BMO Bank has been “heavily” investing in its #technology architecture for the past five years. The bank reached a “major milestone” at the end of 2016, according to David Gordon, the bank’s U.S. chief technology and operations officer. “That’s in terms of all the tech capabilities we have built, which willRead More
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BMO Bank has been “heavily” investing in its #technology architecture for the past five years. The bank reached a “major milestone” at the end of 2016, according to David Gordon, the bank’s U.S. chief technology and operations officer. “That’s in terms of all the tech capabilities we have built, which willRead More
INV #Fintech, the sister accelerator to this site, is pleased to announce its inaugural episode of INV Unfiltered — a new #monthly #podcast series, which will cover current trends and intriguing topics in financial #technology and beyond. The accelerator, in its continued effort to help fintech startups strive for greatness, will focus theRead More
#PSD2 is creating a new distinct species for retail digital payments in the EU. Shared by account servicing #banks and third party payment initiators, there will be a customer-triggered Credit Transfer for transferring funds from a customer’s account to that of the Merchant providing the goods or services. Upon receipt of payment, the merchant ships the goods/releases the service. By relying on bank security, this method of payment is hard for fraudsters to replay elsewhere, the speed is moving to “immediate,” and there is an irrevocable payment to the merchant. Unlike a credit card, the method does not offer any repudiation mechanism and does not facilitate reversals or refunds. This new species will only live in the EU. Much of the underpinnings for PSD2 comes from the SEPA elements of the Economic and Monetary Union project in the EU.
This newly bred species faces entrenched competition from a dominant older Card species that has ruled the consumer payments Savannah globally for over 50 years. The DNA of this species is from the US. There are US firms in leading positions globally in the main elements of the payment card value chain. US-born VISA and Mastercard as Card Schemes are effectively the franchisors of the card payment ecosystem.
Although banks across the globe issue payment cards to customers, the highest volume issuers are typically US banks. Issuers introduce consumers into the card payments ecosystem, under license from the card payment schemes. Acquirers are responsible for capturing the POS transactions and submitting these transactions to the card scheme for authorisation. If the consumer has the funds or the credit, this process leads to the merchant receiving the value of the goods or services sold. There is also an extensive and distinctive value chain supporting Merchants. Acquiring Processors provide sub-supply for Acquirers, and US firms are global leaders in this activity. There is a deep sub-supply value chain for Acquirers, with US expertise often to the forefront. The Point of Sale (POS) or Gateway providers offer hardware and software services for the secure capture of payment card details. POS or Gateway providers often innovate in adjacent categories to card payments such as retail inventory management and cash register software. US-led investment is also to the forefront in this area.
Within all these moving parts, there are processes that are relatively unique to the card schemes, such as #technology, rules, penalties, standards, procedures, brand guidelines, financial settlement platforms, security protocols, chargebacks, holds, stand-in processing, reserve accounts, minimum monthly payments, interest-free periods, etc.
It is interesting to speculate about what Merchants would ask for if they could pick and choose their best possible combination of features from both species. Here are a dozen simple and crude requests that a Merchant might make if they could define a hybrid payments collection service between ACH and Cards:
1. “If the customer pattern moves to bank-to-bank credit transfers after PSD2, as a Merchant I want to see the same share of my sales being funded by unsecured consumer credit as when I saw a Debit Card/Credit Card split. I want customers to have still the same opportunity to buy on credit if some or all of my product range is priced at high values. “
2. “Even if banks start to provide credit through unfunded bank accounts rather than card limits, I want my customers to have still the type of structured credit agreements that they liked with Cards, such as minimum monthly payments and interest-free periods. Ideally, they should get to choose the optional elements of their credit agreements.”
3. “I reluctantly accept that I have to carry the overhead of a trusted dispute resolution mechanism for higher value purchases. I want my provider to educate the customers properly on when this protection exists and when it does not exist. “
4. “I do not want any repudiation mechanism for the consumer for small value transactions. I have my statutory obligations built into my complaints and refund processes.”
5. “I want the low-value purchases made without credit paid to me immediately.”
6. “I want the simplicity and predictability of ACH pricing, not an array of fixed, variable, tiered and once-off card charges.”
7. “I do not want “holds” put on my money if the business is unexpectedly good compared to projections nor do I want to have money retained in “reserve accounts” in case of chargebacks. My bank should do all the due diligence on my activities, and that should be enough.”
