Making Blockchain a Reality


FinXTech Advisor, Christa Steele, has created a four part series to educate our community about how blockchain is changing the transaction of digital information, its implications and the players who are shaping this technology. Below is Part Three of this series.

Part One
Part Two
Part Four

Though blockchain is still in early stage development, one of the most notable blockchain applications took place last fall between Commonwealth Bank of Australia and Wells Fargo. An Australian cotton trader purchased a shipment of cotton from a company in Texas and had it sent to China. The blockchain trade consisted of 88 bales of cotton, totaling $35,000. The two banks shadowed the normal trade process utilizing blockchain technology to create verifiable digital records automatically replicated for all parties in a secure network eliminating the need for third-party verification, and to make automatic payments when the shipment reached certain geographic locations. This greatly reduced duplication (checking and re-checking) of payment processing, manual errors and long standing time constraints from being in multiple time zones during the course of shipment.


Typical bank involvement in the international trade process:

bank involvement.PNG

Any bank offering trade services to its customers either directly or through a correspondent bank via a letter of credit can appreciate how cumbersome, risky and redundant this process is today. The international trade ecosystem is ripe for disruption.

Other recent examples include HSBC Bank and State Street Corp. successfully testing bond transactions and UBS and Santander testing a new cross-border payments process.

Here is how cross-border payments work today and how blockchain streamlines the process:


More than 75 banks worldwide have joined blockchain consortiums or formed partnerships with companies such as R3, ConsenSys, Ripple, Digital Asset Holdings, IBM, Microsoft and others. Many of these banks have established innovation labs for blockchain and other related technology initiatives. Some are more serious than others about implementation versus trying to boast an image of being innovative.

I encourage you to read “The Blockchain Will Do to the Financial System What the Internet Did to Media,” published by the Harvard Business Review in March 2017. The title says it all and the article is backed up by some pretty powerful intelligence and market data.

Banks and related financial services companies have already begun patenting blockchain technologies for themselves, including Goldman Sachs, Bank of America and Mastercard.

Last Fall, IBM reported that within four years, 65 percent of banks globally expect to have blockchain in commercial production or at scale. IBM interviewed 200 global banks and reported that 15 percent will be using some form of blockchain technology by end of 2019.

These banks are all focused on lending, payments and reference data (real time information) sharing of transactions across business divisions and between banks.

What are some hurdles to making blockchain work for banks?
With all of the energy and momentum behind blockchain there are also signs of fatigue and plenty of challenges. There are lots of ongoing discussions surrounding this topic. Morgan Stanley’s Global Insights report published last year sums it up best by identifying the ten key hurdles to making blockchain a reality.

What needs to happen to make this a reality?
There are four keys to long-term success:

  1. Continued education about blockchain technology to the public and private sector.
  2. Consensus among and between financial institutions and regulatory bodies.
  3. For individual institutions, a determination of whether if blockchain is a valid solution.
  4. Commercial bank clients begin to adopt the technology ahead of the banks themselves and bank regulatory bodies, forcing all to assimilate to some form of distributed ledger technology.

When do we anticipate certain milestones being achieved?
We are already seeing the achievement of important milestones. Though some may perceive these advances as baby steps, they are still a step in the right direction. While I remain optimistic, I am also realistic and know that something as complex and regulated as the U.S. financial system will take time to adopt this technology. I predict that other industry verticals will make active use of blockchain before the U.S. financial system, but only time will tell.

Three Takeaways from FinTech Week


New York is always teeming with energy and excitement. Every corner, every street, every person contributes to the hum of the city. There was extra buzz in the air with FinTech Week taking over New York last week with multiple events. I’m now sitting back home in Charlotte, reflecting on my time at the FinXTech Annual Summit and at Empire Startups’ FinTech Conference, and I thought it was important to share some takeaways with you—particularly if you couldn’t make it.

