SPEAKING IN CODE

Mark Bradbury, Managing Director of validation software company Apply Financial, set out to work with banks, ended up  partnering with fintechs and is now seeing renewed interest from institutions as bank-to-bank payments look set to emerge as the preferred method of transaction

The Fintech Magazine: How has the payments industry changed over the past couple of years?

Mark Bradbury: Payments has historically been the monopoly of banks and big card providers, like Mastercard and Visa, but we’ve seen a sea change over the past few years, with fintechs coming in and breaking up that monopoly, providing better solutions that are better marketed, slicker, easier to use, faster, and with much more of a customer experience.

Obviously, they’ve listened to their clients and delivered a better solution. So now you’re seeing a much wider choice for consumers and companies to make payments, and it’s driven the banks and incumbent card providers to look at acquiring some of the fintechs so that they can get more into the bank-to-bank payment marketplace.

I think the biggest change, actually, is the move away from card payments towards bank-to-bank, and we’ll see more and more of that in the coming years, thanks to the fintechs.

TFM: How have you seen banks and fintechs grapple with these changes?

MB: I think the fintechs set out to dislodge the banks, and then the reality hit both that the best way to move forward is to partner. So, it’s not unusual to see companies like Currencycloud and TransferWise working very well with the banks to provide new, slicker models.

The most important thing for fintechs is being able to provide a very automated, straight-through processing method for payments while keeping their costs down, because they’re working on very slim margins and don’t want to employ a myriad of staff in the back office, fixing problems. Apply Financial can help them with that by automating the process of validating everything they need for a straight-through payment so that it goes through the system without human contact.

TFM: What differences are there between fintechs’ and banks’ validation processes?

MB: Fintechs came at it as greenfield. They’d learned from the banks, which had to build up their own systems and tools, downloading data and coding rules. They did all the hard work to build validation solutions, but did so in the back office, and not built into a modern-day, browser-based environment. The new fintechs thought ‘we don’t want to build it ourselves, we’ll go to a company that’s got the global experience of this’, which is why they come to us.

TFM: Do you think adapting to instantly validated payments is essential for the success of fintechs and banks?

MB: The world is moving towards instant payments, so they have to adapt, and I think they’re embracing this because we all – companies and individuals – when we make a payment, want it to arrive the same day, even in a few hours.

Instant is a revolution. However, adapting to this is a challenge, because fintechs and banks have to make sure they do all the checks, including anti-money laundering, and the payment still leaves within seconds. Our clients are rising to that challenge.

TFM: Speaking of speed, how easy is it to implement your Validate system into an organisation?

MB: We haven’t reinvented the wheel, it’s a RESTful application programming interface (API) with a relatively straightforward deployment. Our clients’ technical people can plug it in very quickly. We make sure that the different functions we provide are deployed correctly for them, tested for volume and latency, and pass compliance for regulated entities. It takes as little as four and usually no more than eight weeks to go live.

TFM: What are the typical issues with validating cross-border payments?

MB: It’s not just a bank account number and a bank code; many countries around the world have additional requirements. For example, there are 32 countries that have payment purpose codes. If you make a payment to India, for instance, which is one of those countries, you have to put in a mandated payment purpose code, which has certain wording. If you don’t, the payment will bounce back. In other countries, they need to see tax codes.

So, we’ve built our application, within Validate, to be able to check those different elements. We provide fields for checking within our API, so that our clients don’t have to think ‘if we’re making a payment to Mexico, what do we have to put in?’. The system does it for them and we explain, to anybody who’s filling in those fields, exactly what they need to do to ensure a straight-through process. For example, if they’re putting in a particular type of IBAN (international bank account number), Validate will tell them if it’s correct and, if it’s not, what is wrong with it.

We’re trying to make it easy for our clients to provide an intuitive service to their clients so that the customer experience is much more enjoyable and it cuts out the human and data error that is causing one in eight payments to fail.

TFM: Now that customers are getting used to instant payments domestically, how are you helping to increase that in areas further afield?

MB: A lot of instant payment infrastructures are very similar to the one we have in the UK. The challenge is that you have to provide more detailed information to validate an overseas payment and do it with speed. We can help with that validation but, over the next few years, I think the authorities will come up with a more efficient way of using instant payments, in terms of the type of information that needs to be validated.

TFM: Can you tell us a bit about the work you’re doing with Franx in the Netherlands?

MB: Franx is a new challenger bank set up by ABN AMRO, aimed at small and medium-sized enterprises. It came to us about two years ago when it was looking to build out a payment solution for overseas payments for its clients, as efficiently as possible, with everything driven by APIs. It was a match made in heaven for us, as it wanted to do things the way that we could provide them.

It was looking at validating payments anywhere in the world. We started with just IBANs for payments in Europe, but we’re now providing them with the ability to validate payments in 170 countries, within 225 financial jurisdictions. It’s been live for more than 12 months and Franx has everything it needs now, whatever payment requirements it’s presented with by its clients.

TFM: How have changes in the payments industry impacted Apply Financial?

MB: When we started the company in 2010, we were pitching our applications predominantly at banks. We very quickly realised that the better place to pitch would be to the new fintechs because they were providing more customer-centric solutions – and the key to us is making the customer experience a lot easier and eradicating human and data errors as part of that process.

So, for example, take the Cloud-based, cross-border payments for the business providers, Currencycloud. We’ve been talking to it about this for quite some time and earlier this year we signed a deal to help Currencycloud validate, initially with IBANs, and then globally.

Over the last nine years, we were very focussed on working with the fintech marketplace and companies like Currencycloud, but over the last couple of years, I think the banks and card companies have looked at bank-to-bank payments, particularly cross-border payments, learned some lessons from fintechs, and probably even acquired some of them.

So, we are now much more engaged with the banks than when we first started, because they have accepted an API world, Cloud-based applications, speed of operation and customer-centric applications. We fit right into that.