Fintech Ireland is part of an international fintech network and promotion group which includes Fintech UK and Fintech Oz. The primary activity is Fintech Ireland for the time being. Founded by former Central Bank of Ireland director Peter Oakes in response to difficulties technology firms were experiencing with the previous Central Bank’s licensing process, Fintech Ireland provides guidance and advice to fintech start-ups and established financial institutions which want to enhance their offerings to increasingly tech-savvy customers.


“We run seminars and meet-ups to help cultivate the digital innovation happening in Ireland,” Oakes adds. “Having worked as a central banker and board director of Bank of America’s European payments business, I am very much aware of the impact, challenges and benefits from the cumulative impact of technology, the internet, big data, and future regulation in areas such as cyber security, banking, payments, and MiFID on business and consumers. Importantly, through our network of international angel investors, venture capitalists, private equity funds, innovation hubs and technology accelerators we can help match start-up tech firms with investors.”


"Simply selling a mortgage online or enabling a customer to see their account balance on their smartphone is not fintech. Fintech is about disrupting, through innovation, existing banking, payments, investment, and insurance services. Equally it is about identifying new services"

Looking at future trends in the sector he says that fintech is a broad church and there are many components to it. “It is more than just the marriage of finance and technology,” he says. “Simply selling a mortgage online or enabling a customer to see their account balance on their smartphone is not fintech. Fintech is about disrupting, through innovation, existing banking, payments, investment, and insurance services. Equally it is about identifying new services.”

Looking beyond the standard payments area, which tends to command most attention, he notes some other critical infrastructure changes. “In banking there is the instantaneous opening of retail and business bank accounts delivered by challenger banks, such as the UK’s Monese, Mondo, Atom, and Starling Bank. Further innovation is being driven by new banking platforms such as Cogni in Ireland and Holvi in Sweden which take advantage of recent EU open bank initiatives to bank data and customer geographic locations in order to offer each customer tailored and unique business and personal banking experiences. We are seeing the traditional bank model coming to an end as they morph into utility companies. Although the traditional banking model may come to an end, it is just the start of a new banking service paradigm.”  He also points to the investments and pensions area where companies like Roboadvisers, Nutmeg in the UK, Robin Hood
in the US, and Rubicoin in Ireland are providing a range of services online and through apps. In the loans and
peer-to-peer or crowd-funded personal and business lending space fintech companies think of Funding Circle in the UK, OnDeck in the US, and Grid Finance in Ireland are bringing innovative new services.

The emerging area of insuretech is bringing about some potentially hugely disruptive concepts such as peer-to-peer car, personal or business insurance. “Similar to peer-to-peer lending, peer-to-peer insurance sees a number of policyholders pool together,” Oakes explains. “When the insurable risk happens, the policyholders support each other financially. If there is no claim, the insurance premiums are reduced. Effectively we are seeing all the benefits of the co-operative insurance, or lending, model being accelerated by the efficiencies and speed of the internet and technology. Examples of this include FriendSurance in Germany and Guevara in the UK. There are also a number of innovative insurance people in Ireland looking at entering the market.”

"Technology is critical. Without technology there is no way a central bank or a bank can be confident that they have the sufficient capital required to insulate them from the economic risks they undertake on a daily basis"

He believes regtech, or regulatory technology, will be an area of significant growth. “As more and more regulation and law comes into effect, the organisations subject to those laws such as banks, insurers, investment houses and other financial providers and those that administer the laws and regulations including central banks and regulators will need to adopt technology to analyse the huge amounts of data about the stability of systemically important institutions and important compliance obligations,” he contends. “These processes cannot be performed manually. Technology is critical. Without technology there is no way a central bank or a bank can be confident that they have the sufficient capital required to insulate them from the economic risks they undertake on a daily basis. Technology is being deployed in the fight against financial
crime and financing terrorism. Without technology it would simply be impossible to analyse trading and payments patterns to identify fraud, criminal behaviour, and stifle the flow of money which terrorists use to attack society.

On Monday 25th April 2016 I gave a presentation to the attendees of the Cyber Security Exchange FS.

Click here for the slides. 

