Category Archives: Digital, NEO and Open Banking

Fintech is Driving Financial Inclusion

Crowdfund Insider | JD Alois | Sep 8, 2019

Cambrdige UK Alternative finance - Fintech is Driving Financial InclusionWhile much of the discourse revolving around innovation in financial services address specific sectors of the industry, such as lending, payments,  or online capital formation, the reality is that the biggest beneficiaries of Fintech may be the underbanked: the millions of people who have never had access to sophisticated financial services.

Regardless of where you are standing today, there are segments within your community that have little or no access to financial services such as a basic savings account. The disparity becomes even more obvious when you compare high-income demographics against individuals with lesser means.

Geography obviously plays a role as rich countries, such as the US or European nations, have far higher percentages of individuals having access to basic financial services. But the advent of Fintech, and perhaps more importantly, the ubiquity of smartphones and internet access is fueling a significant change.

See: The Rise of Vietnam – the new Asian Innovation hub

During the Cambridge Centre for Alternative Finance’s annual conference, which took place in the UK this past summer, Alfonso Garcia Mora, Global Director Finance, Competitiveness and Innovation GP The World Bank Group, tackled this very topic: Fintech is driving financial inclusion.

Mora shared some interesting statistics. While financial inclusion has improved globally, 1.7 billion adults (31%) remain unbanked. As of 2017, 69% of adults around the world have a financial account with 92% of “high income” individuals holding an account as of 2017.  Excluding the high-income group, Mora reported the following percentage of adults with an account as of 2017:

  • East Asia & Pacific – 53%
  • Europea & Central Asia –  58%
  • Latin America & Caribbean – 49%
  • Middle East & North Africa – 44%
  • South Asia – 48%
  • Sub Sahara Africa – 41%

Worldwide, most unbanked adults are women at 56%.

Cash Still King

Additionally, 235 million unbanked individuals earn money from agricultural employment; 100 million receive government payments in cash and 260 million of unbanked use cash for remittances.

Mora said that traditional methods such as ATMs/Debit Cards, Bank Deposits, Credit providers are slow, expensive and lack transparency. This is where Fintech can step in and improve the situation with digitally native services unburdened by legacy shortcomings.

Virtual currencies, DLT based settlements, mobile payments, and more can improve transfers and savings.

See:  News on China cryptocurrency and more reforms

Robo-advisors and automated wealth management can provide access to sophisticated services to the masses.

As of 2017, it is estimated that two-thirds of underbanked adults have a mobile phone – key to financial service availability. This access can be the catalyst for financial inclusion as has been experienced in Sub Saharan Africa where mobile money accounts have grown dramatically in recent years.

Of course, these opportunities bring new challenges such as regulatory issues and compliance which frequently ignores national borders. But policymakers must be cautious not to let perfect get in the way of the common good. And established finance must be partners in innovation not create unnecessary barriers to innovation.

Mora said that Fintech is making inroads globally but has not yet reached the disruptive critical mass.

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NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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Stripe, the world’s most valuable private fintech company, is getting into lending

CNBC | Kate Rooney | Sep 5, 2019

stripe capital lending business - Fintech is Driving Financial InclusionKey Points
  • The $22.5 billion payments company announced the launch Stripe Capital, which will offer loans to online companies in an effort to help grow their businesses.
  • Stripe, whose rivals including Jack Dorsey’s Square and Netherlands-based Adyen, makes software that allows businesses to accept payments over the internet. Growth in companies using their platform could eventually help Stripe’s bottom line.
  • The start-up has benefited from growth in online payments, attracting investments from Elon Musk, Peter Thiel, and Google’s late-stage venture arm Capital G, among others.

The world’s most valuable private fintech company is moving into a new area of banking: loans.

Stripe, valued at $22.5 billion after its last funding round, announced the launch of a lending arm called Stripe Capital on Thursday. The new venture is meant to help online companies borrow money to grow their businesses — which in turn, helps Stripe’s business.

