Finastra’s Open Banking Readiness Index – DBS takes Asia top spot

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Finastra recently released their open banking readiness index along with a report  on how banks in Asia have performed against certain criteria. Its not surprising that of the five dimensions that Finastra has set for open banking readiness assessement, DBS bank have topped two. DBS, in my view, have been one of the more innovative banks.

The assessment was done across Banks that together constituted 60% of assets in Asia, so its a fairly good indicator of where banks are.

Now a deeper dive into the index and the criteria:

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APIs are the future, and we have heard that time and time again. The key pillars of the frame work are focused around how banks have prepared to

  • Adopt APIs
  • Integrate with Fintechs and other third parties
  • Manage and mine data internally
  • Monetise data
  • Be innovative

These are fairly broad criteria to assess the readiness across various aspects of producing, managing and sharing data around the value chain. The coverage, in my view, is comprehensive. And purely based on the framework used, it can clearly be replicated across Europe and other parts of the world, to see who the global leaders in open banking are.

On the breadth of coverage, I would have liked better insights on standardisation across APIs. Open banking is great, but when there are some standards that banks can agree on amongst themselves, and conform to them, that would help downstream firms and systems consuming their data.

However, the depth of the assessment is really what could be invaluable. Each of these pillars have left some points unanswered. Let me go through some points I would have liked to have better clarity on.

While adoption of APIs internally and externally is a key metric, I believe awareness around open banking is pretty low amongst the consumers. Shouldn’t readiness factor-in the efforts that banks have put in to raise awareness amongst consumers?

The following are the points that API adoption assessment covers. While this report is all about the readiness of banks for open banking, adoption should lead to something meaningful. And that would be customer uptake.

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Also, establishing partnerships with Fintechs and integrating are broadly covered. But what we define by partnerships need to be clarified.

Many startups that are approved for open banking have access to Banks’ APIs. But are still miles away from doing anything meaningful with it. Again, the end customer is forgotten here.

Banks have more to do than follow up with these downstream businesses and ensure end customers are benefited. But regulatory framework that approved these Fintechs to use Banks APIs, should have taken some kind of customer metric as a criteria- to me that is readiness where the entire value chain is considered.

One argument is that, it is a pure bank readiness report, and has nothing to do with customers. But there are times where the report talks about integration with the developer community, apps builders, and also with third party service providers, so why not customer uptake too?

For example, the number of live third party applications that actively use a bank’s APIs could have been a good metric.

Another point on the data readiness of banks, where data security and governance are key criteria. In all my years of experience with systems in banks, I know the quality of data is generally very poor. I have worked in environments where a highly critical report has 150,000 manual adjustments in its underlying data. And this is so common place – at least used to be, not long ago.

If banks automate data of poor quality using APIs, and claim readiness over data security and API infrastructure, that would be like lipstick on a pig.

There is no point in securing, sharing or making business decisions on low quality data. This problem is generally amplified in parts of a bank where there are lingering legacy systems. While accuracy of data is taken into consideration, when banks are tested for data readiness, data quality will need to be the number 1 criteria.

It almost feels like the framework has allowed the most topical data problem (information security) as the number one criteria – to me, it is not.

Data monetization models are well thought through. However, how some of those models would help create better (cheaper) products for the end consumer is something banks should start thinking about. And more importantly, how those monetization models will be communicated to the customers in a transparent fashion, is pretty critical in a #facebookIsDead era.

In summary, the report does a great job of providing a view of how open banking can drive innovation within banks. While I have pointed out some minor areas across the framework used, my biggest criticism is that, the customer seems to have been forgotten even in this report – yet again.

Readiness can be about infrastructure readiness, process readiness, or business model readiness. But the so-what needs to be the final readiness score – it has to be about how soon it will benefit customers.


Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email


 

Debt crisis and a weak currency – would India follow Venezuela in launching a digital currency?

