Quite a few #fintech ventures received funding this week; though perhaps surprisingly #blockchain is not an area featured on this list—perhaps with all of the recent blockchain proof-of-concepts that are running, investors and angels thought it was time to take a stronger look at artificial intelligence, big #data, and otherRead More
Bank Innovation
The #fintech sector is being shaped by shifting market conditions, new regulations, and #changes in consumer demands and behaviors.
McKinsey Insights & Publications
We know the next POTUS but we do not necessarily know what his policies will be at a granular level, although we know some of his pronouncements at a high and vague level. I will refrain from passing judgement on some of Trump’s promises, how he managed his campaign, some of his specific messages and the various forces that helped him get elected, such is not my purpose with this post.
We know, for example, that part of Trump&8217;s platform is to create more US based jobs, which he intends to do partly via tax cuts, partly via the renegotiation of trade deals and potentially erecting trade tariffs, partly via smart infrastructure spending and partly via deregulation.
Without going into budgetary and economics details, a combination of tax cuts and increased infrastructure spending sure looks to me like a recipe for larger federal deficits, i.e. more government borrowing and the potential for inflation. Indeed, financial markets expect just that as the yield curve started steepening with long term rates spiking up immediately after the election.
Bank stocks also rose after the election, which is great news for bank investors as well as bankers. I believe this can be explained by two factors: the first being renewed expected inflation which I just explained and the second being potential deregulation. The former seems a foregone conclusion, the latter needs further examination.
Trump is no fan of regulation and has stated it on many occasions. We should expect many federal initiatives to be toned down, de-fanged or outright destroyed, based on how POTUS and Congress will collaborate. Think of the EPA, the Clean Air Act, Obamacare as being in the immediate line of fire. Trump has also indicated he is no fan of financial regulation, although his pronouncements have been less clear, and we have heard pundit chatter focused on repealing Dodd Frank in whole or in part – the Volcker rule comes to mind &8211; or even bringing back Glass Steagall. He also has stated he is no fan of the current Fed Chair. Further, some of Trump&8217;s supporters have also publicly criticized the recent DOL fiduciary rule intended for the asset management industry or their profound dislike for the CFPB. I am sure I am missing other financial regulatory flash points. At the same time, Trump needs to fill many positions for his incoming administration and the rumor mill is already hard at work, with industry insiders and/or lobbyists names being circulated to help with the transition effort or as outright candidates for prominent positions.
I venture that the complex system that is Trump&8217;s vision and gut decisions on the one hand, his transition team on the other hand, and the influences both will be subjected to will flesh out exactly how populist the Trump administration will be or how friendly to the private sector, financial services firms included. Let&8217;s take one example: the CFPB is one of the few entities that has battled #banks&8217; wrongdoings. We also know that banks are still deeply unpopular due to their role in the great recession. Will a Trump administration rein in the CFPB and in so doing risk alienating part of their electoral base which is surely not pro-banks. As far as this example is concerned I sense a tension between Trump and his inner circle and a Republican Congress and Wall Street. In other words, how will “drain the swamp” will be interpreted and applied. The same lens can be applied to all other financial regulations which are deeply unpopular with the Republican establishment but may be interpreted as rightful banker punishment by the electorate.
Be that as it may and given that the Trump administration will be busy with dismantling other regulations and that the DOJ may be focused on other targets than the financial services industry &8211; based on Trump&8217;s goals &8211; it is safe to say that in the most benign case, financial regulation will not increase and enforcement will move into neutral, essentially hitting the pause button, or in the most extreme case, deregulation will be actively sought. In either case, financial institutions will breathe a sigh of relief &8211; small win vs major win &8211; and will enjoy the fruits of renewed inflation expectations. Indeed, the more reliable story here is that of rising interest rates, obviously far out on the yield curve &8211; this has already happened and will continue to happen I believe &8211; and at some point also with short term maturities when the Fed will stop signaling and start raising. Even more so if the Fed Chair is replaced?