“Stripe Capital makes it easy for internet businesses to get the funds they need, when they need them,” Stripe’s Chief Product Officer Will Gaybrick said in a statement. Gaybrick said small businesses are the “engines for job creation in our economy” and it should be “trivially simple and lightning fast” for them to access the capital and invest in their own growth.

Stripe, whose rivals including Jack Dorsey’s Square and Netherlands-based Adyen, makes software that allows businesses to accept payments over the internet. Growth in companies using their platform could eventually help Stripe’s bottom line.

See:  The Solution To The Fintech IPO Shortage

The San Francisco-based company joins a list of other technology companies competing with banks to offer loans to small businesses. PayPal and Square, fintech rivals in the payments business, both reported significant growth in their loan portfolios in the second quarter. E-commerce giant Amazon offers similar products to merchants on its payments network through “Amazon Lending,” an invitation-only program with loans as low as $1,000.

In many cases, those loans are well below the average amount a bank would facilitate. In the case of Square, the average loan is between $6,000 and $7,000 and could be as low as $500.

Saying goodbye to the FICO score

One advantage over banks, if you ask the tech companies, is data. Stripe and others are shunning a FICO score, the traditional way of assessing credit-worthiness. Instead, they use payment history from their own platforms. Stripe, for example, will draw data from “advanced algorithms” to trends like payment volume, percentage of repeat customers, and payment frequency.

Stripe said the reliance on tech allows them to issue loans quickly. According to the company, there’s no “lengthy application, eligibility is determined quickly, funds hit a user’s Stripe account the next day, and businesses can repay as they earn.”

These tech companies collect the loan repayments as sales come through, instead of setting payment dates on the 15th of the month or another arbitrary day, which they say alleviates a burden for companies.

Still, some have flagged inherent risks in lending to small start-ups. Karen Mills, a senior fellow at Harvard Business School and former head of the U.S. Small Business Administration during the Obama years, told CNBC earlier this year that an inevitable downturn in the economy could hit these companies the hardest.

See:  Peer to Peer Lending: The Future of Fintech is Now

“Having run small businesses through three different economic cycles, I would say we should expect another cycle and one has to factor that in,” Mills said. “Small businesses get hurt very hard in cycles particularly those who are dependent on Main Street sales.”

Stripe, which ranked No. 13 on the 2019 CNBC Disruptor 50 list, was founded in 2010 by Irish brothers Patrick and John Collison. CEO Patrick Collison announced on Twitter earlier this year that former Google Cloud CEO Diane Greene was being added to the board.

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NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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Open banking has a big branding problem, government’s public opinion research suggests

Financial Post | Geoff Zochodne | Sep 3, 2019

open baning infrastructure - Fintech is Driving Financial InclusionNone of the respondents had heard of or knew anything about open banking. And, they didn't like the terminology of it

The data-driven concept of “open banking” is being hailed by some as a way to enhance competition in the financial-services industry, but public opinion research conducted for the federal government earlier this year suggests the idea may have a long way to go before it catches on with the population at large.

“None of the respondents have heard of or know anything about Open Banking,” said a report prepared by Pollara Strategic Insights for the Department of Finance, and recently released on a government website.

The report added that along with the lack of awareness, the term was “not met positively” by respondents.

“In fact, a majority do not like the phrase, with some actually having a visceral reaction to it,” the report said. “To these participants, Open Banking means it would be out in the open; their information, their data would be out for all to see and therefore access. Some specifically say they wanted their banking to be ‘closed’ (meaning private and protected).”

In reality, open banking is a framework that could allow consumers to share their financial data with third parties, which advocates say would allow for greater competition in the financial-services sector.

The research was conducted between Feb. 16 and Mar. 4, 2019, meaning it preceded some media coverage and a June report from a Senate of Canada committee that called on Ottawa to move ahead with adopting a framework.

There has also been low consumer awareness of open banking in the United Kingdom, a leader in the field.

While the Canadian study says its “qualitative nature” means results cannot be extended to a “broader audience,” the audience surveyed did not sound as if it were clamouring for open banking.

That lack of enthusiasm likely means the issue will not feature prominently in this fall’s election, something that could push back any potential implementation.

