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If you joined the Fintech party only this year, and feel you missed on riding the curve – don’t worry. Sub Saharan Africa is where all the Fintech excitement is at the moment. In 2018, Fintech investments in Africa quadrupled to $357 Million. Image Source This is tiny compared to the Billions being invested in […]
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Late stage venture capital deals and funding have been growing rapidly over the last three years. The most recent European Fintech to hit the headlines with yet another multi-Billion dollar valuation is Klarna. The “Buy now Pay later” payments company raised $460 Million at a massive $5.5 Billion valuation. My immediate reaction to the numbers […]
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As a fintech, how do you compete with an incumbent’s AUD $5B war chest, specifically set aside for technology innovation? It’s a question a number of Australian fintechs and neobanks will be grappling with this week, after CBA, Australia’s largest bank, announced it is doubling down with its billions, in order to cement and entrench […]
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Image Source He was the architect of Aadhaar – a biometric identification database of 1.3 Billion Indians that was put together in just over a couple of years. Nandan Nilekani, the co-founder of Infosys, is now back in the headlines discussing India’s “Account Aggregator”. An open banking-isque concept, Account Aggregators (AA) would consolidate financial information […]
The post India embrace “Data Empowerment Architecture” with Account Aggregator appeared first on Daily Fintech.
Who doesn’t love being part of a club? Most of us are suckers for anything that looks and feels a touch exclusive. Frequent Flyer points are probably the most obvious example of this in practice, alongside the coveted airline lounges, and their tiers of exclusivity and privileges. What if banking was a club, rather than […]
The post Friendly fintech MoneyLion lands $160 million in fresh funding appeared first on Daily Fintech.
I landed in the UK about 14 years ago. I remember my initial months in the UK, when I struggled to get a credit card. This was because, the previous tenant in my address had unpaid loans. As a result, credit agencies had somehow linked my address to credit defaults.
It took me sometime to understand why my requests for a post paid mobile, a decent bank account and a credit card were all rejected. It took me longer to turn around my credit score and build a decent credit file.
I wrote a letter to Barclays every month, explaining the situation until one fine day they rang my desk phone at work to tell me that my credit card had been approved. It was ironical because, I was a Barclays employee at that time. I started on the lowest rungs of the credit ladder for no fault of mine. Times (should) have changed.
Artificial Intelligence, Machine Learning, Deep Learning, Neural Networks and a whole suite of methodologies to make clever use of customer data have been on the rise. Many of these techniques have been around for several decades. However, only in recent times have they become more mainstream.
The social media boom has created data at an unforeseen scale and pace that the algorithms have been able to identify patterns and get better at prediction. Without the vast amount of data we create on a daily basis, machines lack the intelligence to serve us. However, machines rely on high quality data to produce accurate results. As they say, Garbage in Garbage out.
Several Fintechs these days are exploring ways to use AI to provide more contextual, relevant and quick services to consumers. Gone are the days when AI was considered emerging/deep tech. A strong data intelligence capability is nowadays a default feature of every company that pitches to VCs.
As AI investments in Fintech hit record highs, it’s time the regulators started thinking about the on-the-ground challenges of using AI for financial services. The UK’s FCA have partnered with Alan Turing Institute to study explainability and transparency while using AI.
Three key scenarios come up, when I think about what could go wrong in the marriage of Humans and Machines in financial services.
From a consumer’s perspective, the explainability of an algorithm deciding their credit worthiness is critical. For example, some banks are looking at simplifying the AI models used to make lending decisions. This would certainly help bank staff understand and help consumers appreciate decisions made by machines.
There are banks who are also looking at reverse engineering the explainability when the AI algorithm is complex. The FCA and the Bank of England have tried this approach too. A complex model using several decision trees to identify high risk mortgages had to be explained. The solution was to create an explainability algorithm to present the decisions of the black box machine.
The pace at which startups are creating new solutions makes it harder for service providers. In recent times I have come across two firms who help banks with credit decisions. The first firm collected 1000s of data points about the consumer requesting for a loan.
