I saw a fourth motorcycle accident on our street in Western London in the past 15 months. All the motorcycle riders in the accidents have been food delivery people driving with a learner’s license. I was told food delivery competition has gone totally berserk in London.
It is one example of a new business model, where everyone can be an entrepreneur. We see digital and business model disruption now in many industries from taxis and food delivery to finance, just to mention some, and there are also many regulatory questions to be solved. Are these normal growing pains of a new market, or something more complex?
New business models are coming to disrupt many traditional markets. They offer more options to consumers, better efficiency and more competition. Often these new solutions are also coming to businesses that have been regulated, like finance, taxi traffic, restaurant or hotel business. These new companies also offer new models to work, often enable more entrepreneurial models, but at the same time they don’t offer similar traditional employee positions as many traditional companies.
As a result, many new services have also encountered employment law issues, e.g. Uber has faced many disputes about the legal status of its drivers around the world and Airbnb has been at the centre of discussion on hotel regulation and the local rent level problems.
The easy solution is to say that all new services and companies should follow old laws and regulations. It means that Uber should work like the old taxi companies, Fintech services should work like the old finance services and bankers, and food delivery should have employees and delivery cars like old courier firms have.
The problem is that, if we only follow the old rules, there is no development. No one can really claim that the old finance sector, taxi services, or courier services are perfect. Many people are totally frustrated with traditional corporate positions. We also witness that thanks to automation and machines fewer people are needed in many industries. It is also important to create new jobs and working models in new services and industries. For example, Uber (and similar companies) and food services offer jobs and earning to many people who could be without work otherwise.
Disruption always creates its own problems. One part is that new companies with venture capital money often want to buy market share, which can also create temporary businesses that are not sustainable. For example, people who follow the food delivery market in London have been told that when UberEats entered the market, it started to buy experienced drivers and market share. It had forced other competitors to go for unprofessional, low-cost delivery guys, who have gotten a motorcycle somehow and don’t even have a driver license, but start to drive with a learner’s permit. It then can contribute to those accidents I have seen, and also creates fights between drivers, when they try to earn their living. Often they have no guaranteed compensation.
Even free markets need some regulations and limits. They are also needed in many new digital businesses. The problem is often that the old industry and many regulators just want to keep the old models and rules, not really try to learn about new models and adapt regulations rapidly enough to new models and to accelerate innovation. It then creates situations that old players want to protect the old rules, and new players lack suitable rules to follow.
Fintech has quite positive examples in this development. Many Fintech firms have actually wanted to get regulation for their new models and they have started to talk with regulators. In some countries this has worked well, in some other countries regulators have been too old-fashioned to go for these approaches, and caused harm for finance services in their country and sometimes created also risky services to consumers, when they were allowed or forced to operate outside regulation. Regulator Fintech sandboxes are excellent examples to allow innovation and develop new rules together with innovators and companies.
Laws, politicians and regulators always follow behind innovation and businesses in new developments. Many examples show that it would be better if lawmakers and authorities were active in following development and looking for new models within their industries.
Often the old regulation is simply not compatible with new business models, and it is much more harmful to deny the development and force innovative companies to run in a gray or black area. Digitization, AI and automation are part of the disruption that economies face, but also play a vital role in finding new solutions. In their work, lawmakers and regulators have an important role and responsibility to play, but that they must also innovate new solutions, not just close their eyes.
This article was first published on Disruptive.Asia.
Managing regulations and compliance is becoming increasingly difficult for banks because it is time consuming and expensive, experts claim. For example, when asked by a journalist about the difficulties for top banks in managing compliance costs, a top investor commented: “(…) that is a massive challenge for these banks.”
In this respect, Citi admitted that 59 percent of their expenses savings are consumed by additional investments in regulatory and compliance activities. Also banks such as HSBC, Deutsche Bank and JPMorgan, confirmed that they spend over $1 billion a year on regulatory compliance and controls. More in general this discloses a trend which ended up in extra costs of $4 billion just in 2015, the Financial Times reported.
As a consequence of this trend, the interest around the issue is constantly growing by involving a number of players which are trying to find viable solutions to solve it by using their authority to act as a catalyst for change. For instance, in the UK the FCA stated that they are planning to increase collaboration with Regtech companies. Also Innovate Finance, the independent membership association which represents the UK's global FinTech community, set up the Transatlantic Policy Working Group (TPWG) in order to look for solutions to fix the fragmented scenario in the US.