See:  Open Banking: What’s Really at Stake

A Finance department official had already told a Senate committee in May that any necessary changes to legislation or regulations would likely fall to a new government.

The goal of the research, another finance official said Tuesday, was to give the government and its advisory committee a better understanding of the public’s expectations. More than 100 submissions were also received earlier this year for an open-banking consultation, “which were overwhelmingly in favour of open banking,” the official said in an email.

“The public opinion research and stakeholder submissions are now being examined in the context of the Advisory Committee’s study into the merits of open banking,” they added.

Pollara recruited 114 volunteers from across the country and income levels for 14 focus-group discussions that were either conducted online or in-person. According to the report, which was published on the Library and Archives Canada website, the value of the contract was $78,095.60.

Open banking was defined as something that generally “empowers consumers (including small businesses) to share their financial data with a broader range of financial service providers through secure online channels, in order to access new, innovative, consumer-centric financial services.”

See:  Canada’s financial upstarts are lining up behind open banking, but bigger players may need convincing

When given a definition of open banking before being provided any potential scenarios for its use, participants were confused.

“They cannot, from this definition, understand either why this system would be warranted or how it would be different from what is already available,” the report states.

Terms such as “Data Right” or “Financial Data Right” tested more positively, the study found, but two scenarios of how open banking could be used got mixed responses.

The reaction to the government adopting an open-banking system generally ranged from positive to neutral, with younger people tending to be more excited.

Other findings in the report included that many participants were dealing with multiple financial institutions, although most had one, or one they considered a “primary bank.” Few participants felt “unwavering loyalty to their bank,” and many said they shop around.

There were concerns about privacy and security of “non-financial” websites, the report noted, and about third-party providers. The research also found many participants unsure about who actually owned their financial information.

“While their bank holds this information, most assume if they asked for their information, it would be given to them, although it may take time and cost money in terms of fees.”

The results were to help with the decision of whether to adopt open banking in Canada, the report said. Ottawa announced in 2018 it would begin a review into the merits of the concept, which has moved to a second, implementation-focused phase that’s supposed to wrap up this year.

But whether anything is actually implemented remains to be seen.

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NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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PNC Launches A Fintech Startup Inside The Bank

Forbes | Tom Groenfeldt | Sep 3, 2019

Numo fintech within PNC - Fintech is Driving Financial InclusionBanking incubators come in all sorts of flavors — often a program to attract outside companies and offer them mentors and perhaps some financial sponsorship for a set period working at the bank or virtually.

PNC has created a startup program, numo, that functions as an internal startup, complete with a pre-negotiated equity split between PNC and numo employees, said David Passavant, numo CEO.

The first development has been indi, a mobile phone-based bank account for gig workers. It offers tax calculations, tax savings goals and dynamic adjustments when users save ahead or fall behind. It also reminds them when quarterly taxes are due. The account has no minimum balance and no monthly service fee. It is in testing with numo staff and has a waiting list.  The indi account is an FDIC-insured account held at PNC Bank with a Visa prepaid debit card and is available for both iOS and Android.

No major US bank had built an account for gig workers, said Passavant, although Mastercard recently introduced real-time payments for gig workers.

“How do you estimate your tax liability when you don’t have an employer doing it for you? We built a system with intelligence to estimate what you should set aside for taxes.”

While this sounds pretty basic, and begs the question of why banks have been so slow to innovate in areas as obvious as early access to paychecks and financial health coaching, Passavant said banks are cautious because the stakes are so high.

See:  From Innovation Hub to Innovation Culture

“When you have millions of customers and then want to move into something like that, you have to be careful you are not offering tax advice or getting into predatory lending.”

Operating on new technology numo uses Visa DPS for its debit card transactions and built the front end within the group. Now it is looking to partner with employers who use a lot of gig workers to help distribute the platform.

A second app under development is a world away from the gig economy. — a service for companies which run portfolios of retail properties.

“Our team saw an opportunity to create an analytics platform to help them.”

Although a lot has been written about the death of bricks and mortar retail, PNC knows, as the fourth largest commercial lender in the country, that physical retail is very much alive. Passavant hastened to add that the analytical platform doesn’t use any PNC data but purchases anonymized financial and social data for its analytics.

