This episode of #Breaking #Banks centers on the Startupbootcamp #FinTech #Demo Day that took place last week in New York. Host Brett King spoke to Jesse Podell, who MC’d the event, and Nektarios Liolios, the founder of Startupbootcamp Fintech.
Bank Innovation
#Insurance occupies a sector of our economy that has not seen any major tech disruptions until recently. Its history goes back to the Lloyd’s of London in the 1600s, who mitigated their risk exposure by posting notices of their cargo headed for the New World. The cargo would ship out only when enough merchants signed up to undertake the travel risk. The risk-takers eventually came to be known as underwriters and the bonuses they received for undertaking that risk were called premiums.
With a space so antiquated and full of consumer trust issues, why has nothing changed? Well, 66% of consumers have distrust for the insurance industry. 70% of consumers feel that choosing financial products are confusing [1]. The distribution model is outdated; insurance agents are still making house calls. Market conditions create an interesting opportunity for startups vying for a seat at the table. There is a need for newer distribution models, a simplification of consumer products, and a shift in a mindset among customers.
Also, today’s household decision makers are becoming harder to sell to. A 2015 LIMRA study found that the majority of Gen X and Y consumers know they are under-insured, but less than 20%said they are likely to buy life insurance [2]. Millennials also have a strong opinion about current insurance policies. Bob Mozeika, head of Munich Re’s Executive #Innovation Strategy, stated at the Plug and Play Insurance kick-off event that “Millennial’s really want more transparency in their products… people want to fully and easily understand their coverages and value they are receiving, Not just easy access” [3].
There are many barriers to entry for new innovative insurance companies. For one, insurance companies have been slow to adopt #technology innovation. They are also making expensive acquisitions with Price to Book Values falling between 10x to 16x. [4] Large insurers have had difficulty implementing IT system integrations. Many are still relying on old legacy infrastructure. With current regulation stifling advances in peer-to-peer insurance there are still many significant barriers to entry for #insurtech startups to get off the ground.
The market is already starting to make way for #disruption. In the past six years, early stage ‘insurtech’ funding has grown from less than $50 million to close to $350 million [5]. The new inflow of cash mimics the trends in the #FinTech space.
New ‘insurtech’ companies are leveraging the power of shared economy made popular through services like Uber and Airbnb. On top of that, there are now more effective communication platforms to reach customer segments. The Internet of Things and ‘Big Data’ have given unprecedented insights into customer habits in real time. New tech such as autonomous driving will also significantly change the future of auto insurance [6]. These tools will allow the insurance sector to move from a reactive model, to a proactive one – a revolutionary turn.
We are starting to see mobile and in-app solutions develop in this market space. A number of high caliber startups are beginning to deliver innovation especially in the on-demand insurance space. Trov offers a mobile app that tracks, prices, and delivers insurance coverage for single items and possessions. Early this year, they raised $25 million. [7] Slice offers on-demand insurance to the ride sharing economy on the drivers side. They just closed 3.9 million early this year. [8] Bunker raised $2 million in a seed round in effort to provide insurance for freelancers, otherwise known as on-demand employees.
These investments pale in comparison to the massive war chests of major insurers. That said, the nimbleness of these startups, tapping into the on-demand hype, could eat away at the market extremely fast.
Business models are being reinvented as we speak, especially in the insurance sector which is often marked by low customer interaction, limited service levels, complex IT systems, and masses of data. A new digital revolution has created more data enabling new risks, tailored products, performance warranty, and new ways of underwriting. It has given insurance companies access to customers they have not been able to access before. Given the complexity of insurance products, technology can arm agents with resources to access traditional customers in new ways. Industry has also not been growing at the same rate as GNP and is losing relevance. Their is a desperate need for innovation to expand boundaries of insurability in an effort to bring new premiums into the market.
Disruption may not necessarily mean a complete overhaul to the traditional underwriting and premium model, but can we improve the risk assessment process? What about the way in which policies are sold to consumers? Will insurance policies work like the real-time stock market? Will we need completely different insurance products to safeguard against new and emerging tech such as cyber threats?