Any comments or feedback to [email protected]

We are speaking at many events in Ireland and overseas. And we are contributing to numerous articles on the topics of fintech, regtech, banking, payments, insurance, investment management innovation, marketplaces, e-commerce and regulation.  If you would like to discuss us contributing, please contact us at [email protected].

Trust between consumers and financial service providers will be crucial as society continues to shift towards digital platforms, the founder of Fintech Ireland has warned.

Peter Oakes, who is a business, regulatory and legal adviser, trained as a lawyer in Australia and then qualified in Britain and Ireland.

He spent a large part of his career with regulators, most notably director at the Central Bank of Ireland responsible for enforcement and financial crime.

Oakes will be speaking at the Future Banking and Financial Services Summit (FBFSS) tomorrow at Dublin’s Gibson Hotel.

In terms of banking and the future of finance delivery in Ireland, Oakes says the most important factor is trust.

He said: “Trust between the consumer, their financial service provider and faith in migrating our day-to-day financial and social interactions into a new digital paradigm.

“Trust has to also be evident between regulators and financial service providers. Banks will not risk executing real innovation if they feel that regulators are inflexible in terms of a risk based supervision and enforcement.

“Fintech firms will not enter the Irish market en masse if they feel that regulators will penalise them for every failure. Consumers will not deal with incumbent or new financial institutions unless they feel that their money is safe and protected by government agencies, especially in the immediate aftermath of the failure of Irish banks and regulatory system.

“The challenge will be to find a way to satisfy all stakeholders in the face of burgeoning alternative banking and payments platforms, giving third parties access to customers’ data held at banks and relying upon artificial intelligence to devise our investment and retirement strategies. That’s the big picture.”

Oakes (above) will also be asking delegates:

• Are central banks and regulators capable of supervising fintech firms?
  
• What is the potential impact of a Brexit for Ireland and continental Europe’s fintech community? What are the opportunities and threats to Ireland?
  
• Why doesn’t Ireland play to its strengths in terms of governance, risk and compliance and strive to become a leading global regtech capital?
  
• Where would you like to see the industry in 10 years time?
  

He added: “In any event, politics aside, we are heading into the fourth industrial revolution and we are now standing on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another.

“The World Economic Forum says that the scale, scope, and complexity of the transformation will be unlike anything humankind has experienced before.

“The possibilities are immense. By 2020 at least 66 per cent of the global population will be online. Three to five billion new customers not accounted for in the global economy today will enter the economy by 2025. The world’s biggest banks in 2025 will be technology companies. You could be getting your mortgage from Apple, car insurance for your driverless car from Google and banking with Cogni.”

At tomorrow’s conference, Oakes will have a fireside chat with Anthony Watson on the theme of Disruption: Evolution or Revolution? He will then moderate two afternoon panel sessions – the first one is the Founders Brainstorm Session, where My Money Platform, Fund Recs & Bank of Ireland will tackle reinventing finance through disruptive innovation. The second session will include the ACOI, the Central Bank of Ireland and GRID Finance. It will debate competition, risk and regulation, including fintech trends and whether we can effectively regulate innovate financial services.

Oakes currently works with an international BaaP (Banking as a Platform) ‘fintech’ company and a regulatory data analytics ‘regtech’ company. He has been involved in these fields since 2003. In August 2014, Fintech Ireland became the first registered fintech group in Ireland.

Over the last 18 months, Oakes has been working on establishing the EU payments business of Bank of America Merchant Services, HQed in London, where he was also a company director and led the authorisation with the FCA.

Oakes said: “That took up most of my life until I returned to Ireland a few weeks ago to continue my focus on Fintech Ireland.

“On a day to day basis I work with the executives of the companies where I am a non-executive director to assist and hone their strategies, business models and introduce them to sources of funding like venture capital, private equity, seed funding and innovation hubs. In amongst all this, I still advise firms on regulatory and enforcement issues with the Central Bank of Ireland, the FCA and Australian regulator.”

The wine-enthusiast is involved in the upcoming launch in June of the Irish Chapter of the Irish Australian Chamber of Commerce, which has its headquarters in Melbourne.