In all these cases, Regtech, a blend word which indicates the mix of regulation and technology, is emerging as a way of effectively addressing regulatory challenges and connected costs by using software. According to FundRecs’ CEO, Alan Meaney, “like FinTech, PayTech, and many other combinations of XXXTech, Regtech is another example of an industry that is being changed rapidly by software.”
Generally speaking, the Institute for International Finance (IIF) argued in a recent report that by adopting new approaches to approaches to regulatory compliance. companies will free capital to be used for different purposes. In giving this advice, the IIF also identified the areas which could large benefit from this adoption such as risk data aggregation, modelling and real-time transactions monitoring.
A recent survey, moreover, revealed that 85 percent of professionals in the sector consider that RegTech can simplify and standardise compliance processes hence driving down compliance costs.
However, even though some critics argue that Regtech cannot be viewed as a panacea for all compliance challenges as subjectivity and other factors should be still considered pivotal in managing compliance risks, it definitely is a value addition in working well with heavily quantitative based obligations, information based obligations and risk identification and more in general with management tools.
Read the whole article on Crowd Valley Blog.
It’s not unclear that policy makers around the world want to see new models to serve and add value to the end-users in finance. They’re not against increased transparency either. In Europe, the European Commission’s Executive Vice President Valdis Dombrovskis announced last week it’s considering introducing ‘EU passporting’ for FinTech companies. Passporting is the concept of having ‘finance standards’ from one EU territory to another for maximum compatibility and transferability.
Separately, the Commission also moved to prevent large fees imposed on money transfers within the EU, affecting mainly established banks and agents where most fees are present. Combined with new business models, client demand and policy changes, these will catalyze technology adoption and push the pace of transition within financial services.
PSD2, GDPR, MIFID2 – The Barrage of Acronyms Attack
The policy is moving in one direction. Markets are moving toward efficiency. Client demand is pushing end-user value and control over their personal affairs, such as data. Alone, all these trends have uncertainties regarding practical implications and are open to interpretation, yet as a whole, they represent a leg of a changing competitive market.
New entrants are effectively sprung from the same fabric as these new policies and likely see these policies as natural and a secondary element of driving end-user value. However, those who bear 200 years of tradition and a deeply rooted track record in the financial services market fundamentally have to adapt.
Policy Changes in Europe With Global Implications
The European Union is still the world’s largest single market and guaranteeing access to the single market is a crucial tenet of belonging to the union. Fragmentation has plagued Europe in the past, which can be seen as a clear inhibitor to the progress also in the digital finance market. I wrote about this already as early as 2013 after speaking in front of the European Commission in Brussels. Even since then, it has not changed because the fragmentation is innate to the single market.
While the European Union is where much of this policy originates, it’s not the only area these changes are happening and manifesting themselves. FinTech and challenger organizations are creeping up from the US, the Middle East, Southeast Asia and practically everywhere. Where the establishment is strong, the challengers clearly focus on providing superior value and service than the existing service providers. Incumbents are rolling out open APIs to core banking services around the globe, such as BBVA’s API Market.
Where it gets interesting, however, is where services do not exist and challengers get to define the future of how modern financial services look. Just look at how online wealth managers (robo-advisors) have taken off in China, where a large market segment previously only had their deposit banks and the stock market as the places to place their capital. By definition, the two are at extreme ends of the market with nothing in between, until now. The growth has been exponential and the technology sector often looks to China as a benchmark on how future services will function.
New Operating Models Push Pace of Change
Lowering costs of operations is a particular core tenet of FinTech companies. It’s also their competitive advantage in most cases, where they can provide valuable services in a more modern way using automated technologies and artificial intelligence in decision-making. If a challenger bank can onboard a new user in under 8 minutes, how can a traditional bank achieve the same efficiency and user experience?
Further, this means the lowering of margins particularly forces adaptation of technology in the incumbent sector, where costs of operations and of staying compliant are rigorous, which ultimately are passed onto the end-user in the form of fees. If the fees are set to change, which seems evident from announcements like the one from the European Commission, the cost structure needs to be amended.
A recent PWC report wrote about the importance of branches to customers. While we can speculate if the established ways of servicing clients are in fact more valuable than what the technology sector often gives credit for, I would argue this is nothing more than a manifestation of the ‘what I see is all there is’ cognitive bias, that is mistaking the observed universe for the total universe. The fact is that most people till date have experiences with branches and most do not have experience with a mobile app as a bank.