Meeting in Person is Always Valuable
We communicate in so many different ways with our customers, colleagues and friends so it’s easy to think we’re in constant contact, that a rapport is building. Additionally, we send most of our digital communications when we decide—we can pause, think, or not respond at all! We secretly like this control of the conversation. But no matter how many e-mails, phone calls, or text messages you exchange there remains no substitute for meeting someone face to face. Conversations are fluid, you must be in the moment. You can form relationships quickly and you learn a lot more about the person from the minute you say hello. That is incredibly valuable.

What I enjoyed about FinTech Week, and particularly the FinXTech Summit, was the smaller, focused audience. It wasn’t overwhelmed with booths, swag, and marketing; it was hundreds of people, not thousands. I think large conferences and gatherings have their place but when you look back at all the events you attend, how many enable you to meet most of the attendees?

Reader takeaway: Look at the second half of 2017 and search for some more focused events to add to your calendar that enable you to learn and meaningfully connect with the presenters and attendees.

We’re Just Getting Started
Fintech is still figuring out the best path forward, which is a good thing! There is so much activity happening here and around the world (which you shouldn’t ignore). Inevitably, some people are just trying to ride the fintech wave. The crowd at FinTech Week was genuine in its desire to bring fintech innovation to market and to consumers.

There is a common tension in the fintech community and last week was no different. Everyone is excited and understands the potential. Many I met already are working towards the future. The big industry change is always tomorrow, not today. Well, that’s OK. Doing something hard, like changing the financial service industry, takes time.

Most of the 5,000-plus banks in the U.S. are just beginning their journey to digital transformation. Industrywide change doesn’t happen overnight-particularly in financial services. While some may find that frustrating, I find it exciting. It means that every financial institution getting started today has more products, services and industry knowledge from which to leverage and learn. The financial services ecosystem is only going to get better-and that is exciting!

Reader takeaway: If you think you’ve missed the fintech opportunity, you haven’t. We’re all experimenting with how to better serve our customers and there is plenty of room for improvement.

The Need for Action
Do something. Take the first step. Get involved and start implementing new ideas to improve the lives of your customers and employees. The initial stages of learning or doing something new make you feel dumber, not smarter. It makes you realize there is so much you don’t know. This is particularly acute if you’ve been in the industry for a long time. Don’t worry; this phase passes as you continue to familiarize yourself with the technology, new ideas and potential of fintech.

Financial services and banks enable people to invest for the future, buy a house, start a business and get an education. Fintech’s promise is to enable financial services to continue to meet the needs of their customers with a secure, delightful experience that fits in their daily lives-not takes them away from it.

Reader takeaway: Get to it. Next time, you can teach the audience what you’ve learned from fintech.

A week after FinTech Week, I am excited to get back to work helping people discover and engage with fintech. I implore you to go meet some people, find a customer problem to solve, and do something about it.

Balancing Innovation and Risk Through Disciplined Disruption


The digital disruption reshaping financial services mirrors the disruption brought about by Netflix, Uber, Lyft and Amazon in other sectors of the economy. What distinguishes financial technology companies is the financial and personal information their consumers entrust them with. The savviest fintech companies are those that employ discipline and structure to manage risk.

Many fintech companies adopt a fast-failure approach: move quickly and accept mistakes as necessary for innovation. Coordinating innovation with risk management might seem cumbersome. But if innovation is not integrated with effective risk management, companies risk running afoul of regulatory or compliance responsibilities.

One challenge fintech companies face is the sheer number of regulators that have rulemaking or supervisory authority over them due to unique business models and state level licensing and regulators. In the absence of a uniform regulatory scheme, there is widespread confusion about rules, expectations, oversight and regulatory risk. Many fintech companies and their banking partners remain uncertain about which laws and regulations apply or, most importantly, how they will be supervised against those rules.

A potential solution to this problem was the announcement in December 2016 by the Office of the Comptroller of the Currency (OCC) that it intended to create a special purpose national bank charter for fintech companies. The OCC aims to promote safety and soundness in the banking system while still encouraging innovation. A special purpose national bank charter would create a straightforward supervisory structure, coordinated by one primary regulator. This has turned out to be a controversial proposal, since the Conference of State Bank Supervisors has sued the OCC in federal court claiming that creation of a fintech charter would be a violation of the agency’s chartering authority.

