#Credit card penetration is one of those problems that isn’t really a ‘problem&8217; in the West. In the U.S. alone, 232 million adults are said to own at least one credit card, with 18 percent of consumers in the country owning two or three cards. Read More
In the past three years, 100 million people have opened #bank accounts for the first time in Africa. In China, there are 500 million people who are ‘newly banked’. In India, 187 million new accounts were opened in just one year on a governmental scheme. In the UK, around 100,000 people came into the #banking stream, either for the first time or after a long break, in the last three years.
This growing segment of the newly banked, who have emerged from the unbanked population and not-quite-yet-in-the-fully-banked category represents one of the biggest challenges for traditional and challenger #banks in the world (yet, is not talked about as much as it should be!). They have a unique set of problems, and deserve a unique set of solutions – that are not available in the market today.
The newly banked population does not find a bank account useful
India’s unbanked population halved in the last four years, according to a report, which means 324 million new accounts were taken in that period. In just the past year, under a Prime Ministerial PMJDY scheme, 187 million new accounts were opened. However, 43% of these accounts lay dormant, with no balance and no deposits or withdrawals.
In the UK, around half of the people with new, basic bank accounts still chose to manage their money and make transactions in cash. Around 15% of newly opened accounts were closed or abandoned.
These figures paint such a dire image that it’s a mystery why banks are not taking more steps to bring the newly banked into the well-banked, or at least, the underbanked groups. Offering financial literacy is just one obvious element to fix the problem – the most important change needed is for the bank accounts to offer relevant transaction channels and sensible costs. In Africa, for example, mobile payments on basic phones have taken over the transaction ecosystem, and banks offering viable alternatives is a difficult proposition, yet possible.
This is because the experience of moving into banking hasn’t been great
The newly banked population probably used cash for transactions before the bank account, and transferred money using either mobile phone text messages (Africa) or specialised remittance firms (India and UK). In reality, it probably worked fine for them. There was a clear lack of perceived need.
The expected customer experience (once the bank account is opened) is that it caters to a specific niche challenge the customer visualises would be solved with a bank account. It could be something like reduced bill costs or ease of bill payments, better loan facilities for agriculture, or sometimes availability of online shopping. A good example of catering to a specific demographic is that of six Zambian banks coming together several years ago to provide a secure money transfer mechanism that effectively replaced cash and cheques in the region. In China, a #technology firm offers a SIM overlay that can be used on any phone to access bank accounts remotely.
Solutions from banks, including those in partnership with technology firms, have to cater to these niche socio-demographic and geographic challenges. If appropriate pricing along with these direct solutions to solve niche problems are not present in a newly opened bank account, it’s unlikely this population will stay with the bank. They will either go back to their old ways with cash, or will look at #fintech apps or technology solutions to meet their specific needs.
The newly banked population may not have access to a branch
Over 66% of the newly banked population were considered “rural” by a study. If this population doesn’t have access to a branch, it is likely they will not get the personal customer service support or financial product aid they would otherwise be getting. Despite all the branch-bashing that banks face on a regular basis (especially from us fintech fans), branches are in fact one of the best ways to put the newly banked at ease. If full branches are not viable, banks could consider using retailer shops as mini branches, or using field agents to encourage financial access (both models being used exceedingly well in Ghana and Kenya).
How do we keep them there?
The only solution to keep them with a bank is unfortunately not quite pleasing: a bank will have to exert greater focus on customer service, financial literacy and access channels specifically targeting the newly banked. This does mean increased costs, increased effort and investment into segment personalisation, but in the long run, without this investment, this population is unlikely to remain with the bank. A simple preventative measure like this will also help them face the fintech competition head-on. A student lending app or an app that helps improve your credit score may appeal more to this young, financially untapped population than having a bank account that provides no clear benefits.
Banks are increasingly partnering with fintech firms to handle this gap. Technology investments are great, but banks need to know and be in control of what those investments are being made for.
Read the full blogpost at http://banknxt.com/56824/newly-banked/
View my slides from the Dot Finance Africa event on fintech trends in the region:
http://www.slideshare.net/DevieMohan1/africa-fintech-investment-trends
Disclaimer: These are my personal views.
[linkedinbadge URL=”https://www.linkedin.com/in/deviemohan” connections=”off” mode=”icon” liname=””] is FinTech Market Strategist | Industry Speaker, Blogger and this post was originally published on linkedin.
Content (in all its forms) is increasingly both the commodity and currency of the digital era, but the speed and ease of near-instantaneous global communication and a capacity for infinite reproduction has served to make it easier to sever the #work from its creator. Brooklyn-based #Mediachain is hoping to change that. Read More
#Richard Branson’s private #island in the Caribbean is set to host yet another #blockchain-focused gathering this month.
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Abu #Dhabi‘s newest financial free zone is seeking to promote the development of #blockchain #startups, according to a new proposal.
CoinDesk
#Mediachain has become the latest #blockchain #startup to join the portfolios of VC heavyweights Andreessen Horowitz and Union Square Ventures.
