JPMorgan #Chase is winning the #mobile game. Bank of America held its second-quarter earnings call today, and was the last of the nation’s largest #banks to do so. Mobile is of interest on bank earnings calls primarily as a cost-saving measure, as digital customers are less expensive to serve. For instance,Read More
Bank Innovation
The panel will frame appropriate regulatory responses to enhance #FinTech opportunities and manage risks.
FinTech – Finance Magnates | Financial and business news
Despite holding the vast majority of the world’s wealth (or perhaps because of that), #banks aren&8217;t exactly hotbeds of cutting-edge tech, often relying on decades-old systems for everyday tasks. ThoughtMachine, a company led by ex-Google engineer Paul Taylor, is looking to change that with a modern, fully integrated, #blockchain-based #banking operating system called #Vault OS. Read More
Despite holding the vast majority of the world’s wealth (or perhaps because of that), #banks aren&8217;t exactly hotbeds of cutting-edge tech, often relying on decades-old systems for everyday tasks. ThoughtMachine, a company led by ex-Google engineer Paul Taylor, is looking to change that with a modern, fully integrated, #blockchain-based #banking operating system called #Vault OS. Read More
We started the #week with the main takeaways from the Swiss International finance forum&160;after hearing from UBS, Blackrock, FINMA and Ian Goldin. We initiated a landscape report of #Fintechs using&160;#sentiment analysis in the East and Europe. The US will follow next week. The&160;#Open #Data issue is really a double edge sword, especially for #banks. Some thoughts…Read more #Wrap of Week #27:&160;Swiss #Fintech #conference, Sentiment Fintechs, Open Data in #banking, #InsurTech #Winners, #Blockchain&160;#pitchathon
Bank Innovation
#Credit #Suisse has released a #report on the Swiss financial center in which it points out the key #trends and #technologies that are #changing #banking.
The report, entitled ‘Swiss Financial Center 2016,’ addresses the ongoing changes occurring in the financial service industry worldwide.
The Internet is changing the behavior of bank clients. Meanwhile innovative startups are coming up with new business models and cutting-edge technologies to change the way we manage our money.
During the past two years, interest in #fintech has increased massively, becoming a dominant buzzword in the financial industry.
“Digitalization in the financial sector will change banking,” the report says. Notably, digital transfers and payments transactions provide an attractive alternative to cash payments as they can be generated via smartphone apps.
In retail banking, online processing of banking activities is providing greater convenience and flexibility to clients.
Personal financial management (PFM) applications give clients an overview of their personal assets, current income and spending. They generate analysis and recommendations for personal budgeting.
Trading and advisory platforms enable users to access stock exchange trading. These platforms also analyze client portfolios using algorithms and generate automated investment recommendations. #Robo-advisors are also used in private banking, complementing the work of client advisors.
Robo-advisors are increasing in popularity in the private banking segment, and their advantages are clear: they are low-cost, can be used in a multitude of areas, have access to huge databases and are on call 24 hours a day.
In credit operations and capital markets, new products are enabling users to avoid financial intermediaries. On these platforms investors and borrowers come into direct contact with one another. These platforms are for instance crowdfunding and peer-to-peer lendings platforms.
Virtual currencies are an alternative means of payment to national currencies. #Bitcoin for instance enables users to make payments directly to one another, without using the services of a bank or other middleman.
Digital support, also known as regtech, promotes the implementation of regulations and helps ensure that risk analysis of unstructured data, scenario analysis and monitoring activities are organized more efficiently.
&8220;The new technologies in the financial arena will lead to a rationalization of processes in the banking sector in the years ahead and due to the strengthening of the client&8217;s position are set to alter the client/bank relationship on a lasting basis,&8221; the report says.
Another #technology that plays a significant role within fintech is #blockchain technology, which the report claims has &8220;the potential to fundamentally change the financial industry.&8221;
It details:
&8220;Blockchain gained recognition above all thanks to the #cryptocurrency Bitcoin. However, its area of use is not just confined to digital currencies.
&8220;Indeed in principle the technology can be applied to a very wide range of areas: For example, the US Nasdaq stock exchange has introduced a trading platform based on blockchain.
&8220;It is conceivable that blockchain technology will replace clearing houses in securities trading. But in the art and diamond trade too, blockchain has the potential to make forgeries and the sale of stolen goods more difficult.&8221;
The report points out the conditions for the successful integration of digitalization into the business world. First, there must be a state-of-the-art communications infrastructure that meets current requirements. Then, the growing importance of the MINT (mathematics, IT, natural sciences and technology) subject must be addressed in order to ensure that businesses located in Switzerland can recruit the specialist personnel they need. Finally, overall regulatory conditions must be adapted to the new requirements.
