LuxEMbourgbankingQuarTErLy

InnovaTIon In fInancIaL sErvIcEs

After dot.com, E-commerce, cloud

computing, Big data, internet of things,

Fintech – beside digital banking - is

the new buzzword. its rise is due to a

combination of disruptive technologies,

radical consumer behavior changes as

well as cultural and social evolutions.

the most important and most visible technological development

in recent years is the ever-growing broadband capacity enabling

mobile devices with their increasing processing power to become

the personal assistant to an ever growing population all over the

world. with the consequence that for the first time this year more

people access the internet via mobile devices than with desktop

computers. More and more mobile solutions are launched and

enable customers to handle everyday life situations. Being able to

pay goods and services, to transfer and manage money anywhere

anytime are one of the most useful and popular applications on

mobile devices.

From a cultural point of view an interesting diagnosis is that clients

do no longer solely rely on their banks anymore for payment, credit

or other financial services. Especially the younger generations turn

to innovative service providers such as crowdfunding platforms

or other digital financial services which meet their needs best.

All these developments will not replace the traditional banking

industry. if banks want to remain competitive vis-à-vis a fast growing

community of new types of financial service providers they have

to rethink their business models and their organizational and

operational structures

what is true for banks also is for financial centres. if the Luxembourg

financial centre wants to remain competitive, the digital agenda has

to be the priority. the Luxembourg government has understood the

importance of the development of a sustainable Fintech ecosystem

in Luxembourg. with the “digital Lëtzebuerg” strategy it aims to

consolidate the positioning of the grand-duchy in the ict world

and to create an high-tech excellence centre for Fintech, thus

developing the financial place and allowing its actors to expand in

this almost borderless global market for innovative financial services.

today, Luxembourg already is a major European E-money and

E-payments hub besides attracting virtual currencies actors. A

cutting-edge it infrastructure, highly-skilled professionals in financial

and it services, responsive and sound business minded authorities,

as well as the innovative, international character of the Luxembourg

financial centre make the country an ideal location for the

development of successful Fintech in the Eu single market. Besides

these competitive advantages and due to its size, Luxembourg is

an ideal test-bed for innovative financial service solutions. up to us

all to make it happen: fast and innovative…

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Marc Hemmerling (Member of the Management Board, ABBL)

EditoriAL

Mr Hemmerling, what does “FinTech” mean?First of all, ‘Fintech’ is a word that is used quite often at

the moment; it’s a lot of hype. however, it has a meaning:

‘Fintech’ is an abbreviation for financial technologies and

a collective name for disruptive ic technologies used to

offer a large variety of financial services, such as payment

applications or ordering systems. ‘Fintech’ could therefore

be equated with innovation in financial services, for instance

offering more modern and user-friendly services through

technologies. ‘Fintech’ is covering in our opinion too different

topics: new products, services and business models. these

new products are only possible through the use of disruptive

technologies, such as mobile phones, applications, Big

data and social networks. it is often said that Fintech is only

applied by start-ups, which isn’t true because banks and

other traditional actors of the financial sector can make use

of it as well. so it’s about new technologies that allow offering

new and better financial services.

How do FinTech impact banks? there are two main things that one must consider: on the

one hand, banks have clients who are accustomed to using

new technologies and who would like to use them in banking

services too. on the other hand, there are lots of start-ups

showing up new ideas and ‘snatching’ the banks’ clients

who are not offered the required ‘tech-services’ from their

banks, which means that competition develops. this is

why Fintech strongly impacts banks, which must analyse

the risks, dangers, advantages and opportunities of the use

of Fintech. And if a banks decides to embrace Fintech it

has to answer the question of how to proceed best? Alone

or cooperate? Banks would need people qualified in both

finance and technology, often young ones as this is a whole

new business area. this is very difficult at the moment due to

a high demand for highly it- and finance skilled employees.

Furthermore, in the new Fintech era, technical solutions such

as mobile applications are rapidly out-of-date and must be

upgraded regularly, what banks are not used to do with their

current organizational set-up and existing legacy computing

systems.

Why is FinTech important for the ABBL? the ABBL defends their members’ interests and support their

development. Moreover, as already mentioned, Fintech could

raise a problem to banks, which is why the ABBL sees it as

their goal to inform their members on the topic of Fintech and

to provide guidance and support. it is about the transforma-

tion of the bank we know today so that it can survive tomor-

row. Bill gates once said: ‘Banking is necessary. Banks are

not.’ this statement is only true when considering the banks

that stick to traditional banking models without adjusting to

new technologies and to the new market reality.