“We can use it to find interesting patterns, like a group who might shop at a mall 15 miles away. “

One location analytical firm found that shoppers at a pet supply store often followed up going to an electronics store, not as obvious as finding Panera and Trader Joe’s locations in the same area.

See:  Passion For Banking Innovation Fueled By Fintech, Big Tech Disruptors

“With this, a real estate firm would be able to tell companies that own property portfolios that here is a brand you might want to target because they are expanding and their customers shop at places like this.”

A third area of focus for numo is regulatory technology.

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NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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Robocop vs. Terminator in Fintech; Comparing DeFi originations to Digital Lenders in the early years

Future of Finance | Lex Sokolin | Aug 27, 2019

I'terminoator vs robocop - Fintech is Driving Financial Inclusionve got a gentle, data-backed story this week inspired by a great distinction made in this Techonomy article by the Chief Digital Officer at Schneider Electric. The thesis tracks three key lessons from attempting to bring large companies into the 21st century: (1) transform the core of your business instead of fumbling around at the edges, (2) digitize your processes and separately figure out a distinct digital model, and (3) catalyze a digital ecosystem from the new model. You can think about the distinction as either taking the existing business and slowly swapping out parts from human to machine (e.g., like RoboCop), or building the robot from scratch utilizing the latest platforms, markets, and artificial intelligence (e.g., like Terminator).

This distinction is helpful in assessing how financial incumbents are performing, and why the Tech firm approach to Finance keeps is different from the traditional model. Goldman's credit card distributed through Apple looks a lot like RoboCop to me -- same old, but in a tech wrapping. But Goldman's approach into the market with Marcus, with digital lending and neobanking at the core, feels a lot more like Terminator. This is partly why Lloyds' announcement about launching a roboadvisor in 2020 is boring -- too little, too late, while Softbank plows hundreds of billions into neobanks, neoinsurers, digital lenders, and artificial intelligence.

See:  AI Will Transform 500 Million White-Collar Jobs In 5 Years; Silicon Valley Must Help

Anyway, here's the data backed part. If you are focused on Fintech and building out digital, in whatever form, you are on the right track. A recent report from EY looking at the investment preferences of mass affluent and wealthy clients paints the picture clearly.

Just three years ago, only 18% of investors were using mobile apps to manage their money -- that number is now 40%. Face to face interactions have decreased rapidly, from 30% to 16%. But so is Web-app use! Phones have become the home for most of our attention, and financial activity is no exception.

They are our preferred method for dopamine delivery, and transactional activities like angry comments on Trump videos and free stock trading on Robinhood are a natural fit. More considered advice delivery -- things like setting up a trust, dealing with the financial implications of divorce, tax structuring across jurisdictions -- still benefits from at least 30% human interaction.time spent TV vs mobile - Fintech is Driving Financial Inclusion

But mobile isn't the only growth platform for interaction. Check out the expected rise in chatbot and voice-first interactions below. People have now gotten enough smart assistants that there is an expectation of improvement in the quality of their applications and services. Today, less than 2% of respondents prefer machine assistants as a primary communication channel, but that preference rises to an expected 9% in the future. People want to talk to their machines, Star Trek style, about financial services.

The final bit I want to showcase is just how good of a "Terminator" decentralized finance is becoming. Numbers differ of course depending on how you measure things, but charts below should be directionally correct. I took the annual growth of digital lending globally in the early years, and normalized against the growth in decentralized lending. The products are different -- all of DeFi today is collateralized, while digital lending involved actual underwriting risk (i.e., credit risk, not asset volatility). Yet still, it is helpful to see the two as comparisons, with the conclusion that DeFi is growing faster despite the alien nature of its underlying technology. The sources are Autonomous NEXT and Loanscan.

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Similar things could be said of the Initial Coin Offering boom/bubble, comparing it to much slower but more sustainable growth in Fintech venture capital. Moderating growth against a correct regulatory approach is the right answer -- but innovation does often outpace the existing ruleset. It seems inevitable to me that DeFi lending will need to back into regulated banking and lending entities, or at least partner with them, to avoid being chased around or shut down by the authorities. Enabling tax arbitrage is not a long-term sustainable business model.