Common Weaknesses
Executing an effective risk management plan in an innovative culture is challenging. Companies should be alert to the following common areas of weakness that can create vulnerability.

Compliance culture: Fintech companies often have more in common with technology startups than with financial services companies, which becomes particularly notable when maintaining a compliance management system (CMS). Compared with banking peers, many fintech firms generally have less mature compliance cultures that can struggle under increased regulatory scrutiny. The lack of a comprehensive CMS exposes companies to considerable risk, particularly as regulators apply bank-like expectations to fintech companies.

Risk assessments: Many companies fail to move beyond the assessment of inherent risk to the next logical steps: identifying and closing gaps in the control structure. Assessing the control environment and continually aligning an organization’s resources, infrastructure and technology to pockets of unmitigated risk is critical.

Monitoring and testing: Fintech companies can fail to distinguish between monitoring and testing, or understand why both are important. When executed properly, the two processes provide assurance of sound and compliant risk strategy.

Complaint management: Many organizations become mired in addressing individual complaints instead of the deeper issues the complaints reveal. Root cause analysis can help companies understand what is driving the complaints and, if possible, how to mitigate similar complaints through systemic change.

Corrective action: Finally, because of their fast-fail approach, fintech companies do not always follow up to remediate problems. Companies need feedback loops and appropriate accountability structures that allow them to track, monitor and test any issues after corrective action has taken place.

Strategies Across the Organization
Fintech companies should define clear and sustainable governance and risk management practices and integrate them into decision-making and operational activities across the organization. There are a number of actions that can help companies establish or evaluate their risk management strategies.

Assess risks: Because the fast-failure approach can ignite risk issues across the board, companies should evaluate their structure and sustainability of controls, the environment in which they operate, and their leadership team’s discipline level to measure the coordination of risk management and operational progress.

Identify gaps: Often, these gaps (for example non-compliance with certain laws and regulations, ineffective controls or a poor risk culture) represent the gulf between risks and the risk tolerance of the organization. A company’s risk appetite should drive the design of its risk management strategy and execution plan.

Design a road map: Whether a certain risk should be managed through prevention or mitigation will be driven by the potential impact of the risk and the available resources. Defining a plan within these constraints is important in explaining the risk management journey to key stakeholders.

Execute the plan: Finally, companies should deploy the resources necessary to execute the plan. Appropriate governance, including clear lines of accountability, is paramount to disciplined execution.

Successful companies align their core business strategies with effective risk management and efficient compliance. This alignment is especially important in the constantly changing fintech environment. Risk management and innovation can and should coexist. When they do, success is just around the corner.

John Epperson, principal with Crowe Horwath LLP, is theco-author of this piece.

Tips for Working With Fintech Companies

partnership-4-21-17.pngPartnerships with startup fintech companies can be fraught with difficulties. There are the cultural differences between bankers and tech entrepreneurs, the latter sometimes showing up for business meetings in sandals and jeans. Or there are the more practical problems of risk management with a startup that may not have been in business for more than a year or two.

Still, many banks are very much interested in doing business with fintech companies, in part because they fear innovation will lure customers away from the banking industry, or to more technologically savvy competitors. In a recent PwC survey of some 1,308 financial services executives, including banks, asset managers and insurance companies, 80 percent believe their profits are at risk from innovators, and 82 percent expect to increase their partnerships with fintech companies in the next three to five years.

Of course, banks have relied for a long time on financial technology companies in the form of core processors who provide everything from online banking to transaction services. But the sheer number of new financial technology firms has dwarfed the core processors and is quickly changing the landscape for financial services. Globally, some 6,500 fintech companies have received about $100 billion in funding in the last several years, according CB Insights, a research firm that tracks startup investments.