What is the role of banks in FinTech? Are they involved in Research & Development? What are the challenges for banks in this context?

in Luxembourg, most banks are subsidiaries and thus not

much involved in research & development (r&d). compared

to other banking institutions, such as ‘deutsche Bank’ in

Frankfurt or ‘société générale’ in Paris, these small entities

in Luxembourg often do not have the required people

concerned with innovation and research. indeed, banks

present in Luxembourg often belong to big groups and work

with their respective mother company, which implies that

they often do not have the permission to perform proper

r&d. we try to motivate banks to think about innovation (and

research) in cooperation with the university of Luxembourg,

Luxinnovation and List (Luxembourg institute of science

and technology). the challenges are quite simple to define:

if banks do not embrace the new technologies, they will miss

important opportunities to offer new services demanded by

the market, which implies the loss of clients. in this case they

will lose market share; if a customer’s bank does not offer a

certain service while several others companies do, the client

will consider to purchase one of those new companies’ service.

our aim is, in cooperation with the government, Luxembourg

for Finance (LFF) and digital Lëtzebuerg amongst others, to

make sure that Luxembourg remains an attractive, competitive

and modern banking centre in the world.

coVEr storY

A publication of the Luxembourg Bankers’ Association

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How does the ABBL support FinTech development in Luxembourg?we have internal working groups involved in Fintech development. the ABBL already has so-called ‘clusters’ and we plan to establish a ‘digital Banking and Fintech innovation’ cluster, which shows that this is a very important topic as the chairperson of each cluster is represented in the board of directors of the ABBL. working groups are subordinated to this cluster and have the mission to solve and answer specific problems and questions related to Fintech, such as the main activities, training and education in this sector etc. the ABBL then brings these ideas to the attention of the government and gives recommendations and advice on what they could or should enhance, such as supporting projects and education related to Fintech. Moreover, the ABBL does the same at European level in Brussels - at the European commission, the European Parliament and at the European financial sector organisations’ levels - in order to change laws and to get support. this sector needs qualified people who are familiar with finance and technologies, that is why it is so important to develop and to reform the current educational system.

Can FinTech companies become ABBL members? If yes, what are the benefits for them becoming members of the ABBL?Yes, if their activity is supervised by cssF (commission de surveillance du secteur Financier) or linked to the provision of financial services. they would have the possibility to exchange information with other members in the before-mentioned working groups. they can discuss related topics, such as strategic and technical problems, which makes it easier to further develop their business. what is more important, the ABBL supports their members in defending their interest vis-à-vis the cssF, central Bank, the Ministry of Finance and other entities. they have also the possibility to communicate their interest to the European Banking Federation (EBF) and the European Payments council (EPc).

Why does FinTech come to Luxembourg from the outside?Why do FinTech startup their business in Luxembourg?Luxembourg is a long-existing and business-friendly financial centre where necessary institutions, such as the cssF and the central Bank, are already established and working efficiently. one can say that there are other countries that are rather opposed to the emergence of Fintech companies and are slow in taking these new technologies on board. we think that, although one can stand up against fintech business, one cannot utterly ‘ban’ it. we must maintain and uphold this business-friendliness: ABBL, beside inciting its member banks to make use of the new disruptive Fintechnologies, welcomes these new Fintech companies, as the ABBL is different compared to other banking associations in Europe, as not only banks, but also start-ups can become its member. in addition, cssF assists these start ups getting their permission respectively license to do business in Luxembourg. once they get a license, they have the benefits of doing business in every member country of the European union. Further financial state aids for r&d and contributions like the project ‘seedfund’ also attract these companies.

Do we have any FinTech success stories in Luxembourg? digicash offering mobile payment services now knows some success, but there are more companies coming from outside the country, such as PayPal and Amazon Payment Europe, itunes. concerning Fintech, there are a lot of companies that are currently trying to get their license, such as ripple Labs, coinPay or bitflyer.

these are all companies that have chosen Luxembourg for developing their international business out of Luxembourg, as they consider Luxembourg as a true Fintechhub (refer to previous question) with a high development potential.

How do you consider the development of FinTech in the last years in Luxembourg? What are the main drivers and inhibitors supporting this development? the development of Fintech in Luxembourg increases at a very fast pace, as we already count about 150 companies involved in Fintech business.there are some initiatives, such as Pwc Accelerator, BgL lux future lab, technoport

or Luxinnovation, who support the development of Fintech start-ups and established companies. there are also some private organisations, such as silicon Luxembourg, that are mainly trying to promote and advertise.

LFF, ICT Luxembourg, Digital Lëtzebuerg, … many organisations are involved in FinTech. How does the ABBL cooperate with them?ABBL members are not provider of computer technologies or it services, nor is the ABBL. however our members are by far the largest users of these technologies in Luxembourg. therefore, the ABBL is a founding member of ict Luxembourg for instance in order to defend our interest and solve ‘Fintech-related’ problems. we participate in working groups after having made our proper opinion about several issues and pass on our ideas to these organisations.