Rising interest rates is good for banks bottom lines. A fatter net interest income does wonders to the income statement and return on equity. The important question here is whether renewed profitability will halt further digitization of the industry or further enable it? Will #fintech suffer or go from strength to strength? Will banks, which have resisted change up to only recently, use the excuse of increased profits to stop investing or collaborating in/with startups, stop rolling out ambitious innovation plans and return to a conservative stance? I suspect that in the aggregate the answer may be yes, the more so if return to profitability is swift and material. I also expect leaders to accelerate their plans to reinvent themselves, knowing that secular trends are too important to ignore and that tech giants are the real threat. Thusly a relative retrenching of US fintech related investments may be expected &8211; arguably a continuation from the recent retrenchment &8211; especially in the direct to consumer space. I also expect the third fintech wave to accelerate: deeper digitization via the adoption of enabling technologies sold to incumbents by new b2b startups.
This aggregate vision gives us only partial clarity though. What will be the impact within the fintech sector?
Banks have a natural competitive advantage against alternative lenders or marketplace lenders. In a low interest rate environment this competitive advantage was blunted. In a rising interest rate environment this competitive advantage will be used with ruthless efficiency. Thusly, I expect fintech startups in the lending space to come under pressure &8211; natural outcomes would be further bank collaboration, mergers between alt lenders, acquisitions by incumbents and the inevitable bankruptcies of the weaker platforms. Should regulatory pressure on lending practices abate, this will further strengthen banks. Either way I expect banks to increase their domestic lending activities.
From a capital markets perspective &8211; and to some extent in asset management too &8211; less enforcement actions coupled with potential outright repeal of complex legislation or regulation and the introduction of simpler frameworks will reduce compliance pressure as well as regulatory dislocation. From that perspective some regtech business models may end up having a hard time finding traction. What is clear though is that any regtech solution focused on fighting fraud, illegal activities, tightening AML/KYC and identity verification as well as strengthening security and cybersecurity will remain strong given the broad consensus towards doing more rather than less in that space.
Based on my current understanding, I think the net effect of Trump administration will be neutral for the insurance sector and insurtech &8211; not including health care obviously. I do not have enough data points though so I might be completely off the mark.
We also must deal with the payments sector. Considering an extreme deregulation scenario, might we see further changes targeted at interchange fees, on the credit card side, or more particularly on the debit card side? One cannot discount this entirely &8211; again think of the interaction between a Republican Congress and President Trump. Needless to say that payments solutions that address infrastructure spending, directly or indirectly, will be potential winners. Incumbent cross border solutions that process or finance trade may be hit by a populist Trump bent on renegotiating trade deals and starting a tariffs war &8211; trade finance or supply chain finance platforms come to mind given they cater to onshore/offshore manufacturing/trade value chains.
Switching back to higher level concerns, we should also keep in mind the potential for a global recession. Should the actions and choices of the Trump administration hurt the US economy and via domino effects trigger a deep recession, the financial services industry will be the first to be hurt: weak $ , lower growth, less payments to process, less investments to make, less lending, increased risk. &8220;Mainstream&8221; fintech would definitely suffer if this were to happen. I believe this to be a remote event but one cannot discount it entirely.
Based on the last two points, it is therefore logical to infer that cryptocurrencies, #blockchain solutions and #bitcoin in particular &8211; due to their disintermediated nature &8211; may become even more attractive as alternative modes of payments, stores of value and means to build new exchange rails; whether new policies have a benign negative effect and especially whether we head towards more sever outcomes.
On another note, even though a majority of the tech industry did not support Trump, it is hard to imagine his administration being directly hostile to the #technology sector, fintech included, and in so doing hurt job creation &8211; indirect and unintended consequences of supporting &8220;made in USA&8221; and threatening the intricate global supply chains of most tech companies aside. Yet it is far from clear what Trump&8217;s stance is with regards to Silicon Valley and on advanced technologies such as AI, robotics, blockchain, advanced analytics, IoT. Although these have the potential to augment humans, they also have the potential to eliminate them too. How would self driving cars play to his electoral base and his theme of creating mainstream jobs? What about the knowledge economy, the sharing economy, digital natives, digital workers, p2p networks, AI chatbots that would displace bank tellers. All these themes are imbedded in fintech, from payments to helping with lending, to capital allocation, to new financial services.