That’s a lot to think about.
Article written by Kevin Wang and Ali Safavi from Plug and Play Insurance, in collaboration with Munich Re (Robert Mozeika and Philip von der Schulenburg) and Deloitte (Daniel Gadino and Prashanth Ajjampur) and has also been published on http://bit.ly/2a1BTgG
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[3] https://youtu.be/IpziR-F3-Qo?t=7m7s
[5] https://www.cbinsights.com/blog/2016-insurance-tech-startup-launches/
[6] https://www.pwc.com/us/en/insurance/publications/assets/pwc-top-issues-insurtech.pdf
[7] http://dupress.com/articles/mobility-ecosystem-future-of-auto-insurance/
[linkedinbadge URL=”https://www.linkedin.com/in/asafavi” connections=”off” mode=”icon” liname=”Ali Safavi”] is Director, Insurance | Senior Venture Associate at Plug and Play Tech Center and this article was originally published on linkedin.
#Blockchain #startup #Libra has announced new hires it says will help it position itself as the “Microsoft Office for blockchain”.
CoinDesk
A major theme that we track on Daily #Fintech is the “programmable bank”, how innovation is enabled by APIs that abstract complex layers of utility services so that innovators can focus on “rebundling” (creating new UX based on integrating unbundled best of breed services). We are also big believers inRead More
Bank Innovation
On last week’s episode of #Breaking #Banks, host Brett King gets into the hot topic of #bots and virtual assistants in the #fintech space. He speaks to Katie Aquino, better known as Miss Metaverse, about the future, and Scott Raskin, CEO of Spigit, about internal innovation at banks. Brett also “checks” out theRead More
Bank Innovation
Image Credit: TaxRebate.org.uk There’s one sector of finance that really doesn’t get a lot of airtime when it comes to #fintech – deposits. Checking #accounts, savings accounts, transaction accounts – while they’re the bread and butter of banking, they’ve been relatively untouched since they were first invented. You put moneyRead More
Bank Innovation
I was lucky enough to be invited to a #banking panel discussion recently and given the privilege and opportunity to express my opinions about what digital means to banking. What became apparent from the discussion and questions was most people link digital to #technology. If not about technology, it was about how new development was undertaken; be more like the fintechs, don’t fear failure, etc., etc.
But to me such discussions miss the point entirely. While no doubt there’s an element of being digital in back office efficiency (such as robotic process automation) the real digital focus for #banks should be in creating market differentiation. Differentiation won’t be achieved through making processes faster and more efficient.
Recently, when taking a more design-led approach to digitisation and removing the constraints of the current offerings and technology altogether, I’ve been amazed at the number of simple yet effective offerings banks could make with very little effort. It was during that panel discussion that I became even more aware that people really weren’t, despite the rhetoric, “thinking outside the bank”. Gartner was telling us the two most asked for features were proactive security and some other enhancement to the current standard fair. But that is tunnel vision. Customers don’t expect banks to truly innovate and are used to them remaining confined to the products and services they’ve always delivered.
With the real threat to retail banking being that in the near future the standard offering will be as much a utility service as turning on a tap, concentrating on the water pressure and flow rate isn’t the way to maintain or increase market share. Banks need to offer a compelling differentiation to attract customers as account switching continues to rise. By thinking a little more laterally, this isn’t a difficult thing to do.
I think the blinkered thinking is all down to how analysts and those in the banking industry look at the problem. By focusing on feedback from users of current services and products, the drive is to make these more efficient and with lower friction, moving from multi-channel to omni-channel. But how about forgetting channels altogether? Yes, we need to make whatever the new world efficient and frictionless, but that’s just a faster car, not anything new. Very soon everyone’s car will be faster. The fintechs are starting to reshape the user experience of banking and, like Mondo’s transport for London payment reminder, are starting to look outside of the existing standard service.