What is done at EU level to foster FinTech in Europe?the Ec’s ‘digital single Market’ policy is a major framework allowing Europe to take benefits of the new ict. At Eu level there are many working groups that make observations, among other things, whether laws should be changed or not, in order to facilitate the development of the Fintech sector. Apparently, financial support is allocated to some companies as well, in order to support their projects. All this is currently in the development phase.

What does the bank of the future look like?Personally speaking, i think that the bank of the future looks like a car manufacturer: in the first place, a bank has its own idea of what products they want to offer (sports car or family van?). then it defines the particular products. of course it has domains where it is very competent in, and others it is not and needs advise or help from other companies that have the necessary qualifications. in cooperation or with the help of partners such as start-ups, the bank, (whether they bought some of those partners or they change partners regularly conditioned by the product or service they want to sell) could develop and offer the best product/service possible. the customer only sees “his” bank, where behind is a more or less complex organization that produces the particular service or product. in other words, the one who buys a car also only sees the final product and brand of his preferred manufacturer.

coVEr storY continuAtion

From left to right:

Frank Engel - Member of the European ParliamentSerge de Cillia - cEo of the ABBLYves Maas - chairman of the ABBLAntoine Kremer - head of European Affairs, ABBL

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the EuroFi Financial Forum 2015 “EU and Eurozone growth

and integration challenges: the moment of truth?” organised in association with the Luxembourg Eu council Presidency took place from 9 until 11 september 2015 in Luxembourg.

the EuroFi Financial Forum aims to facilitate open and interactive discussions between public decision-makers and leaders of the financial industry on the major on-going reforms in the financial sector.

this year, the debates focused on Eu priorities in the different sectors of financial regulation and initiatives for growth of the financial industry in Europe.

Many ABBL representatives followed the different high level debates on important topics such as:

growth and integration challenges in the Eu;

Emerging trends in the financial services sector;

implementing the cMu and asset management future prospects;

Ensuring the resilience of the Eu financial sector.

The following key points have been identified:

new emerging trends in the financial industry l ike digitalisation, or alternative sources of funding (e.g. peer to peer lending, crowdfunding) are as much as challenges than opportunities and the financial industries need to integrate such consumer demands.

the proposal for an Action Plan for a capital Market union will be published by the end of september. the prerequisite for such a capital Market union will be national regulatory convergence in key aspects like insolvency, or company law.

one main element of the capital Market union will be the framework for simple, transparent and standardised securitisation to be published also by the end of september. such a framework needs to be well calibrated to be a success.

Echos from the EUROFI Financial Forum

EuroFi FinAnciAL ForuM 2015

the Union Bancaire Francophone1 (uBF) held its first workshop

on financial training for VsEs (very small enterprises) and sMEs

on 2 september 2015.

Ms catherine Bourin, member of the Management Board of

the Luxembourg Bankers’ Association (ABBL), took part in

the round table discussion entitled “Measures implemented

by uBF to promote financial training in VsEs and sMEs”.

As a member of the uBF, ABBL’s involvement here once

again shows how it invests regularly in campaigns relating to

companies’ social responsibility. its commitment is reflected

in its organisation of and participation in various initiatives

related to financial training.

Financial training is of crucial importance not only for the

public at large, but also for entrepreneurs. indeed, appropriate

financial training has an undeniable influence on encouraging

innovation, the setting up of companies and, consequently,

on economic growth as well.

the prescribed support for entrepreneurs is based on the

following lines of action:

access to and use of financial services;

optimisation of their financial management;

assistance for the development of their activities.

As in other European countries, the large number of

bankruptcies in Luxembourg essentially affects sMEs and

VsEs. the explanatory factors that are most frequently cited

relate to the lack of a viable business plan. it is therefore

essential that entrepreneurs are able to finance their

businesses themselves as far as possible. to do so, they

need training in financial planning.

According to a study carried out by the European commission

in 20132, young people who have received entrepreneurial

training are not only more likely to find employment, but are

also more prone to starting their own company.

it is therefore essential to make young people aware of the

need to begin an entrepreneurial career as early as possible in

order to acquire the necessary basic qualifications with which

they can carry out their business.

the study also shows that entrepreneurial training is an

excellent driver when it comes to supporting job growth and

creation.

Luxembourg initiatives

“Apprendre à Entreprendre” (Learning to be entrepreneurial) is

the motto of the non-profit organisation Jonk Entrepreneuren

(JE), founded in 2005. through its different programmes, JE

gives young people aged between 9 and 30 years a taste of

what business life entails. JE includes representatives from

schools and the economic sector. several of the ABBL’s

member banks have entered into partnership with JE, thereby

providing volunteers (bank employees) who have the role of

teaching classes with different modules dealing with financial

training.