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One of #Barclays’ leading #blockchain experts has revealed he will be departing the UK banking giant to join a #FinTech #consultancy called 11:FS.
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[Transcript of the Closing Keynote in Hanoi on May the 12th 2016]
When I arrived in Hong Kong slightly over a year ago to build a #FinTech Accelerator I knew I wanted to do three things.
However, I wasn’t prepared to fully appreciate the difference between FinTech and TechFin. To me it was all about establishing a FinTech Hub, developing a FinTech regulatory Framework and measuring FinTech investment growth. Yet when I spoke to start-ups in China they kept telling me they didn’t consider themselves FinTechs, but instead were TechFins. I thought it was splitting hairs and miscommunication but it was more than that. It was a misunderstanding.
We often quote Jack Ma for saying”
“There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is Internet finance, with is purely led by outsiders.”
We read reports on China’s leadership in FinTech. Ant Financial valued at over US$50billion after a series B round. Tencent facilitating over 8 billion red envelopes to be shared in a day, up by 7 billion compared to the previous year. We know these facts but do we understand them?
Let’s forget the Fin and Focus on the Tech. Breaking down what the BATs do. We essentially have:
Each of these companies have hundreds of millions of users, and for them FinTech is just a commoditized layer that is used to enhance their core product:
Baidu can better sell information by letting you not only search for your favorite restaurant, but also handle the reservation of the table, the payment of the menu and the taxi ride back home.
Alibaba can better sale products by facilitating express checkout via Alipay and can facilitate the number of products available by financing the SMEs that it knows will sale.
Tencent can better connect people by splitting bills in a restaurant via WeChat Wallet or reconnecting families millions of kilometers apart during Chinese new year simply by digitizing Red-envelopes
Each of this FinTech layers within their products is incredibly valuable and valuated, yet their growth is finite. There is only so many friends you will have, restaurants you will search and products you will buy. However, what is exponential is the information around your decision. What is valuable is not just the content, or the #data, but the context. The meta data. It is then that I learned the source of my misunderstanding.
Money has been digitized and Now Data is monetized – this was my Eureka moment. Whilst the first part is about FinTech today, the second is about TechFin tomorrow. So let’s look at the consequences this has for our industry.
Let’s break down the opportunity of TechFin across two sectors that have been said to replace #banks: Internet Service Providers and E-Commerce Platforms.
We often draw parallels between telco’s and bank’s. Both laid the infrastructure and risked to become dumb pipes to the Internet 2.0 companies like Facebook. Let’s stop and think what flows in this pipes? Data. Data that if properly understood can generate money. AOL increased its revenue by US$300 million, which was a 50% Increase in 1 quarter, “just” by adding data analytic from Verizon to its ISP business.
What about E-commerce platforms? Sesame Credit in China is now used not just to originate loans, but to instead sell you non-financial products and services. Your credit score is an asset that can be traded for a better service, and the BATs are brokering that. They make money by taking a fee on selling a better hotel room as opposed to post more regulatory capital for originating a loan (note: this was in 2015!). In both case they used the same credit score.
FinTech to TechFin represents a shifting trend that China has simply leapfrogged.
We are going towards a new industrial epoch coined by Professor Klaus Schwab, who designated it the ‘Fourth Industrial Revolution.’ According to his book, the previous three eras had the following as juncture points: First, 1784 with the creation of the steam engine. Second, 1870 marked by the introduction of electricity, and third, 1969 signified the rise of communications and IT systems.
Today, we are entering an era of data analytics and artificial intelligence. These in turn transform data from simply a byproduct of human interaction into a core commodity for economic growth. Data has been designated ‘the new oil’ because it pushes companies to “find, extract, refine and monetize it.
We are indeed at the beginning of a new cycle simply because less than 1% of the world’s data is analyzed, with over 80% is unprotected.
Starting with Data Protection. From a regulatory perspective this creates a direct challenge. Data Privacy laws were designed with human in minds. However today this is irrelevant.
“Computers can’t abstractly reason nearly as well as people, but they can process enormous amounts of data ever more quickly (if you think about it, this means that computers are better at working with meta-data than they are handling conversational data). […] Computing power is still doubling every eighteen months, while our species’ brain size has remained constant. Computers are already far better than people at processing quantitative data and they will continue to improve.” (Data & Goliath)
As for data analysis, deep learning is the new enabler. We all heard about Alpha Go beating world champion Lee Sedol. It is fascinating, however not fully disruptive.
If you want to run Watson software, irrespective of license cost you will need a US$1 million supercomputer? In other words – great headline but still very much boys with expensive toys.
What is really disruptive is something else.
In that example we have university resources matching a multimillion if not billion program. If we conceptualize it we are taking about commoditizing Deep Learning and AI and start-ups are already doing it.
So here is the timeline of the future of FinTech:
FinTech 1.0: Was about Infrastructure
FinTech 2.0: Was about banks
FinTech 3.0: What about Start-ups
FinTech 4.0: Will be about TechFin
The next time you look at your mobile phone don’t just use it for selfies. Realize that this item changed from a communication tool (3rd industrial revolution) to one of data collection and analysis (4th industrial revolution). You all hold the shift in your hands.