8. “I do not want to store the digital credentials of my customers, and I do not want to have to comply with a “PCI” security standard that could bankrupt my business with fines and penalties. I am a retailer, not a professional cyber-security company or a bank.”
9. “If the customer is buying from me remotely on a mobile phone, I want minimal delays and friction but also strong customer authentication with the minimum of variation for transaction size and payment type. These security controls should be so elegantly designed that only thieves and fraudsters abandon transactions.”
10. “I want value-added services that come with my point-of-sale payment collection services, such as inventory management software, cash drawers, and an App Store, especially for retailers. I want these value added services to work with all payment types.”
11. “I want working capital finance opportunities that capture all my trading process delivered seamlessly to my business at POS. I don’t want offers of finance that are specifically confined to Cards traffic or some other specific payment mechanism ”
12. “I want payment schemes with great brands that are recognised globally and entice consumers from all locations, not just EU.”
Producing a hybrid scheme of this agility and desirability is a very tall order, given that the most important suppliers tend to have their capital, infrastructure and knowledge tied up in one of the two models. The biggest EU banks that will handle most of the PSD2 payment initiation volumes are very mature organisations with monolithic software platforms. The major card processors and platforms are also large and mature organisations with monolithic software platforms. They also have very distinctive knowledge bases, focused on either Cards or ACH. They look out at the world from within this history, with a perspective of customer needs influenced by their current model.
Given these rigidities, is a hybrid model that might delight Merchants a pipedream? Perhaps not, if the theoretical promise of the “#API #Economy” becomes a reality. The API Economy is a set of business models and channels based on secure access to functionality and exchange of data between businesses through Open APIs. An Open API is a publicly available application programming interface. It provides third-party developers with programmatic access to a proprietary software application. APIs can also be used within businesses to clearly define automated methods of communication between various software components.
API advocates make many claims about their usefulness. They argue that APIs lower barriers to entry for programmers. They make designing complementary programs easier and faster. Modular design, enabled by APIs, allow software designers to create, modify and remove components. Modularity combines the standardisation needed for high volume processes with customisation required for bespoke design. APIs also enable measuring and metering the third-parties that are accessing and using these resources.
Both Banking and Card Processing specialists are in mature industries with many monolithic systems and divisional organisational structures. All mature industries face a range of challenges adapting to Open APIs. They will have to modify performance management and measurement systems. They have complicated and expensive investments to make to develop modular software with a microservices architecture. Open APIs are entirely different to own-brand products in mature industries. The monetisation goals for Open APIs will have to reconcile with the goals of own-brand products. Mature industries with very established patterns of pursuing profits at divisional level might struggle to see where they will capture value from Open APIs. Older businesses that were not born in the networked economy can be excessively focused on the downside risk of data travelling out to third-parties.
By definition, all of the service domains required for the market to assemble the Merchants wish list for “the ideal hybrid ACH/Card scheme” must already exist. In general, these services are locked inside the software architecture of the respective service providers, either banks or major card specialists. These service domains have Machine to Machine and Human to Machine interactions. Machine to Machine interactions has content suitable for data fields that can be passed between applications. The level of detail in the interactions influence the potential for Open APIs. These interactions contain identifiers and depictions that can be explicitly mapped to a data structure. The standard of detail is very high. Human to Machine interaction includes structured forms of information that are completed by a person during a service exchange. The API Economy has the potential to capture the Human input through more applications and more convenient applications.
In crude conclusion, notwithstanding the difficulties for mature firms in changing their business models, Open APIs could revolutionise how data and services are distributed. Given the regulatory intervention, the Card specialists in particular seem to have an incentive to make some or all of their characteristic and value adding service domains available to all models, whether there are 3 or 4 parties involved in a scheme. It could be a 2-model world with tighter margins, so they need to profit from both models. If the reality of the API Economy matches the theory, we could see some hybrid species in the future.
is Author, “PSD2 in Plain English” at Rohan Consulting Services Ltd.
Deep Blue Sea
Jack Ma, the founder of Alibaba Group, was famously cautious about competing head-to-head with the world’s largest player eBay: “eBay is a shark in the ocean. We are a crocodile in the Yangtze River. If we fight in the ocean, we will lose. But if we fight in the river, we will win,” he said.