Existing institutions are finding new ways to serve clients, where models embrace end users interests and allow them to be in control, e.g., where their data is used. New standards are being set daily and they will have to move faster than ever.
This article was first published on letstalkpayments.com.
MEFTECH is the largest and most prestigious event for the financial technology community from across the Middle East and North Africa (MENA) region. It is the premier international platform dedicated to innovation in financial services. Crowd Valley (a Grow VC Group company) was glad to be invited by Matchi to demo and exhibit at this event.
MEFTECH 2017 took place in a spectacular venue, the Abu Dhabi National Exhibition Center on the 13th and 14th of March 2017. We witnessed a great lineup of speakers and panels spread over the two days of the event.
The event showcased financial services innovations from across the globe and proved to be a good experience for us. We interacted with like-minded founders and Fintech industry leaders and met executives from the leading banks and financial institutions from the MENA region. It was good to learn that banks from that region were quite optimistic in adopting digital strategies to position themselves with the fast changing pace of technology seeping into the financial industry. With the recent announcement of Yielders becoming the first Sharia Compliant Fintech platform in the UK, our Cloud Back Office framework was well received by the attendees.
On stage: Paul Higgins, CTO, Crowd Valley
With its high GDP, 2nd highest e-commerce volume in Asia and high rate of technological adoption, Japan presents a high potential for Fintech investment and adoption. However, the uptake has been lukewarm so far, owing to significant cultural and regulatory obstacles with Japanese investments accounted for only 0.40 percent of the roughly US$12 billion invested into Fintech globally in 2014, according to a report by Accenture.
However, with efforts being made by incumbents and the FSA, 2017 is poised to be a potentially mercurial year for Japanese Fintech with the 2020 Tokyo Olympics representing a key trigger to accelerate legal revision and inject momentum into the Fintech industry.
With the West continuing to display consistent growth and adoption of financial technology, there are significant changes afoot within the institutional and regulatory framework to act as catalysts for Japanese Fintech growth. The changes are part of a national effort to push financial technology, highlighting fears in Tokyo that Silicon Valley could damage Japan’s banking sector as it did the country’s mobile phone industry in the past. “Japanese institutions are concerned that a Google Bank or Facebook Bank will conquer Japan,” said Naoyuki Iwashita, head of the Fintech Centre at the Bank of Japan. It also means that Japan could become a big new source of capital for startups, especially in Asia, that are experimenting with technologies such as Blockchain or Artificial Intelligence. Yasuhiro Sato, Chief Executive of Mizuho told a conference in Tokyo in October 2016 that Japanese banks had been constrained by regulators wanting to preserve old, but tried and tested, IT systems.
IT investments by Japanese financial groups have historically stagnated at around 3%, a level well below their global peers. This can partly be explained by the lack of support towards innovation from senior management, and, most importantly, by the legal limitation on banks’ IT investments.
Until recently, the Banking Act prevent Japanese banks from having a stake higher than 5% stake in an non- finance-based company, limiting them from investing heavily in Fintech startups. Taro Aso, Deputy Prime Minister, suggested that some of the same spirit from the West needed to be instilled in Tokyo. “We have revised the Banking Act and, through the revision, people in banks, in business suits work together with young people in T-shirts and jeans. They work together and the combination of this gives rise to new things.” He added: “The financial ministry which used to regulate the industry must now nurture the industry. We are making efforts towards this end. We haven’t done enough but with this new policy we have greatly changed our thinking in approaching the issues.”
Beyond the Banking Act, Japan has also taken other steps forward, like recently legislating to regulate digital currency exchanges in the country and establishing a number of working groups involving the Bank of Japan and the Ministry of Finance. But there is still a lot of bureaucracy to get through in order to launch and grow a new company.
The regulatory environment in Japan ties in closely with the prevalent culture towards banking and investment. Traditionally, Japanese people have been seen as risk averse with regards to banking and investment practices. Over 52% of personal assets are composed of cash and deposits, with 0% interest. This is complemented by a lack of financial literacy that hinders investment and makes it harder for Fintech services in the wealth management and investment sectors to grow.