Octopus Investments recently announced they’re going to be launching a peer-to-peer platform as an additional arm to their £5.5bn UK asset-management company. Upon launch of the P2P platform, to be called ‘Octopus Choice’, investors will have the opportunity to invest in a discretionary portfolio of asset-backed loans. AltFi spoke to Simon Rogerson, the CEO of Octopus, who had this to say:

“The growth of peer-to-peer lending shows no sign of stopping, and the sector presents a powerful opportunity for financial advisers to add value to their clients. But it’s currently being overlooked – and we want to change this.”

The wealth management sphere has been divided when it comes to peer-to-peer lending. The majority of advisory platforms and IFAs have scrutinized the “new-wave” asset class. Jason Hollands of Tilney Bestinvest was forthright that his firm will not be offering an Innovative Finance ISA, and insists their client base would not be interested in a peer-to-peer investment:

“The industry is still very young, with the world’s first P2P platform only launched to the public in 2005.”

However, direct to consumer giant Hargreaves Lansdown has been vocal in its assurance that it will be providing its clients with a peer-to-peer lending option in Autumn 2016. This, alongside Octopus Investments’ recent revelation surely cements the notion that P2P lending as has now become a mainstream product now? With £2.722bn invested in 2015 according to Liberum Altfi Volume Index (UK), and over 50 active platforms on the market catering to approximately 250,000 retail investors, it is no surprise that this exponential growth in the market has attracted the likes of Octopus and Hargreaves - let’s not forget RateSetter’s partnership with FNZ in Autumn 2015 either.

Another thing, in 2015 36.4% of investment in Funding Circle, RateSetter and Zopa came from institutional deployment, according to AltFi Data. Whole loans (exclusive to institutional investors) were being funded through platforms like Funding Circle, whilst Zopa and RateSetter similarly sought institutional funding for loans (Zopa partnered with Metro Bank). P2P Global Investments (MW Eaglewood – Manager) bundle P2P loans from U.S marketplace lenders as well as the “big three” in the U.K and a wider rang of UK platforms.

There are arguably two critical tipping points that have stimulated the financial advisory community to take notice of marketplace lending:

1. Innovative Finance ISA

April 6th saw the introduction of the Innovative Finance ISA, or “peer-to-peer ISA” as it’s affectionately termed. This is expected to bring in a wave of savers disgruntled with the excruciating rates on offer by via traditional savings products, and now prepared for an alternative investment. The FT predicted over 400,000 new investors will surge onto the P2P market. This will probably not be the case. Only a handful of ISA Plan Managers can offer the IFISA presently, excluding the “big three” P2P lenders: Zopa, RateSetter and Funding Circle, amongst several most other major P2P platforms. This is due to a backlog in the FCA’s regulations authorization process: P2P platforms must have full authorization from the FCA – many platforms operating on interim permissions only at present – and have ISA permissions from the HMRC. Crowdstacker is one of few platforms that can offer the IFISA currently.

2. FCA regulated advising on P2P agreements

On the same date, 6th April, the FCA announced that it’ll be regulating P2P advice. IFAs that who personally recommend a peer-to-peer investment opportunity to a client must be “assessed as competent” according to the FCA. Any P2P opportunity advised by an IFA will also “have recourse with the FSCS”. Advisors will be held liable, basically.

So, there are two potential catalysts to encourage the wealth management community to follow leaders, Octopus and Hargreaves. Will the temptation of a new ISA product, greater regulation (good or bad for advisors?) for investors and some momentum from big industry players be enough to tip the sector over to the…dark side…? Sophisticated investors require deeper, more granular, data analysis to make a decision when it comes to peer-to-peer lending. The attraction of rates 5% +, liquidity on the P2P platform and a “provision fund” doesn’t cut it. Data-analytics tools and a portfolio management service would encourage affluent, possibly even high-net-worth investors to invest, should their advisors be willing to advise.

Jordan is a FinTech enthusiast and co-founder of UK’s no.1 peer-to-peer lending comparison service, where the everyday person can research, compare and feel empowered to invest and earn more money on their money. [email protected], @orca_money, www.orcamoney.com 

Background

The principal legislation regarding the regulation of payment services in the EU is the Payment Services Directive (“PSD”), which was transposed into Irish law by the European Communities (Payment Services) Regulations 2009.