Note: It can be debated that FinTech is just a service layer within the #technology company value chain, especially as Ant Financial is an independent spin-off (but for transfering back 37% of profit to Alibaba).
[linkedinbadge URL=”https://www.linkedin.com/in/jbarberis”off” mode=”icon” liname=”Janos Barberis”] is Millennial in FinTech | HKU Law | Founder FinTech HK & SuperCharger | Co-Editor The FinTech Book
Chances are some of the thoughts that come to mind when hearing the concept ‘#Shadow Banking’ relates to bank opacity, excessive risk-taking, malpractice, negligence or fraud. Unsurprisingly, the term is often abused by #banks which often place #Fintech (particularly lenders) under such shadow banking umbrella.
The concept got itself a bad name as a symbol of the many failings of the financial system leading up to the global crisis. Indeed it was coined by Paul McCulley (former Pimpco’s chief economist) in 2007 when describing the securitisation of mortgages, which fell out of the supervisor’s sight. You may have probably heard of it in the news when referring to those reckless bank-like businesses that were not regulated as banks.
Regulators like the Financial Stability Board (an international body that monitors and makes recommendations about the global financial system) are trying to describe and define the economic activities that should fall under this shadow banking label. Although the concept is still evolving, the FSB has defined it as “credit intermediation involving entities and activities (fully or partly) outside the regular banking system” (e.g. maturity/liquidity transformation, imperfect credit risk transfer and/or leverage). Once we have disentangled the meaning of this sentence, it becomes clear that Fintech has nothing to do with such activities.
This definition refers to non-bank institutions (i.e. non prudentially regulated institutions) that take funds and/or securities from investors and lend them out to borrowers. This pretty straightforward process could involve very complex financial instruments (derivatives, asset back securities, repurchase agreements…), but let’s keep it simple. Investors loan the money to the non-bank institution which in turn lends it out to the borrower. This activity is called credit intermediation and involves some credit risk for the intermediary institution since it would be the one exposed to the borrower’s potential default. Besides, this process usually involves maturity transformation, i.e. when the intermediary borrows short-term funds from investors and makes long-term loans. Such risky business requires a very exhaustive management of liquidity risks (otherwise the institution may incur maturity mismatches).
As you can see, these activities and processes (which again, I tried to simplify) are quite similar to what traditional banks do in their lending business. The main difference relies on the fact that funds attracted by the banks come not only from investors, but from retail depositors (who are covered by the deposit guarantee scheme and cannot take losses) which in turn are fueled to a great extent to the real economy (especially SMEs). That is why they are subject to much more strict (prudential) regulation and need to have liquidity and capital requirements.
Does Fintech fall under such a definition then? Although this ecosystem involves a wide range of different financial activities, it is pretty clear that a huge proportion of them (e.g. money transfer, FX, equity funding, retail currents accounts, mobile payments…) cannot be described as shadow banks according to the FSB’s definition.
And what about lending? Similar answer. Through peer to peer lending firms, which have evolved to become marketplace lending platforms, investors’ funds are matched directly to specific borrowers (which will vary depending on the risk appetite of the lender), so there is no credit intermediation. The credit risk is not held by the p2p institution but by every individual investor since each of them would be responsible for the potential default of the matched borrowers. This is known as credit disintermediation and the role of p2p institutions here is more limited to providing the agents with both a platform for undertaking this matching and a risk management service that analyses the trustworthiness and the credit risk of all the parties involved. What follows is that, unlike traditional banks (and unlike other credit intermediaries that would be classified as shadow banks), there is no money creation (i.e. no money multiplier), no possibility for maturity mismatches (since lenders and borrowers are synchronised) and no leverage. Bank runs are not possible, neither in the modern Northern Rock style nor in the classical bank run style since the lenders are not on-demand depositors. Again, investors risk their money according to their risk profile and are directly responsible for the losses of the borrowers.
Two conclusions can be drawn from this. First, that neither the Fintech ecosystem nor the Fintech lending industry can be defined as shadow banking according to the FSB’s definition. Second, that p2p lending regulation should differ from traditional banks’ prudential rules since both undertake different activities, are exposed to different risks and pose different risks to the economy.
This debate is independent of whether you defend that ‘Unregulated Shadow Banks Are a Ticking Time Bomb’ or that ‘Shadow Banks Are Not a Source of Systemic Risk’. However, since the term is still going to be used in the public and the regulatory debate, and has such a negative connotation (due to the name itself and its roots), the least traditional banks could do is try to be more rigorous when making use of it, especially since the reputation of other businesses is at stake.
[linkedinbadge URL=”https://www.linkedin.com/in/philippegelis”off” mode=”icon” liname=”Philippe Gelis“] is CEO at Kantox and this post was originally published on linkedin.
#Microsoft has partnered with two startups to build an #identity #platform aimed to integrating with both the #bitcoin and Ethereum #blockchains.
fintech techcrunch
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