This same trust is seen in the massive banking system in Japan. While Fintech is certainly growing in the country, it appears the reason it hasn’t taken off so quickly is partly due to a strong bank-branch culture. The Data Market has found that the number of commercial bank branches per 1,000 square kilometres in Japan in 2013 was 103. This is significantly higher than those found in the rest of Asia.
Ripple, the US Fintech that uses Blockchain technology for payments and settlement, has entered into a joint venture in January, 2016 with Japanese financial services giant SBI Holdings. It's called SBI Ripple Asia, and in August 2016, it was announced that a consortium of 15 Japanese banks, will build a platform using Ripple technology to enable instant national and cross-border payments. It plans to expand the consortium to 30 banks and launch the service in spring 2017.
The number of merchants accepting the cryptocurrency is expected to quintuple to 20,000 this year. By 2016’s end, there were over 4,200 bitcoin-accepting merchants and storefronts in the country, quadrupling from the total from 2015. The frenetic growth followed a bill, approved by the Japanese cabinet, to recognize digital currencies as real money, or legal tender.
CoinCheck’s chief of business development Kagayaki Kawabata points to Japan’s regulatory moves as the primary factor for bitcoin’s growing popularity in the country. Once shunned in a negative light during the fallout of the now-defunct Mt. Gox exchange, the cryptocurrency is seeing plenty of press that is helping spread awareness in the country.
Mitsubishi UFJ Financial Group and the two other Japanese megabanks have been laying the groundwork ahead of the rules change, such as establishing dedicated divisions and launching contests designed to unearth promising startups. The legislation's passage opens the door to full-fledged investments and tie-ups. Sumitomo Mitsui Financial Group is interested in operating a virtual marketplace much like Rakuten's.
The rapid growth is in part due to the recent deregulation. In addition to the existing lending and funding types (‘Charity’, ’Rewards’ and ’Lending’), the ‘Equity-type’ market has emerged since 2015. Due to the contribution of this new funding type, we expect to see a further growth in the market with recent market trends expected to provide a boost to foreign players in entering the Japanese market and domestic players are likely to seek global partners to access overseas investors, technologies and ‘Equity-type’ knowledge.
This is going to be a big year for Japan. Is it heading towards its next financial data monopoly or an era of open APIs and blossoming startups? No one knows for sure, but Fintech is here to stay and we at Crowd Valley look forward to supporting your digital finance venture in Japan.
Read the whole article on Crowd Valley News.
Crowd Valley (a Grow VC Group company) has been invited to speak in a leading sustainable business finance event in Toronto on April 4 and 5. Crowd Valley has contributed also earlier in the GLOBE series and Crowd Valley back office is used for several digital finance services that especially focus on sustainable business finance.
GLOBE Capital is proudly produced by GLOBE Series. GLOBE Series is best known for its world-renowned international GLOBE Forum Conference and Innovation Exposition held in Vancouver every two years. Since 1990, GLOBE Series has curated some of the world’s largest leadership summits on sustainable business which are designed to educate, empower, and connect leaders in pursuit of a cleaner, more prosperous world.
GLOBE Capital is an important summit where global, innovative thought leaders and influential officials will gather to explore how to fully realize the enormous economic opportunity ahead. Seating at GLOBE Capital is limited to 350 participants. Attendance is by invitation-only to ensure adequate representation of important sectors, as well as reserving space for our extraordinary speakers and partners.
The event focuses to identify specific actions and mechanisms that will:
Mr. Ahvenainen speaks at the panel "How Can Sustainable Infrastructure be a Superior Investment Grade Opportunity?" Infrastructure is strongly correlated with the growth potential of an economy. This session will answer the following question “What criteria ensures infrastructure is both more resilient and sustainable across its life cycle?” along with exploring: The barriers and opportunities associated with investing in sustainable infrastructure in the United States and Canada; New sources of capital, in addition to innovative new finance solutions.
DOKU:TECH is an inspirational and interactive annual event which brings together individuals and tech talent to meet with top-tier international future makers, executives and thinkers. Between 2014 and 2016, DOKU:TECH convened over 4,000 attendees and more than 60 renowned speakers for the two-day event. On this video Valto Loikkanen talks about startup ecosystems at DOKU:TECH.
Valto addresses questions and also talks about key challenges behind ecosystems:
Startup Europe of European Commission offers funding to develop and connect startup ecosystems, more information about available funding and how to apply here. Startup Europe is a part of EU's Digital Single Market project.
