Browsing new #startups is so much fun—new companies pop up every day, so there’s always a chance to discover that one description of a newly funded startup’s goals that makes you say, “Why didn’t I think of that?” With that in mind, here are three startups you should keep yourRead More
Bank Innovation
With less than a month to go before its #launch, momentum is continuing to build around the anonymous #cryptocurrency #Zcash.
The United Arab Emirates city of #Dubai has announced plans to move all of its #government #documents to a #blockchain by #2020.
Online retail giant and upstart #blockchain innovator #Overstock has begun working to build its own blockchain #consortium.
The #Sydney #Stock #Exchange has successfully prototyped a #blockchain for equity securities.
Image source This #week is all about #Wearables. This is part of a series where we look at impact of different disruptive technologies on Finance. In the past we have covered #Blockchain, Artificial Intelligence, Regtech, Chatbots and XBRL. Today is a background briefing on the #technology and its broader implications.Read More
Bank Innovation
Can you imagine the reaction of a bank employee if one morning he reads this headline?
In the spring of 2010 I polled the students of the Master of Finance about how many of them would rather work for Google instead of a bank. Survey results: 5%. Last Friday I have made the same question for the current group. Survey results: 96%.
Despite the efforts to adapt traditional business to the rapidly changing world, the truth of the matter is that dominant players today are mostly new ones: Apple and Spotify control the music distribution versus Sony and Virgin; Amazon Kindle and Apple iBooks control book distribution; Uber controls taxi industry; Skype and WeChat control phone calls market; Amazon and Alibaba control retail vs Walmart or Best Buy; WhatsApp controls messaging space vs AT&T or Telefonica.
Not so well-known as the above, Yu´e Bao, the money market fund of Alipay (Alibaba) is the largest fund (USD 100 billion approx) in its category in China vs Commercial Bank of China (ICBC), China Construction Bank or Bank of China. In fact, Yu´e Bao can be considered as the most successful mobile #banking product in the world. There is no minimum amount, and customers can withdraw their cash anytime. Yu’e Bao now has more investors than China’s equity markets.
This is only the tip of the iceberg regarding changes in the financial services industry.
The hardest thing to change in a corporation is not the tech system but its #culture. The technical side is relative easy to solve: hire a full Silicon Valley team and make it from scratch. But how easy it is to change the culture of +100k employees?
Executives underestimate how hard it can be to drive people out of their comfort zones.
The real issue is the status quo of the current employees. What does a successful digital banking #transformation mean? It means that in two years you will not need 50-70% of the employees, nor todays countless committees. And what is the conclusion if you have an unsatisfactory digital banking transformation? Probably the bank will be closed in five-ten years and you will have to fire 90% of the employees. So, for the 50-70% of the current employees, the best option is the status quo, as probably they will maintain their comfort zone for their next working years.
• Risk Building/ Failure tolerance.
• Pilot projects rather than large initiatives.
• Hire for culture fit ahead of tech fit.
• Drive scalable learning.
Citigroup has invested in Betterment, Santander in Ripple, BBVA in Simple, etc. In an acquisition the buyer transmits the culture to the acquired company. Even more when the buyer has +100k employees and the acquired has less than 300. If you want to take advantage of the #fintech culture, you need a process to quickly infuse the cultureof the acquired company into the main operation. If not, at the end of the day what will probably happen is that 300 employees adopt the bank culture, or end up leaving the company.
Basically there are three tools for the digital transformation: the People, the Strategy and the Execution.
It´s rare that originality comes from insiders, especially when they are as entrenched and comfortable as the financial services industry.
Just a reflection about how to attract talent at scale: Would you go to Silicon Valley? What is the replacement cost there competing with Google, Apple, etc.? What would be that cost in places like Mexico or Colombia? I can ensure that Mexican and Colombian engineers have the same or even better knowledge than their neighbors. Some tech funds are moving from India to Bogota! Yes you read correctly, Bogota!
Any of the employees should know to answer two simple questions:
First of all, you need to make everybody feel uncomfortable with the status quo. That does not mean a general employment reduction, nor to maintain every employee.
Success in your digital transformation requires addressing three areas:
Then bring passion for execution for all the crew; this is a heroic trip, you will invent the future of banking. You and your team will not want to work in Google but become the “Google Bank”.