This is what I believe banks need to do more of. Whether you use design-led thinking or just sit down and wonder, with the information that a bank has about me, what should it be able to do?
Two examples came to mind on my flight down to the panel discussion. The first was, wouldn’t it be handy if when I landed at the airport my banking app asked me if I am here for business or leisure? I’d choose business and the banking app would now know to tag any payments as expenses, such as the hotel room. When I land back home the banking app, in addition to welcoming me home and offering to call a cab, should ask if that concludes this trip. Answering yes, it would then send me an expense report with digital receipts for me to claim back – even better if it offered an API to my expense system to do this automatically. There’s nothing in this idea that isn’t already available to a bank. They know where I stay, they know how much I’m spending and on what, so it’s a very simple but effective value adding service. Similarly, when I was a one-man-band contractor (like over 3 million others in the UK) I spent £125 per month for an accountant. How many of these potential 3 million plus customers wouldn’t switch if a SME business bank account offered to automate their accounts creation? The bank has all the information and should easily be able to derive the context of the expenditure or prompt via the website or their app for this to be added where there’s doubt (it’s not as if there’s lots of transaction) and by integrating a simple accountancy engine, the bank could spit out the annual accounts and tax return. Add in connectivity to GOV.UK/Verify as Barclays have and there’s no reason it couldn’t submit them for you on your behalf as well.
Neither of these ideas are difficult or ground breaking but I was faced with a sea of blank faces when presenting them. Rather than UK banks spending over £400m trying to convince customers to switch with cash incentives, how about giving customers a real reason to move (or stay put). By truly thinking digitally and outside of the bank? Then simple and compelling offerings can be created that will fight off the threat of the aggregators and #fintech. If you’re not thinking in this way then it doesn’t matter how good the user interface becomes or how many keystrokes you remove from the application process. You’re not going to prevent a flash aggregator post PSD2 making your hard work redundant.
Banks need to think not just about cost savings or application dropout (as important as these things are) but also about how to turn the customer and bank engagement relationship from transactional to a valuable daily experience. This means not just replicating what is done in the branch but offering a whole new set of services that may only bring value to the customer and no additional revenue to the bank. But in doing so the banks will have market differentiation and create real benefit for their customers. This, I believe, is the only way to maintain any control over the user engagement channels and not relinquish it to the aggregators but to do so takes a real commitment to thinking right outside the bank.
[linkedinbadge URL=”https://www.linkedin.com/in/fegan” connections=”off” mode=”icon” liname=”Gary Fegan”] provide Financial Services Solutions at Fujitsu Digital, and this article was originally posted on linkedin.
London, July 21, 2016, CNW – #DH Corporation (TSX: DH) (“D+H”), a leading provider of #technology solutions to financial institutions globally, today
announced that #Lloyds Banking Group has selected its Bacs payment service to optimise Direct Debit and Direct Credit processes. The D+H solution, which is being white labelled by the bank, will enhance the suite of payment solutions available to its UK clients.
As an integral part of its strategic investment in digital services to meet more of their clients’ needs and build stronger client relationships, Lloyds Banking Group sought to provide new payment services to enhance clients’ payables and receivables processes. The bank will initially offer the D+H-powered Bacs capabilities to small- and medium-sized enterprises and mid-market clients, but the solution can scale easily to meet the needs of any global transaction banking/large corporate bank client. The solution will provide the bank’s clients with Direct Debit and Direct Credit connectivity, automated retrieval of Bacs messages, a full service Direct Debit management suite, integration with clients’ ERP systems, and ease-of-use with minimal training required, among other features.
Lloyds Banking Group selected D+H’s Bacs payment service because it met all of the bank’s requirements including quick time-to-market, resiliency, and proven disaster recovery and business continuity capabilities. The solution will broaden and deepen already strong client relationships and unlock opportunities that could not previously be pursued.