In Q2 this year, the Reserve Bank of India banned cryptocurrencies. The ban announcement was met with mixed reaction, but largely disappointment from the crypto community. While the RBI and the Indian government are taking a lot of efforts to execute Blockchain based projects across the nation, that ban was disappointing.
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 In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. 
Earlier this week, @efipylarinou and I launched the second episode of our podcast on Blockchain and Financial inclusion on Rhetoriq. Lisa Nestor from Stellar Development Foundation discussed the challenges that Blockchain industry had in the Indian Market.
Stellar was known to be working with ICICI bank and other regional financial services players, with a view to bringing financial services to the rural population. The ban has now slowed them down, however, Lisa was confident that the research work they are doing with some of the Indian institutions should bear fruit in the long run.
Over the last 12 months or so, the Reserve Bank of India (RBI) has taken a Jekyll and Hyde approach to Blockchain and Cryptos. The stance that the Indian policy makers have taken regarding this space is confusing and conflicting. In the sense, RBI are a big no-no to cryptos where as the Indian government and other public bodies have embraced the technology in a big way.
Many technology giants (IBM, Microsoft), local government bodies and the crypto community within India have come together to create the Internet Blockchain Committee whose remit is to build a Blockchain ecosystem in India by working with the government, industry players and startups.
The RBI themselves are working on a digital currency, which they confirmed a few weeks ago. The digital currency is believed to be backed by the Indian Rupee, and the plan is to save about 7 Billion Indian Rupees annually.
The creation of a Rupee backed digital currency is not really going to make it stronger than the Rupee. However, with the creation and management of paper currency in India costing 7 Billion Rupees, combined with the advent of the new payments infrastructure well supported by the roll out of Aadhaar that brings economic identity, we now have enough motivation and a conducive environment for an RBI backed digital currency.
While all this work is being done, the ban on crypto exchanges still stand. This is being fought out in the supreme court of India, where the RBIs decision to ban cryptos is being challenged. However, I believe, just the binary stance against cryptos would push India a few steps behind jurisdictions who have taken a more collaborative approach to Cryptos.
One of the top crypto exchanges in India Zebpay have recently setup shop in Malta, and will be providing their services across 20 countries that doesn’t include India. With news from the subcontinent coming at a brisk pace, and with the INR hitting an all time low against USD, will RBI turn to digital currency?
In a recent survey conducted for bitcoin news, 80% of respondents preferred bitcoin as a safer haven than the Indian Rupee. The INR has been consistently losing about 10% per year over the last few years against the USD, and of course we know how volatile cryptos has been over the last 12 months or so. So while the results of the survey looks pretty skewed, it gives a view of the mindset of a generation that wants to now move on to digital currencies.
However, I wouldn’t be surprised if, after Venezuela, India becomes one of the first to go down the route of central bank backed digital currency. And that would still be just one step forward. Real progress would be when RBI lifts the ban against cryptos, and allows for innovation to find its feet with a collaborative approach.
Its time for the largest democracy in the world to truly embrace democracy – and move away from such absolutism.

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email


 

Venezuela’s Petro: Does Blockchain deserve this?

May be you are tired seeing the Petro saga unfold and spam your social media feeds. May be you are thinking, there you go, the joke of the decade. May be you are angry that the PR nightmare that has affected Cryptos is getting worse with this.

I must confess, I had all these thoughts going through my head when I saw that video of the Venezuelan President, Nicolas Maduro talk about Petro. The question that popped on my head is, how can human greed create so much mess? Does Blockchain deserve this?

Philosophical points aside, I must share my brain dump of the thoughts I have around this episode. Let us start with where Venezuela are economically – and perhaps that will set the context.petro

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Venezuela’s currency Bolivar has been hit by hyper-inflation which is at about 16800%. What does this mean? An economist and an entrepreneur originally from Venezuela told me this week that he has had experiences of buying a property, and going to bed only to find the property value had depreciated by 30% the following day.

That is the reality on the ground when hyper-inflation hits. Its worse than the worst Bitcoin price action.

Venezuela has been hit with sanctions which meant they don’t have free access to world markets and in essence capital. They have historically relied on their oil reserves to bail them out.

Venezuela is one of the most crypto savvy nations in the world. Their per capita crypto usage is one of the highest across the world. Put all these points together, there can be a logical happily-ever-after finish with a state-backed-stable coin. And that is exactly what they have tried to do.

While that is the logical way forward to get back some economic sanity, it can only be fruitful if the transition from Bolivar to Petro was well executed. Well executed in this case would include words like integrity, transparency, governance, monetary policy etc.,

The Petro has its own Blockchain, and derives its value from oil, gold, diamonds and iron. 50% of the value is derived from oil, and the supply of the Petro has a cap. But the state owned oil firm PDVSA has debts which is almost 8 times the market cap of Petro. So, I would doubt the integrity behind the decision of using Oil as an asset to back the crypto.

While there were close to 200,000 global purchases of the crypto as per the government, there hasn’t been any audit of these purchases. That makes the decision sound like a scam. There have been several other complaints about the petro. But for me, if a state backed stable coin cannot demonstrate sound policy and principles behind it, it is prone to a major failure.