The above thoughts are focused on US fintech which is somewhat disconnected on the tech side from Europe or Asia. Domestic US payments is a beast in and of itself for example. European or Asian fintech is linked to US fintech via the $ . Should Trump&8217;s impact be a net negative on the $ and reduce confidence in the US economy, I would expect an acceleration towards decoupling away from the $ for international trade, international settlements, international payments. Alternative solutions such as a new basket of currencies, the rise of one to one currency settlements such as Euro-Yuan or in the more extreme case relying on a #cryptocurrency as proxy for a new standard would de facto re-align global financial exchanges in a drastic new way and global fintech business models accordingly.
In summary I see several potential paths:
1) Extreme populism and no material financial deregulation lead to a global recession: fintech startups and financial services incumbents will suffer; crypto currencies and blockchain will get a major boost.
2) Benign populism and some financial deregulation lead to a slight positives and a middle of the road path: some fintech startup models will suffer and financial services incumbents will be stronger, all else being constant.
3) Watered down populism aligned with major financial deregulation lead to strong growth, at least in the short term: financial services incumbents to be the clear winners along with fintech startups tightly aligned with incumbents&8217; needs.
The fact that we are faced with such a divergent array of paths speaks to the unique and quasi-quantum state of Trump as a politician and businessman, exhibiting potentially pragmatic and radical intents simultaneously. I will even go further and state &8211; Nassim Taleb who I respect immensely already made this point &8211; that Trump was the ultimate antifragile candidate and that he may reveal himself to be the ultimate antifragile President. (Antifragility works up to a point, see path 1 above with clear winners and losers.) As such, thinking about fintech investment/operating strategies also need to be antifragile. I have already re-aligned my investment themes accordingly.
Trump&8217;s administration picks as well as the decisions he will make in the first 100 days in office will enlighten us as to which is the most likely.
The #robo-advisory #model is at a #tipping #point with all current players needing further development if the robo concept is to prove long-lasting.
Without further refinement on the part of the individual robo-advisors themselves, a substantial portion of current providers will have difficulties succeeding in the long-term. This is one of the main findings of the #report “Leading Robo-Advisors 2016 &8211; Benchmarking the current automated investment landscape and mapping the road ahead” for which the Swiss research company MyPrivateBanking Research analyzed and ranked 30 leading robo-advisors worldwide.
In their global benchmarking of robo-advisor platforms, the MyPrivateBanking report identifies plenty of examples of good practice at the level of individual functions. However, in the researchers’ view, no providers are yet coming close to offering an end-to-end consistent level of excellence. “We see that most robo-advisors are good at some features, but at the same time missing out completely on other important ones”, say Francis Groves, senior analyst of MyPrivateBanking Research.
“While this was tolerated by clients at the start of the robo-advisor breakthrough, they now demand a top-performance throughout the full process, from comprehensively explaining the services to superior portfolio reporting.”
MyPrivateBanking’s ranking of 30 robo-advisors from 15 countries awarded the highest scores to the these three platforms:
– Schwab Intelligent Portfolios (USA) – exhibiting great strengths in the key areas of product and process information and client assessment plus user experience (43 points out of 60).
&8211; Indexa Capital (Spain) – a good ‘all-rounder’ with a solid performance in all areas (42 points).
&8211; Nutmeg (UK) – Another example of excellent product and process information coupled with being one of the top three providers of investment knowledge and education (42 points).
However, with more than a third of the evaluated firms achieving less than half of the possible points, and the highest scoring robo-advisor scoring slightly less than 75% of the maximum available points, MyPrivateBanking sees considerable room for improvement. In particular the survey identified that there are too many gaps in most robo-advisors’ onboarding processes to guarantee a steady stream of new clients.
MyPrivateBanking’s evaluation covered 43 different criteria and assessed the performance overall including for the robo-advisors’ websites, mobile apps and social media channels. Some of the more troubling key research findings are:
(1) None of the platforms evaluated have yet developed the robo-advisory model of client recruitment to its full potential, with even the best current players leaving out at least one essential component. For example, analysts found that advisors provided either good information about the product and process OR good knowledge content but rarely both.
(2) Client assessment, the highest profile component of robo-advisor onboarding, is generally falling well below a sufficiently rigorous standard. Less than 50% of the evaluated advisors failed to explain the purpose of their questions and only 53% included a comprehensive check on a prospective investor’s attitude toward risk.