[Fintech companies] have the innovation, the great user experience and the efficiency the bank doesn’t have,” says Jo Ann Barefoot, a former deputy comptroller of the currency, who is now an advisor and CEO of Barefoot Innovation Group. She is a speaker at the FinXTech Annual Summit Wednesday in New York City, an event for bank executives, fintech companies and venture capitalists. “The banks are hard pressed to build it in-house unless it’s a really big bank, and even the big banks have trouble doing it.”

So what are some tips for banks interested in partnering with fintech companies?

Go Straight to the Investors
There are so many fintech companies out there, it’s hard to get a handle on what the best offerings may be for your bank. Manoj Govindan, a senior vice president in the Office of Innovation and Advanced Tech/Partnerships for Wells Fargo & Co., says the bank reduces the cycle time by building relationships with venture capital firms and angel investors who put their money into fintech companies. That helps the investors know what the bank is looking for and problems it needs to solve. It also helps the bank learn about solutions. Their conversations are “not about shiny objects,” he said. “It’s very focused on the three, or four or five things we know we need to solve for. It’s about educating the venture capitalists [and] that vastly reduces the feedback loop.”

Think Beyond Build or Buy
Govindan also urges banks to think beyond the notion that the bank can either build the technology solution or buy it. APIs, or application programming interfaces, are a great way for innovators to tap into the bank’s customer base and provide what customers need, he says. Wells Fargo and JPMorgan Chase & Co. recently inked a deal with Intuit to develop APIs so the bank’s customers can use Intuit’s products, including Mint and Quicken, in a way the bank can control and secure.

Accept Cultural Differences
One important first step to partnering with fintech companies is to recognize cultural differences. PayPal CEO Dan Schulman, for example, wears sandals or cowboy boots to business meetings. “Banks should recognize that there is a casual culture that is not slacker, or lax or disrespectful,’’ Barefoot says. You need to be open to how young some of these entrepreneurs are, and how great the technology can be, she adds.

Adjust the Vendor Risk Management Process
Traditional aspects of vendor risk management go by the wayside in dealing with fintech companies that haven’t been around for more than a year or two and may not have a source of funding beyond another few years. The $1 billion asset Radius Bank, based in Boston, does physical inspections of vendor sites, interviews the vendors in terms of compliance and risk management and sets up a wall, at least in the early part of the partnership, so that vendors don’t have access to customer data. The bank also has early conversations with regulators to make sure they are comfortable with the partnership and the risk management process, according to president and CEO Mike Butler in this video interview. Barefoot says banks must do serious vetting of fintech companies, especially on cybersecurity and anti-money laundering compliance. Some vendors sell customer data to third parties, so be clear about whether the fintech’s goals and policies match the bank’s. “Most of them are trying to do something good for the customer,” Barefoot says. “But you can’t take that for granted.”

Advice for Fintech Companies Working with Banks


For any fintech company that is just beginning to work with banks, the experience can at times be frustrating if ultimately rewarding. Banking and fintech companies are worlds apart in their perspectives. One is highly regulated and brings a risk adverse mentality to many of its decisions (guess which one that is), while the other is populated by entrepreneurial startups that fit the very definition of 21st century capitalism. One often approaches technological innovation with reticence if not outright resistance, while the other is all about technological innovation.

With such a profound difference in their basic nature, it might seem amazing that they are capable of working together, and yet there are many examples (and the numbers are growing) of banks and fintech companies cooperating to their mutual benefit. From the perspective of the fintech company, it helps to understand how most banks approach the issue of working with outside organizations, and their views on technological change in general.

“Fintech companies and banks each come with their own set of perspectives, and if you can empathize with each other, then you can marry those perspectives effectively,” says Sima Gandhi, head of business development at Plaid Technologies, a San Francisco-based fintech company that helps banks share their data with third-party apps through the development of APIs, or application programming interfaces. “Investing time to understand each other takes patience, but the returns are well worth it.”

