The Allianz Risk Barometer Ranks Top Risks For Global Corporations
#Risk management and insurance have to shift to meet new threats and new demands in a digitally connected world.
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Top 5 trends shaping the expense management market
Three years ago, SAP’s acquisition of #expense #management software provider Concur sent shockwaves through the expense management industry. Its impact continues to shape the evolution of the #market today. The pairing of Concur, already the expense management market share leader, with SAP, one of the largest ERP software providers in the world, sent a clear message to the rest of the market: significant advancements and changes would be required to keep pace with the market leader. As a result, competing providers have responded with a flurry of product enhancements and strategic partnerships.
As shown in Figure 1, some of the major players in the expense management market have moved quickly to leverage new, customer experience-enhancing #technology. They have pursued partnerships with complementary providers to compete with the massive scale achieved by SAP and Concur together. Perhaps most notably, Certify united with a number of leading expense management specialist providers in the past year to broaden its offering and emerge as a formidable challenger.
Figure 1. Expense Management Market Activity Timeline
Source: Public announcements, company websites and Accenture research Five key #trends
Based on this recent activity, five key trends appear to be driving the future direction of the market:
- Market Consolidation: Merger and partnership activity is likely to continue as providers try to close the gap on market share leader, Concur.
- Expense and Booking Convergence: Integration between expense management and travel booking tools is becoming more common and creating a more streamlined process.
- Virtual Card Integration: Virtual card issuers are continuing to develop points of integration for payments with booking and expense management solutions.
- Automation and Machine Learning: Providers are exploring new ways to leverage smart technologies, such as OCR, chatbots, and geolocation, to automate the expense management process.
- Real-Time Expenses: As transaction data is loaded to expense management solutions at the time of sale, approvals and reimbursements are being handled in real-time, rather than in expense report groupings.
Implications for commercial card issuers
While many of the potential market changes will be driven by expense management software providers, commercial card issuers will also feel the impact of the evolving market. For them, the implications of the key expense management trends may include:
- Rising demand for virtual cards used for travel
- Significant opportunity for booking tool integration
- Increased bank investment in travel card programs
- Higher end-user expectations for user-friendly interfaces and functionality
- Increased competition among issuers for #fintech partnerships
- Customer emphasis on travel-friendly mobile payment functionality
As the market continues to evolve, the coming years will reveal what roles providers and commercial card issuers will play in #shaping the future expense management landscape.
To see how consumer interest in expense management services vary by age groups, read our recent report: Driving the Future of Payments: 10 Mega Trends
The post Top 5 trends shaping the expense management market appeared first on Accenture Banking Blog.
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Might fintechs become banks?
Financial #technology (#fintech) firms have been disrupting the financial landscape through innovative products and efficient operations. That disruption is now entering the realm of operating models, as leading #fintechs recently initiated efforts to #become #banks. SoFi1 and Square2 applied for Industrial Loan Company charters in June 2017 and September 2017, respectively. SoFi since withdrew its application, citing recent leadership transition as the primary reason3. Varo applied for a National Bank Charter in July 20174. Others may pursue Special Purpose National Bank Charters, should they become available. Achieving such charter status could increase fintechs’ ability to gain market share and would place them in direct competition with legacy providers. The decision on the applications—whether yay or nay—is likely to have significant implications for the future of the financial services industry.
Two legacy models fintechs typically use to grow business
The U.S. financial services industry is highly regulated. Bank charters are required for membership in the U.S. Federal Reserve System and to engage in a breadth of banking services, including accepting customer deposits. While fintechs offer a myriad of financial products and services, none have yet to obtain national banking status. This limits their ability to quickly expand nationwide and hold and lend against deposits. Fintechs typically rely, instead, on bank partnerships or state-by-state banking licenses to grow their businesses.
1. Bank partnerships—sometimes referred to as a “rent-a-charter” model—allow fintechs to leverage three key assets of their bank partner:
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- Existing charter and funding mechanisms to offer differentiated financial services (such as loans, savings accounts and deposit accounts)
- Regulatory and compliance infrastructure
- Lending limits and ability to export interest rates5 (allows the lender to potentially lend at rates higher than individual state caps)
In return, the partner bank gains fees or revenue sharing value generated by the fintech.
2. State-by-state bank licenses allow fintechs to obtain bank charters for the specific states in which they operate. While often helpful for small and new start-ups, established fintechs with national operations often find that differences in individual state laws limit their profitability and agility. State-by-state strategies can be costly and complex and, as such, typically serve as backup plans to the rent-a-charter model.
While fintechs, so far, have relied primarily on these two options to grow business, the array of viable options may be expanding.