It further advises on the formation of clusters of various different economic sectors, citing the example of Silicon Valley.
&8220;Switzerland is well placed with economic centers that are located in close proximity to one another such as Zurich (financial services, industry), Basel (pharmaceuticals, chemicals) and Geneva (financial services, commodities),&8221; the report notes.
For Switzerland to keep its position as a world leading financial center, there much be a number of actions to be undertaken by the public sector and the private sector. It suggests regular reviews and modification of existing overall regulatory conditions to facilitate new business models, as well as the creation of a recognized &8220;Digital Switzerland&8221; umbrella brand to improve external perceptions. Other ideas include launching sector initiative to encourage digitalization, adapting existing business models and services to the digital reality, as well as networking with other sectors to achieve scale effects.
Featured image by everything possible, via Shutterstock.com.
The post Credit Suisse Report Names Technologies Trends Changing Banking appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
What I heard at the Swiss International Finance Forum Last week I attended the Swiss International Finance Forum organized by NZZ konferenzen and with a theme “#Back to #growth”. Sergio Ermotti, CEO of UBS reminded the audience that all the &8220;Regulations that are killing us&8221; (us the regulated #banks) have succeeded in reducing the systemic…Read more Back to growth #despite the triple-witching in #banking & with a AAA #regulatory #recipe
Bank Innovation
The introduction of new technologies has facilitated new consumer and customer behaviors. These new behaviors have facilitated the adoption of new technologies. The resulting virtuous circle has ushered a period of rapid change which has profoundly change one industry after another. Industry incumbents have had to face a new reality where vertical integration, a fancy word for “owning the entire value chain” has turned into a liability. Indeed, the virtuous circle I mention has allowed new competitors to deliver value at one point of the value chain, without owning the entire value chain. Take the media and entertainment industries as an example. It used to be that “content was king” and “pipes were dumb”. Based on these heuristics Hollywood studios ruled over an entire value chain and were comfortable living in a world where the only thing they needed to do was to deliver their content to movie theaters. This is no longer true. Even though original content still rules, pipes are not dumb anymore. Pipes are actually smart, and that are built on top of platform strategies. Content is important, but so is how you create content, how you deliver it, with what and to whom, how you measure how it is delivered, plus the balkanization of communities of users make it eminently more difficult for a vertically integrated entertainment business to remain at the top of the food chain without profound changes. Witness the rise of Netflix, Amazon with their different value propositions around entertainment content and compare to how the main Hollywood studios are armed for the future.
The financial services industry in general, and the #banking industry in particular are now faced with the same tectonic changes other industries have faced. For #banks, this is an even more perilous exercise as most of them have never faced a breakdown of their value chain in the past and have enjoyed “near” monopoly in their geographies thanks to accommodating regulatory frameworks.
For simplicity’s sake, I break down a bank’s business into four layers (borrowing from a Boston Consulting Group framework):
Yesterday’s bank owned each layer. Clients dutifully visited their branches or relationship managers to consume products created by their bank which were delivered by the infrastructure owned by the same bank.
To the extent that banks faced competition it was from another bank which also owned its entire vertical stack end to end, which was operating in the same geography. Oligarch banks ruled.
Today’s bank is under threat at each layer of its stack instead which makes for a much more complex competitive landscape.
First, clients spend more time somewhere else than with a bank. We all know the relative decline of branches. Not only are retail consumers not visiting their branches as much as they used to, but they are also increasingly spending time in completely different ecosystems than in the past; communities where a local bank relationship manager has little leverage if any. These ecosystems are called Facebook, Google, Amazon, WhatsApp, Snapchat, Instagram, Pinterest. (Even though such change is not as pronounced with SME and enterprise clients, there is also change with these segments.) Second clients are used to a different customer experience based on the service they are getting from these digital communities, thereby making bank web apps and mobile apps always play catch up. In other words, clients are moving banks, and bank customer interfaces are under threat. Third, products are under threat although we have to nuance this statement and look at lending separate from the rest. Let’s look at the rest first. Accounts are being loosened from the tight grip of Mr Banker – PSD2 in Europe, the open bank initiative in the UK will take care of that – allowing, under consent, third party access to account data and meta data. Payments is experiencing the highest level of competition given it has the lowest barrier to entry, either from #fintech startups endogenous to the industry, new entrants exogenous to the industry (Amazon, Apple, Google, Facebook) or grown up startups (PayPal). Brokerage and Investments are prone to the same opening to multi-competition. This leaves us with lending which I believe should be analyzed completely differently than the rest because no one will ever be able to come up with a “zero marginal cost” lending product. Indeed, the cost of borrowing is comprised of the bank’s cost of borrowing and a margin to compensate for risk and provide adequate profit. That cost will never scale to zero or near zero. This, in my view is the main reason why lending will never experience an “Uber” moment where banks will be completely disintermediated – further, think of the unintended negative consequences of a massively large lender for example – whereas the main cost of the “rest” is that of delivery and marginal cost of delivery can and should be driven down to near zero. Fourth, infrastructure is where there has been to date the least disruption and competition, notably around core banking systems and CRM, even though #blockchain #technology holds the promise of much change in asset servicing.