For fintech companies, that can begin with an understanding of how many banks view technological change. Chicago-based Akouba provides financial institutions with a secure cloud-based platform for the origination of small business loans. Loan underwriting as it is still done today at most banks is a time consuming and paper intensive manual process, and Akouba’s goal is to speed up the application, decisions and administrative process by digitalizing it from beginning to end. And yet, according to Akouba CEO Chris Rentner, some banks push back at the idea of weaning their loan officers off paper. “They’re like, —Hey, you know what? We’ll just take the digital application, and we’re going to print off those forms and type the information into our old systems,’” he says. “I find it interesting that as banks are trying to buy new digital onboarding software, they don’t want the true digital engagement with a borrower.” The lesson here for fintech companies is that some banks will say they want to embrace innovation, but may limit themselves in the degree to which they will change old habits.

It’s also important to understand that the native conservatism that banks typically bring to third-party engagements is partly the result of strict regulatory requirements for vendor management, including data security. In recent years, federal regulators have become much more prescriptive in terms of how banks are expected to manage those relationships. Because in many cases, the bank would be giving the fintech company some access to its customer data, thereby creating a potential cybersecurity risk, it will most likely want to fully investigate a potential partner’s own cybersecurity program. This could very well include an onsite visit and extensive interviews with the fintech company’s information security personnel.

The federal requirements for vendor management that banks must adhere to are publicly available, so fintech companies should know them. “Don’t go into a bank trying to sell a product before you’ve gone through and collected your vendor management information, and reviewed and understood the standard that banks are being held to,” says Rentner.

The final piece of advice for fintech companies is to practice patience without sacrificing your company’s core principals. Gandhi says that successful collaboration rests on “the art of the possible.” “It’s important to remember that every problem is solvable,” she adds. “When the conversations get tough and you’re running low on patience, keep in mind that you’re both there because there’s a common goal. And you can best achieve that goal together.”

But if patience and an honest search for common ground ultimately doesn’t lead to a solution, Rentner says that fintech companies should resist making material changes to their products if they don’t believe that’s the right thing to do. Banks are slowly beginning to change as a growing number of them see the need for technological innovation, even if the pace of change is still slower than what the fintech industry wants. “Hold to your guns,” Rentner says. “Move forward, continue to sell your product. If you have enough time with a good product, you will get customers.”

Why You Shouldn’t Ignore Global Fintech


It’s difficult to comprehend the size of the global financial services ecosystem. Take just a minute to think about every person on earth with access to financial services (deposits, business loans, microlending and so forth). It’s around 2.5 billion adults.

Despite having access to financial services, many people fall into the category of being underbanked, which means that typical banking services aren’t readily available. And another 2 billion people are unbanked, meaning they don’t have access to formal financial services at all.

Globally, Six and a half times the entire population of the United States are unbanked. The good news is that that number is continuing to drop (700 million since 2011). Most unbanked people are in emerging and developing economies (India, China, sub-saharan Africa). Banks and fintech companies are discovering new ways to acquire previously unbankable customers. It’s a win-win combination: people get access to critical financial services and banks acquire new customers.

To be clear, the takeaway here is not about the underbanked. The takeaway is that there is a necessity for innovation in emerging markets and, as they say, necessity is the mother of invention.

Timing and context matter, a lot
It’s easy to think, “That’s interesting. They’ve got a long way to go before they reach the issues I deal with in a mature banking system!” That’s true, but there are some critical differences to consider.

Community and regional banks in the U.S. didn’t come of age with the following:

  • The internet
  • Pocket supercomputers (smartphones)
  • Cloud computing
  • Machine learning and automation
  • Practically limitless datasets on customers
  • APIs, real-time payments, P2P lending and blockchain

Imagine how different you would bank if you had started from scratch. Imagine how different regulation would be with easy access to real-time data from banks. It’s difficult to imagine this whole new world but it’s exactly why fintech is (rightly) recognized as a great opportunity for the industry and the consumer.

It’s also why fintech’s greatest opportunity is outside the U.S. Banks in developing countries, without so many legacy systems and processes, have the freedom to experiment. Out of necessity, emerging banking ecosystems are creating new products and services to serve un(der)banked customers and qualified customers. No bank is doing it perfectly today, but emerging markets are being forced to gain experience and practice. It’s that practice that is critical. Practice helps build the fintech muscle, which impacts how you conduct business and serve clients better.

