Banks Will Play a Critical Role in Digital Identity Adoption


digital-identity-6-26-17.pngWhat could be more important than your identity?

The recognition and authentication of an individual’s identity, together with associated rights, is becoming a priority for governments around the world.

From a world development perspective, identification—whether through civil registries or other national identification systems—means inclusion and access to essential services, such as health care, education, electoral rights, financial services, social safety net programs, as well as effective and efficient administration of public services, transparent policy decisions and improved governance.

It’s equally important for the business world. Banks and businesses across verticals are facing harsh competition from technology companies that build seamless online experiences around one’s digital identity. Ever-increasing volumes of digital transactions and the complexity of the payments ecosystem, including watches that allow consumers to pay for purchase, force financial institutions to understand the role of a digital identity in security and growth opportunities. Five key trends, according to the World Economic Forum, are increasing the need for efficient and effective identity systems:

  • Increasing transaction volumes: The number of identity-dependent transactions is growing through increased use of the digital channel and increasing connectivity between entities.
  • Increasing transaction complexity: Transactions increasingly involve very disparate entities without previously established relationships (e.g., customers and businesses transacting cross?border).
  • Rising customer expectations: Customers expect seamless, omnichannel service delivery and will migrate to services that offer the best customer experience.
  • More stringent regulatory requirements: Regulators are demanding increased transparency around transactions, meaning that financial institutions require greater granularity and accuracy in the identity information that they capture and are increasingly being held liable for inaccurate or missing identity information.
  • Increasing speed of financial and reputational damage: Bad actors in financial systems are increasingly sophisticated in the technology and tools that they use to conduct illicit activity.

Meanwhile, solutions like PayPal, Venmo, Stripe, Square Cash, and other leading examples set the bar for financial institutions of any size so high, that consumers’ expectations alone can bury a traditional institution that is not able to catch up. One of the reasons those solutions have been able to gain ground is the ease of signup and use. They are tied to strong digital identity verification and authentication rails, enabling them to offer smooth and secure mobile payments and online shopping experiences.

Banks, nonetheless, play a role as major gatekeepers for third-party solutions as identity is currently a critical pain point for innovation in the financial services industry. The lack of digital identity limits the development and delivery of efficient and secure, digital-based fintech offerings.

Many fintech startups are trying to deliver pure digital offerings, but the process of identifying users consistently forces them to use traditional rails established by institutional sector. These fintech innovators now see the development of a new generation of digital identity systems as being crucial to continuing innovation. Banks, being the primary verifiers of one’s identity in the financial sector, hold the keys to development of innovative, digital-based solutions. Digital identity would allow financial institutions to perform critical activities with increased accuracy over that afforded by physical identity, and to streamline and partially or fully automate many processes, according to the World Economic Forum.

The WEF suggests that physical identity systems currently put users at risk due to overexposure of information and the high risk of information loss or theft; they also put society at risk due to the potential for identity theft, allowing illicit actors to access public and private services, using easy-to-steal numbers such as credit cards and social security numbers. Digital identity would streamline the completion of these public and private transactions.

Having established massive repositories of records and deep understanding of their customers, banks have a unique opportunity to transition from reliable physical information to reliable digital identity systems. Identity enables many societal transactions, making strong identity systems critical to the function of society as a whole, according to the World Economic Forum.

Identity is also central to the broader financial services industry, enabling delivery of basic financial products and services. Reliance on physical identity protocols introduces inefficiency and error to these processes. Digital identity has great potential to improve core financial services processes and open up new opportunities.

How MySpend by TD & Moven Helps People Track Expenses


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If there’s one thing most consumers wish they could do better when it comes to managing their finances, it’s keeping tabs on spending. And while various technologies, apps and solutions have hit the market to help banking customers track their spending, one unique partnership is helping people get even more insight into where, when and how much they spend.

As the second largest bank in Canada—and 19th largest in the world—Toronto-based TD Bank serves over 22 million customers worldwide and over 11 million in Canada alone. And as an international big banking player, TD Bank faces stiff competition from competitors when it comes to offering branded money management and expense tracking technology. More and more, consumers are looking for apps that can help them monitor their expenses in real-time, on-the-go via smartphones and tablets. Bank of America, for instance, incorporated budgeting and expense tracking capabilities into the latest update of its mobile banking application.