(3) A high proportion of the robo-advisors, 23%, are abdicating from the any responsibility for sustaining their own clients’ ongoing investing ‘career’ by the provision of relevant, easily digestible education and knowledge or even, in some cases, providing dedicated social media.
In respect to robo-advisors offered by well-established institutions the MyPrivateBanking analysts identified a tendency of such actors to enter the robo-advisor space for the first time by creating robo mini-sites. These are characterized as one or two page websites, which may or may not be embedded in the institution’s overall web presence, that are clearly not designed to be revisited by signed-up clients.
In MyPrivateBanking ‘s view this is a kind of robo-advisory sub-species that may assist with rapid client onboarding but which does not, on its own, do a lot to foster enduring client-advisor relationships. “We foresee the need for leading institutions to be more radical and wholehearted in their automated investment initiatives in the next few years, even if this means starting over again with a second robo-advisor to replace their first.”
“The pioneer years of robo-advisors have come to the end and the market will separate the wheat from the chaff“, stresses Francis Groves. „Too many automated investment services target the same, growing &8211; but still not sufficient &8211; client segment to nurture all or most of them. Too few of the automated investment services see their platform through the eyes of a first time user, while many are losing sight of the need for sustaining a customer experience that will – ideally – last for years.”
In this report, MyPrivateBanking makes a series of recommendations on the basis of our benchmarking evaluation, among them:
(1) Aiming for transparency is the best policy, especially when presenting the robo-advisor’s pricing and product and process information.
(2) Automated investment platforms need to be subjected to rigorous user experience testing. Looking good is not enough – equally, content must be in-depth.
(3) Robo-advisors risk side-lining themselves if they don’t recognize that clients need financial plans as well as investment portfolios. At least a basic financial planning offer should be considered for inclusion as part of the robo value proposition.
The post New Report: Robo-Advisory Model At a Tipping Point appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
It was a wonderful indian summer day in Boston, Massachusetts back in 1999, sailing boats were battling it out on Charleston River, joggers lined the river #banks, and many a Red Sox fan was silently dreaming and hoping that one day, yes one day, their cursed team may win the world series again.
At the MIT Media Lab — back then, one of the culmination points where all things digital were being research and thought through by a multinational, highly switched on crowd of academics &8212; I had the pleasure to attend a conference labelled “The #Future of #Cars”, where researchers #from different faculties and Research Groups came together with industry representatives to discuss how digital will transform cars and how we will use them in the future.
To be honest, I don’t remember much from that day back then – the one example that sticks in my mind is a research project on intelligent rear-mirrors, that were able to measure objects approaching too fast and warn the driver that someone was approaching his or her car at collision course &8212; a simple algorithm that measured how fast 2D spatial objects increased in size and calcs the speed based on this.
Today, many higher end cars have similar technologies as standard built in. And the #connected car has definitely arrived. How disappointed do I usually get when I step into a rented car and find out I can&8217;t connect my iPhone via Bluetooth and listen to Spotify. Damn, feels like being thrown back into the neolithic ages.
While smart digital systems already assist and take a lot of hassle and bad moments out of the driving experience (and #some fun too, as sporty drivers like to emphasize), we are looking at a even more radical digital transformation of cars in the future. Our recent PwC Strategy& study estimates a revenue potential of >155bn USD by 2022, split across safety, autonomous driving and services delivered in and out of connected cars.
Estimated connected car revenues (and market share) by product package, 2015–22
If ongoing tests and pilots continue to build momentum, we will soon be driving without our hands on the wheel, or even sitting on a backseat enjoying the car basically drive itself from A to B. Of course the car can also inform us of any location specific things we need to know, offer us services and entertainment, or contact the closest garage, if the engine is making strange noises.
In our viewpoint on the Connected Car 2016 we are also looking more broadly at how connected cars will become a part of our daily lives &8211; the how and the why.
Prospects and profits for makers of connected cars
If interested, please have a look here
p.s.
for financial services i see a big potential in using the time we are being driven by autonomous cars more productively, e.g., engaging with my bank or FS provider around advice, reporting, transactions or just catching up in general and discussing ideas.
With the right multimedia Interfaces that experience can actually be made quite enjoyful, and people will definitely &8220;have more time&8221; and &8220;be at ease&8221; than at work or right before stepping into the car or when finally arriving at home from a long commute.