Global Fintech is Local Fintech
So, who cares? How does innovation in banking in a country 8,000 miles away apply to you? I see two ways.

First, it’s an opportunity to learn. Innovation is most likely to occur when there are both incentives and constraints. Emerging economies have a huge, untapped customer base. Developing new services to acquire and serve all customers pays in spades over a person’s (and their family’s) lifetime. Emerging economies are digital and mobile first because of infrastructure challenges that make it difficult if not impossible to operate a traditional U.S.-style branch network. That’s not the same experience we have here in the U.S. However, appreciating these new products, services and risk assessment methods may give you insight into how to better serve your customers.

Second, it’s a (future) threat. What happens when the next international bank that can serve everyone, from the rural farmer to the high net worth individual, wants to expand? What market will they target next? What experience and technology will they bring with them that’s been honed to serve all clients. What will you do to compete? How can you widen your moat today?

Take Action
The most important question, what can you do now?

The first step is to start learning about fintech, both at home and abroad. We believe this is critical so we write about it everyday on the Let’s Talk Payments website. The more familiar you are with global trends and technology, the easier it will be to apply that learning to your own bank. It will equip you to have more meaningful conversations with your team, customers and potential fintech vendors.

Next, come up with a list of pain points for your customers (big or small) and start the journey of leveraging fintech to enable a better customer experience, new products and increased operational efficiency at your bank. Remember, it’s that experience that will help you and your team develop your fintech muscle.

As your team evolves your banking experience it’s important to remember that technology isn’t the answer. Technology is merely the great enabler to satisfying the needs of your customer. You need to experiment and gain experience. Your customers, shareholders, and communities will be better for it. So don’t wait, get started.

Patrick Rivenbark is the VP of Strategic Partnerships at Let’s Talk Payments, a global leader in FinTech Insights. He will be presenting at this year’s FinXTech Annual Summit on the panel titled “Ideas Know No Boundaries: A Global Perspective” where he will speak about innovation in financial services taking place outside of the United States.

Marstone: Friend or Foe


One of the biggest competitors that incumbent banks, institutions and advisory firms face today is the Robo Advisor. Fintech startups and apps like Betterment and Wealthfront are giving consumers convenient, seamless access to financial planning using automation and artificial intelligence (AI).

However, one fintech startup is trying to do the exact opposite, putting robo advising technology in the hands of incumbents: Marstone. As a digital, white label robo advisory platform for wealth management, Marstone’s goal is to create branded user experiences that are on par with cutting edge fintech competitors. Towards that end, Marstone recently partnered with fintech leader Fiserv to offer banks that rely on Fiserv for their core processing technology a full suite of robo advisory services under the “Powered by Marstone” moniker.

But exactly how powerful will Marstone be when it comes to helping established institutions? Let’s take a closer look and find out.

The main challenge that Marstone attempts to address for incumbent financial institutions is the speed at which they need to innovate to keep pace with fintech robo-advisory apps and services. Through their existing relationship with Pershing and their partnership with Fiserv, Marstone can provide white label robo advisory services to more institutions across the country that are also Fiserv clients. This includes everything from big banks that are competing with services like Fidelity Go, all the way down to local banks and credit unions.

Marstone develops its AI tech through partnerships with some of the top technology companies, such as IBM Watson. Its platform offers automated holistic account analysis, tailored portfolios and a user experience that feels more like a lifestyle brand than a bank. The goal is to demystify financial decision making for the user, while at the same time solving one of the biggest challenges faced by the industry today: asset retention. There’s currently a massive generational wealth transfer going on, as baby boomers pass their assets onto their children.

Big banks and advisory firms that do not offer the younger generation seamless, cost-effective technology solutions that are competitive with apps like Betterment and Robin Hood risk seeing that money walk out the door as soon as it lands in the hands of millennials. By providing a branded solution developed by Marstone to these younger customers, incumbents give themselves a better chance of retaining those assets.