New paths to fintechs becoming banks
Industrial Loan Company (ILCs) charters enable non-financial institutions to establish a bank to engage in lending and other specific banking activities. ILCs have two important distinctions: ILCs may be owned by a commercial company; and ILCs are exempt from the Bank Holding Act and are not subject to supervision or regulation by the Federal Reserve.
ILCs have been around for over a century, and are commonly used by automakers such as GM, Toyota, BMW and others to support their in-house financing activities. However, ILCs have fallen out of favor since Wal-Mart’s 2005 ILC application. An ILC would have enabled Wal-Mart to process its stores’ electronic check, debit card and credit card transactions, eliminating its cost of paying a third-party financial institution to perform these services6. Many large banks pushed back, claiming that an ILC would unfairly advantage Wal-Mart by allowing it to offer financial services without comprehensive regulatory oversight. The Federal Deposit Insurance Corporation (FDIC) implemented a statutory moratorium on ILC applications for commercial companies while it evaluated Wal-Mart’s application, which the retailer withdrew in 2007. The FDIC’s moratorium was followed by a Dodd-Frank imposed moratorium that lasted until 2013. At this point, no ILC applications have been approved in over a decade.
The FDIC recently eased the capital requirements for ILC applicants to encourage new participants. Fintechs are testing the waters. An approval on their applications could re-open ILCs as an attractive, viable alternative to bank partnerships. It would enable fintechs to operate commercial businesses, make loans and accept deposits.
The other option available to fintechs is to apply for a National Bank Charter directly. Under this charter, a bank is not subject to individual state usury laws in exchange for consolidated regulation. While a National Bank Charter would allow a fintech to operate more easily across the country, it comes with significant regulatory burdens (outlined in the Bank Holding Act), which would likely constrain broader commercial activities. As such, most fintechs have chosen not to pursue this path. Varo Money is a recent exception.
Recognizing that modern innovation may warrant a different type of charter for non-banks offering alternative financial solutions, the Office of the Comptroller of the Currency (OCC) announced in 2015 that it was exploring a Special Purpose National Bank Charter for fintechs. Although still under review, recent proposals indicate that it will differ from a National Banking Charter by specifying which banking services fintechs may offer (for example, make loans but not accept deposits) and suspending the requirement for charter holders to comply with the Community Reinvestment Act or the Federal Deposit Insurance Act. Proponents of this charter view it as a responsible way to bring fintechs under the broader regulatory umbrella; opponents argue that the charter would unfairly advantage fintechs over regulated financial institutions. Whether the OCC will eventually offer Special Purpose Charters—and whether fintechs will apply for them—remains to be seen.
The outlook for fintechs becoming banks
Regulators have understandably struggled to keep pace with the evolving landscape of innovative financial services products and providers. Recent activities by the OCC and FDIC (for example, exploration of the Special Purpose Charter and easing of capital requirements for ILCs) suggest that regulators have a vested interest in ensuring that all banking activities fall under regulatory supervision. With this shift in sentiment, an approval of an ILC applicant (e.g., Square) in particular could very well encourage other commercial companies such as Amazon or Google to consider similar paths for their financial services. All eyes will be on the OCC and FDIC as these applications undergo the review process.
[1]TechCrunch, “Sofi applies to be a bank,” June 12, 2017. https://techcrunch.com/2017/06/12/sofi-applies-to-be-a-bank/
[2]TechCrunch, “Square will apply for an industrial loan company license this week, September 6, 2017. https://techcrunch.com/2017/09/06/square-will-apply-for-an-industrial-loan-company-license-this-week/
[3]LendEdu, “SoFi Withdraws Industrial Loan Charter Application, Cites Leadership Changes,” October 18, 2017. https://lendedu.com/news/sofi-withdraws-industrial-loan-charter-application-cites-leadership-changes
[4]BusinessWire, “Varo Bank, N.A. Applies for a National Bank Charter,” July 25, 2017. https://www.businesswire.com/news/home/20170725005537/en/Varo-Bank-N.A.-Applies-National-Bank-Charter
[5]Interest Rate Exportation refers to the way a bank will use its National Bank Charter to “export” the interest rate cap of its headquarter state, and therefore, potentially lend at higher rates than individual state caps.
[6]CNN Money, “Wal-Mart withdraws industrial banking push, March 16, 2007. http://money.cnn.com/2007/03/16/news/companies/walmart/index.htm
The post Might fintechs become banks? appeared first on Accenture Banking Blog.
