If ING’s Annerie Vreugdenhil Is “Immutable Wrong” Then We Don’t Wanna Be Right!

Financial innovation is chocked full of mind-bending concepts and Money 20/20 serves as an international celebration of all that’s sublime and ridiculous in fintech today. At this year’s European conference in Amsterdam, TFT’s senior editor Matthew Dove sat down with Annerie Vreugdenhil to try and make some sense of it all.  ING’s Chief Innovation Officer Wholesale Banking certainly didn’t disappoint…

TFT: What have you learned from Money 20/20 so far this year?

AV: With respect to last year, the similarities are obvious. There’s an awful lot of payments and we’re still seeing an awful lot innovation taking place in that area. There’s a lot of payments companies, panels and everything.

What I see way more this year than last year is regtech, anti-money laundering, that sort of thing. That’s way bigger than I’ve seen here before. So, that’s something that strikes me.

TFT: Do you think people are just now realising the cost-benefit to using those sorts of technologies?

AV: I’m not even sure it’s about cutting out expense. We’re just starting to see that the technology is at a level that we can be more reliant on it to discover money laundering and that it’s implementable. Part of the complexity of using technology for this, especially if you haven’t developed it by yourself is; how can you deal with the technology of a fintech or start-up on a data set that you have to protect?

I think, to me, it feels more like it’s technology driven. It’s starting to reach a maturity where it’s more accessible for banks to at least take a look. I also think the incumbent banks are more ready to use AI on their data sets. Everybody speaks about how they have a goldmine of data but this data is not necessarily easily accessible. You see banks progressing with their data-led strategies and making their data accessible for their own use. Then it’s a good time to start implementing technological applications on top of that.

We’re just starting to see that the technology is at a level that we can be more reliant on it to discover money laundering and that it’s implementable.

TFT: As we get to grips with these huge data sets, will the implied value of data be realised?

It’s big, we can do a lot of things with data which we couldn’t do as well before. For example, we created an algorithm, first for our own traders, called Katana which basically made their hit ratio when they had to price a bond, better. It made their spread for the next bid better, like, a lot better. A 25% better hit ratio and a 30-40% better price. Then we were approached by asset managers who said “can we have this algorithm?”

We came to the conclusion that they have a different need to a trader in a bank. A trader in a bank wants to do a one-sided trade, they have to price a bid or sell ask. Whereas an asset manager basically wants to deal in pairs. If you want to invest 100 in a certain asset class and you sell 10, you have to buy 10 as well to stay at 100.

So we co-developed that with an asset manager, a reworking of this algorithm to make it suit their purpose. We started on emerging market bonds. There’s 2000 emerging market bonds in the world with 2 million potential pairs. A human being can never look, every morning, at 2 million potential pairs.

The availability of data, a good algorithm and a good user-interface on top of that really makes a huge amount of difference. You will see a lot of applications where really working with the data with technology will add a lot of value.

TFT: What sorts of developments in wholesale banking are coming to your attention?

AV: There’s a lot of innovation in the financial markets field, we developed Katana for example, simply because there’s more public data available which helps tremendously. I see a lot of innovation in payments and we’ll start to see more and more regtech and AML related innovations. I think those are the big pockets in the wholesale environment where you see development at this moment.

I see a lot of innovation in payments and we’ll start to see more and more regtech and AML related innovations.

TFT: Do you think developments at an institutional level will soon dwarf those on the retail side of things?

AV: The retail side is different – and I’m not a retail expert obviously – but it’s much more based on ease of use for the consumer. It’s to make the way they interact with us super easy and hardly noticeable. For instance, we’ve created a venture we called Invisible Tickets. If you travel by train for instance you don’t need to buy a ticket or even put your app on. It knows where you are because you have your phone with you. It simply says “now you’re at the station, now you’re at another station, we’ll charge you for that.”

People don’t want to pay, they want to buy something or they want to travel. Paying is a nuisance that comes with doing other things. You want to make payments invisible. That’s what you do with this and we have a couple of other initiatives combined with the internet of things which can already initiate a payment.

We have a very funky collaboration with a company whereby you buy a bottle of olive oil, as a consumer, and you can refill it and it knows how much you’ve used and it will charge you just for that. That’s an internet of things application in which the olive oil bottle and the payment are connected and automatic. We did something similar with BMW where there’s a sensor in the car for when you approach a tollgate. The tollgate knows that you’re coming and makes sure that the payment has been received.

TFT: Where does the blockchain fit in with all of this?

AV: Blockchain is definitely still a focus but not necessarily for payments. It’s a technology that we don’t necessarily think is ready for payments. We do a lot on blockchain and we have a pretty big blockchain team, around 20-25 people, which is big for a bank. We think that it’s especially a wholesale application. Blockchain is very, very useful for high-value/low-volume transactions, whereas retail is often the other way around.

TFT: Do you think we’re getting any closer to the kind of scale needed to support high-volume/low-value transactions?

AV: We’re getting closer but in all reality it’s questionable whether it’s needed. In the Netherlands, but also in Europe in general, the payments system is so efficient that why would you want to use such a complicated technology?

TFT: How about the third world, does it have applications there?

AV: Probably, but even there, there are probably better technologies available.

Blockchain is definitely still a focus but not necessarily for payments. It’s technology that we don’t necessarily think is ready for payments.

TFT: What achievement as ING’s chief innovation officer (wholesale banking) are you most proud of and why?

AV: Well, as I was saying, Katana, which is very close to market launch and that’s great. Another one which is very close to market launch that we’re super proud of is a KYC application for large corporates. There have been zillions of KYC initiatives around the world, many of which have failed.

We’ve decided to really put the customer at the centre of this rather than the bank, as many of these [failed KYC projects] start from the bank’s perspective. But in the end it can only start with the customer, the customer has to provide certain documents, so it can only come from there. We’ve done the first pilot with a client which was really good, so hopefully that will launch in September. I think that will be a game changer because it will make the life of clients super easy. It’ll be a multi-bank application, so the client can basically upload documents and decide “I want HSBC to have these and I want ING to have those.”

There have been zillions of KYC initiatives around the world, many of which have failed. We’ve decided to really put the customer at the centre of this rather than the bank, as many of these [failed KYC projects] start from the bank’s perspective.

TFT: To what extent do you think that KYC is a “garbage in – garbage out” regards state-issued ID?

AV: That’s actually where blockchain can be interesting at some stage but we’re not even halfway ready. Obviously, because it starts with the government. If you can’t rely on what the government produces then it all stops.

The advantage of a blockchain is that what’s on it is immutable. This is the truth. So, if you have solid a system, starting with the government, in which they no longer just issue a passport with a chip in it but upload your identity to the blockchain, that’s rock solid. Then you can add layers that confirm that identity again.

The proof points of identity become stronger. So, a person with a government-backed identity on a blockchain opens a bank account, the bank also confirms “yes, I’ve checked and this is the person.” You’ve been to school, you got a diploma and that adds to your identity. Even things like, and it gets a little more creepy…people usually have a pattern. You always go the usual route for your jog, for example…There’s lots of things that can confirm an identity or indicate that maybe something’s off here. But obviously you’re right, it’s garbage in, garbage out, if your starting point isn’t rock solid then a blockchain will actually do a lot of harm because then it’s immutable wrong…

And if Annerie Vreugdenhil turns out to be immutable wrong then TFT doesn’t wanna be right!