Apply Financial's Director Amichai Lichtenstein - From Banking To AdTech

Blog 2018

Thoughts Of A Reformed Banker Turned Adtech Expert


It has been a little over two years since I moved/escaped from the finance industry (HSBC) to Ad-tech. As the festive season madness fades into the past and 2018 starts, I have had time to reflect on these two industries, and the similarities and differences.

When I left HSBC the financial industry was going through a difficult period due to Capital Controls, AML and LIBOR rate. Much of this was driven by scandal and dare I say it illegal activities so pivoting to a different industry was an opportunity to learn and grow and perhaps view banking, not as an insider... in the strictly legal sense of course. In truth the industry faced issues over a lack of transparency.

The two industries face similar challenges around transparency and knowing who is originating and receiving. the way the regulators came at this for the finance industry, payments in particular, was to come up with the beautifully titled FATF article VII This recommended financial institutions to transparently process transactions by having payments contain the originator and ultimate beneficiary information. But it wasn't just about money laundering by individuals or business' (if drug cartels are so classed) more seriously it was also to help combat terrorist financing.

So, the finance industry was forced/coerced/ recommended to know sender and receiver and provide a higher level of transparency. The advertising industry is still obscuring the source of the inventory from buyers with an uncomfortably high percentage of publish content not easily attributable to a source, dare I say it maybe even fraudulent. So, if by now adopting "know your publisher" policies is the advertising industry is this matching the finance industry "know your customer" and "enhanced due diligence" processes? Probably not yet, but it's a start.

But what about the providers of solutions in these two industries? So far from my experience I can say that the pace of change in ad-tech is comparable if not faster than in Fintech due in part to less regulation. In Fintech after the subprime meltdown in 2008 and the issues in 2015 already mentioned EU regulators responded very quickly and added yet more regulation to avoid the financial lightning striking twice in the same place and that word transparency ...again. The US regulator is still working through the questions but no doubt they will come up with the answers . Both these regulators have in one sense provided an opportunity for Fintech but on the other made it more complex to deliver innovation without first jumping through many hoops. A case of one step forward and two steps back.

It is also worth mentioning that unlike the ad industry, through regulation the finance industry is driven by best practice both internally and in the way they like to interact with their clients. As an example the data used for payments is constantly changing so payment organisations will use tools to validate payment data. This typically has been an in-house activity but because of the adoption of customer centric digital platforms this has moved to cloud based API driven solutions that aid transparency and provide a better service to clients. Companies such as Apply Financial are paving the way. Its clients used Apply Financial to replace legacy suppliers of payment reference data, enabling the clients to create digital payment experiences for their own clients with a streamlined & transparent payment flow ( full disclosure, I am an NED at Apply Financial ).

But AdTech is not encumbered by such strong and far reaching regulators. But for advertising's lack of regulation or to be fair a better way to describe it would be lightness of regulation there is an exception, and that's in France where Loi Sapin provides a regulatory framework, albeit an unclear one. This example may lead to take up by other countries, not dissimilar to finance where SEPA started in Europe but then significant parts such as IBAN's were adopted by over 50 more countries.

Also The ad-tech push to establish a direct path to supply reminded me of banks adopting International ACH, of Ripple moving towards transaction processing with built-in up-front knowledge of fees/timing and incumbent SWIFT responding by introducing their track and trace initiative.

After all its all about information and transparency and to avoid unwanted events and shockwaves that can seriously damage our financial and data health. It can only get more confusing as both industries are preparing for GDPR and from my experience the only people to make money out of this will be the lawyers and consultants by making it as complicated as possible.

So similarities perhaps with the issues but that's where the similarities end as I have already mentioned regulators to the finance industry are more powerful and I remember back at HSBC, although our commercial folks baulked at providing fee transparency they had no choice as the Dodd Frank regulation required banks to provide transparency on FX margin and fees or face the consequences. However, surprisingly Dodd Frank stopped short of covering corporate clients and at HSBC we used this regulatory gap to win corporate clients using our transparent products all legally and above board.

Yet, it was not clear how to stop scandals from happening. The foreign exchange market recently published a voluntary code the industry should adhere to. The code, based on the principles of ethics, governance, information sharing, risk management and compliance, promotes "a robust, fair, open, liquid, and appropriately transparent FX Market".

So, both through Regulation and voluntary codes of conduct the finance industry is getting it transparency act in order. Contrast that with the advertising industry, where transparency is lacking and the industry continues to resist it and regulators seem to be toothless.

Will blockchain come to the rescue for Fintech and AdTech and solve these problems in one fell swoop? That would be a topic for an end of 2018 blog.


Amichai Lichtenstein

Director
Apply Financial




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