On January 27 the crocodile finally swam out of the confines of the river and into the open seas of global finance. Ant Financial, Alibaba’s financial services arm, the “PayPal of China”, and the world’s largest financial #technology firm, agreed to acquire #MoneyGram, which along with Western Union, is one of the two “big” global money transfer operators (MTOs) for a price that represents a 11.5% premium over its share price and assumption of MoneyGram’s nearly 1-billion-dollar debt.
The #acquisition has massive potential for the Alibaba Group. In one fell swoop it positions Ant Financial as a global player capable of handling multichannel payments over a network that reaches out to the far corners of the world spanning 200 countries and 350K agents. Well entrenched in China, Ant Financial, will now be able to offer payments and related financial services on a global basis. Only Western Union has as expansive a reach as MoneyGram. Other large MTO’s have wide agent presence too but they tend to be more geographically specialised than the big 2.
Remittances, funds sent to family and friends by migrant workers, are still heavily cash based. Over the past few years, innovative online players have developed disruptive business models via the internet and mobile channels to play in the $700 billion plus market for remittances. But the old fashioned cash-based remittance industry continues to be at the heart of the money flows and relies on agent networks (for cash pay-in and pay-outs).
Though MoneyGram also serves over online and mobile channels, the new players have developed fast, user friendly, digital services that are more intuitive and easier to use. Companies such as Xoom (acquired by PayPal), focus on a few corridors but provide a better more efficient service. Remity and WorldRemit have achieved significant early success. Other disruptors such as Transferwise and Azimo have promise but are still relatively small.
So, Ant Financial through MoneyGram will have the ability to transfer funds electronically from one end of the earth to the other – for customers who have bank accounts or payment cards – but also, through its agent network, equally well for customers who prefer to deal in cash.
In addition to having a wide payment network, the most valuable core assets of an MTO are its anti-money laundering procedures and controls embedded in the entity’s processes, platforms, and above all, its people and culture. Money laundering is a perennial headache for MTOs who are fined heavily not only for helping illegal flow of funds, wittingly or unwittingly, but for simply for having lax AML controls.
Large fines can cripple companies. In 2012 MoneyGram was handed a penalty for $100 million in the United States because, as Assistant Attorney General Lanny Breuer described, “MoneyGram knowingly turned a blind eye to scam artists and money launderers who used the company to perpetrate fraudulent schemes targeting the elderly and other vulnerable victims.”
Of-course MTOs are not alone in finding themselves penalised for aiding and abetting illegal money flows. The fines in those cases have been much larger. HSBC and Standard Chartered were fined billions of dollars for their part in money laundering and for not doing enough to root out and report such activities.
Analysts have indicated that such risks represent the biggest hurdle to the acquisition of remittance behemoths like MoneyGram by potential large investors and puts their business viability into question as a big event triggering another big fine could cripple a company financially or cause it to be shut down by the regulators. This is true. But it is not specific to MoneyGram. In fact, big companies like MoneyGram are better positioned than smaller rivals to make “critical mass investments” in such controls.
Ant Financial has the financial muscle to ensure MoneyGram’s AML controls evolve and ensure that it stays clear of trouble. But it will require continuous investment and a significant culture change not just in MoneyGram but also in its new parent, Ant Financial – a culture of transparency and regulatory compliance.
Alibaba’s marketplace businesses have been warned a number of times for not doing enough to prevent sellers from hawking fake products. But its response has been dismissive. Jack Ma’s famous remark implying that some fakes are better than the real products has been taken to illustrate the casual attitude the group has towards ethical best practices. This attitude should not extend to global money flows. The risks are much higher.
Ant Financial has other perception issues to face as well. For example, it is still recovering from the trouble in China over Cosun, a phone maker which defaulted on $166 million worth of bonds which were sold over Ant’s financial marketplace.
A new problem threatening to impede industry growth is the Trump victory in the United States and the Trump administration’s aggressive stance on migration which ultimately could have a negative impact on global remittance flows. The Trump administration with its protectionist rhetoric and anti-Chinese sentiments may even try to block the deal. The deal may be viewed under the “Exon-Florio” Amendment, the “touchstone law that lets the president block foreign acquisitions that threaten national security.” The New York Times quotes a 2009 case when a Chinese company was stopped from buying a gold mine in the United States because the mine was too near a military base and reminds its readers that the Chinese telecommunications equipment giant, Huawei was repeatedly blocked from acquiring American companies because of its ties with the Chinese military / government.