To date the overwhelming number of competitors attacking the above layers have not been successful. Fintech startups focused on investments (#robo advisory), brokerage, lending have not reached escape velocity and acquired meaningful market share to the detriment of banks. Some pundits believe it is because banks have much more defensible business models (regulation, licenses…). Although I do agree most startups have failed so far, I also know not to discount the entrepreneur/startup threat over the long run on the basis of a failed first wave. I am actually paranoid for banks as the overwhelming types of strategies banks have put in place to deal with change are in my opinion either inadequate or short term focused.
Indeed, banks have focused on revenue optimization strategies (pricing, cross selling, upselling, margins) or cost reduction strategies (layoffs, better hardware, better software) by applying concepts (digital banking, API banking, mobile banking, cognitive banking) on existing business models. To the exception of a few banks who recently started working on a platform strategy – which forces them to address the competition they are will face at each of the four layers – all other banks are still in a “vertical integration” paradigm. This will change – the market will force that change, some banks will adapt, other competitors will rise to the challenge.
I view all these bank moves as incremental evolutionary steps, good enough to compete another day, not good enough to reinvent banking drastically. A digital bank – and there are many startup digital banks in the UK for example – is still vertically integrated, even though it holds the promise of being a “better” bank.
Incumbents will have to choose how they want to compete going forward. Below are some of the potential options available:
I have to make several additional comments to tie loose ends.
If the above vision comes to fruition and we do see a segmentation of banking, I fully expect the regulatory and licensing landscape to change. In other words, we will see a new regulatory approach where different types of banking licenses will be issued based on the business model and its implicit and explicit risks to the market and to clients/consumers. Just to give one example, an Interface Bank as an AI powered Virtual Assistant may have to meet certain licensing requirements around providing financial advice to its clients but may not need to comply with lending requirements. To be clear, some fintech startups competing or providing services at each layer level may not require the same type of banking licensing as the Banks that will operate at each layer level.
Further, competition at each layer level forces one to think platform strategy which results in either developing and implementing one’s own platform strategy or becoming one of the building blocks of someone else’s platform strategy. There is no escaping platform strategies.
Additionally, layer specialization, other than with Lending, and I repeat myself here, can deliver very strong network effects enabled buy near zero marginal cost of delivery. This I believe will be in and of itself a revolutionary paradigm for banking.
Finally, the bank that will successfully partner and integrate with ecosystems of users, regardless of the approach taken, will stand a higher chance of success than trying to create their own new communities or continue with existing ones. Like it or not, social networks are here to stay and will take on a greater importance in our lives going forward.
Trying to craft a roadmap for the above vision is tricky. We are in the early innings of platform strategies or API/marketplace strategies for banks and much remains to be done – no one has declared a BaaS for example. I venture that we shall see increased activity along these vectors in the #next 5 years – the actions of Facebook, Google, Amazon, Apple, Alibaba (and Snapchat, Instagram, WhatsApp, WeChat….) will make that absolutely inevitable. Incumbents may also naturally gravitate towards a few of the six options I laid out above &8211; either as a result of further divestitures, acquisitions or mergers &8211; leaving space for new entrants (large tech companies, fintech startups). In other words, the industry is large enough to see various participants succeed and avoid a banks lose, new entrants wine scenario, or vice versa.
Last parting thought. I strongly believe the above also applies to the insurance industry &8211; with the appropriate tweaks.
The lingo of personal finance is rapidly changing. Mint has replaced our nagging parents and significant others who think our spending is out of control. Wealthfront and Betterment took away our personal wealth managers. Heck, we don’t even have to go to a bank anymore to get a loan with SoFi or Lending Club. Since 2013, CEO Diwakar Choubey and his team have been developing #MoneyLion… Read More
As the #ethereum community debates a #hard #fork option to undo the losses sustained by The DAO, ANZ is questioning the credibility of its #blockchain.
fintech techcrunch
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