Enter Moven, a New York-based fintech company focused on providing mobile capabilities to consumer facing financial services companies. Moven’s current white-label mobile product offerings to banks include a variety of functionality—from credit score monitoring and mobile banking to budgeting and expense tracking. That’s why Moven was a logical partner when TD Bank was searching for a company to help it develop a next-generation mobile expense tracking app. The result of this partnership was MySpend, a mobile, real-time expense tracking and money management app, made available to TD’s Canadian customer base.

The TD MySpend app was released in April of 2016, and quickly shot up to the number one spot in the category of free money management apps in the Canadian app store.

“Within nine months [MySpend] exceeded 850,000 registered users,” says Rizwan Khalfan, TD Banks’ chief digital officer. “[And] we are seeing customers who are using the app reduce their spending by around four to eight percent, with most frequent users seeing the greatest impact.”

MySpend alerts customers in real-time when any spending occurs using a TD Bank product or service, from a cashed check to credit card expenditures. Not only does this help customers keep tabs on their spending, it also serves to address potential fraudulent activity as soon as possible. MySpend also automatically categorizes all transactions, so customers can quickly log into the app and see how much they spent on rent, utilities, entertainment and so on. For a deeper level of insight, Moven built in a feature that compares a customer’s current month’s spending with their average normal spending patterns of prior months.

“I think the most compelling [MySpend] feature is the continual engagement with customers with the notifications,” notes Greg Midtbo, Moven’s chief revenue officer. “Before they even put their card away they get a notification, for example, of how much they spent dining out and how it fits into their monthly budget.”

The partnership with TD is also a great strategic move for Moven, as the firm is able to reach even more consumers with their technology using the white-label partnership model.

“We realized early on that we couldn’t get tens of millions of customers using the app across multiple geographies without partners like TD,” says Brett King, CEO and founder of Moven. “[Partners like TD] bring us real scale and solve one of the biggest problems that fintechs face today, which is recurring revenue growth.”

MySpend also illustrates the trend of banks partnering with fintech players to better utilize the large amount of customer data they possess, to turn back around and help those same customers succeed financially. While massive adoption rates and high app store rankings are great, the most impressive thing about TD and Moven’s partnership is that it’s helping customers save money. People that engage with the MySpend app on a regular basis have been found to spend less money than TD customers who don’t use the app, or use it infrequently.

The success that TD Bank and Moven are seeing with MySpend only increases the likelihood that the partnership will continue to expand. This could mean developing new features and capabilities within the MySpend app—Moven is already established in the mobile payments space—or making MySpend available to its millions of customers in the U.S. and even the U.K.

That’s because for Canadian consumers thus far, it’s been a simple equation—more time on MySpend equals less spending.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.

Scotiabank Partners with Sensibill to Digitize and Track


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It’s tax time again, and for many people across the U.S. and Canada that entails one major headache—organizing and managing receipts. Whether it’s an individual or business, keeping, organizing and categorizing receipts is critical to maximizing tax deductions, not to mention for good general fiscal management purposes.

However, one Canadian bank is partnering with a fintech innovator to make receipt management much more of a breeze for their customers. Just last year, Toronto-based Scotiabank announced a partnership with Canadian fintech company Sensibill to offer a mobile receipt management solution called eReceipts that will to make it easier for Scotiabank customers to manage their finances. The eReceipts app serves as an extension to Scotiabank’s mobile banking application and digital wallet.

Scotiabank is one of Canada’s largest banks, serving more than 23 million customers across the dominion and 50 countries outside Canada. And at 184 years of age, Scotiabank is older than Canada itself. With over $1 trillion in total assets, Scotiabank invests more than $2 billion per year in technology initiatives. Partnering with Sensibill to create eReceipts was a natural fit, as it’s a Toronto-based startup that was incubated through Ryerson University’s Digital Media Zone initiative. Sensibill has grown to become a white-label software provider of software solutions to help banking customers better manage receipts from both desktop and mobile.