One of the points was the fonts installed on the borrowers laptop. If the fonts were used in gambling websites, the credit worthiness of the borrower took a hit. As the font installed indicated gambling habits, the user demonstrated habits that could lead to poor money management.
The second firm had a chatbot that had a conversation with the borrower and using psychometric analysis came up with a score. The score would indicate the “intention to repay” of the customer. This could be a big opportunity for banks to use in emerging markets.
Despite the opportunities at hand, algorithms of both these firms are black boxes. May be it’s time regulators ruled that technology making critical financial decisions need to follow some rules of simplicity or transparency. From the business of creating complex financial products, banks could now be creating complex machines that make unexplainable decisions. Can we keep the machines under check?
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).
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Temenos released in April its annual report[1] on the State of digital sales in banking. As I was reading some of the key findings reported by Jim Marous[2], I was struck by these observations:
More concerning is the reality that most of the high marks for digital sales continue to be garnered by only the largest organizations.
Larger banks ($150B – $2,500B) not only have a financial and technological advantage, they benefit from a head start in the deployment of all digital account opening capabilities, allowing them to gain a share of mind advantage through media and word of mouth.
#AndTheIronyIs that technology was supposed to democratize banking not only for the end-customer but also for the smaller, less national, less international financial services provider. After all, fintech is by now overweight B2B providers. Remember it all started as a disruption, replacement to banking. Then it shifted to collaboration and partnerships with incumbents and as Jessica pointed out ‘Something’-as-a-service, the new fintech paradigm.
#AndTheIronyIs that despite the plethora of B2B unbundled fintech services out there, anything you can imagine as a service; the mid and smaller size banks remain overall behind. Of course, there is a variety of metrics and KPIs that one can use to measure their digital readiness. From mobile account opening, save and resume functionality, small business account opening, etc.
Digital transformation these days requires internal cultural and technological changes whose impact will be seen 3yrs down the road. That means that mid to small size incumbents remain at a disadvantage.
When I look at 11Pulse, the digital benchmarking offering of 11FS that allows clients to benchmark themselves against peers on onboarding, security, PFM, …; I wonder whether mid to small size banks are flocking to take advantage of this service and to find ways to catch up.
I guess the simplistic answer is that small to mid-size banks don’t have the guts and the budget to stick to such a 3yr plan.
For sure they don’t have any internal strategic funding mechanisms like Goldman Sachs has. Goldman’s Principal Strategic Investments group has made key investments in Kensho and Tradeweb and helped create Wall Street chat platform Symphony, and much more.
Neither do VCs fund the transformation of existing banks because they are only interested in high growth stories, which means investing in those that are building the picks and shovels.
The only such example I have found is Cross River Bank that Battery Ventures, Andreessen Horowitz and Ribbit Capital invested $28million in 3yrs ago[3] and recently another $100mil was announced by KKR. Cross River bank started by supporting fintech startups with loans – $2.4 billion in loans for companies like Affirm and Upstart in 2015 alone. Today it is more than a leading marketplace lender for fintech. It is one of the top go-to bank-fintech cooperation providers. Its customers include Circle, Best Egg, Coinbase, Rocket Loans, Stripe, Upstart, Affirm, and Transferwise. Just 2 weeks ago it Cross River bank acquired Seed, a small business banking company. Seed is a 5yr old online banking company for small business owners and freelancers.
`If a payments company wants to become a lender or a lending company wants to do payments, then they have the ability to do that on our rails,` says founder Gilles Gade to Techcrunch.
The question to VCs, CrossRiver bank, 11Pulse, and other remains:
It is either the large incumbents (my Sharks) or the aggressively VC funded Fintechs (my piranhas) that are benefiting from the variety of `anything Fintech as a service`. What about the bulk in between?
[1] The report includes the Temenos proprietary ‘Digital Sales Readiness Matrix’.
[2] Banks Not Meeting Digital Sales Expectations
[3] Who`s building the Banking Smart pipes
Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).