This article first appeared on LinkedIn Pulse
The post Connected Cars &8211; How To Move From A to B in The Future (And Maybe Do Some Banking in Between) appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
It took a long time for #Fintech startups to become full #stack regulated #banks. This is happening much faster in #Insurance because Insurance is a stack with three layers and tech centric players understand stack dynamics in their bones and know how to build a sustainable position within a stack.Read More
Bank Innovation
#Dwolla, one of the elder statesmen of the #fintech startup world, announced today it will leave the #consumer #space and #focus on its #offerings for businesses. The change will take place soon — Dec. 7. As the Des Moines, Iowa-based company put it in a blogpost: Dwolla is no longerRead More
Bank Innovation
My recent experience with #FinTech Startup Revolut has shown me that the #banks can still sleep quietly for a while as Fintech Start-ups will in fact not be in measure to disrupt the industry if #they don’t also change the rules of the game…
What went wrong with Revolut?“Revolut is a Global Money App, cutting your hidden banking fees to zero. It allows you to exchange currencies at perfect interbank rates, send money through social networks and spend with a multi-currency card everywhere MasterCard® is accepted. All this is done at the touch of a button, in a beautiful mobile application. Our goal is to completely remove all hidden banking costs.” Source: https://revolut.com/about
So what went wrong with my Revolut account… I used my multi-currency card abroad to pay for goods in Euro. I received a VAT refund in Euro that was to be re-credited to my Revolut account. But today, when I logged into my account, I noticed that the refund had been re-credited in Sterling, with someone taking a hefty spread in the process…
So in simple words, it did not go as planned, the client promise was broken, and the hidden banking costs were suddenly very visible… I decided to query this with the Revolut customer service…
What clients of FinTech Start-ups want is a completely different approach that puts them at the center. They want services that are not only answering their needs, but that are also:
FinTech Start-ups have understood that, or at least, part of it…
They are leveraging new #technology to outgun the banks that are suffering from their archaic systems. The claim is that FinTech Start-ups armed with integrated systems, new algorithms and access to social networks can now analyse client sentiment real time and can offer the right service at the right time, for the right price.
From Pixabay
Banks on the other hand are struggling to make sense of big data. Because it lives on several databases and systems that are hardly integrated, because they did not think of asking clients the right to use this data twenty years ago when they signed them up, and because of plenty other valid reasons, mining through this data is a difficult, near impossible, task.
Clients are attracted to FinTech Start-ups because of the glitter this new lawyer of technology provides. They see the novelty in the approach and they believe something has changed…
Clients love the new simplicity – no more endless paper form to sign, all is done with a click on a fancy app interface and they even work with pictures of you, your ID card or proof of residence taken through your smartphone!
Clients love the increased speed – they can do it here and there, through the internet and 4G mobile connection, wherever they are, no more need to visit a branch in person.
Clients love the convenience – FinTech Start-ups provide the same services as traditional banks, often even better, and at a fraction of the price they normally pay their bank.
From Pixabay
But underneath, unfortunately, it seems nothing has changed… When the acid test comes, when something goes wrong at a FinTech Start-up… then the same old mechanisms that make you hate your bank re-surface:
Claiming that they did not do anything wrong
“Just to inform you that we don’t have any control over the refunds. Refunds are processed automatically after the merchant’s release.”
Putting the fault on the other party in the chain
“It is not our fault as we are not able to choose the currency for the merchant” or “if you were expecting to receive these refunds in Euros, and apparently you have received in GBP is because the merchant released then in this currency.”
Invoking procedures and rules that prevent them doing it the simple way
“However there is a procedure that needs to be followed. Especially when, as in this case, we didn’t have any control and the way to rectify it, is to raise a chargeback.”
Referring client to another department or to third party as the solution lies outside their competence
“I will forward this to the chargeback team.” or “You can contact the merchant and ask for clarification.”
This behaviour will not help FinTech Start-ups win!
Clients are asking for a great customer experience, they are asking for simplicity, speediness and convenience, even when, or especially when, things break. This is exactly where FinTech Start-ups need to make the difference. Playing it #like the banks will not satisfy clients, it will end up putting FinTech Start-ups and banks in the same basket.