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NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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Will Novel Fintech Models Thrive in Canada?

Fortunly | Biljana Nikolovski | Aug 23, 2019

demand for Altfi models surges - Fintech is Driving Financial InclusionThe figure of home-ownership in Canada is one of the highest in the world, even though the number of people who own residential property in the country slightly dipped from 69% in 2011 to 67.8% in 2016.

But, the portion of the Great White North’s population with debt repayment woes has been increasing at an alarming rate. In fact, a 2018 report revealed that 19% of seniors still have an unpaid mortgage. As a result, 20% of Canadians continue to work well into their golden years.

Certainly, a basket of solutions is necessary to help ensure that mortgages in Canada run their course, allowing homeowners to be free and clear come retirement. Fortunately, fintech solutions are here to the rescue.

According to Fortunly, peer-to-peer (P2P) lending and decentralized finance (DeFi) are some of the newest innovative models with great potential to help more Canadians, including seniors, reduce their overall cost of borrowing and to better manage debt repayment.

P2P lending enables an individual to borrow money from another individual and it allows both parties to seamlessly interact with one another through a digital platform. This is beginning to invade the mortgage space after proving its feasibility and viability in the unsecured loan territory for many years.

See:  Peer to Peer Lending: The Future of Fintech is Now

DeFi, on the other hand, is a financial system free from central-party intervention that promotes censorship resistance, and puts a premium on transparency. The ubiquity of the Internet, proliferation of smartphone sales, mass adoption of online banking, and the emergence of blockchain technology have collectively paved the way for the conception of DeFi.

Both novel concepts have the ability to break down barriers since they can eliminate geographical constraints to make the world of lending borderless. However, groundbreaking fintech models do not evolve and expand in Canada as fast as they do in the United States.

Here are a few reasons why.

 

Variety Meets Specialty

Furthermore, many P2P mortgage lending players in the United States intend to increase the size of their slices instead of consuming the entire pie. For instance, National Family Mortgage has successfully separated itself from the rest by being the go-to marketplace for P2P home loan and refinance programs among relatives.Americans enjoy the luxury of choice. Borrowers in the United States do not have to settle for any company due to a lack of selection.Peer to peer mortgages - Fintech is Driving Financial Inclusion

On the contrary, the population of P2P mortgage lenders in Canada does not scare the incumbent companies—not yet. The few P2P players in the industry are encumbered by liquidity options and inferior brand trust, which have been stunting their growth and popularity.

Nevertheless, Canadians are expected to adopt fintech solutions at a faster rate in 2019, so the local P2P lending ecosystem may mature more rapidly. Improving lending algorithms, unlocking more value, ensuring consumer data control, and enriching overall experience are the keys to helping P2P lenders and platforms in the country gain stronger momentum.

Unicorns Left and Right

Make no mistake about it, venture capitalists do not shun companies from other countries. However, the tech startups in the United States have always received the lion’s share of VC investments across the globe.

The liquid fintech landscape in America has set the stage for the creation of numerous unicorns. Leading the pack is SoFi (Social Finance), which recently managed to raise another $500 million through another round of funding.

See:  Investors, ‘starved for returns,’ flood private markets in search of high-growth opportunities

A private company with a valuation of over $1 billion does not indicate profitability, but a fintech company’s unicorn status usually signifies financial freedom. The abundance of funds at a unicorn’s disposal makes it easier to experiment and roll out fresh solutions as well as to create and test new streams of revenue.

CB Insights reveals that Canada has only one unicorn (Kik Interactive) as of January 2019, and it is not a fintech company.

The scarcity of startups generously backed by VCs in the financial services industry may dampen the entrepreneurial spirit of up-and-coming fintech founders. Unless investors begin to inject more cash into the bloodstream of potentially game-changing Canadian fintech companies soon, the expansion of P2P mortgage lending in the country might be compromised.