The past decade has seen to major leaps made in financial services in the emerging markets – largely thanks to mobile penetration. Be it M-Pesa in Africa, or more recently Tencent and Alibaba in China, the transformation on the ground depended after usage of mobile phones became mainstream. However, there is one part of the world, that is stealthily moving towards one such leap frog moments – Latin America.
Latin America has the third highest penetration of smart phones globally, after North America and Europe. In 2017, smart phone penetration in Latin America was 61% and about 50% of smartphone users accessed the internet through their mobile phones. Smartphone penetration in the region is expected to grow to 76% by 2025.
A platform for growth is well set and the impact when growth occurs is going to be big too. That is because, 70% of the population in the region is unbanked. This is due to the processes involved in opening a bank account. The documentation required to open a bank account involves, proof of citizenship, employment and financials.
Nubank was the first Neobank of Latin America, and they are fast expanding within Brazil and Mexico. Both these markets are pretty large and hot for mobile based financial services. As per a PwC Fintech report, in 2018, there were 224 Fintech startups in Brazil, 94% of them based out of the southern part of the country.
Nubank is hailed as the “Most Valuable Startup” of Latin America. There was recent press about them doing a $1 Billion fund raise from investors like Softbank group, at a massive $10 Billion valuation. The round is not closed yet, however, I wouldn’t be surprised if it goes through, due to the traction Nubank have achieved in a massive market. They have 8.5 Million customers already and are the largest digital bank outside of Asia.
With a huge base in Sao Paolo that has a 21 Million population, Nubank has captured the urban mobile-first customer base with an average age of 32 years. While the Nubank app provides basic banking services out of the box, the Fintech ecosystem in Brazil could allow for better opportunities.
Several Fintech players offering loans, wealth management services, mortgages and insurance can plug their apps onto Nubank’s platform. The API based integration could trigger a bundling up of financial services to form a Fintech Super-App.
One of the closest competitor to Nubank is a food delivery business – iFood. Brazilians are getting on lifestyle apps before they embrace fintech services provided by these lifestyle apps. It is interesting to see that in LATAM, a proper Fintech app (Nubank) has taken the lead, followed by lifestyle businesses (iFood). Whereas, elsewhere in China, lifestyle businesses started offering Financial services.
Brazil has certainly got ahead with Neobanking. But the other LATAM economies are catching up too. Albo in Mexico offers a digital banking experience, and provides a Mastercard that customers can use across the world – free of charge. Uala in Argentina is yet another Neobank app, that managed to acquire close to 500,000 customers in its first year.
With investors like Softbank and several Silicon Valley bigwigs getting into the act, LATAM could soon be the global hub of Neobanking. A case study where we see Neobanks leading a mass financial inclusion drive is waiting to happen. Definitely a space to watch.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).
The 2019 Cryptovalley Conference remains true to its nature. Three days, three stages, and overweight technical and economics content. I attended for two days and became A cool kid on the Blockchain.
The narrative has clearly changed. Lots of evidence around us. Yesterday the BIS, the umbrella organization, announced the launch of a global innovation hub in Basel,Hong Kong, and Singapore to help Central Banks to “identify relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability”.
The EU is very serious about supporting Blockchain technology. Tom Lyons announced the Convergence conference this coming November sponsored by the European Commission, the EU blockchain observatory & Forum, Consensys, Alastria, and INATBA[1].
Several speakers and panelists participated at the Cryptovalley Conference from Central banks around the world. Of course, they repeatedly stated that they share personal opinions and not the CBs official position. Between the BOE, the Fed, the SNB, and the Bank of Italy, the conversations went deeper.
We were reminded that unconsciously we are going back to the 19th century when multiple entities issued money. I like to add to that observation that we are also going back to bearer instruments. Tomaso Atse, director of the UCL Center for Blockchain Technologies, pointed out that what is new in our era is programmable money and the creation of hybrid types of value (like combining digital identity with money or some other value) and the ability to exchange it).