In recognition of the uncertainty, Ant Financial has reportedly agreed to pay MoneyGram $17.5 million if the deal gets blocked by a US security review.
Strong Core Business Prospects
The group is likely to do everything in its power to grow the remittance business especially targeting the significant remittance in-flows to China and also aiming to capture the “informal” remittances that flow through unregistered private networks and have continued to operate under the radar for decades. It can expand and consolidate the network in developing markets. Today, half of the total global money remittance flows take place between developing countries. As China expands its global influence, constructing ports on the Arabian Sea and building infrastructure in far flung African markets, MoneyGram will provide a payment infrastructure that keeps pace with the needs of this expanding footprint.
The Real Benefits
The future focus of Ant Financial, however, is not likely to be on remittances alone but on payments that support online and mobile ecommerce through the Alipay brand. Ant Financial now also offers a whole host of financial services to Chinese consumers and online retailers such as personal consumer loans and small business finance. It has also ventured abroad cautiously through investments such as its $ 680 million injection in paytm, India’s popular payment service widely used for ecommerce in the country. The main inhibitor to online payments in developing markets is buyers’ preference for cash payments on delivery due to a hesitation to use cards online or because of lack of trust that the goods received will be damaged or not up to standard. MoneyGram’s vast cash in/out network will enable consumers to pay cash if they cannot pay online and also act as pick up points for goods ordered online. It will also provide the infrastructure to make Alipay become the payment instrument of choice for global ecommerce payments particularly in emerging markets where ecommerce has not taken off yet or where cash is still used to pay for goods ordered over the internet.
MoneyGram will provide Ant Financial global reach for remittances and for ecommerce and all other types of payments. And, if all goes well and there are no issues with the United states authorities, Ant Financial will also be able to provide financial services in the US.
But it is clear that the crocodile that was afraid to battle the shark has now ventured out and has already evolved and adapted itself to the new environment and ready to compete in the open seas.
(Image: Fine Art America)
is Director at Edgar, Dunn & Company
You may have seen the buzz last week about Scotiabank’s newest workspace in Toronto – our Digital Factory, home to some of Canada’s top #technology and creative talent. Many stories focused on the impressive working space that is becoming the Bank’s Canadian digital headquarters. But there is more to the story as #Scotiabank continues its journey to digitize banking for its 23 million customers around the world. Here are five little known facts about Scotiabank’s #Digital Factory:
1. It’s not *quite* as new as you think. While the space opened in Toronto in January, the team has been hard at work since October 2015 when the Digital Factory was first created. Since then, teams launched formative projects such as our new digital banking app that allows customer to apply for a chequing or savings account within minutes; a partnership with global fintech player Kabbage to re-invent small business lending – shifting processing time for entrepreneurs to get approved on a loan from weeks to mere minutes. When at its full size, the Scotiabank’s flagship Digital Factory in Toronto will house more than 350 of Canada’s top technology talent under one enterprise-wide mission: to help Scotiabank provide a seamless, personalized experience to its customers, so they can be served how, when and where they want.
2. It transcends global borders. The Digital Factory in Toronto is Scotiabank’s first fully-dedicated physical location for digital talent to work together under one roof, but this movement is actually happening around the world. We have opened Digital Factories in Mexico, Chile, Colombia and Peru, and each Digital Factory will be led by one of five Digital Banking leaders responsible for driving our digital strategy in the diverse markets we serve as Canada’s most international bank: Jeff Marshall (Canada), Fuencis Gomez (Mexico), Luis Torres (Peru), Daniel Kennedy (Chile), and Marcelino Herrera Vegas (Colombia).
3. We’re aligning ourselves with the right partners. We have collaborated with organizations in the design, technology and #FinTech communities to explore unique opportunities and to change the way people feel about the future of banking. That’s why Scotiabank is partnering with a number of leading technology groups such as Georgian Partners, QED Investors, and Kabbage, and academic institutions including OCAD U, Ivey Business School, MaRS, Queen’s University, Rotman School of Management, Ladies Learning Code and more.
4. The Digital Factory Space has been designed to maximize collaboration. The space is a techie haven, completely outfitted with everything you’d need from an inspiring workspace. It’s a space that has been thought out; a technology-forward design enabling scrum teams across the bank’s footprint to work together. In fact, all resident desks are sit-stand, and monitors include single connection for PC, Mac, and double monitor. We also recognize the need for balance. There’s a cafeteria onsite that serves many healthy food options, a gym with instructor-led classes and a health consultant onsite. There’s various team building zones in the facility including a games tables and even a bowling alley!
