FXC Intelligence CEO Daniel Webber recently sat down with Martin Griffiths, the Head of Fintech at Barclays Bank, to discuss the future of banks, and their place in the fintech world.
Building an industry giant
In the years that followed the recent financial crisis, Barclays Bank made a decision to double down on its division that works with money services businesses (MSBs) and fintechs. Whereas many banks shuttered their doors to these companies, Barclays looked at the risks, decided it understood them, and pushed on. Our CEO spent time with the man who has led that drive, Martin Griffiths’, Head of Barclays MSB & fintech division. Griffiths brings with him over 30 year’s worth of experience in risk management in banking, with the last ten years focused on fintech and MSBs.
It’s all about risk
Risk assessment sits at the heart of everything Griffiths and his division at Barclays does. A typical MSB has many risks including cash remittance risk, unidentified cash entering the system, and all the elements of sanctions, screening, transactions and monitoring. As Griffiths told us he embraces risk as this is what has allowed him to build his business, “I’ve been a risk manager for 30 years. That’s what bankers do, there are very special, unique risks to this sector, but if you manage them well, with the right clients, there’s no reason why you shouldn’t be banking them.”
What allowed Barclays to take more risk when others were shying away? “When [a business] doesn’t naturally sit in the sweet spot, you take a deeper look even where the risk on the face of it might seem higher than another business,” says Griffiths, “But if you’ve got a set of controls which that business operates, which are clearly stronger, why not take more risk? You do that in a lending scenario, when you take deals that are more risky as a lender, you’ve got more collateral or more robust source of revenue, you would do that. It’s no different than any other risk. If you have the correct controls, the correct processes. correct systems, strong systems, you can take more risk.”
Add to that working with the right clients and you have a division that started in 2008 supporting a couple of FX brokers, stock brokers, broker dealers within the FX market which has become the market leader offering a full range of services (see the Appendix to this article for a comprehensive list). Martin’s fintech team has achieved double digit percentage growth in each of the last four years, growth rates many of his clients would be extremely happy with.
Servicing a sector that is expanding to new products
What are the secrets to this growth? Let’s look at it from the perspective of a smaller MSB looking to get banking services, either from Barclays or another group. Griffiths would have you think of it this way. “If you work with the right clients, they will do a lot of the work for you. Regulation doesn’t scare them, they see it as a great opportunity and really good firms, that is at the core of their business model.”
The vast majority of payments still originate from or end up in a bank. A multi-currency account is no different and still needs to plug into the banking community at some point and the currency still needs to pay out to the banking system somewhere. “Money still has to get into the bank and out of the bank – you still have to pay people. We’ve got a role to play in that,” says Griffiths.
Do banks need fintechs or do fintechs need banks?
This is a question many fintechs are challenging now and sentiment is changing. The push for one fintech to solve all financial problems is being replaced by fintechs specialising in areas they excel and then partnering with other firms, big and small, bank and non-bank to provide the necessary broader offering to customers. “We are collaborating with clients around services, but we don’t necessarily want to build everything ourselves. So I see an era of collaboration.”
Does Barclays feel threatened by fintech? Griffiths says no. “We’ve got to see the fintech world both as a competition but also as an opportunity. These firms still need the banking world to make money. But banks are still trusted, they’re still secure”.
“There are many firms that are looking into new offerings which you say is driving right to the core of what banks do – I still see that as an opportunity for banks. There are still so many things we can deliver around that. We’ve still got a bank account that somebody wants to get information on. They still want to move money, they still want to convert money, there’s still risk and control. People want to ensure that their money gets to the other end.”
MSB aggregators offer another opportunity for smaller MSBs to enter the payments market, especially where the client is either too small or not yet ready for Barclays. In Griffiths’ view, aggregators just need to be viewed through the same risk lens as other FX product be it sending payments for higher-risk sectors such as charities or working with the arms and military industries.
“If they accept that risk is at the core of what they do, and they do it to the standard that we expect and they are banking it themselves, then why not look at serving them. And I think the aggregators offer a real benefit. It’s difficult for a small MSB to get banking. It’s difficult for them to get cost effective liquidity when they first start- so the aggregators, when they first start, it’s attractive.”
The implications of changing regulations
We’ve previously covered UK-based payment institutions shift over the past few years to become regulated as electronic money institutions (EMIs). This alternative status allows companies a lot more opportunity to develop new products but also to critically hold client funds offering wallet and multi-currency accounts. Griffiths is agnostic to this change and if it opens up more innovation, Barclays will look to follow and support it. The central message of risk assessment is still front and centre in Barclays decisions as to how to service these changing companies.