“There is increasing demand for businesses of all sizes to focus on driving down costs by reducing or eliminating manual processing and increasing cash flow,” said Dyfan Williams, business unit head, D+H. “By providing a Bacs payment service, Lloyds Banking Group is enabling its clients to minimise manual work, reduce costs, and eliminate errors. This level of control and flexibility enables buyers and suppliers alike to take advantage of preferred payment terms, further increase the positive impact on cash flow, and develop strong working relationships.”
About D+H
D+H (TSX: DH) is a leading financial technology provider the world’s financial institutions rely on every day to help them grow and succeed. Our global transaction banking, lending, #payments and integrated core solutions are trusted by nearly 8,000 #banks, specialty lenders, community banks, credit unions, governments and corporations. Headquartered in Toronto, Canada, D+H has more than 5,500 employees worldwide who are passionate about partnering with clients to create forward-thinking solutions that fit their needs. With annual revenues in excess of $1.5 billion, D+H is recognized as one of the world’s top #FinTech companies on IDC Financial Insights FinTech Rankings and American Banker’s FinTech Forward rankings. For more information, visit dh.com
Today there are more bankers convinced of the need to transform their businesses than those that are not. This is no small matter as realizing the need to change is half the battle. The other half of the battle is to find the right solutions and implement accordingly.
In order to find the right solution one has to ask the right questions. I have struggled to find the right framework for these questions until I came upon this article by Scott Anthony.
Scott outlines three main questions:
– What business are we in today?
– What new opportunities does the disruption open up?
– What capabilities do we need to realize these opportunities?
Here is my attempt at answering these questions for a Bank.
– What business is a Bank in today?
Taking my cue from Scott, I will avoid the obfuscating and basic answers such as “offer accounts”, &8220;lends&8221;, &8220;makes payments&8221; which are either #technology based or category based. More abstractly, a bank acts as an intermediary by linking depositors and borrowers. In comes deposits, safely tucked in accounts, out comes loans safely underwritten to borrowers – or so we hope. This intermediation role creates various benefits: a) spurs economic activity and supports the community in which the bank operates, b) safeguards and protects money entrusted by customers, c) provides access and convenience to money and how it is transacted, d) builds wealth directly (lending activity needs to be profitable) and indirectly (savings, investments). Abstracting further, a bank is in the business of providing trusted services around a customer’s money. Abstracting even further, a bank is in the &8220;TRUST&8221; business. Do note there is a major difference between being in the money business and being in the trust business. Thinking of being in the money business forces you to think in terms of products and services around how money is stored (checking account), transferred (payments), invested (assets) or lent (loans). The outcome of such a paradigm is to sell products. Such outcome may not have been explicit when #banks operated in small environments, serving defined geographies where the relationship a banker had with his community was the vector that enabled all. This outcome is explicit in modern #banking however. Therein lies the conundrum and the creative/destructive tension. Banks have ended up engaging in the business of selling products that serve a function around money whereas their existential function is to extend and project TRUST. Many pundits have recently declared banks need to be less product centric and more customer centric as a result of this tension. I agree and will unequivocally and irrevocably state that a Bank needs to reclaim and redeploy TRUST. Without trust, there are no bankers. Without trust there is no bank.
– What new opportunities does the disruption open up for a Bank?
In an era where new ways to invest, underwrite risk, lend, transfer money are being rolled out, all of which necessitating less knowledge centralized in an individual&8217;s brain (a banker) or an organization (a bank), where the way we spend our time and our money occurs less within the constraints of the physical world and more via digital means; a Bank is rapidly finding itself threatened and ultimately disintermediated as an agent handling our money. We also live a paradox where we do not &8220;like&8221; our Bank &8211; we spend less and less time in contact with its employees or its branches and we profoundly dislike the excesses of some bankers and the opacity, applicability or utility of many banking products &8211; while we &8220;like&8221; our new sacred cows &8211; we spend more and more time on our beloved social media apps, marketplaces, social messaging apps, social gaming apps, business apps &8211; yet we TRUST our Bank more than we trust our new sacred cows. Lonely is the pundit advocating we store our money with Facebook or the customer ready to do so. Banks have so far treated this phenomenon as an existential threat. I posit this phenomenon is actually an opportunity. A major opportunity.