The 2009 Regulations apply to institutions which execute payment transactions, provide money remittance services, issue payment instruments (e.g. credit cards), engage in merchant acquiring, or operate payment accounts (e.g. current accounts, savings accounts). These payment service providers include, for example, banks, credit card companies, online payment providers and merchant acquirers. The 2009 Regulations require such institutions to hold an appropriate authorisation from the Central Bank of Ireland (or another competent EEA regulator), and to adhere to minimum capital requirements and conduct of business rules.

A number of new measures have been enacted by the EU in the area of payment services recently. These include:

• the new Payment Services Directive (2015/2366/EU) (“PSD2”);
  
• the Interchange Fees Regulations (2015/751/EU) (“IFR”); and
  
• the Payment Accounts Directive (2014/92/EU) (“PAD”).
  

The principal changes arising from these Directives are:

• Extending the scope of PSD, to include previously unregulated activities;
  
• Limiting the scope of the exemptions from the requirement for certain activities to be regulated;
  
• Strengthening consumer protection and payment security;
  
• Reducing interchange fees (a fee paid between banks for the acceptance of card based transactions) which apply to consumer / non-commercial credit cards and debit cards;
  
• Creation of Basic Payment Accounts 
  
• Requirements for Comparison websites
  

PSD2

PSD2 was enacted by the European Parliament and Council on 25th November 2015 and  must be transposed into national law by 13th January 2018, with the provisions to come into effect on that date. 

The key changes contained in PSD2 are as follows:

• Third party providers (“TPPs”) of payment initiation services (which usually provide services between the merchant and the paying customer’s bank) and account information platforms, will be required to be authorised as payment institutions. This provision is designed to regulate TPPs which provide services in relation to activities such as mobile banking, and which are currently unregulated.
  
• The limited network exemption from the requirement to be authorised as a payment institution will be considerably narrower in scope. The revised exemption now covers services based on specific instruments that are designed to address precise needs that can be used only in a limited way, because they allow the specific instrument holder to acquire goods or services only in the premises of the issuer or within a limited network of service providers under a direct commercial agreement with a professional issuer or because they can be used only to acquire a limited range of goods or services. This provision may bring certain multi-purpose gift cards within the scope of PSD.
  
• Whilst ATM operators continue to be exempt from the requirement to be authorised under PSD2, independent ATM operators (i.e. those who provide services to multiple card issuers) are required to provide customers with the information on any withdrawal charges in accordance with the Directive. This measure was included due to the growth of independent ATM operators, particularly in rural areas, which were imposing charges on customers, in addition to any charges which may have been imposed by the card issuer. Although making ATM subject to PSD2 in full was originally considered, this was abandoned to allow the continuation of the provision of ATM services while ensuring clarity for customers on withdrawal charges. 
  
• The commercial agent exemption will be amended so that it will only exempt agents which act on behalf of either the payer or the payee, and not agents who act for both parties. This may have an impact on a number of cash collection agencies and bill payment facility providers who currently avail of the commercial agent exemption.
  
• PSPs will be required to comply with the transparency and provision of information rules of PSD, where the payment transaction entails funds being sent out of or sent into the EEA, or where the transaction involves a non-EEA currency. These “one leg out” transactions largely currently fall outside the scope of PSD.
  
• Customer liability for unauthorised transactions on a payment instrument will be reduced from €150 to €50.
  
• PSPs will be required to adopt enhanced security requirements for payment instruments. These measures will include “strong customer authentication”, which means a procedure for the validation of identification of a natural or legal person based on the use of two or more elements categorised as knowledge, possession and inherence. The two elements selected must be however be mutually independent, so that a breach or failure of one security measure does not compromise the reliability of the other(s).  This proposal may require many PSPs to change their business processes regarding customer authentication of payment transactions. As this was seen as a key provision for the protection of online payments, many of the requirements have been implemented through the EBA’s Guidelines of the Security of Internet Payments (which it issued on 19th December 2014 and which came into effect on 1st August 2015). 
  