However, if this is a genuine attempt by the government to turn its economy around , and if it managed to succeed, it would become a case study for many emerging markets countries to follow. And it would be a stark warning to the global markets that an alternative capital market is born.

I really hope the anger from the crypto community is more with the HOW of this petro episode, rather than the WHAT and the WHY. If the fears of the sceptics are found to be baseless, this could be the best thing that could have happened to the world of Blockchain and Cryptos.


Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email


 

India debt market turbulence – Challenges and Opportunities for Fintech

The free money era is over. Atleast until the next recession. Its time India and its financial markets woke up to that. If they didn’t before, atleast the IL&FS crisis would have been a shock to the system. Infrastructure Leasing and Financial Services (IL&FS) are one of the top corporate debt issuers, and have 3% of the market.

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Let’s first look at the wider market factors before delving into the issue and its implications for Fintech.

Interest rates rise across the world has become the norm, and India is not alone. The Reserve Bank of India have already raised interest rates twice since June, and there is an expectation that by the time this article gets published, there might be another rate hike.

Rupee has taken a tumble this year. A 13% fall from the start of the year with a record low of 73.8188 recorded this week against the USD, doesn’t help. Rising oil prices is another factor. With all these macro factors stacking up, its hard for corporate borrowers, who have perhaps got a bit spoilt with the free money decade we have had since 2008.

Now, coming to the IL&FS crisis, these are the key points:

  • Infrastructure Leasing and Financial Services (IL&FS) provide infrastructure finance in India. With the push for infrastructure projects that happened in the last few years, they exploited the first movers advantage.
  • In August when IL&FS defaulted on a few repayments, panic hit and markets went into a selling mode.
  • The markets have taken a fall of about 6%
  • This has increased the risk of a contagion effect, and the Indian government has stepped in.

But the bigger worry, and probably the relevance for Fintechs is the failure of credit agencies that saw IL&FS as a safehouse. India Ratings and Research (A Fitch subsidiary) corrected their ratings on IL&FS from AAA to D after the defaults happened. Pointless.

There were so many warning signs. The debt size of IL&FS was $12.6 Billion. Infrastructure loans were notorious for non performance for the past three decades. And these infrastructure projects have been largely funded by short term debts. DEJA VU.

Its a failure in governance and is just a repeat of what we saw 10 years ago. If only the credit agencies had better technology to perform better analytics on firm, market and alternate data, this crisis could have been addressed differently.

What Lehman Brothers episode did to the Western world in the form of Fintech, the IL&FS saga could do to India.

My view is that the ripple this will create in the non banking financial services in India will open up new Regtech and Fintech opportunities. Some of the hyped up Fintech players in the lending space who are poorly capitalised and have bad credit models will disappear, and the fittest will survive. Better credit engines and underwriting mechanisms well supported by data analytics covering a bigger set of data to perform real time diagnosis would start to emerge.

I hope IL&FS is a blessing in disguise for Fintech in India. Once the dust settles, Fintechs should make the most of the inefficiencies in the debt markets.

 

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a speaker.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

Petal a flowering example of brand led fintech

Petal is a fintech startup to follow if you are hungry for brands using sophisticated design and unconventional approaches to positioning their product.

The brave startup has taken on an industry with a bad reputation – credit. Which means dislocating the visual experience is key, from the brand experience, right the way through to the product itself. This can’t feel like credit. It has to be credit, but feel like something else.

Like Starling Bank, Petal’s vertical credit card is a deceptively simple differentiator that shows the power of looking at something afresh, through a design first lens. In addition, the clever positioning of the card-holders name echoes the move towards personalised and monogrammed accessories amongst the insta-first generation.

The fintech startup, which uses ‘cashflow underwriting’ to score and set its customers credit limits, announced it had secured a $34M credit facility this week. American Banker’s catchy headline about the launch of the card to the masses – Startup lender Petal launches its subprime credit card – certainly made us chuckle. Not exactly the headline you’d like to see about your business, and somewhat of a slight on companies like Petal’s mission.

The reality is tens of millions of Americans don’t have credit scores, because they’ve either eschewed credit altogether (this is prevalent in younger demographics) or the systems designed to capture and record their ‘scores’ are hugely deficient. Many old bureaus have woefully inadequate technology and scoring algorithms, especially in the age of big data. That is a goldmine of opportunity for the right risk adjusted system.

So who else is in this space worth watching?

Keep your eyes on Deserve, another competitor in the space. Not quite up there in the branding stakes like Petal, but building a similar proposition.