As a result of our digital engagement we have experienced an explosion in the amount of data we generate. We are drowning in data and metadata. Our identities have multiplied to the point where our confusion about their management is only surpassed by the threats we face every day from hackers. Whereas software and hardware are the vessels, arteries and vital organs of any functioning business, data has become its lifeblood. The second coming of artificial intelligence will only further the point I want to make: Data has become an asset class and will become more and more valuable, unlocking a multitude of values we cannot begin to imagine today, for us and those we engage with.
Tying TRUST and DATA together, I come to the inevitable conclusion that today&8217;s opportunity for a Bank is to provide TRUST services around its customers data. Data is what you do, who you are and how you evolve today. It will be what you monetize tomorrow. So far, we, the real owners of data, have been cut off from its monetization, with consent &8211; engaging in a quid pro quo with a social network &8211; without consent &8211; with little control over how one&8217;s data is used to price a loan for example.
Let&8217;s imagine a Bank offering its clients a master account, part checking account where a client will entrust money, part data account where a client will entrust data. Let&8217;s further imagine this Bank will monetize the data residing in the data account and &8211; much like with different flavors of traditional bank accounts &8211; will offer a cut off the revenue generated. Little to nothing if the customer consents to narrow use cases, narrow data sets or anonymized data. Much more if the customer consents to wide use cases, wider data sets or personalized data. Let&8217;s further imagine this Bank will also provide services around a customer&8217;s identity: verifying one&8217;s identity based on the requirements of third party services, individuals or entities. Imagine that and you have imagined a Bank reinventing its core tenet, TRUST in the age of DATA and IDENTITY. In a subtle way, this reinvention is akin to a Bank finding back its original roots. Indeed, an old school banker was entrusted with his customers data when interacting with them in the community. The data resided in the banker&8217;s head, shared only because of the trust factor. Tomorrow, the data will reside in the cloud, protected by one&8217;s Bank, with a trust factor.
To convince you further of the validity of such a thesis, consider what the likes of Google, Amazon or Facebook are interested in? Are they rushing to obtain a bank license to handle money or are they focusing on harnessing the power of data? I will leave you to answer this question on your own and ponder the competitive pressures banks are and will face whether they choose to own and manage trusted data or not.
The other major opportunity I see for a Bank resides with the ability to orchestrate a value chain &8211; instead of the old paradigm of owning the entire value chain. I analyzed this opportunity in previous post. The concept of Bank as a Service, Bank as a Platform, the Platformification of Banking is slowing taking hold in the ecosystem. A few startups have capitalized on this trend already, a few Tier 1 Banks have made preliminary moves. I do not pretend there will be only one new Banking reality of course and some banks will not chose the &8220;value orchestration&8221; path. What I am convinced of is that &8220;value orchestration&8221; is a major opportunity. The shear amount of data and transactions we are and will continue to generate within the context of heterogenous and diverse technology ecosystems we elect to engage with requires a new breed of Banks adept at organizing, servicing, facilitating and sharing work flows and processes across a financial services value chain.
So far we see several trends unfolding: a) the buildup of an ecosystem of #fintech startups, b) the strong gravitational pull of social networks + messaging apps (soon to be joined by the full force of AI powered chatbots) exercised over our daily attention, c) a secular trend towards peer to peer relations or horizontal networks (sharing/renting economy, #blockchain, cryptocurrencies…😉 d) the resulting arms race all banks have undertaken to digitize their customer touch points.
This arms race is the result of the mistaken assumption that retaining customer attention by owning it fully is the main way to continue delivering value creation. I am not convinced and even if I were, competing for attention against nimble upstarts, savvy tech giants or the secular horizontal network trend is a strategy I do not like the odds of &8211; few banks will survive doing so. Rather, refocusing one&8217;s strategy on value orchestration to facilitate and enable the seamless inclusion of financial services conversations where we spend most of our time, the new nature of the transactions occurring during these conversations and their seamless operational orchestration and provisioning seems to be a much more fertile ground to mine.
