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Lafferty News ServiceNews, research, analysis and opinion
Daily briefing - 17 September 2018

We're looking forward to meeting our customers, clients and guests this week at the Retail Banking-Fintech Forum in London, starting on Wednesday. For coverage of the event, please make sure to follow @laffertynews on Twitter — we'll be delivering updates from the event this week in place of the daily news briefing. Former NAB investment banker Mike Baird, who took a diversion into politics as premier of New South Wales, continues his ascent towards the top position at the Australian bank, after his nomination as the new head of retail banking. As Australian Financial Review notes, the top retail banking job is the traditional route to CEO of the big four Australian banks. But the moves comes as a result of the departure of Mike Hagger, who was roundly criticised by Australia's Financial Services Royal Commission this year. Mr Hagger was head of wealth banking at NAB since 2013 and became chief customer officer for wealth and consumer banking in 2016. "[Baird] will replace Mr Hagger, who last month was criticised by counsel assisting the royal commission for showing 'a disrespect for the role of the regulator and a disregard for the gravity of the events in question' over his response to the fees-for-no-service scandal," writes "Mr Hagger, who has been with NAB for 10 years and part of the lender's executive team for eight, admitted to 'failures' during his tenure." Hagger had his eye on the top job but problems including scandals in the loans department, which resulted in twenty bankers being fired, put paid to those ambitions. Do former Central Bankers even return to a cheerful demeanour? Among central bankers, the emerging thesis is that banks are safer than they were a decade ago, but still not safe enough. "King, Cleland and others say there's still work to do after the crisis prompted the abandonment of the so-called light-touch, principles-based framework the U.K. boasted about in Gordon Brown's days as finance minister. King's recipe to prevent a re-run: ensure lenders have enough collateral in place at the central bank to justify it acting as lender of last resort, restoring liquidity to the financial system."Meanwhile, the ECB appears to be doing the UK an enormous favour by insisting that Deutsche Bank move up to 75 percent of its $600 billion in assets from London back to Frankfurt, so that regulators can keep a closer eye on the bank. "The European Central Bank, the chief watchdog of the eurozone's largest lenders, has insisted that Deutsche bulk up its capital and liquidity in Germany to comply with rules for branches in a 'third country', which the UK will become when it leaves the EU in March." As Lafferty's Brexit Council has noted, uncertainty over the future direction of Brexit is forcing the hand of banks and businesses who cannot afford to wait on political decisions for processes — such as Deutsche's move — that could take five years to complete. In other news, Bernard Lunn claims to have discovered that the real identity of Satoshi Nakamoto is an AI bot that is currently labouring over the problem of cryptocurrency in the early 22nd century but will shortly be making the trip back through time to solve the problem of digital double spending. Follow the story here. China UnionPay plans global expansion with QR codesLAFFERTY BENCHMARKINGDeutsche Bank and NAB scored two stars in our 2017 Benchmarking project. The maximum score is five stars.

Steve Ritter Headshot
CTO Interview

Lafferty News recently caught up with Mitek's chief technology officer Steve Ritter for a Q&A to discuss the work the firm does in the field of digital identity verification.Among the topics discussed were how the technology is helping banks to augment their abilities and why the firm is also applying its solution to cryptocurrency exchanges.Lafferty News: Obviously, Mitek specialises in digital identity verification — can you explain to me how AI facilitates this process? I'd love to hear your breakdown of how it all works. Steve Ritter: Mitek specialises in verifying physical identity documents in the digital channel.  This involves the high level steps of firstly identifying which document is being presented, secondly extracting data from the document, and then finally looking for signs that the document has been tampered with.  AI, specifically machine learning, helps Mitek at each of these stages.  The reason machine learning is a good fit is that it is very hard to describe in rules what should be considered "good" and what should be considered "bad".  Instead of writing all of these rules, Mitek uses machine learning powered by millions and millions of images to teach our software how to do the job accurately. LN: Minimising fraud is one of the key objectives when it comes to using AI for KYC. Do the banks you work with rely on Mitek to provide the AI infrastructure when it comes to on-boarding customers, authenticating identity for money transfers, etc? Can you give me some figures about how you have helped reduce fraud as a result?      SR: Yes this is exactly how our banking customers use Mitek's solution.  While the bank's intent is to minimise fraud, Mitek's solutions do not specifically detect fraud.  Instead, Mitek focuses on verifying that the identify information being provided is valid.  The idea is that by decreasing identity risk you also decrease the risk of fraud. LN: I'd also love to hear about any figures you have regarding the number of customers you have helped banks/fintechs on-board around the world. SR: We can't give a complete number, but as an example we helped a credit company in the US onboard over 500,000 new customers in a three month period — customers they would have otherwise lost.  That's just one example of the impact of having a low-friction identity solution for the digital channel. LN: Mitek's use of 'Advanced Computer Vision' sounds quite neat. What is this and where does it fit in the process of verifying a customer's identity on behalf of a bank? SR: Mitek is able to verify the identity of an end-user by asking them to take a picture of their government-issued identity document with their smartphone.  This is an example of "computer vision" in that Mitek is leveraging the camera on the smartphone and combining that with sophisticated AI to identify the document. Essentially, Mitek is teaching its software how to understand what the smartphone's camera or "eye" is seeing.  Computer vision has long been one of the central objectives of AI, so for Mitek it is a natural combination. LN: You work with banks like MoneYou and CaixaBank — why do you think these big banks come to you for identity verification? How come these banks do not have their own processes in place? Is it a result of the new ecosystem where partnerships make more sense than going it alone? SR: All of Mitek's large banking customers have existing identity verification systems in place.  The new piece that they are relying on Mitek for is the automated verification of government-issued identity documents along with the ability to tie that document to the person submitting it using facial biometrics.  So, in essence, Mitek is augmenting the banks' current capability. LN: You also work with digital lenders and established fintechs such as Kabbage, MoneyGram and PayPal. Is there a significant difference between the work Mitek does with these firms and the work it does with banks? SR: Lenders and payment processors are subject to the same AML/KYC regulations as the banks so from that sense, there are no significant differences.  Mitek feels that its Mobile Verify solution is beneficial to any company or organisation looking to do business in the digital channel.  Trust is the foundation of business, and identity is the foundation of trust.  LN: Mitek recently purchased French AI and image analysis specialist A2iA. What was the significance of this move? In what instances would this AI be used and how does it complement the AI you are already leveraging? SR: A2iA is a world leader in several technologies that all have one thing in common: extracting knowledge from documents.  Optical character recognition (OCR) is the ability to find machine-printed characters in an image and correctly read them in digital format.  Intelligent character recognition (ICR) is similar, but for the much more difficult task of understanding handwritten or cursive text contained in the image of a document.  Mitek currently has a suite of OCR technologies targeted at the countries it currently supports, and those work well.  However we believe that by integrating A2iA's OCR and ICR into our identity products, we will be able to accelerate coverage for global identity documents for key areas such as Western Europe and Asia. LN: It's my understanding that crypto wallets and exchanges are under pressure to implement formalised KYC and AML processes to prevent misuse. Mitek is leading the charge in this field, from what I gather; you are already providing verification solutions to onboard customers at a crypto broker. Can you expand on this for me and explain why verifying identity in this instance is important? SR: Cryptocurrency wallets and exchanges represent new ways to transfer financial value, and as such represent a new payment solution.  The blockchain technology that forms the foundation of these cryptocurrencies can provide a highly anonymised environment making it difficult for governments to enforce anti-money laundering laws.  As such, it is very important that the exchanges collect reliable identity information from all users of the exchange — for all owners of cryptocurrency wallets.  AMLD5 (the 5th revision of Europe's AML regulations) formally includes cryptocurrency exchanges and wallets within scope of the regulation.  This means that in order for an exchange to lawfully conduct business within Europe, the exchange needs to meet identity verification requirements (Know Your Customer) as described in the regulation.  Mitek's Mobile Verify is a solution that allows the exchanges to comply with the regulation, while maintaining their "100 percent digital" user experience.