As robo advisory apps, solutions and platforms continue to enter the market, the struggle for incumbents just getting into the game is differentiation. So, one of the questions for some of Marstone’s future clients is, exactly how different will their robo advisory platform look and feel from everyone else’s? Vanguard and Schwab are already well ahead of the robo advisory game in terms of awareness, so do institutions that licensea white label Powered by Marstone suite of services stand a realistic chance of catching up? And will consumers that use the most popular fintech apps like Betterment and Wealthfront be willing to switch over to a branded robo advisor that they’ve never used before? These are a few of the major question marks (and potential hurdles) that Marstone and their incumbent partners will likely face in the years ahead.

Innovating to keep pace with fintech startups is a huge challenge for big banks, traditional wealth advisories and even smaller credit unions. The cost of internal innovation and development is huge, especially when it comes to complex AI robo advisory solutions. Marstone is helping to alleviate much of that burden, allowing banks to offer competitive robo advisory services without the cost and headache of both development and ongoing maintenance. We see their partnership with Fiserv as a sign of friendship to incumbents, as Marstone will now be able to scale its operation and bring Powered by Marstone white label solutions to even more institutions. This should have a substantial positive impact on customer experience, and asset retention, for clients of Marstone.

How Can Your Bank Tap Into the Internet of Things?

internet-of-things-3-28-17.pngThe Internet of Things (IoT) has officially moved beyond hype. IoT is now well known and defined—basically putting data-gathering sensors on machines, products and people, and making the data available on the Internet—and companies are already using IoT to drive improvements in operational performance, customer experience and product pricing. Gartner predicts we’ll see 25 billion IoT data-gathering endpoints installed worldwide by 2020.

While IoT is delivering on its promise in a wide range of industries, many bankers are still struggling to find the value in finance, an industry largely built on intangibles. We see two primary IoT opportunities for banks:

  • Direct use of sensor data (location, activities, habits) to better engage customers and assess creditworthiness.
  • Partnering with companies that manufacture or integrate sensors into products to provide payment services for device-initiated transactions.

Engaging customers and assessing creditworthiness
Like most businesses, your bank can simply use IoT to understand—and serve—customers better. Banks are already implementing smart phone beacon technology that identifies customers as they walk in the door. Customers who opt in can be greeted by name, served more quickly and generally treated with more personalized care. You can also take advantage of sensor data outside of the bank to market more relevant services to customers. For example, data from sensors could […]

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Smart Data Emphasizes Quality, Not Quantity


International Data Corp. (IDC) suggests that worldwide revenues for big data and business analytics will grow from $130 billion in 2016 to more than $203 billion in 2020. The commercial interest in data comes as no surprise given the immense role it plays in facilitating innovation in the financial services industry and beyond. After all, for banks of any size, data is at the core of their vital business decisions. It enables the appropriate risk assessment of every financial operation and allows banks to accurately estimate the creditworthiness of existing and potential customers, among other things.

The value of data, however, has long been correlated with its quantity rather than quality, laying a foundation for big data analytic tools and intensive data generation in relationships between companies and consumers. While we can’t deny the value of such an approach in displaying major industry trends and assessing customer groups on a general level, financial technology startups nowadays are proving that innovation in the financial services industry will likely come from a smart use of more limited, but higher quality data rather than its scale. In addition, given the diversity of sources and ever-accelerating speed of data generation, it becomes more difficult to drive meaningful insights.

Smart Data’s Value as Raw Material
Smart data represents a more sophisticated approach to data collection and analysis, focusing on meaningful pieces of information for more accurate decisions. Coupled with advanced capabilities of AI and machine learning, smart data presents an opportunity for startups to efficiently derive deeper insights from limited, but relevant data points. Professionals from Siemens and an increasing number of organizations across industries believe that smart data is more important than big data. Moreover, in the future, the most important raw material will be smart data.