• The transaction threshold for a PSP being categorised as a small payment institution (and therefore subject to less onerous regulatory requirements) will be reduced from an average payment transaction turnover per month of < €3 million to < €1 million. Therefore, some existing PSPs may no longer be categorised as small payment institutions and will be fully subject to PSD2.
  

IFR

The IFR was enacted by the European Parliament and Council on 29th April 2015, with the provisions to come into effect on a phased basis on 8th June 2015, 9th December 2015, and 9th June 2016.
The IFR arose primarily from a competition investigation into interchange fee rates. As a result of that investigation it was decided to introduce a limit on interchange fees of 0.3% for credit cards and 0.2% for debit cards (except for schemes with three parties, commercial cards, and cash withdrawals from ATMs or at the counter of a PSP). These limits apply to cross-border payment transactions from 9th December 2015, and will apply to domestic transactions from 9th December 2018.

The IFR will also:

• prohibit surcharges in relation to credit cards and debit cards;
  
• require payment card schemes and processing entities to be separate and independent;
  
• require the un-blending of merchant service charges for difference categories and brands of payment cars with different interchange fee levels;
  
• prohibit the imposition of any rule that obliges payee to “Honour All Cards” from the same payment card scheme;
  
• prohibit any rule preventing payees from steering consumers to a preferred payment instrument;
  
• require payee’s PSPs to provide the payee with certain information after the execution of an individual card-based payment unless explicitly consent is provided by the payee to this information aggregated on the basis of brand, application, payment instrument categories, and rates of interchange fees applicable to the transaction (acquirers may contractually agree to provide payees with this information on a periodic basis).
  

PAD

PAD was enacted by the European Parliament and Council on 23rd July 2014 and must be transposed into national law by 18th September 2016, with the provisions to come into effect on that date.

The main purposes of PAD were to provide for increased access to payment accounts, transparency around fees for their operation, and the standardisation of terminology used for services in connection with payment accounts. PAD’s main features in this regard are:

• A fee information document (including a glossary of terms used) and a free annual statement of fees;
  
• Moves to standardise terminology for services connected to payment account (through EBA Guidelines);
  
• The creation of basic payment accounts by credit institutions, which must be available to all consumers (subject to certain limited exemptions on public policy and security grounds) free of charge or subject to reasonable fees (not linked to transaction volumes on the account), and which must enable at least the following basis services:-
  

            o all services necessary to open, operate and close the payment account,
            o services enabling funds to be placed in or withdrawn from the account,
            o execution of direct debits, payment transactions through ha payment card (including online) and credit transfers (including standing orders); 
 

• The provision of a switching service to enable any consumer to easily move their payment account to another PSP (including requirements to provide customers with information on switching, access to information free of charge about existing standing orders and direct debits, and assistance with switching to PSPs in other Member States);
  
• The requirement to have Comparison Websites (run either by public or private bodies) which must comply with certain requirements including that the websites:
  

         o be operationally independent of PSPs by giving equal treatment in search results,
         o clearly disclosing ownership,
         o set out clear, objective criteria upon which the comparison will be based,
         o use clear and unambiguous language,
         o provide accurate and up-to-date language (and state the time of the last update),
         o include a broad range of payment account offers (covering a significant portion of the market, or where not doing so having a statement clearly indicating such),
         o provide an effective procedure to report incorrect information published fees;

• A requirement for access to effective and efficient alternative dispute resolution procedures for the settlement of disputes concerning rights and obligations under PAD (including, for example, a refusal by a credit institution to provide a consumer with access to a basic payment account). 
  

________________________________________
For further information, please contact:
Chris Martin     
Senior Associate
T: +353 1 6644 471
E: [email protected] 
Chris Martin is a Senior Associate in Eversheds, Dublin, and advises a broad range of financial service providers, including domestic and international banks, payment institutions, investment firms, funds, retail credit firms and credit servicing firms. He advises on regulatory and compliance issues including consumer protection, conduct of business, anti-money laundering and financial sanctions, corporate governance, passporting and general prudential matters. He also assists institutions with interactions with the Central Bank, including in relation to authorisations, corporate restructuring, thematic reviews and enforcement matters.