While there has been technology available to aid in receipt management, it’s still incredibly difficult to categorize and drill down into the detail of specific receipts, especially on a mobile device. What makes the eReceipts functionality so unique is that it’s the first app to automatically match specific credit and debit card transactions to the right receipt. After making a purchase, customers can take a photo of the receipt directly from their Scotiabank banking app. Then, through a combination of Optical Character Recognition and machine learning software, the receipt is matched to the proper transaction in the user’s account history. When users drill down into the transaction, information from the receipt has already been extracted, structured and presented in a clear, easy to navigate format. Scotiabank customers can see all the information about a receipt they need without ever having to look at a piece of paper.

Scotiabank customers have been interacting with eReceipts an average of 38 times per month to track both personal and business expenses. So in addition to making their customers’ lives easier, eReceipts is increasing engagement with Scotiabank’s mobile application—and with it the potential to reduce overall customer attrition rates as users continue to rely on it. Receipts can also be categorized as business or personal, and can be annotated, tagged and stored in folders. In fact, around 48 percent of users utilize folders to organize expenses. Hashtags can also be assigned to receipts for ease of search purposes, along with receipt text itself being searchable. And when tax time rolls around, all receipts can be exported in PDF format, along with a matching Excel or CSV file to make preparation easier.

Scotiabank is the first of Canada’s five largest banks to roll out an application like eReceipts that can automatically match paper receipts to the corresponding transaction. Although there are solutions on the market that can capture receipts, eReceipts is the first to extract and contextualize data on such a granular level. Sensibill’s unique deep machine learning, combined with a powerful receipt processing engine, can even associate product names and SKUs with transactions. The result is that otherwise vague transactions become extremely clear when users begin to drill down. Usage of eReceipts has exceeded initial targets by upwards of 300 percent, with positive reviews and shares springing up organically.

In the future, Scotiabank may be able to leverage this additional data to improve customer experience and enhance revenue. Having access to consumer purchase history at the item-level could help Scotiabank better understand, and anticipate, their customers’ needs and preferences. The goal is to better personalize the banking experience, and offer targeted banking products or services based on an analysis of receipt and purchasing history. For example, if Scotiabank notices that a couple is purchasing items like cribs, baby formula and diapers, it might assume there’s a baby on the way and begin marketing a 529 College Savings Plan. In fact, Sensibill is already working to add an “insights” component for partners like Scotiabank, so that customer data generated by eReceipts can be more effectively extracted, organized and analyzed.

The partnership between Scotiabank and Sensibill is noteworthy because it tackles a problem that everyone seems to face in the physical world. With eReceipts, the two companies are taking a huge step towards helping people stay organized, maximize their tax benefits and know exactly how they’re spending their money.

And perhaps most importantly, eReceipts points to a world where we can finally toss that musty old receipt-filled shoebox in the closet.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.

Three Takeaways from FinTech Week


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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.

Advice for Fintech Companies Working with Banks


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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.”

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 […]

This content was originally written for FinXTech.com. For the complete article, please click here.

Not All Innovations Are Disruptive, But This One Could Be


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I was listening to a financier talking about fintech companies the other day, and he claimed that their work products are all sustaining innovations and not disruptive. He was referring to Clayton Christensen, a Harvard Business School professor and an expert on disruption. In his research and writings, Christensen has pointed to various markets that were disrupted by outsiders, including the American car industry, disrupted by cheaper Japanese car manufacturing; fixed line telephone firms, disrupted by cell phone makers; and the mainframe computer industry, disrupted by PC manufacturers.

Rubbish.

There is a flaw in Christensen’s work, which is that incumbents often fail to respond when challenged by outsiders, which makes their situation worse. That was true of Kodak and Nokia, where the change was fast and the management teams were weak. American car firms—Ford, General Motors and Chrysler—have not disappeared because of competition from Toyota and Honda; instead, they responded proactively and survived. AT&T, with $168 billion revenues in 2016, is hardly dead either. And IBM, with $80 billion revenues, is still going pretty strong.

Equally, Christensen points to industries that produce commodity products such as phones, cars and computers, where there may be giants, but the giants are not protected by layers of law and regulations like banks are. That is why banking has not been disrupted to date, and is unlikely to be in the future.

Christensen does make an important point, although it’s not as radical as those who refer to his work believe. If a weak competitor enters the bottom-end of the market, he argues, they may have the opportunity to disrupt the market if the incumbent does not respond. That is true, and that was the case with Kodak and Nokia. Ford, AT&T and IBM did respond and survived the change.