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FitPay Founder & COO Michael Orlando Joins Bank Innovation 2018
EXCLUSIVE- #Michael #Orlando, #founder of #FitPay, a provider of payment #technology for wearables, has joined the speaker faculty for #Bank #Innovation #2018, which takes place March 5-6 in San Francisco. Orlando founded FitPay in 2014. The company went on to be acquired by security technology company Next-ID Inc., and provides the payment technology behind wearables […]
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Billing Should Move Away From Paper Of The Pony Express Era
#Billing offers a way to reach out to customers, but opportunity is wasted if it is run by operations and ignored by marketing.
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Look Beyond Technology for Better Digital Banking, Fiserv Says
EXCLUSIVE—With mobile #banking services offered at the majority of financial institutions, innovating the #digital space is becoming more important in the #fintech ecosystem, especially for smaller players like regional #banks or credit unions. So, how can these smaller institutions move their digital platforms #beyond the simplest (and expected) mobile banking service? “First off, we need […]
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Fintech for Kids: How Startup Greenlight Financial Teaches Kids about Compound Interest
EXCLUSIVE – #Fintech #startup #Greenlight #Financial #Technology has just added a new feature that helps #kids understand tricky concepts like #interest, APR and savings accounts. Today the Atlanta-based Greenlight unveiled a feature which lets kids create a savings account through their Greenlight app, an account that is controlled by a guardian. The feature allows the […]
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Is Digital Banking Henry Ford’s Faster Horse?
While #banks focus on competing against each other with similar offerings, are they in danger of being overwhelmed by tech giants with superior analytics and familiar, easily understood interfaces?
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Klarna Partners with ACI to Provide Additional Payment Features in the U.S.
EXCLUSIVE – There’s an argument made in favor of keeping plastic cards and online shopping, but Swedish #payment company #Klarna is not on that side, based on its recent effort to rid customers of the need to use their cards online. Klarna partnered yesterday with payments #technology provider ACI Worldwide to bring this feature to […]
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Free core banking from the ASP model to be future ready
Legendary magician Harry Houdini used to perform spectacular escapes #from handcuffs, straitjackets, ropes and chains, and often combinations of them. One of his most famous and difficult escapes was the 1904 London Daily Mirror Handcuff Challenge, where Houdini managed to escape from a pair of handcuffs that had taken a Birmingham blacksmith five years to perfect.
Read the report Many bankers see the traditional application service provider (ASP) #model for managing their #core systems—renting the use of core #banking software centrally hosted and managed by a single vendor—as a set of handcuffs they cannot pick. The ASP model proved useful in the early 2000s in helping #banks lower costs. Yet over the years, the constant adding on of various components (think digital user interfaces or new payment types) atop 30-year-old #technology has created an increasingly complex maze of systems that is now hard to maintain, difficult to integrate, designed for “vanilla” service, slow to change and costly to service. Add to that the frustration of vendor-controlled product releases that can take the #future of banks’ IT innovation out of a CIO’s hands.
If banks are to have a chance of competing for customers’ attention and business against the likes of Amazon, Google, Alibaba, fintechs and others, they must devise a clever escape from the constraints of the ASP model. Digital rivals are built bottom up on IT systems that are open, scalable and flexible, enabling innovative services, high-speed responses and efficient operations. Banks need the same traits to be future #ready—to connect with broader digital ecosystems and deliver hyper-relevant services (financial and non-financial, human- and automation-supported) through multiple and rich channels in real time. Those banks unable to rise to the occasion risk becoming digitally irrelevant and targets for acquisition.
Luckily, the typical ASP model is not escape-proof. While Houdini was an illusionist who used tricks to perform his death-defying feats, banks can take a few well-staged steps to truly #free their core banking systems and become future ready.
It begins with designing the bank’s future-state IT architecture. For the future-ready bank, we envision the ASP model evolving to serve as the engine for Systems of Record, Messaging and Services activity. It will be open, modern, secure and agile enough to allow for seamless integration of applications, API management, Cloud hosting, and plug-and-play of best-of-breed technology. Rather than having the lion’s share of its IT served by a single ASP provider, the bank provider pool becomes more diverse, fluid and adaptable. Then, banks will need to rewire their IT delivery organisation to adopt a multi-speed approach, operating and simultaneously supporting multiple business objectives. They will also need to “hollow out the core” and diversify the providers of IT technology for greater flexibility and innovation. Houdini used keys and cutlery; banks can use processes and technology to free themselves from the handcuffs of the ASP model.
Read our recent report, Breaking Free of the ASP Model, for a closer look at how banks can break free of their ASP model—and how a few banks are already doing it.The post Free core banking from the ASP model to be future ready appeared first on Accenture Banking Blog.
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