level in Brussels - at the European Commission, the European Parliament and at the European financial sector organisations’ levels - in order to change laws and to get support. This sector needs qualified people who are familiar with finance and technologies, that is why it is so important to develop and to reform the current educational system.

Can FinTech companies become ABBL members? If yes, what are the benefits for them becoming members of the ABBL?

Yes, if their activity is supervised by CSSF (Commission de Surveillance du Secteur Financier) or linked to the provision of financial services. They would have the possibility to exchange information with other members in the before-mentioned working groups. They can discuss related topics, such as strategic and technical problems, which makes it easier to further develop their business. What is more important, the ABBL supports their members in defending their interest vis-à-vis the CSSF, Central Bank, the Minsitry of Finance and other entities. They have also the possibility to communicate their interest to the European Banking Federation (EBF) and the European Payments Council (EPC).

Why do FinTech come to Luxembourg from the outside? Why do FinTech startup their business in Luxembourg?

Luxembourg is a long-existing and businessfriendly financial centre where necessary institutions, such as the CSSF and the Central Bank, are already established and working efficiently. One can say that there are other countries that are rather opposed to the emergence of FinTech companies and are slow in taking these new technologies on board. We think that, although one can stand up against fintech business, one cannot utterly ‘ban’ it. We must maintain and uphold this businessfriendliness: ABBL, beside inciting its member banks to make use of the new disruptive FinTechnologies, welcomes these new Fintech companies, as the ABBL is different compared to other banking associations in Europe, as not only banks, but also start-ups can become its member. In addition, CSSF assists these start ups getting their permission respectively license to do business in Luxembourg. Once they get a license, they have the benefits of doing business in every member country of the European Union. Further financial state aids for R&D and contributions like the project ‘seedfund’ also attract these companies.

Do we have any FinTech success stories in Luxembourg?

Digicash now knows some success, but there are more companies coming from outside the country, such as PayPal and Amazon Payment Europe, iTunes. Concerning FinTech, there are a lot of companies that are currently trying to get their license, such as Ripple Labs, CoinPay or bitflyer. These are all companies that have chosen Luxembourg for developing their international business out of Luxembourg, as they consider Luxembourg as a true FinTechHub (refer to previous question) with a high development potential.

How do you consider the development of FinTech in the last years in Luxembourg? What are the main drivers and inhibitors supporting this development?

The development of FinTech in Luxembourg increases at a very fast pace, as we already count about 150 companies involved in FinTech business. There are some initiatives, such as Pwc Accelerator, BGL lux future lab, technoport or Luxinnovation, who support the development of FinTech start-ups and established companies. There are also some private organisations, such as Silicon Luxembourg, that are mainly trying to promote and advertise.

LFF, ICTluxembourg, Digital Lëtzebuerg, … many organisations are involved in FinTech. How does the ABBL cooperate with them?

ABBL members are not provider of computer technologies or IT services, nor is the ABBL. However our members are by far the largest users of these technologies in Luxembourg. Therefore, the ABBL is a founding member of ICT Luxembourg for instance in order to defend our interest and solve ‘FinTech-related’ problems. We participate in working groups after having made our proper opinion about several issues and pass on our ideas to these organisations.

What is done at EU level to foster FinTech in Europe?

The EC’s ‘Single Digital Market’ policy is a major framework allowing Europe to take benefits of the new ICTechnolgies. At EU level there are many working groups that make observations, among other things, whether laws should be changed or not, in order to facilitate the development of the FinTech sector. Apparently, financial support is allocated to some companies as well, in order to support their projects. All this is currently in the development phase.

What does the bank of the future look like?

Personally speaking, I think that the bank of the future looks like a car manufacturer: In the first place, a bank has its own idea of what products they want to offer (sports car or family van?). Then it defines the particular products. Of course it has domains where it is very competent in, and others it is not and needs advise or help from other companies that have the necessary qualifications. In cooperation or with the help of partners such as start-ups, the bank, (whether they bought some of those partners or they change partners regularly conditioned by the product or service they want to sell) could develop and offer the best product/service possible. The customer only sees “his” bank, where behind is a more or less complex organization that produces the particular service or product. In other words, the one who buys a car also only sees the final product nad brand of his preferred manufacturer.