Bank Shot: Canada may be a laggard, but these B.C. fintechs are ready for open banking

BCBusiness | Michael McCullough | Oct 20, 2020

Payments and Open Banking - Bank Shot: Canada may be a laggard, but these B.C. fintechs are ready for open bankingWill COVID-19 be the shock that finally shakes up our stodgy (and expensive) payment systems?

If you’re like me, you have a small pile of change on your dresser or bedside table. It’s been making the rounds of your pants and jacket pockets for months. As the COVID-19 pandemic has mandated a shift to contactless payment—the tap of a credit card or scan of a phone app—those coins have become excess baggage.

And the change could be permanent.

“You have a whole swath of the population that’s been forced to adopt financial technology,” observes Steve Marshall, CEO of RevoluGroup Canada, a Vancouver-based digital payments startup. “There’s no going back.”

It’s already happening in Europe, says the globe-trotting Brit, who led a reverse takeover of a mineral exploration company listed on the TSX Venture Exchange in 2016 to create RevoluGroup and pivot to digital payments. Today’s cash-free COVID economy is further pressuring Canada’s government to create a legal framework for so-called open banking.

See:  Global Risk Institute Report: Discussing Open Banking Regulation for Canada

The concept got its start more than a decade ago in China, where phone apps such as Alipay and WeChat became increasingly popular for day-to-day transactions. Recognizing a viable innovation, Chinese authorities began developing regulations for digital payments.

Not long after, public revulsion at the bailouts of commercial banks following the 2008-09 credit crisis prompted the European Central Bank to explore ways to increase competition in the financial sector, in the hope that, in the future, no institution would be “too big to fail.” One way was to encourage financial technology, or fintech, that could compete with the banks for at least parts of their business.

The first version of PSD (Payment Services Directive) gave banks the exclusive right to take deposits but forced them to give up their data to licensed third parties for payments and other services. Now account holders could authorize a fintech provider to have access to their account information on demand. That meant fintechs could offer ways of transferring funds that were convenient for consumers and less costly for merchants.

PSD2 took that process further by issuing fintechs account codes similar to those of banks that are recognized by financial institutions worldwide. They could now directly issue payment instruments such as credit or debit cards or phone apps to access the accounts that consumers held with banks. On May 21, RevoluGroup became one of only five companies so far—the others include Facebook and Google—to hold a PSD2 licence.

Marshall uses the example of sending e-cash to a brother who’s lost his wallet while travelling in Thailand: you can send cash from your bank account to his phone that will be accepted wherever a Visa card would be, for a fraction of the cost of a wire transfer. Or, thinking bigger, say you’re buying a property in Arizona; you can transfer the money direct to the seller’s agent or lawyer, all for a more competitive exchange rate and lower fees than any bank would offer.

See:  UK government open banking tender puts focus on payments

RevoluGroup is far from the only Canadian fintech eagerly awaiting the advent of regulated open banking in Canada. The founders of B.C.-based Clearly Payments, though, are happy to see the federal government take its time and hear from all the stakeholders. They don’t want the country’s banking oligopoly disrupted only to have it replaced by a handful of multinational tech giants.

“Open banking at its core is about building that trust system where data can be easily shared to provide more personalized services, faster services and more security in certain ways,” says Kalle Radage, Clearly Payments director and technology lead.

“If we can access financial data for our merchants through APIs, we can make a financial adjudication decision much quicker, so that allows them to start taking payments much quicker,” says Clearly Payments CEO Chris Farmer. “Also, we get a more holistic story of their financial position that will affect the rates they are paying.”

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Retail investors are becoming more than shareholders

Andreeson Horowitz | | Oct 23, 2020

 

retail investors and ambassadors - Bank Shot: Canada may be a laggard, but these B.C. fintechs are ready for open bankingHistorically, the definition of an investor has been almost entirely focused on the financial component: the flow of capital from those who have it to those who need it.

More recently, the venture capital model expanded the perception of what it means to be an investor. Startups now look for those with expertise, a strong brand, connections, and a slew of other resources, in addition to deep pockets.

Over the past decade, through the rise of alternative investments, fractional shares programs, and companies like Robinhood, it’s become easier for anyone to become an investor.

However in the public markets, retail investors are often still viewed solely as capital providers. Companies are unlikely to know who their retail investors are, much less engage with them.

See: European Union Approves New Crowdfunding Rules that Apply to Member States, Funding Cap Set at €5 Million

Hypothetically, let’s say you own shares in what we’ll call FintechCompany A. As a FintechCompany A shareholder, that likely means that you support the company’s vision, product, and leadership team and hope that it will succeed.

But as a retail investor, owning shares is about as deep as the relationship goes. Beyond that, your interactions with the company are limited: you probably don’t vote on board initiatives or provide input on new products or business strategies.

Now this, too, is changing: Companies are realizing the value of retail investors beyond their capital. Since these investors are financially married to the success of the company, they can be effective advocates in fostering brand loyalty and trust within their communities.

Today, more companies are finding ways to connect and engage with retail investors, parlaying that relationship (and community) into a competitive advantage.

What if instead of surveying random people on its next product launch or marketing campaign, FintechCompany A could ask you — a valued shareholder — to vote or offer an opinion?

What if you were rewarded for holding shares in FintechCompany A? What if you had your own referral code to encourage your friends’ businesses to choose FintechCompany A over FintechCompany B? Now instead of just giving the company capital, you’ve become a true asset.

See: KABN North America and BOON Rewards Set to Launch Cashback and Rewards Programs

Interestingly, giving investors rewards is not a new phenomenon. McDonald’s, for one, offers a free item voucher to every investor in its annual report, as do many other companies. A new app called Stockperks even compiles shareholder rewards offered by publicly traded companies into one centralized database.

But expanding this behavior beyond rewards — effectively turning retail investors into brand ambassadors — is a new development, with fintech companies at the helm.

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NCFA Jan 2018 resize - Bank Shot: Canada may be a laggard, but these B.C. fintechs are ready for open banking The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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