Regulation, Innovation, and Competition

Enacting open-banking regulations can help fuel the fintech boom in Canada. Open banking will change the rules of the game, encouraging greater competition among incumbent banks and new entrants.

It eliminates the core advantage of large financial institutions: the monopoly over the financial information of consumers. This practice calls for the sharing of such vital information in an electronic and secure manner among business rivals under the conditions satisfactory to data owners.

With more readily accessible big data, emerging fintech companies have more ammunition to compete with their bigger and richer counterparts. They will have more latitude in being resourceful and innovative. This will help consumers develop solutions they need to explore more affordable loan products and make better financial decisions.

Under optimum regulatory conditions, fintech disruptors could expose the inadequacies of the traditional players in the industry. These paradigm-shifters could put themselves in a position to grow into Canada’s next unicorns. Ultimately, the consumers would win.

See:  Open banking in Canada – time to prepare for change

The United States has yet to replicate the United Kingdom’s move requiring the adoption of open banking across the board, but many bankers in America are already voluntarily making their databases available for third-party consumption.

Building a sustainable business environment benefits all parties and does not curb innovation. Canada’s fintech sector is ready to explode, and it is only a matter of time before the stars become aligned.

Author:  Biljana Nikolovski is a tech blogger and contributor for Fortunly.com. She spends most of her time reading the newest trends in the tech and marketing world, while traveling the world.

 


NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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Fintech Fridays EP36: Techfins with Michael King, Lansdowne Chair in Finance, Gustavson School of Business at UVic

NCFA Canada | Aug 9, 2019

JOIN US ON A STORYTELLING JOURNEY EVERY FRIDAY.

FF EP36 Michael King 1 1 - Fintech is Driving Financial Inclusion

Aug 23:  Techfins with Michael R. King, PhD CFA EP36

GUEST:  MICHAEL R. KING, PhD CFA, Lansdowne Chair in Finance, Gustavson School of Business, University of Victoria, (Linkedin)

HOST: Manseeb Khan, Fintech Friday's show host

BIO:  Professor Michael R. King is the Lansdowne Chair in Finance at University of Victoria’s Gustavson School of Business. Prior to joining UVic, he held the Tangerine Chair in Finance at Western University’s Ivey Business School (2011-2019), where he co-founded Canada’s first FinTech research centre (the Scotiabank Digital Banking Lab). Before joining academia, he worked in investment banking in Zurich, New York and London from 1990-1998 (Credit Suisse, RBC Dominion Securities) and central banking in Ottawa and Basel from 2001-2011 (Bank of Canada, Bank for International Settlements). Michael completed his PhD at the London School of Economics in 2001 and his CFA designation in 1999. He has taught finance to undergraduates, MBAs and executives. His research focuses on FinTech, banking, international financial markets, and corporate finance.

About this episode:  On this episode of NCFA's Fintech Friday's Podcast, our host Manseeb Khan sits down with Prof. Michael R. King PhD CFA, Lansdowne Chair in Finance at University of Victoria’s Gustavson School of Business. They chat about transformational fintech, big tech vs techfins and fintech 3.0.  Enjoy!

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Subscribe and tune in each Friday to check out the latest movers and shakers in fintech.

Listen to more podcasts here: Season 1 | Season 2

 


Transcription of Interview

Intro: Welcome fintech Friday's a weekly podcast brought to you by the National Crowdfunding and Fintech Association of Canada and partners.Covering all things fintech block chain be AI and alternative finance.

Manseeb Khan :  Hey Everybody Manseeb Khan here. Thank you for tuning in to another fantastical episode of the FinTech Friday podcast, Fantastical is now in the Oxford Dictionary. It's not. I'm just kidding. I really want it to be. I mean, fantastical. I love using that word. But this week, today, I'm very, very thrilled. I've been sent a message to all my friends of how excited I am for this episode. I got Michael King. Michael, thank you so much for sitting down today.

Michael King : It's great to be with you, man. Thank you for having me on FinTech Friday.

Manseeb Khan : Awesome. Michael, could you just for the five or six people that may not know who you are and may not share the same level excitement that I am currently sharing? Could you tell us a little bit of who you are, a little bit of your background?