Startup Commons (a Grow VC Group company) develops digital tools to develop and manage startup and entrepreneurship ecosystems. Startup Commons has also a resource bank to find a lot of material, documents and templates to design, measure and plan startup ecosystems. More information on their web site.
The finance sector is changing as banks lose their power and influence and everyone realizes they must take FinTech and new digital services seriously. Big banks need to realize this too.
Casper von Koskull, the CEO of Nordea, Northern Europe’s leading bank, recently threatened to move the company’s head office out of Sweden if the government implements a tax proposal that would levy an additional 15% tax on the costs of companies that provide financial services. The money would be collected especially for a system to manage potential bank crises.
Of course, companies are never happy with new taxes, and after the initial complaints and threats there are typically negotiations. But now Sweden’s Finance Minister Magdalena Andersson has hit back, saying that in fact banks pose a risk for a country and are a potential liability, so maybe it is not so bad if Nordea moves.
But was this only a typical left-wing political statement, or does she actually have a point?
Many governments have been forced to use taxpayer money to save banks, most recently after the 2008 financial crisis. Of course, it’s not only about where the head office is located – countries have risks elsewhere, as consumer savings are guaranteed in many countries. But in practice, the home countries carry the biggest risk – something that small Iceland realized, for example, when its aggressive internally growing banks collapsed.
Many governments now try to limit their risks and create new models to handle crises. One aspect of this is to split financial institutions, for example, so that investment banking and retail banking isolated from each other. Then there are also models for better stress testing and financial oversight of banks, collection of special funds from the finance sector that can be used in crises, and finding new mechanisms to handle crises that would see shareholders lose first. The objective of all these actions is to ensure that governments don’t need to bail out failed banks anymore. Taxpayers are tired of being on the hook.
After the 2008 crisis, many countries introduced a lot of new regulation. This can help avoid some problems, but more regulations can also mean even more complex instruments and also even bigger “too-big-to-fail” banks. It is often said that banks are like big black boxes. New regulation hasn’t really helped solve this problem. It is extremely expensive to be a regulated bank.
It is even said, that banks might become highly regulated, high-cost money pipes in a similar manner in which telcos became bit pipes. Some regulations, like EU’s PSD2, put even more pressure on this development, when banks must open APIs to their core services so other parties can develop value added service on top of them.
At the same time, FinTech is rising globally, creating new services to help businesses and people get loans and capital. FinTech has an influence on many high-profit services such as international money transfers, wealth management and consumer/SME loans.
A top level former banker who has worked in London and Asia commented that new finance services are especially growing in new finance hubs in Asia like Shanghai, Jakarta and maybe also Kuala Lumpur and Ho Chi Minh City. His reasoning was that it is easier for these hubs to go to the next phase when they have little or no history, culture, IT and liability of the old models and institutions. So, it could mean a tough time for Singapore and Hong Kong, as well as London and New York.
Sweden has a left-wing government, and the finance minister comes from the Social Democratic Party. So, it is easy to claim her statement is a typical left-wing anti-business comment. Banks are important in the finance market, they generate taxes and offer jobs.
But maybe the minister has also a point. The finance sector is changing, banks are losing their role, and they must also revamp their models. Historically they have had a strong negotiation position with governments, but maybe it also is changing. Especially after 2008, politicians are also under much more pressure from citizens to be tougher with banks and bankers.
The finance sector is still changing slowly. The industry itself has started to realize the direction everything is going, and that everyone must take FinTech and new digital services seriously. We are still in the early phase of these changes that most probably will result in a much more fragmented finance industry – which is why those fragments must be able to work together in a transparent way.
Governments and regulations are also preparing for this change. They must also start rethinking banking services and their role in the economy. Less regulation would make it easier to create new banks, encourage more innovation and competition, and reduce the number of too-big-to-fail banks. Big giant banks are still a risk and potential liability to governments. This Swedish discussion can – and should – be a positive opening to discuss banking regulation and the future of the banking sector. Functional finance services are the cornerstone of each country and economy. But no one can say that the finance sector and banks must stay the same as they are today.
This article was first published on Disruptive.Asia.
Photo: Gröna Lund amusement park in Stockholm, Sweden (source: Wikipedia).