We have yet to see a Bank owning the &8220;value orchestration&8221; mantle. I believe that will change soon. How soon? Within less than 5 years is my bet. I am convinced this will happen because the Internet has fundamentally altered the way we can do business. Achieving near zero marginal cost of delivering any product or service will occur in every industry. I am convinced this has not happened yet because the financial services industry is unique, complex and heavily regulated.
If you think that only large banks can and will capitalize on the &8220;value orchestration&8221; opportunity you are wrong. In my view, although there will be few &8220;value orchestration&8221; or platform owners, there will be many smaller banks that federate and participate as platform partners. Further, if you think this platformification may lead to what I refer to the &8220;dumb pipes&8221; syndrome, you are wrong again. The age of dumb pipes is long gone, smart pipes is what you need to think through and digest &8211; the variety of services at both end of the pipes and within the pipes themselves is underestimated by many.
A more appropriate concern is how will disruption and the resulting opportunity of &8220;value orchestration&8221; impact the direct relationship a Bank has with its customers? Will that relationship be maintained, shared or broken and to what extent? Could we see &8220;Intel Inside&8221; models emerging, capitalizing on implicit trust and technology prowess augmented by value orchestration without the necessary immediacy of a direct to consumer experience?
– What capabilities does a Bank need to realize these opportunities?
I will limit myself to a high level analysis.
First, let&8217;s rifle through some important existing capabilities.
a) Regulated and Licensed: Although viewed as a constraint by some, I view these as assets. The trick will be to educate regulators as to the need for innovation. Different licenses will be needed, changes to existing licenses too. Different regulatory frameworks will need to be adopted.
b) Security, Cybersecurity, Authentication, Authorization, Identification: Banks invest heavily in these area. Again they shall need to add new technologies to the mix, which they are already in the process of doing. I would not be surprised to see a Bank acquiring a cybersecurity firm for example. Core competencies need to be brought in.
As for some of the new capabilities.
a) UX/UI: We are now used to sleek experiences and interfaces in our digital & data worlds. Nothing short of closing the gap and excelling is acceptable for a Bank going forward. I view this capability as core actually. I would advocate acquiring best of breed UX/UI practices, hiring leading designers. That capability, that talent needs to be acquired and treated well as it will be too time consuming to grow it internally.
b) Data Analytics: If your business is TRUST + DATA, you better be good at analyzing the latter to back up the former. Certain banks already have data science talent in house and are uniquely positioned to understand their own as well as their customers&8217; data. Still more needs to be done. I can see home-growing talent into specialized units, even spinning off these units to better grow them &8211; at least one bank has done so I believe &8211; or acquiring best of breed startups.
c) Artificial Intelligence: Arguably a wide field. There is an arms race going on. Google, Facebook, Amazon, Apple are snapping up talent in the US and I am sure European companies are doing the same in their respective countries. In a way AI and Data Analytics are intertwined, thusly AI is as important when one is dealing with data. Again, acquire!
d) Cutting edge Technology: One need not acquire all cutting edge technology capabilities (cloud, blockchain, quantum computing, AR, VR, IoT, API&8230;), partnering will do for most, understanding, mastering and managing is a must though. To be fair, many banks have started learning and closing the gap here.
e) HR Skills: Hire, hire, hire from outside banking to acquire mindsets that live and breathe either data or complex networks&8230; technologists, executives familiar with platform strategies, data experts, software entrepreneurs, p2p and/or network specialists, experts that understand and study the emerging properties of large systems (biologists, behavioral scientists&8230;) . Basically, hire less bankers, more non-bankers.
If the above spurs your imagination, please share other opportunities you may find attractive, as well as capabilities I have not thought of.
The fast and furious growth of the country’s Internet finance industry will inevitably slow. Companies need to begin positioning themselves for sustainable success.
McKinsey Insights & Publications
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