5. You do not require banking experience to work here. The Digital Factory is currently recruiting for dozens of roles – product managers, front and back end developers, designers, agile scrum masters and many more. In fact, we are looking for people with non-traditional backgrounds to continue to build a diverse and strong team as possible.
About the Digital Factory:
The Digital Factory is a hub for creation and incubation of new and partner-led ideas to deliver game-changing solutions for Scotiabank customers. The Digital Factories are a cornerstone of Scotiabank’s digital transformation, and are focused on reinventing how banking serves people by first reinventing the way we work.
is Recruitment Lead at Digital Factory
In early 2016, as part of the London Market Target Operating Model Programme (see http://isupporttom.london for details), an initiative began to investigate #blockchain and the opportunity for its adoption in the London Commercial Insurance Market.
When the work started there was limited knowledge (or even awareness) of blockchain across the market and there were, to the best of the author’s knowledge, no active investigation into the #technology by the community.
The intention of the initiative was to increase awareness in the market, generate support for exploring the opportunity, with representation from the broking and underwriting community, and to learn more about it.
A series of Proof of Concept’s (POC’s) were undertaken to explore the use of blockchain – using business processes that provided representative use cases. These were used to validate that it could provide an alternative approach and to explore what benefits it could offer. Additionally, independent research by Z/Yen was commissioned to investigate the potential of smart contracts for wholesale insurance.
It was very timely that, on the same day as the 3rd London Blockchain Week began, a series of reports about the work undertaken were published. Details can be found here.
is Managing Director at Distlytics Ltd
As it turns out, this past week was the wrong week to quit sniffing glue. You will be mistaken if you think I am alluding to various political gatherings that occurred first in the United States then all over the world. Nothing could be further from my mind. Of course I am alluding to the itsy-bitsy bit of news the Telegraph planted in this article. And before you believe I allude to the momentous piece of news where we learn President Trump refers to Prime Minister May as “my Maggie”, then you shall have to guess again.
Let me put you out of your misery. I am referring to the &8220;#passporting&8221; system bombshell, and no, I am not referring to the EU passporting system. Let me put me out of my misery. I am referring to the US-UK passporting system bombshell, and I quote the Telegraph: &8220;Donald Trip is planning a new deal for Britain… The historic trip comes as: – A deal to reduce barriers between American and British #banks through a new &8220;passporting&8221; system was considered by Mr Trump’s team&8230;&8221;
Try that #gambit on for size.
I did and the thoughts swirling in my mind at the speed of light ended up making me dizzy.
First, given this is the Telegraph, I discounted the possibility of fake news. Second, we all know Trump has not been tender with the EU, so the possibility of sticking it to European countries by weakening them and creating further uncertainty cannot be discounted entirely. Third, Trump has now put the world on notice we have entered a new era of bilateral deals and America first, and a special deal with the UK, on the back of the Brexit vote and what can only be tense negotiations with the EU certainly fits the bill. Fourth, such a passporting system may benefit US banks in light of the threat Brexit poses them by coupling London and NYC as capital markets brethren &8211; do note that several Trump nominees are former Goldman Sachs partners, most notably the Treasury Secretary nominee. Fifth, the US and EU have had recent trade disagreements, notably around the safe harbor agreement on overseas data transfers, thusly a banking passporting system threat may be a useful bargaining chip with the EU in the near future. Sixth, any weakening of the EU may further Trump&8217;s plan for rapprochement with Russia &8211; arguably the UK &8220;elite&8221; is not on the same wavelength. Seventh, we may be witnessing a Trump judo move aimed at softening the EU intransigent stance and, indirectly, secure more favorable Brexit terms for the UK, especially for the financial services industry &8211; this would indeed be masterful. Eighth, could this move be part of the upcoming currency wars &8211; surely this piece of news has the potential of strengthening the pound and weakening the Euro this coming week. I am sure we can come up with many more potential meta reasons for this move and I am looking forward to your comments and ideas.