From the conversations I’ve been able to have, my view is that the end of 2016 marked the end of the “R&D phase” in fintech, where the majority of institutions largely talked about the market and its implications, largely surveying the market and circling it, where 2017 is the year of practical implementation. This raises the questions; what will drive behavior and what type of collaborations are likely to emerge?
I’m a staunch believer in what we refer to as ‘distributed finance’, which alludes to distributed technology as well as distributed source of innovation and progress. We’re going to be seeing new innovation shape the financial services market both from upstarts as well as from the establishment. This innovation will go through all the market phases of cooperation, competition, acquisition and integrations on various fronts. Where can we expect these movements to play out?
Being a Bank Still Means Something
Evoking a passionate brand experience around a global retail bank is difficult. Yet at the same time brands such as Citi, BNP Paribas, HSBC, still signify a strong signal to stakeholders. Especially in an investment banking context, sophisticated investors take strong signals of operational quality from the association of a big name brand, likely in part due to the knowledge of conservative and risk averse internal processes.
Among the biggest assets the existing establishments have are their brands. Therefore the question that stands is where can that type of a brand be used in the best way to serve the organization’s mission. Combined with the notion that there are several organizations that have an excellent track record of acquiring businesses, even more so than rolling out proprietary greenfield projects. This may be a reason that so many organizations have rolled out internal venture funds (see e.g. the global exchanges, like Nasdaq) dedicated to fintech.
Benefits from Cost of Operations
I’ve seen first hand how institutions get intimidated by changes in their market segment by upstarts that do not have the same impediments as they do, such as cost structure or internal compliance requirements, and thus can approach the market in a vastly different way. This may come in the form of targeting smaller investors or serving smaller transactions that are simply out of reach for larger market participants.
For an existing diversified behemoth of a company, this type of cost efficiency may be out of reach. However, the benefit that such an organization has is the clear reach and breadth of service. Through upstarts emerging as very specialized and policy requirements pushing an unbundling of services (e.g. PSD2), the future will likely look much more unbundled and distributed than the current incumbent sector.
Sweetspot #1: Significantly lower cost of operations in an industry dominated by benefits of scale.
Focus on Mutual Client Value
Taking the premise that fintech is about serving end clients better, the most natural areas of collaboration are the ones that represent indirect competition. For example, online lenders may target clientele that would not satisfy a traditional lenders risk profile, yet the cost of operations makes it attractive for the online lender. Or similarly an online digital investment bank may be able to source and transact in smaller size of deals (e.g. sectors such as private equity and real estate) where traditional players may have a difficult time adding value.
User experience is also vastly different. Being able to acquire and onboard clients in a retail service may be a vast competitive advantage or being able to originate and process a loan application with a fraction of the cost. Usability and a more transparent decision making process, explaining to the end user how their data helps them get a better deal through their mobile app, will go a long way in competitiveness and in order to appeal to those larger scale organizations focused on exactly these questions internally.
Seeing the overlap is a fundamental part of the collaboration and potential consolidation to start, before we can start talking about mechanics (for arguments sake, there may be a clear benefit in the lack of integration in some models to keep the competitive advantage making it appealing in the first place). However, getting all parties to recognize this overlap and mission of serving the end user better may indeed be trickier than it seems. This understanding is key in order to generate the drive to see these joint models emerge.
Sweetspot #2: New offering on smaller scale attractive to establishment.
I want it! What is it?
Even to this day, fintech remains often misunderstood. It’s disadvantaged by the fact that technology centric publications charge forward with buzzwords as their weapon talking about great disintermediation and largely the innovative approaches taken by upstarts. Unfortunately this often translates to innovation being written off to new market participants that have no respect for the sector or its rules, when the reality is in fact far broader.
I’ve also seen first hand how management of institutions have no fintech strategy, and quite frankly don’t see a need for one when the top focus of the company is to increase short term shareholder value, cut costs and improve operational efficiency. Internal politics may also come into play, when, let’s face it, this type of automation and efficiency isn’t always a popular topic within an organization.
For all of the reasons fintech may represent a misunderstood or uncomfortable discussion, I believe we are past the large-scale resistance and are accepting fintech as a means to serve our end clients better. Like a waterfall, this push to adopt new models to serve clients doesn’t always happen in the most calculated way and we are likely to see calculated, as well as hasty moves in the model to integrate solutions into existing establishment. On a macro level I believe this will work out to the end customers benefit, with more diverse expertise making it into baking and brokerage roles, however not each integration will see a vast shareholder value. On the other hand, such is the life of M&A.