Michael King : Okay, great. Yeah. So, I'm a university professor out on the West Coast at the University of Victoria has kept this in school business. This is my third act when it comes to my career. I did my first decade was in investment banking and trading in New York, London, where I got to see what things look like on the private sector side. My second act in the in the 1990s was in the 2000s was with US Central Banking with the Bank of Canada in Ottawa and also with Bank for International Settlements in Switzerland, where I was there during the financial crisis and got to see how regulators look at the world. And since 2011, I've been in academia. I was at Ivey School of Business at Western University, and back in 2016, I was approached to co-found a fintech research center with my colleague J.P. Varian. And we've been following fintech avidly since then. And then I'm actually in the process of writing a book on fintech called FinTech Explain, which should be out later in the year.

Manseeb Khan : That's incredible of why I can't wait for that book. So, could you talk a little bit more of the traditional versus the transformational views of fintech?

Michael King : Yeah, I mean, I as somebody who's been coming at this from the banking side, from the financial services side for a long time, I shared the same skepticism as most people did that fintech is just the application of technology to financial services. Banks have been doing that for decades, ever since they made the transatlantic cable, the telex, the fax machine and the A.T.M. So, what's so new about fintech? And it really started to dawn on me, you know, as I was writing my book, that there's really two views about fintech. And there's one view that it's evolutionary. And this is the sort of traditional view that we're using technology to reduce costs and to automate back office and digitize a lot of processes. But there's also a transformational view, and that's more of a viewing fintech as a reason, a revolution that's coming out of, you know, the application of technologies in many different industries, consumer products and cars, automation and that back to fintech is really redesigning or reimagining financial services as part of a larger product offering. So, the traditional view is very product centric. We're going to offer customers a loan. We're going to offer them a wealth management product. We're going to offer them a means of payment. And that's kind of the way that traditional financial intermediaries are set up. If you look at the big banks there, they have divisions with names like capital markets, personal and commercial banking, and insurance. And people in those divisions tend to have titles that sort of say what they do. Mostly focused on the product. But when you start looking at a number of these new marketplaces, these multi sided platforms that are being set up and in particular by a techfins  like Ali Baba and Tencent you see that they're looking at this really from the customer's point of view. And it's very customer centric. They're saying, what does the customer want? What's their pain point and how can we provide them with, you know, a great experience? And that great experience may be social networking and maybe ecommerce and maybe gaming, but there is typically a financial service product that makes its way in there somewhere. And so financial service products are being bundled along with other customer products in a new and imaginative ways. And that's where I think the real revolution, or the transformation is taking place right now.

Manseeb Khan : I couldn't agree with you more. I mean, I'm just explaining what fintech is. A lot of you know, a lot of people may think, oh, yeah, it's a very product focused thing. This is just okay, you know what? We are just going to digitize the loans. We're just going to digitize mortgages. We're just going to digitize X, Y and Z payment method. It's very product focused and a kind of I mean, it's a little heartbreaking because. FinTech, it's so much more, right? It has the capability. I mean, you've been hit on the fact that you're having tech companies like Apple that recently released a credit card. These guys are very customer focused, customer centric, right. Because there is around. We've recently had on the on the show a stat that there's 2 billion people that are under serviced and you're having fintech companies come in and service is under serviced, under banked individuals. Its very customer focused, is very good. What do the people want? How do we build a product around the people? Not a product for the people or like a product that the people who just give it to them.

Michael King : Yeah, I'm. And Manseeb. I don't want to say that all. But these two types, traditional and transformational fintech, they kind of co-exist in this ecosystem. And you look at some of the startups that we have here in Canada and abroad and really, they're focused entirely on the customer and on how to make that experience great and simple and less costly. Or as he pointed out there, they're trying to serve customers that have been ignored or underserved or under banked. And that's true both in the United States but also in emerging markets, places like Kenya and Africa. But there are a lot of fintech that are basically just trying to automate what's already out there. And you know, I would say that There is a twist on the existing business model. But, you know, if you look at balance sheet lending online, that's pretty much the same thing as what banks have been doing for a long time. And if you look at electronic banking, well, we've had digital banks since the 1990s, and that's not particularly new. It just may be a better experience that they're getting now.