Moreover, the Luxembourg chamber of commerce and the

ABBL have joined forces to create the house of training

by merging the Luxembourg school of commerce and the

Institut de Formation Bancaire, Luxembourg (iFBL). the

mission of this newly-created entity will in particular involve

providing support to companies in the development of their

employees’ expertise and skills.

CoSME (competitiveness of Enterprises and small and Medium-sized Enterprises (sMEs))

SMEs are the backbone of Europe’s economy, providing 85% of all new jobs.

cosME is an EU programme running from 2014 to 2020 with a planned budget of €2.3bn. cosME will support sMEs in the following area:

better access to finance

access to markets

Supporting entrepreneurs by strengthening entrepreneurship education, mentoring, guidance and other support services

More favourable conditions for business creation and growth

the educative role banks play is therefore essential. they

transmit their basic financial knowledge to the entrepreneurs

with the help of their employees so that the latter can present

better developed projects.

the new Fintech niche markets are indeed the supporting

pillars which clearly exert a considerable influence on economic

growth. Entrepreneurs who wish to set up a business providing

innovative services will clearly require the support of players

from the world of banking in order to succeed.

in order to deal with any difficulties the entrepreneurs face,

whether relating to access to financing, reimbursing their loans

(which, in turn, give rise to problems of over-indebtedness),

or to receiving support and coaching, the role of the banking

institutions here is undoubtedly a major one. Better financial

expertise will facilitate the preparation and realisation of

entrepreneurs’ projects and ensure their sustainability.

The Entrepreneurship 2020 action Plan (The European commission)

This action Plan aims to facilitate the creation of new business and to provide a better support for existing businesses.

With a focus on entrepreneurial education and training.

FinAnciAL trAining For VsEs And sMEs

What type of financial training is required for VSEs and SMEs?

1 A network of French-speaking banking associations set up on 4 March 2011 with the aim of developing a stable financial sector for the economy by sharing experiences and holding thematic workshops within French-speaking circles.

2 Entrepreneurship Education at School in Europe, published in January 2015.

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EditorABBL Communication Department

ABBL | 12, rue Erasme P.o. Box 13, L-2010 Luxembourgtel.: (+352) 46 36 60-1 | Fax: (+352) 46 09 21communication@abbl.lu | www.abbl.lu

FinAnciAL Mission in chinA Yves Maas, chairman of the ABBL made a presentation entitled

“The State of Europe’s Economy” during the official financial mission in china.

housE oF trAining - AnnouncEMEnt oF First cEonico Binsfeld has been announced as the first cEo of the house of training (hot). the hot is the new training entity established by the chamber of commerce and the Luxembourg Bankers’ Association.

thE ABBL EnLArgEs its tEAMAnnick rollinger has joined the ABBL secretariat since 15 september 2015.

ABBL MEMBErshiP: nEw MEMBErBank of communications (Luxembourg) s.A.

chAirMAn’s dinnEr the ABBL held its annual chairman’s dinner on 8 July 2015 in the presence of the Minister of Finance, Mr Pierre gramegna.

AstF - nEw AddrEss the AstF has moved ! the new address is: 15-17, avenue gaston diderich L-1420 Luxembourg

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17/09/2015

08/07/2015

Follow the ABBL on:This publication may not be reproduced, either in full or in part, without the prior permission of the ABBL.

Thank you for contacting us: communication@abbl.lu

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SMEs in Luxembourg: Tools and information

House of Training: http:www.houseoftraining.lu

Jonk Entrepreneuren, Luxembourg: http://jonk-entrepreneuren.lu

Businesscheck: https://www.businesscheck.lu/

Initiated by the “Haut comité pour le soutien des PME et de l’entrepreneuriat” (created in June 2014)

Business Mentoring: http://www.businessmentoring.lu/fr

SMEs in Luxembourg: Key Indicators 87% of Luxembourg’s firms count less than 9 employees.

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Note: Small to Medium Sized Enterprises based in Luxembourg exported the most

Source: Entrepreneurship at a glance 2015 - OECD

According to the latest global Entrepreneurship Monitor (published in 2014), the most significant constraint in Luxembourg is the low level of entrepreneurial education at primary and secondary school.

Established Business ownership: 3.7%Perceived opportunities: 43%Perceived capabilities: 38%Entrepreneurial intention: 12%Fear of Failure: 42%

Source: Global Entrepreneurship Monitor, 2014

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Number of employees by enterprise size

Number of enterprises by sizes - Services sector

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