“The broader the business is, the more risks they have, the more we have to understand what we are getting comfortable with,” says Griffiths.
A move to a two-way flow of information
APIs are at the heart of what’s to come and most importantly, the flows of information need to be two-way. As Griffiths says, “You can’t have an API just one way, you’re opening up this whole era of partnership and collaboration.”
The end goal is simple – fintechs and banks working together exchanging data and information to provide a better service.
“The APIs connect the dots – we are just the pipes that connect the dots. We still have skin in the game. We transfer money, store money. The consumer is simply getting a better experience.”
Barclays MSB business continues its expansion
Barclays has a global clients base and the MSB team in particular works with many US, Asian, Australasian, European and Scandinavian clients that do business in the UK. Barclays offers banking services at the moment in the UK and parts of Western Europe and India.
The days of building full-service global banks are gone and Barclays is investing significantly to offer many of their services across a wider range of countries but in a more focused way. Barclays historic footprint in Europe was built on a series of acquired small regional banks with no common banking platform for their corporate clients. “We’re building out a pan European corporate banking platform that will be consistent, that will give you the same functionality in every country you go to,” says Griffiths. “This is live in Portugal, France and Spain and we’ll be extending it to other European countries over the next couple of years.”
This push is part of broader initiative from Barclays within its multi-national corporate offering. And this offering is a very good fit for MSBs who by their very nature, are internationally focused. As Griffiths shares, “We know there’s a lot of business out there, there’s a lot of French money service businesses that are really strong in France and want to do business in the UK, and vice versa.”
The US market with all its additional regulatory burdens and nuances is still on Barclays map too. As Martin describes: “Although we don’t offer corporate banking services directly in the US it is one of our strongest markets. We have a team in the US that cover the headquarters of a significant number of the largest US and Canadian clients that want to have corporate banking services in the UK and Europe or investment banking services in their local market.”
Don’t forget Bitcoin and the blockchain
Barclays investment in a number of crypto plays has been widely reported and this is not a new area to the bank. Just this week, Bitcoin hit another landmark with the Chicago Mercantile Exchange announcing they will soon be offering Bitcoin futures. It appears crypto is here to stay, the format of which though remains to be seen. As to Griffiths’s view on the crypto sector: “Everybody got excited about blockchain – the technology is great, but nobody is really moving money around with bitcoin, it’s not a payment vehicle, it’s an asset class. Until the technology can deal with the trust, security and speed that banking systems can, they’re not going to surpass or replace one another.”
Blockchain use cases involve trying to replace or improve the rails, most notably attempting the challenge the incumbent SWIFT. But Griffiths doesn’t believe the technology is ready yet. “They have to do it better, faster, more securely than banking SWIFT because it’s incredibly reliable. It may not be the cheapest, but it’s incredibly effective compared to how we used to move money around before this existed. Bank payment rails exist for a reason – they are secure, people still believe in banks and trust banks.”
Appendix: List of Barclays MSB services
The UK product range, which is extremely comprehensive (although there may be restrictions on certain services due to risk and suitability and certain channels may be restricted to first party payments only to enable us to correctly format payments to comply with Wire Transfer regulations), some of these products and services are also available in US, Europe, UAE and India including additional local payment schemes instead of UK only schemes. This list is by no means exhaustive and Barclays is constantly reviewing products and services to meet with client needs, regulation and the geographies they operate in.
- Card acquiring
- Corporate cards – single use, virtual, purchasing and traditional company credit cards
- Branch cash and cheque over counter
- Cash via security company
- Electronic payment collections
- Direct debit collection
- UK/SEPA schemes
- Current accounts and client segregated accounts available in a wide range of currencies
- Deposit accounts
- FX spot and forward dealing via BARX in a wide range of currencies – we can sell over 85 currencies and we will buy the majority of these (exchange control restrictions mean we may not be able to buy certain currencies)
- FX options
- API connectivity to FX rates and dealing
- Multiple payments schemes such as BACS, FPS, CHAPS, SEPA, SWIFT available over
multiple channels – Barclays.net, SWIFTNet Corporate Access, File Gateway, iPortal
- Trade finance
- Working capital finance
- Debt finance
- Acquisition finance
- Information services including SWIFT reporting, Barclays.Net, BARX and iPortal
- Corporate broking services
- Debt capital markets
- Equity capital markets
Barclays have comprehensive product guides available and dedicated product specialists.