#Banks can play a defensive or an attack digital transformation strategy. The ones that play a defensive game will be probably bid by Google´s Larry Page…at distressed levels…
@Quesada_Vicente
*Headline names have been chosen randomly, with no other intention than drawing the attention.
Note: This is a third article about Digital Banking Transformation. For further details:
“Digital Banking Transformation: BBVA vs. Banco Santander”
“Disruptive Mentality in Banking”
[linkedinbadge URL=”https://www.linkedin.com/in/vicentequesada” connections=”off” mode=”icon” liname=”Vicente Quesada”] is Entrepreneur. Investor. Professor. Transformation Catalyst
#Blockchain #startup #Factom has raised a $ 4.2m in new funding as part of a newly announced #Series A.
Wow, what a #week! Daily #Fintech is delighted to share with you 10 takeaways from #SIBOS and 7 insights directly from Palexpo. You can catch up on these conversations at your own convenience and add from your own takeaways on the Fintech Genome. From our curated research, we shared twoRead More
Bank Innovation
Two weeks ago, we reviewed the fast-developing world of real-time #payments. Since then, NACHA launched Phase 1 of its same-day ACH program, activating same-day credit transfers. We have also had further activity in the space, as Citi joined ClearXchange. (Note: I understand that none of these systems are true “real-time,” but that is the terminology that has stuck, so we will use it. A more accurate term would be “same-day payments” or the UK’s “Faster Payments”)
The real-time payments landscape is becoming more complex. By my count, we now have at least 7 major systems competing, with more on the way:
The first six systems are built on existing rails, either card or ACH or e-check, and bank support has been mandated. That is not to say that consumers can actually use them; in most cases, the user interfaces have not been built, or are in the process of being built. That’s what I mean when I refer to PayPal and Venmo as (sort of) faster payments; they act like real-time systems for certain use cases, but integration with the underlying funds transfer mechanisms is not yet seamless. This is why the recent announcements of integrations with Mastercard Send and Visa Direct that I discussed two weeks ago are important.
This is definitely a case of too much of a good thing, and I’m sure I’ve missed some important players. What are the terms of competition here, and where should #banks be placing their bets?
I think it’s helpful to think of the market in terms of layers, like this:
The top layer is what the end user sees, and might be a digital wallet like PayPal, or a mobile wallet like Apple Pay, or an app, or a web form or button on a web page that interacts with a cookie in the browser. Its purpose is to collect information about what payment the user wants to make.
Next in the stack is a routing and directory layer. The job of this layer is to find the “best” route for the payment to take, based on the options available. The answer to this question will depend on several factors:
Note that settlement is not typically going to be a factor here; I am assuming that any consumer-grade real-time payments service will in fact be using net settlement at regular intervals throughout the day, with ultimate money movement occurring over a real-time gross settlement system (RTGS) like Fedwire. This is how faster payment systems like the one in the UK are architected.
Parenthetical for those not familiar with the terms “net” and “gross” settlement: gross settlement is what most people think of when they think of a payment. A certain amount of money is taken out of one account, and is put into another account. Net settlement is a system where you record all the transfers out (debits) and the transfers in (credits) for each account, and sum them up periodically. This is more efficient, because a typical account will have both debits and credits over a period of time, and rather than settle each one individually, you can do them all as a batch. For example, suppose that you get paid $1,000, and you pay bills in the amount of $100, $200, and $300. The bank could do four separate settlements, or it could bundle them together and pay you the net amount: $1,000 in credits minus $600 in debits, or $400. Since each transfer costs about 79 cents, the savings really add up when you are talking about thousands of transactions.
The frequency of net settlement itself depends on how much risk can be tolerated by the system. As credits and debits accumulate, exposure grows, until net settlement occurs and balances are reset to zero. Authorizing a transaction by checking available balances will be an important feature for a real-time system to have; otherwise, the risk of a non-sufficient funds (NSF) event is greater. Gross settlement risk is usually covered by prefunding reserve accounts.
Any faster payments system can emulate true real-time performance by posting immediately and taking some risk that the net settlement phase will return some exceptions. This is essentially what the credit and debit card systems do, which is why they appear to operate in real-time at the point of sale (and also one of the big reasons they charge so much for interchange).
This sounds like a good job for a payments hub, and it seems to me that payment hubs are going to be in greater demand very shortly. Banks, processors, and wallets will all need ways to pick from a plethora of options using a range of criteria, and a payment hub is the best way to do that.
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