That is the case with any change however. As Charles Darwin noted: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

How true.

We really need to understand the difference between sustainable innovation and disruptive innovation in order to see if there is any disruptive change in banking. According to Matt West:

Sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.

Sustaining innovation improves what is there today; disruptive innovation replaces what is there today. Hmmm. I blogged about this over on The Next Web, stating that there are three streams of fintech innovations:

  • Those that serve markets that banks don’t serve
  • Those that improve the customer journey by removing friction
  • Those that work with banks to eradicate inefficiencies, for example, in customer onboarding

Obviously, the latter two categories are sustaining innovations, as they improve what is there today. The first category is interesting though, as it is creating and serving new markets. In my blog, I pointed to SME financing and crowdfunding, but that’s not a true example of disruption. That is an extension of what’s occurring today.

However, I do see one example of disruptive innovation out there. I think about this one often. It is clearly disruptive, but is it noticed by the incumbents? Have they responded?

Not yet.

What is it?

I’m tempted not to say, but that would be rude. It’s financial inclusion.

There’s loads of discussions about financial inclusion and the use of mobile wallets in Sub-Saharan Africa to provide cheap and simple money transfers between people without bank accounts. This is serving the bottom end of the market, and Christensen defines disruptive innovation as: “A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

Oooh. We have one. Are the banks noticing?

How Can Your Bank Tap Into the Internet of Things?


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The 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 alert your bank when a customer’s car goes into a repair shop; after the third service call, you might offer the customer an auto loan for a new car. This type of tailored service and marketing can change a customer’s relationship with your bank dramatically: Pleasant experiences and valued information are a time-tested path to loyalty.

IoT sensor data can also supplement traditional methods for predicting creditworthiness and protecting against fraud, especially for customers with little or no credit history. For example, if a small business HVAC contractor applies for a commercial loan, you can request access to data from shipping and manufacturing control sensors to track the flow of actual product into buildings. This can help the bank confirm how the business is doing. For product manufacturers, you can track and monitor goods, including return rates, and if the return rate is high the bank can adjust the loan pricing and decisions accordingly. Leveraging alerts on credit cards and processed payments can provide information about where and how often an individual or business is making purchases, providing clues about creditworthiness without requiring access to detailed credit card records. In short, with billions of sensors all over the world, IoT will offer you more data that can help you assess creditworthiness and prevent fraud.

Providing payment services for device-initiated transactions
To illustrate the potential of IoT, proponents often cite the “smart” refrigerator, which senses when a household is low on milk and automatically orders more. Similarly, in the commercial space, sensors can automatically trigger a call for maintenance when a piece of equipment is due for service. In these device-initiated transactions, your bank could partner with the providers to offer payment services as an integrated component of the IoT package.

On a more local level, as small businesses begin to take advantage of IoT sensors to automatically reorder supplies—paper, toner, medical supplies, salon products—your bank can tie payments into the IoT-triggered reordering system. In addition to broadening your market for payments, being part of this solution can strengthen attachment to your bank among small businesses in your community.

Start with the end in mind
This is undeniably an exciting time in banking. Between fintech offerings and IoT applications, it’s tempting to move quickly for advantage, but we all know that investments are far more likely to pay off when you treat the process with rigor and resist the urge to grab bright shiny objects. IoT is no different: Before you start buying systems and aggregating data, know what problems you’re trying to solve and what data you’ll need for the outcomes you want to achieve. In banking, the most promising returns on IoT investment are likely to be found in improved customer experiences and marketing effectiveness, reduction in loan default and fraud, and growth in your payments business. But with all the dramatic changes unfolding, who knows what innovations might be ahead—your bank might find opportunities for IoT no one else predicted.

 

Contributed by: John Matley, Principal, Deloitte Consulting LLP;Akash Tayal, Principal, Deloitte Consulting LLP;William Mullaney, Managing Director, Consulting LLP

The Year of the FinTech Rooster


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One of my key forecasts for 2017 is that the fintech buzz will continue, but not in the United States. We need to look to China instead. This is fairly obvious as that country saw the biggest rise in fintech investments in 2016, while investments in the U.S. cooled off. This is pretty well summed up in Citigroup’s Digital Disruption report. The second edition just appeared, and opens with:

The rise of the Chinese dragons reflects a unique combination over the past decade of incredibly rapid digitization and the simultaneous rise of the Chinese mass middle class, along with poorly prepared incumbent financial institutions facing off against entrepreneurial e-commerce and social media ecosystems. It is no surprise to us that China accounted for over 50 percent of total fintech investments globally in the first nine months of 2016 and was the only major region where fintech investments increased in 2016–in fact doubling in China in the first nine months of 2016 versus the same period in 2015.