Petal is smart. You don’t need to invent something new to be successful. Sometimes rearranging the furniture works just as well.

The key is obviously making sure the business growth incentives are aligned with the customer. Currently Petal makes money from interest charges, a typical approach – although it is fee free in every other regard. However in our debt fuelled economy, let’s just hope this isn’t a case of rearranging the deckchairs on the Titanic.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

The £50 Billion opportunity and how the global stage is set for Regtech

Regtech is a £50 Billion per year opportunity, and that is just in the UK. That is due to the hundreds of millions of pages in regulatory texts that firms have to deal with, to be compliant. It is critical that firms equip themselves with technology solutions that will help them navigate through the complex world of regulation.

Please note that while Regtech covers regulations across industries, I am taking the liberty of using this term loosely to refer to FS based Regtech use cases.

During my time at PwC, I was involved in evaluating AI products for their Legal and Regulatory offerings. We were looking into IBM Watson, and had some interesting conversations on sending Watson to school to learn Legal and Regulatory language (in English). The AI engine (deep learning, NLP) would then be able to provide guidelines to firms in plain English on what was needed for regulatory compliance.

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It has been almost five years since then and we have seen various developments across the globe. Regtech has never been more relevant. US and Europe have more than 200 Regtech firms, as these two regions are clearly seen as the pioneers of financial services regulation.

‘The FCA is the most innovative regulator in the world in terms of using new technologies and the other regulators look up to them”

– Philip Treleaven

In my opinion, Europe and in particularly the UK’s FCA are world leaders in working with innovative ways of achieving regulatory compliance. Be it payments, open banking or crypto currencies, they have taken a collaborative approach in nurturing the right firms. 37% of Regtech investments across the globe happen in the UK.

But its the happenings in Asia that I find more interesting from a Regtech stand point.

Fintech India has seen massive growth with digital payments being well backed by policies and technology infrastructure. The rise of PayTM, UPI and more recently Google Tez have all helped in bringing the total transaction volume of digital payments to $50 Billion. But with growth comes greed, and regulations have to kick in. There were tens of P2P lending firms in India until the Reserve Bank of India (RBI) launched their regulatory framework for P2P lending in Q4 2017. There are now only a handful of well capitalised P2P lending platforms.

There is a lot of work to be done around automation of transaction reporting. For example, the Microfinance market in India is still largely cash based and reporting is manual. There are startups trying to disrupt this space with cloud enabled smart phone apps, that allow for real time reporting of transactions, when an agent is on the ground collecting money from a farmer. This allows for massive gains in operational efficiency, curbs corruption, but more importantly helps transaction reporting so much easier.

I see India as a market, where Regtechs can help the RBI develop a regulatory framework across Financial Services.

China’s P2P lending market is worth about $200 Billion. Recent frauds like Ezubao, where about a million investors lost $9 Billion, indicate that the market needs to have strong regulatory controls. The scam led to a collapse of the P2P lending market in China. A regulatory framework that helps bring credible players to this space, well supported by a bunch of top Regtechs will help the status quo.

Singapore is the destination for Regtechs in Asia – without a doubt. After the US and the UK, Singapore attracts the most investments into Regtech firms. The support that Monetary Authority of Singapore (MAS) provides to budding startups is the real differentiation that Singapore has over Hongkong as a Fintech hub.

MAS have recently tied up with CFTC (Commodity Futures Trading Commission) in the US to share the findings of their Sandbox initiative. Such relationships between regulators help keep regulatory frameworks aligned across jurisdictions . So, when a Fintech is looking to expand beyond borders, they don’t have to rethink operational, strategic or technology aspects for the new jurisdiction and they can focus on what matters – the consumers.

As Fintech evolves over the next few years, there are several ways in which Banks, Insurance providers, asset managers and regulators can work in partnership with Regtech firms. In some areas, these firms will piggyback off what the incumbents have or haven’t done.

There is often a rule of thumb in the top consulting firms – build propositions in an area where there is fire. In other words, if a client has a major issue that could cost them money and/or reputation, come up with a solution for that. This is particularly true with Regtech firms, where they focus on an area that has a serious lack of control and governance.

However, in many parts of the world, there is a genuine opportunity for Regtechs to go a step further and define the controls in collaboration with the regulators, and perhaps ahead of the regulators.


Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a speaker.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.