Let&8217;s us now switch to more practical matters. How easy would it be to build a financial services passporting system between the US and the UK. Fairly easy on the UK side given there is only one financial regulator, the FCA. Less so on the US side given we are dealing with several federal regulators (the OCC, the Federal Reserve, the FDIC, the CFPB, FinCen to name the main ones) and 50 state regulators on the banking side, as well as 50 state examiners on the insurance side. Quite a complicated landscape. For those who have followed the push back state regulators made recently once the OCC revealed its plans for a #fintech charter, think of the issues raised by a federal level passporting system pushed by the Trump administration. Obviously, we will need to figure out the details of a potential passporting system. Will it cover only banks, and if so apply only to national charters on the US side? Will it cover broker/dealers, asset managers, payments companies and even startups too, let alone insurers? How wide will be the mandate, how deep? The devil will be in the details, as usual.
It is a truism to state that trade deals covering products are &8220;easy&8221; to ink, not so with services and last I checked banks or insurers are in the financial services industry. I am no expert but I suspect current international trade treaties will have to be scrutinized to analyze potential conflicts or limits &8211; to be broken or renegotiated? We should also think of any implication and consequences, intended or not, with Basel III and other global financial services accords.
Further, UK financial regulators have historically had a principles based approach vs the US regulators&8217; rules based one. Two things to note here: a) UK financial regulation is based off of and integrated with EU directives and laws, and b) US regulators have recently toyed with the idea of moving towards principles. Be that as it may, it is clear a US-UK deal that includes a passporting system for financial services industry participants will have to wait for the UK to disentangle itself from the EU.
A few other thoughts intrigue me. We all know the FCA&8217;s ground breaking initiative with its approach to fintech and financial innovation in general and its sandbox in particular. If a passporting system allows for a transfer of knowledge and purpose and US regulators espouse new ways to engage with #technology and innovation, then I am all for it &8211; note to all, US regulators abhor the word &8220;sandbox&8221;. As my friend Mariano Belinky from Santander InnoVentures stresses, the US banking market is saturated, certainly so on the retail side. It is also fragmented. The UK banking market is highly concentrated. What would be the consequences of passporting for both markets on the retail side? The US banking market has seen few if not any new banking licenses granted of late. New entrants spur innovation and competitions is, in my opinion, somewhat stale in the US. On the other hand, the FCA has now allowed a certain number of challenger banks in the UK to foster innovation and enable competition. If another byproduct of passporting means the US shores will see more challenger banks, I am all for it. Finally, if passporting talks usher an era of simplification and integration between US regulators, as well as be the impetus for global regulatory rethinking, then I will become a huge fan &8211; London+NYC is a rather formidable financial services axis. The deregulation touted by Trump may not be enough alone to usher a new regulatory era in the US. Add a new alliance to the anticipated demise of Dodd Frank and all bets are off. On the other hand, I wonder if the FCA is or will be a champion of deregulation for deregulation&8217;s sake. If smart deregulation ends up permeating both sides of the Atlantic while speaking a different but common language &8211; regulatory and linguistically speaking &8211; then I am all for it.
Be that as it may, and we need to be cautious given we know so little, we can say the possibilities are as endless as the volatility created by this announcement is high. On the other hand, this may turn out to be one of many crazy ideas without a future. Welcome to a fascinating 4 years trip.
Juan Benitez, general manager and chief #technology officer of #Braintree, a PayPal subsidiary, will participate in a #fireside #chat at #Bank #Innovation #2017. Bank Innovation 2017, March 6-7 in San Jose, Calif., will feature dozens of speakers on investing in innovation, chatbots, open banking ecosystems, #blockchain and more. Benitez has been CTORead More
Professionals in the financial services #industry are focusing their energy on #regulation and #data #management, according to a survey from consulting firm and #technology services provider Synechron. Financial regulation remains the top concern for the new year among those in the financial industry, with 38% of the firms surveyed markingRead More
There are many nitty gritty problems that need solving in the financial services industry. #Technology, common sense, thoughtful regulation and new business models will address these over time.
There are also complex problems, bigly ones, that will require either deceptively simple solutions and/or intricate collaboration among many stakeholders.
I invest in solutions that address either, depending on scale and economics, and am passionate about the latter.
Here is a non-exhaustive list of solutions that address complex solutions which I am passionate about.
1) Low cost reliable banking: We know many consumers are underbanked, non banked or unhappy with their #banks. We still have not cracked the code for low cost reliable banking. I have invested in neo banks as well as digital startup banks in the UK. I still think there is much to do in this field and am interested in digital startup banks in the US to foster further competition and usher new simple licensed banking business models. I am equally interested in retail and SME low cost banking models.