Alexander Lipton, the EPFL visiting professor and founder of SILAmoney, poked and provoked and defended his point of view. In a nutshell, he is the godfather of the DLT version of Narrow Banking concept. This is a way for Central banks to deploy DLT technology by issuing a fiat-backed digital coin (FBDC). The idea is that the central bank will allow and work (indirectly) with a consortium of validators that manage the issuance of the FBDC. It is worthwhile reading about this concept `Narrow Banks and Fiat-backed digital coins` by Alexander Lipton, Alex Pentland, Thomas Hardjono (MIT). What jumps out of it is that right now, we are faced with Facebook intending to implement this kind of concept through the LIBRA association. While each Central bank is doing its in-house due diligence, concerned only with its local country monetary policy and reserves; there is a clear need for Central banks to get together. They should be designing a Central bank coordinated narrow bank consortium.
This is a wakeup call to nightmares of whether Central banks will be able to control reserves and rates on reserves if LIBRA scales. LIBRA`s adoption in countries with currency instability, is troublesome if it really scales. Can LIBRA create hyperinflation in Venezuela? Alexander Lipton, says yes.
The narrative has clearly changed, and we are shifting in a phase where understanding monetary economics is becoming important.
When I raised the question last week about the governance of the LIBRA association (see here) and whether there could be collusion; I didn’t mean in the DAO technical sense (i.e. more 50% of validators collude and validate an invalid transaction). I meant collusion in terms of decisions about, for example, the management of the LIBRA reserve fund. Which currencies will be included, will the fund become a significant holder of US debt, how much government debt versus currencies, why share the interest of this cash cow by accepting new members, how to deploy the profits of the reserve?
Once the LIBRA reserve scales to $100billion (Ant Financial`s money market fund is currently $168billion down from a high of $250billion), the interest will be in the order of $1.5billion (assuming an average 1.5% interest rate). That is huge for an association with no reporting requirements.
We live in very interesting times.
Monetary policy issues need to be understood better.
Moral hazards are lurking everywhere.
Those that have been working on financial inclusion, self-sovereign identity, P2P protocols are feeling looted.
Back to the native people, Lisa Nestor from the Stellar foundation, shared a great overview of the global P2P network that can be used by banks to work directly with each other, without the need for correspondent banks. Stellar is decentralized and open with 28 nodes currently. Their aim is to optimize cross-border payments and work with all currencies. They launched in 2014. In 2016 they had 9,000 accounts and today they have 3.2million. Their daily volume has reached $350k with a total cost of processing of $1.50! During the conference, they reported that the first Swiss node was launched.
Bitcoin Suisse announced that they are seeking a banking license and they will be expanding in Europe. Ficas, a Swiss crypto asset management group for HNW, was a platinum sponsor. They are based in Zug with presence in Turkey, Greece, Spain, and Australia. Flovtec and Ovrium shared the award of the best Swiss Blockchain company at the SICTIC investor event during the conference. Orvium is a decentralized scientific collaboration platform for deploying blockchain and artificial intelligence technology. Flovtec is a liquidity provider for tokenized assets.
My opinion is that we will be seeing an explosion of stable coin issuance. CNNmoney Switzerland was at the Cryptovalley conference taking a pulse on LIBRA (watch here).
The GOSCI – Global Open Source Currency Index- is a novel independent volatility benchmark for Stablecoins. Launched by Bernard Lunn the same day the LIBRA white paper hit the market. Become part of it.
The Stablecoin.foundation was launched in October 2018 with 25 Stablecoin issuers from 16 countries. Its mission is to represent the collective interests of Stablecoin issuers to unify the industry.
Closing remarks
The narrative is now, about financial stability with privately issued coins. Several factors are forcing everyone to the table. These conversations are hard and consensus is not given.
Stable coins are creating a very collateral hungry market situation.
[1] INATBA is the new International Association for Trusted Blockchain Applications, offers developers and users of DLT a global forum to interact with regulators and policy makers and bring blockchain technology to the next stage.