 

Banking on the blockchain with Bitwala and Celsius

It may have its naysayers, but there’s no doubt bitcoin has captured the imaginations of thousands of investors. But making bitcoin legitimate is still a challenge, which is why we read with interest that German blockchain banking service Bitwala will be launching what it claims will be the first ever bank account to concurrently hold euros and bitcoin funds.

The funds will be instantly accessible via the Bitwala debit card and, according to the company’s website, deposits up to €100,000 will be protected by the deposit guarantee scheme of German banks.

Bridging the legacy banking world and crypto space is necessary for the popular digital assets to gain respect as a viable currency. Static bitcoin holders who aren’t day traders are potential gold mines (I really feel like we need a new analogy here!) for transaction fee revenue, something Bitwala is no doubt attuned to.

But there are other ‘deposit’ opportunities for bitcoin ‘hodlers’, especially if they don’t feel super inclined to start spending their crypto on coffees.

Celsius provides passive income of up to 5% interest while you HODL and allows customer to access fiat loans of 9%, while your crypto ‘chills’ in your wallet. You can even short the crypto market from within the app.

Bitwala and Celsius are interesting examples of hybrid models coming to market in the crypto space. It bridges that awkward gap for the normal people, those of us that would much prefer to find a practical application for crypto.

In many ways, these hybrids remind me of the contactless cards that the western world adopted after mobile wallets stalled. Just like mobile wallets, which were used by super early adopters but basically no one else, very few people any of us know in the real world, outside of fintech actually use bitcoin day to day. But that is where the market opportunity is.

Hybrids like Bitwala and Celsius are the models to watch.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

A true story: Techfins (Amazin) beat Fintechs and Banks on SME lending

No – the title doesn’t have a typo. It actually started as a typo, but I chose to keep it that way. Google SEO will learn.

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They are really Amazing Amazon for the work they do in the SME lending space (not for just that). This is a real life story, where I was involved with an SME and witnessed first hand how hard they had to struggle before they got funded by Amazon.

The SME is Ausha foods, I know them personally as they are run by a friend. After a few months of ideation and planning in 2016, they launched in 2017. They sell organic food products in the UK, based out of London. Their supply comes from Kerala (mostly) in South India.

They made sure they went for all the top certifications and are very quality focused across their supply chain. Now, this is not to provide free marketing for them, but just to set the ground for the firm under discussion.

Ausha listed themselves on Amazon as seller, and for a year have seen some serious sales happen through the platform. They have sold 18 products on Amazon over the past 12 months. After hitting good revenues there, and with 4.8 stars on Amazon reviews, they decided to expand. They wanted to ship larger volumes of their products, and needed some financing options. And like any typical funding request, they wanted the monies in 2 weeks.

For an SME who haven’t done fund raising for expansion before, it can be quite daunting. They reached out to me, and I gave them a few tips, and suggested to go for debt rather than equity as their need was small, and my ecosystem of equity investors were largely tech focused.

I put them in touch with a Fintech I knew, who were good at connecting SMEs to lenders. They got two lenders who were interested in talking to them. But both lenders wanted them to fill in tonnes of paper work, and gave a minimum time line of 6 weeks to even get to the approval stage. The result could also be a reject.

The founding team didn’t give up, and reached out to Amazon for financing their expansion. Amazon already had all the details about their products (about 18 products listed on the platform), the sale they make and the reviews they have from customers. They knew that the business was scalable, and gave them the approval for the funding request on the same day of applying. Ausha got the money in their bank account in 2 working days.

I met the founding team at a party, and I was surprised when they told me what had happened, and felt compelled to write this story.

Its critical that SMEs felt well supported by the financial services ecosystem they operated in. The founders of Ausha were well educated engineers who knew the right doors to knock on – but most SMEs don’t.

Its critical that SMEs atleast have the information on who to reach out to when they need funding. Despite the efforts of the British Business Bank, I believe, there is still a lot of work to be done in the UK to bring awareness in this space. It is also critical for these lenders to tap into data available on social media and other platforms where a borrower trades.

In an open banking day and age, they can proactively reach out to these firms when they see anomalies in their transactions, and find out if they needed any funding help. How hard can that be?

Techfins like Amazon and Alibaba have an information advantage over the Banks, and even Fintechs. These giants have transaction level information on the SMEs trading on their platform and get to see demand for their products. And when an SME fully relies on, say Amazon, it is an Amazon family SME. By funding the SME, Amazon are really funding their own growth in the e-commerce space and in the Financial Services space.

Amazon rules. Go Ausha.


Arunkumar Krishnakumar is a VC investor focusing on Impact investments, a writer and a speaker.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.