2) New core banking/insurance systems: There are no new core banking systems in use by banks, same with insurers. This is a technology anomaly in need of being rectified. What with new technologies, new needs centered around data analytics, edge computing on the horizon and interoperability, we are in dire need of new core systems that are low cost to develop and low cost to maintain. I am keenly interested in open source initiatives in this space as a means to unlock this major issue.
3) Open Source financial technology: This is linked to the above core banking systems item. The power of open source software is tremendous. We see it with #blockchain technology, we see it with AI. Developing business models around open sourcing of basic code that powers financial services will deliver untold riches.
4) Bank as a Service platforms: I have written about this subject extensively. My interest lies in technology platforms that will drive the marginal cost of delivering a set of financial services or products to near zero. One can argue this is linked to points 2 & 3 above. (I need to think about Insurance as a Service).
5) Low cost savings platforms for the US: The 401K market is woefully inefficient, fees are too high, the value chain is too sclerotic. A new cheaper 401K platform would be ideal, but maybe there is a need for a new product altogether which would need legislative & regulatory nudges. Either way this is a massive investment opportunity in the US.
6) Secure micro payments platforms: There are no inexpensive and secure micro payments solutions for either digital goods & services, person to machine or machine to machine interactions. I do not see credit or debit card rails addressing this need. Maybe new models built off of Ethereum, maybe something else?
7) Regtech as a Service platforms: I believe regtech solutions will still be needed going forward for certain use cases even if we move towards a financial deregulation era. I do not believe in the viability of point solutions in regtech. I also do not believe one vendor will be able to provide a best of breed portfolio approach – the needs are too heterogenous, the technologies too varied. Hence, applying the concept of Bank as a Service to Regtech as a Service, with platforms that allow demand to meet supply in a frictionless way will be winners.
8) Digital Identity solutions: We live more of our lives digitally, we buy, sell, interact with one another, on social media platforms, on mobile apps. Our data is insecure, our payment data is insecure and our identities are are nightmare to manage. Comprehensive digital identity solutions that allow us to build trust, interact with one another and with companies, while securing our data and our privacy will emerge. I am keen to participate and collaborate with the winners in this space. Incidentally, I am equally interested in digital identities for things and for enterprises. Whoever cracks this space will have a very large success on their hands.
9) Data Marketplaces: By that I mean data marketplaces to monetize financial services data whereby at least one stakeholder (the seller or the buyer) needs a very different level of assurance with regards to data privacy & financial regulation. If we are enterting the digital age, and if data is a key ingredient of that age, then ways to monetize, exchange, buy, sell data that is tied to the financial service industries will be big businesses. Think the NYSE or NASDAQ, but for data and data sets.
10) House Purchasing/Renting platforms: Face it, buying or renting a home is a pain. It is a pain to show you are a good tenant, and it is a pain to secure a mortgage. There are many documents to procure, many signatures to make, many steps to go through, much due diligence on the buyer/tenant and seller/landlord side for buying/renting. Any solution that helps make the experience a delight, with little friction and with embedded financial services/products is a winner.
11) Cybersecurity insurance: Nascent space for sure, with lack of understanding of the risks. I dream of a marriage of reason between a insurtech startup and a cybersecurity consulting firm, backed by a forward thinking reinsurer. Definitely interested in exploring this space, especially knowing about the untold risks of IoT security or lack thereof.
12) Securitization markets for insurance: Admittedly I know little about this space, but the potential for pooling risk, segmenting risk, providing liquidity to certain asset classes seems rather interesting. Big problem to solve, bigger opportunity.
13) On demand micro insurance platforms: Mostly for retail, tailored for new usages of any type of asset, or new behaviors &8211; gig economy or otherwise &8211; on the fly. We have barely scratched the surface on this one.
14) Specialized Climate *Change* Insurance platforms: For farming in developed or emerging markets for example. Enough said.
Let me know about what makes you tick and which solutions/problems in financial services should be tackled.
ps: I have several other pipe dreams that are not as investable as the above, the main one being digital fiat currencies (physical fiat be gone). Maybe the subject for another post.
pps: Even though I am bullish on enabling technologies &8211; AR/VR, blockchain, AI, advanced data analytics, quantum computing &8211; I have not focused on these in this post, believing any of the above will be powered by one or several of them, hence my agnosticism.