First, the FinTech angle should have kicked in immediately:
From Pixabay
The data analysis should have been instantaneous, with artificial intelligence reading the support chat channel and picking up that I was growing more and more upset by the interaction with the customer service representative. This was visible in the language I was using and the speed at which I was typing (and the accompanying typos).
From Pixabay
Social Media listening should have also indicated real-time that I was starting to tweet about my problem and my frustration at the lack of understanding from the customer service representative, and that I was starting to drag influencers in the discussion.
This would have also been supported by a rapid scan to establish my social media strength (number of followers, Klout score, retweets and likes) and the risk of PR damage that could result.
Finally, the CRM system should have spitted out a customer profile showing that over the past 4 months:
I had increased my volume of transactions significantly (so I was on my way to become a “good” client)
that all transactions I had done were in Euros and that there were no transaction in GBP (so there was possibly something abnormal with those two transactions in GBP)
Then, the Start-up angle should have also played a role:
– The customer service representative should have calculated the costs involved to solve the issue quickly and bring immediate satisfaction to the client:
namely by reversing the two transactions in GBP into EUR, at an exchange rate of 1 GBP for 1.1177 EUR – which was 54.78 GBP x 1.1177 = 61.23 EUR, when I was claiming I should have received 64.50 EUR – that means a cost of 2.92 GBP.
&8211; The customer service representative should have then assessed how much effort any other alternative solution would take:
time spent by customer service staff to escalate the client’s request, plus time spent by the compliance team to raise a chargeback request and deal with the third party to fix the issue and to that, add the potential loss of faith in the product by the client, plus any potential damage to the brand resulting from the negative publicity on the social networks.
&8211; Armed with those two assessments, the customer service representative would then decide quickly which solution would be the most satisfactory for the client and the less expensive for the FinTech Start-up to execute and would have executed it.
So, in other words, the customer service representative should have assessed what was my issue with Revolut (i.e. refund process did not work properly), should have assessed the most practical and easiest way for Revolut to address my need (i.e. fix the refund by compensating the difference) and should have asked me how Revolut could still increase my client satisfaction (i.e. reinforce their client promise and turn me into a champion of their brand to drum up more business).
FinTech Start-ups need to go further than just layering a fancy new technology on one of the oldest jobs in the world if they want to win. They need to adopt a client-centric strategy, putting client satisfaction at the core. Because it is the alliance of technology and client-centric approach that will help them beat the banks.
Client-centric champion Amazon would have paid back the 2.92 GBP in a split-second and would have probably issued a compensation voucher to make up for the bad customer experience. This would have reinforced my trust in their brand and would have led me to sing their praises on the social networks, bringing them additional clients attracted by this positive client experience sharing.
FinTech Start-ups need to do the same, before Amazon starts doing FinTech…
This article first appeared on Lionel Guerraz&8217;s Blog
Featured Image: From Pixabay
The post Why FinTech Startups Will Not Win If They Play Like The Banks appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
If you thought ‘#fintech’ was a buzzword, get ready for ‘open’. Open data, open APIs, open access – you name it. #Banks are under pressure on multiple fronts to open the doors and let in the tech punters, all of whom are hungry for a slice of customer data. OpenRead More
Bank Innovation
Die #Tessiner Kantonalbank bietet unter ihrem Label «TiHome» neu eine #Online-Hypothek an. Die technische Plattform und das digitale Banking Know-how dazu erwirbt die Tessiner Kantonalbank auf Lizenzbasis von der Glarner Kantonalbank.
Ab sofort bietet die Tessiner Kantonalbank basierend auf der technischen Lösung der Glarner Kantonalbank, aber unter eigener Marke eine Online-Hypothek an. Die Tessiner Staatsbank ist nach der Freiburger Kantonalbank bereits die zweite Lizenznehmerin.
Dank dem technologischen Know-how, welches sich die Glarner Kantonalbank mit ihren eigenen Online-Produkten im digitalen Banking aufgebaut hat, kann sie sowohl ihre modernen Systemlösungen unter der Marke Softlink als auch ihre Serviceleistungen der Kreditfabrik anderen Finanzdienstleistern anbieten.
The post Neuer Tessiner Online Hypotheken Anbieter appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
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