“Sweetspot” #3: Existential threat and strategic blue ocean strategy.
Upstarts Make Big Bets
One of the most exciting things for me to see, as an entrepreneur in fintech since 2008, is when the upstarts are able to not only make ripples but truly generate waves. Marketplace lenders applying for banking licenses, N26 delighting clients with a client onboarding lasting minutes through their smartphone and Transferwise taking on hidden margins. These are interesting anecdotes, even though over time upstarts often end up integrated into existing institutions.
However, technology has changed and so have business model needs since the financial crisis. Through disintermediating forces such as PSD2 and possibly even MIFID 2 with its implications, we will see a deeper specialization in the financial services offerings. There are areas that do and will benefit from a true scale benefit, but I would argue there are areas that not only will benefit from specialized service, the end user may even pay a premium for a very focused and conflict free offering.
Gritty entrepreneurs and upstarts that are passionate about client value and serving their users at the highest level to no end will hopefully always have a role in the world of finance, maybe even an independent one.
Institutions Bet Big On Proprietary Technology
Given the benefit of having a strong brand, the appealing choice for many organizations is to roll out their own proprietary greenfield projects. I’m fortunate to be able to see many of these in my day to day, and can attest to the fact that there are far more projects making their way through internal new business groups than apparent from the surface. Notable examples so far in the market have been Marcus by Goldman Sachs or Vanguard’s robo advisor platform. The latter is interesting given the fact that the organization is member-owned and an insistent member focus is true to the very DNA of the organization.
I would expect the large organizations to roll out far more innovative ways to serve their clients in retail and investment banking 2017 onward.
Grandparents and Toddlers
Through these trends, a clear re-imagination of services is underway. A notable additional trend is the winding down of legacy technology within large organizations, which has been underway a long time. The need is clear, many projects work on technology where the experts would much rather spend time with their grand children and worse, no one understands the modules, their dependencies or implications. This type of ‘black box’ technology is on the way out and organizations are loath to start new projects in a way that repeats past mistakes.
If the assumption that we are past a large-scale resistance and the R&D stage of the market, we’re sure to be seeing much practical innovation being unleashed to the market and co-operation emerge to maximize end user value.
This article was written by Markus Lampinen, Crowd Valley (a Grow VC Group company) CEO, and was first published on altfi.com.
Commenting on the announcement that the OCC intends to design standards that will allow fintech companies to be chartered as special-purpose national banks, Controller of the Currency Thomas Curry said: “More than 85 million young adults in America are entering the financial world with the majority of their financial lives still ahead,” he said. “They want technologies and services that provide better, faster, more accessible products and services, and they are willing to switch providers or use multiple providers to get what they want.”
To get on the radar of this new customer base, credit unions should take advantage of technological innovation to increase focus on efficiency and the end user experience. That does not mean grabbing the latest fad off the market and implementing it with hope to seem “up-to-date”, but rather having a solid core platform in place with the option to allow third parties to utilize the platform to innovate and develop new applications on top of the credit union’s own solutions.
A project to either digitize existing processes or launch new ones will never be the same for every credit union, however, there are several areas that need to be addressed before the implementation phase:
1. Setting up strategic goals and corresponding solutions. Depending on what issues a credit union wants to address via technological upgrade, the process can significantly vary.
2. Considering upgrading core processes first. Consider improving services critical to your members and revenue generation, such as lending.
3. Involvement of the legacy system. IT infrastructure in place is commonly found to be several years old and might not be suitable for current business needs.
4. Choosing a platform. Keeping in mind that high pace of innovation makes it more likely that we’ll witness new services and corresponding customer expectations emerging in the near future, it is worthwhile to consider open APIs (application programming interface) and a Cloud Back Office to keep all components in one place.
5. Finding developers. If the API provider offers a “sandbox”, the developers can test the platform to ensure a seamless operation process for the applications.
6. Reviewing fringe offerings. While traditional banking services – lending and taking deposits – remains at the core of credit union services, the open API enables other options.
Read the whole article and more details on Crowd Valley Blog.
Est. 2009 Grow VC Group is the global leader of fintech innovations, digital and distributed finance services. Our mission is to make the finance services more effective, transparent and democratic. The Group includes leading fintech companies in their own areas.
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