Most notably, China saw one of its fintech giants emerge on the world stage as Alibaba—the country’s largest online e-commerce company—went global. Payments powerhouse Ant Financial (once a subsidiary if Alibaba just as PayPal was once a unit of Ebay) announced that it seeks European and American clients using its AliPay service. And Alibaba founder and Executive Chairman Jack Ma has risen to the same heady heights as Amazon founder Jeff Bezos, or even higher if this year’s World Economic Forum in Davos, Switzerland is anything to go by. Ant is already growing at a phenomenal rate, having gained about 100 million new users in 2016, which took its total above 500 million—or nearly 10 times larger than the world’s biggest banks. Its ambitions don’t stop there. In an interview with CNBC at Davos, Ant Financial CEO Eric Jing said that “we have an ambition to be a global company. My vision (is) that we want to serve 2 billion people in the next 10 years by using technology, by working together with partners _ to serve those underserved.”

The company has never been understated in its ambitions—but to its credit has realized most of them. This is because Chinese internet giants like Tencent, Baidu and Alibaba started in a very different place compared to American internet giants like Facebook, Amazon and Google. The American companies formed to replace old institutions like bookshops. They had a strong, integrated financial system in place, and a well ordered commercial structure. When the Chinese firms began, there was nothing in place to replace. Sure, there were big banks, but these were state owned and had little focus upon customer service or innovation. That has all changed in the last 20 years.

Maybe that’s why, when the chairman of one of the world’s biggest banks was asked recently how technology would change finance, he pointed to the rise of Ant Financial. The veteran chairman—who was not willing to be quoted by name—noted that the Chinese group had acquired a “huge amount of data” and “a great ability to make credit decisions.” The tone of jealousy was hard to miss.

This is because the Chinese internet giants began with a clean sheet of paper and have expanded across China and now the world with their innovative designs. That design began with commerce and communication—Alibaba started as a platform for mum and pop stores to sell their wares—and has expanded into a social and financial ecosystem that can serve all needs through a mobile app. Alibaba and Tencent run not just an internet service, but a payments platform, a social network and more. It is all embracing and fully networked, far more than anything seen outside China.

Between the data analytics that can be applied in that ecosystem, deep learning and contextual commerce capabilities, it’s no wonder the banks are jealous. They should also be concerned, as the Chinese payment model is bound to expand globally and then be copied by the likes of Facebook and Amazon. Happy Chinese New Year!

Fintech Intelligence Report: Marketplace Lending


	intelligence-report-cover.PNGAs noted throughout our 2017 Acquire or Be Acquired Conference, partnerships between a bank and a tech company can take on many forms — largely based on an institution’s available capital, risk appetite and lending goals. With fintech solutions gaining momentum, many advisors at this year’s event encouraged banks to look at viable alternatives to meet consumer demands, maintain and expand their lending revenue and give formidable competition to those looking to take that market share.

Fintech lending has grown from $12 billion in 2014 to $23.2 billion in 2015 and is expected to reach $36.7 billion in 2016, a year-over-year growth of 93 percent and 58 percent in 2015 and 2016. This market, according to Morgan Stanley Research, is expected to grow further and reach $122 billion by 2020.

With this in mind, we invite you to take a look at our new Fintech Intelligence Report on Marketplace Lending. The research paper, developed by FinXTech, a division of Bank Director, and MEDICI, a subscription-based offering from LetsTalkPayments.com, explores current market dynamics along with technology and partnership models. As noted in this report, the gains of new fintech companies were widely thought to be at the expense of banks; however, many banks recognize the potential value from collaboration and have built relationships with fintechs.

Tell us what you think! As we work to provide you the latest information and research as it pertains to the financial services industry, we would appreciate your feedback on the Fintech Intelligence Report. Please email us your comments and/or suggestions at news@finxtech.com.