[2] “That’s very world domination-ish of them,” said Kaliya Young, a co-author of “A Comprehensive Guide to Self Sovereign Identity” and co-founder of the Internet Identity Workshop. “Some of us have been working on that problem for a really long time. You already have a set of open standards for verifiable credentials that are basically done and working.” From the article `Buried in Facebook`s LIBRA paper, a Digital Identity Bombshell`
Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.
I have a commercial relationship with Flovtec. I have no positions or commercial relationships with any other company or the people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).
A few days ago, I had a LinkedIn discussion with Richard Turrin on QR Codes and their relevance in today’s go-cashless world. A few commentators on the post felt QR codes were the thing of the post, and I had a different view. I believe, in a world that’s getting digitised in a hurry, QR code is what bridges the digital world with brick and mortar.
QR Codes have gone through ups and downs since they were first created in 1994 by Japan’s automobile industry. QR – stood for “Quick Response”. However, those were days when mobile phones were clunky and the user journeys weren’t as friction-free as the ones we have these days.
When a customer scanned a QR code, an app or a website would be launched on the mobile using EDGE or GPRS. Once the website came up, users would have to use the clunky interface to fill in relevant details. I guess, that was enough to kill the QR code – or so many thought at that time.
QR Codes are more efficient than Barcodes because they are able to hold more information than Barcodes. This is because, QR codes have a two dimensional layout, where as with Barcodes it is just a one dimensional horizontal layout. And purely from a marketing perspective, QR Codes can be customised with a firm’s brand on it, unlike bar codes.
Utility of QR Codes seem better than Barcodes. But are they safe to store our information? For example, can I store my bank card details in a QR code and claim it is more secure? It certainly is – atleast in most scenarios.
Credit card thefts and frauds come in different shapes and forms. Even in a contactless payment mode, account details are still transmitted to the point of sale (PoS) device. So if the PoS device is hacked, hackers can get hold of the customer’s payment details. If at the point of sale, there is an issue with the internet, the customer experience could be poor.
The other hiccup is the case of lost devices, as QR codes do not check for user identity. This can however be overcome by asking for biometric information from the user at the time of registering. It could also be a selfie of the user at registration. At the point of sale, the device using QR codes, may have to use some ways of identifying the user.
Since QR codes rely on Wi-Fi networks, a hacker could get into the network and overlay fake QR codes. And then there is this issue of different variations of QR codes released by different vendors. There needs to be standards for ease of use from a customer’s stand point.
Despite some of these downsides, what makes QR codes special?
With better internet access and smartphone penetration, QR codes have become more common place in Asia. Smartphone penetration in China has risen to 63% and to 35% in Asia as a whole. In Latin America (Argentina), customers have taken to QR codes as it is a simple interface for the unbanked to perform digital transactions.
Pictures showing Alipay and WeChat QR codes in China and PayTM QR Codes in India have brought the concept back to life – in a big way. In India, PayTM are running campaigns to get millions of small and medium entreprises onto QR Codes. In Africa, firms like Dumapay are using QRCode to simplify the point of sale payments process. It has become easy for a roadside shop to accept payments using a QR code print out and no Point of Sale device.
Apart from payments, QR Codes can be used for several other interactions. They can be use for
China has taken the use of QR codes to a whole new level, as observed in the picture below. A quick google search on China and QR Codes reveal some really cool use of this tool.
As QR Codes are versatile, most top apps like Pinterest, Snapchat, Wechat and device manufacturers like Xiaomi, Motorola, Samsung, Huawei all have inbuilt QR Code readers.
But in the wrong hands, QR Codes can be used to lead a customer to a malicious page and get hacked in the process. There is definitely caution needed when using QR Codes.
It may be hard for the west to embrace QR Codes like Asia, Latin America (in some parts) and even Africa. But several firms across the world are creating their own customised QR Codes to stay relevant. QR Codes may not have succeeded in the past and they may not be the future either. But they most certainly have a place in the present.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).