Nick Burgess robotics interview

One of the primary fears about introducing robotics to the everyday operations of a financial institution is that it has the potential to drastically reduce the number of human-led jobs.Nick Burgess (former head of robotics at Danske Bank) is one of the leading figures in the field, and he tells Lafferty News about a widespread concern for many big banks today."There's a big cultural shift, and people are inherently nervous about robotics — whichever type of robotics they are trying to deploy — because there's a perception that robotic solutions are aimed at operational efficiencies which equal job cuts", he said."However, the type of work, the type of processes that are automated in the deployment of robotics, is not stuff that people want to do on a day-to-day basis. It tends to be boring, manual, repetitive work that isn't particularly rewarding, so there are two elements: first of all, it removes the daily grind from some of the activities and enables them to focus on the value-add piece, but then secondly it creates new opportunities."So, there are quite a few flipsides that even those mired in the everyday processes of banking and financial technology need to be aware of. The harrowing dystopian image of robotic overlords someday ruling the planet is still quite a tad hyperbolic.The fact is that FSPs which introduce AI or Robotic Process Automation (RPA) do not always end up forcing redeployment of people en masse. In truth the use of robotics in banking is not yet fully formed; banks still don't have a firm grasp on how to wield it until every operation from back office to front is digitally overhauled.Nevertheless, scepticism still permeates the discussion — and changing that mind-set across the board will take time.The view that robotics, alongside AI and all that comes with it (machine learning, automation and intelligent algorithms), has the greatest ever potential to change the industry may be a romantic one, but Burgess feels that if harnessed correctly, it can have a major impact in the years and decades to come. Until now it has been more talked about than engaged with, but Mr Burgess feels those days are fast disappearing.Mr Burgess notes that China is a leading light in the AI finance game. There, Shenzhen — one of the country's newest cities — has been compared with the poster-child hub of AI, Silicon Valley.For Burgess, China is engaging with and showcasing AI and robotics in all the right ways. Whereas others prefer to talk, discuss and plan, China has been actively pursuing progress and going out of its way to say 'this is what robotics can bring to your firm and this is how it will be implemented'."These guys have brought AI to life, they've brought this emerging tech, this fintech, to life and have actually shown valid use-cases that can be taken forward to drive a better service for the customer", he said."In the past, I've heard lots of talk about it, but I've never actually seen that materialise. It has been very high-level theoretical stuff, but this has been practical."That approach has certainly been very effective in allowing China to become an empowering destination for banks, fintechs and other FSPs to use robotics and to do so in a transparent, hands-on way. The West could certainly learn something from that.As Burgess explains from his own experience, Danske Bank is itself "doing a really good job of deploying robotics at enterprise level" alongside some other notable players, but adds that there are plenty of others who are letting themselves down."There are a number of people having success with [RPA]. I think there are also some organisations that are struggling with it in that they have purchased the licences, they think they've got the expertise to actually build it themselves, but actually they find they haven't because they don't have the right use-cases, the tool that they've purchased isn't fit for purpose for the problem they are trying to address, [there are] a whole variety of reasons they can fail".He explains that the failures are often because they don't recruit subject matter experts, preferring to strike out to go it alone when they should consult those in-the-know.Nick Burgess was speaking at Lafferty Group's Retail Banking-Fintech Conference in May 2018 in association with Tencent and Consulting China, in Shenzhen. IMAGE CREDITWikimedia Commons/Richard Greenhill and Hugo Elias of the Shadow Robot Company.

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