For banks, smart data represents an opportunity to change the way a prospective customer’s creditworthiness is assessed, hence, a chance to expand credit to new groups of population that have previously been overlooked. In fact, financial inclusion starts with the use of smart data. While national financial institutions are looking for reasons to deny someone of access to financial services, tech companies like Smart Token Chain, BanQu and others are looking for reasons to expand connectivity and open new opportunities for those excluded from the financial system. Those companies aim to leverage a different set of records for inclusive growth and a better tomorrow.

The Anatomy of Smart Data
Mike Mondelli, senior vice president of TransUnion Alternative Data Services, listed property, tax, deed records, checking and debit account management, payday lending information, address stability and club subscriptions as some of the sources for alternative data. As he emphasized, “These alternative data sources have proven to accurately score more than 90 percent of applicants who otherwise would be returned as no-hit or thin-file by traditional models.”

Other alternative sources of data used by technology companies include web search history, phone usage, social media and more. Sources can be combined into clusters, which some professionals distinguish as traditional, social and online.

Source: Forbes,

The data sources emphasized above are certainly not exhaustive and their combination can vary depending on the goal and availability. In any case, the goal is to find the most relevant, even though limited, data that corresponds with the goal of its use. Fortunately, there is a variety of fintech companies leveraging the benefits of alternative data for inclusive initiatives, credit extension and more. Such examples include ZestFinance, Affirm, LendUp—all of which use data from sources such as social media, online behavior and data brokers to determine the creditworthiness of tens of thousands of U.S. consumers who don’t have access to loans.

Companies like Lenddo, FriendlyScore and ModernLend use non-traditional data to provide credit scoring and verification along with basic financial services. Those companies are creating alternative ways to indicate creditworthiness rather than relying on traditional FICO scores. For banks, such companies open up opportunities to expand their customer base without compromising their financial returns and security, while leveraging technological advancements for adopting innovative ideas and enhancing community resilience.

ClickSWITCH: Friend or Foe


Transferring accounts has long been considered a cumbersome process. Now with a simple click, the company ClickSWITCH has created an easy system that will allow its users the ability to transfer their accounts from one bank to another. ClickSWITCH further eliminates the need to contact each individual biller to transfer bill pay services. The process isn’t 100 percent automated yet (currently about 60 percent of deposits can be digitally transferred without paper documents), and it isn’t instantaneous. However, it does dramatically reduce the effort the consumer must make to switch accounts or open new ones.

The automated account transfer solution is a white label service that banks can use to offer new account holders the ease and speed of digital onboarding. When the transfer is complete, it gives the consumer the option to close the previous account. It takes 5 to 15 days to complete the transfer, although bill pay and automatic deposit data transfer immediately.

The company touts its product as a way to increase customer engagement, a retention tool for banks that have acquired another bank, and as a way to reduce the amount of time that employees spend onboarding new customers manually in the branch.

ClickSWITCH gets paid a fee of approximately $30 for every account onboarded. By speeding up the transfer of direct deposits, the banks get a profitable new customer faster. The company is using resellers instead of creating a large sales team. Most banks using ClickSWITCH range between $500 million to $10 billion in assets, with some larger institutions also using the product.

Banks inevitably will be concerned about data and security issues. That said, over 300 financial institutions in the U.S. and Canada have found a way to get comfortable enough to use the platform. ClickSWITCH is SSAE16 SOC1 certified. (SSAE16, or Statement on Standards for Attestation Engagements No. 16, is a new internal controls standard put forth by the American Institute of CPAs). The company is bullish about its security practices.

The bigger and broader question: If this works, why wouldn’t every bank have ClickSWITCH or ClickSWITCH-like capabilities? If seamless transfer becomes an industry standard like bill pay, how will banks retain their assets? Deposit flows could become far more volatile, and competition for consumer and business deposits would push banks to create better user experiences. Nontraditional banks and nonbanks that are pouring resources into user interfaces and customer engagement would have a better chance to win the hearts and wallets of customers.

ClickSWITCH is a friend that wants to change how you compete if you’re ready to compete on the strength of your products and customer service. However, for those preferring to rely on the tedious process of changing accounts as a disincentive to prevent your customers from going elsewhere, clickSWITCH is clearly a foe.