Manseeb Khan : Yeah. No, I couldn't agree with you more. So, could you talk a little bit more of the main differences between fintech and techfin and essentially like our data? And like, you know, just like the contrast and I guess the similarities between the two?

Michael King : Yeah. This term tech fin, actually, I only heard it about a couple of years ago and I got curious about it. I wondered where does this term come from? They've basically just taken fintech and turned it on its head. It turns out that it was first used by Jack Ma, the founder of Alibaba, back in 2016, to describe his company Ant financial. Where Ant financial is the formerly known as Ali Pay and was spun off prior to Ali Baba's IPO on the US stock market in 2014. And he said Tech fins are basically technology companies that are trying to provide financial services to underserved customers. Jack Ma, he kind of is critical of the existing financial system, probably looking at his home market in China, which was very undeveloped. It's all state-owned banks and state-owned enterprises. So, keeping that in mind, he said, you know, a lot of these fin techs are simply using technology to make a profit by selling financial products and services to customers. And tech fins are really trying to help people that are under banks, whether it's small businesses, whether it's in emerging market countries or whether it's some individual customers. Now, tech fins are really that term is really stuck for Ali Baba and Tencent in their financial service arms. When we go to North America, we tend to use the term big tech, where big tech is Amazon, Apple, Facebook, and Google. The big U.S. headquartered technology companies that are also moving into financial services slowly but surely.

Manseeb Khan : So, should fintech’s be afraid of the big tech companies and the techfin companies, or should they see this more as an opportunity of, you know what? Hey, now that we have these bigger tech players coming into our space, should we start creating partnerships or should we be a little bit more averse to them?

Michael King : Yeah, you've hit it. You've hit it right on the nail there because it can be these tech fans in the big tech are a real threat to incumbent financial intermediaries such as banks, insurance companies, wealth management. But they could also be an enormous opportunity for fintech who are partnering with them. I know on one-year earlier podcasts back in September, you had Paul Schulte also talking about Alibaba, Tencent, and Wal-Mart in India. And what we've seen there is that these companies are really opened to partnering and helping other fintech to basically provide their customers, their users and their ecosystem with the products and services that they need. So, I would say that tech fins and big tech do represent a threat to incumbents, but I think they also represent an opportunity for partnerships with startups in fintech.

Manseeb Khan : Yeah, I mean, but if you have the financial incumbents adopting the mindset of like, you know what? Hey,  let's start transitioning from the traditional view of how we see fintech into something transformative. Then like the partnerships are just going to be astounding, right? Like if we have just one of one of the big five banks partnering up with Apple, you know what? We're to start backing Apple into the credit services or just whatever the case may be, that in and of itself, they'll be very, very interesting to see.

Michael King : Yeah, it's become a really fascinating landscape because there's a lot of things going on. And as you point out, some of the big banks are really forward looking. They've really caught on to this kind of customer centric point of view. I'd highlight Royal Bank of Canada at home here at JP Morgan and Goldman Sachs in the United States. They those big players are recognizing that these partnerships with these fintech can really deliver a great experience to their customers. It can give them an edge over other incumbents. And it's the way of the future. In particular, with the development of these marketplaces. No bank is going to want to be on a dropdown list on Amazon when it comes to offering a mortgage or a loan. But that seems to be at least from looking at what's happening in China in some other countries. That seems to be the direction we're going, where it's coming very. You know, banks backed loans and mortgages were very commodities, financial products. And it's going to become even worse if these ecosystems come between a bank and their customer. So, some of these banks are developing these marketplaces themselves or they're partnering up. And that's, I think, the way to go. And you mentioned Goldman Sachs is actually backing Apple with their credit card yet to be launched. It was announced with a lot of fanfare, but it's not out there yet, but it's a retail credit card. MasterCard and Apple have said specifically, we do not want your data. And Goldman Sachs has said data privacy is going to be key to our customer offering. Right. They seem to be taking a swipe at Facebook and at Google and their ad-based business models. So just showing that you can't just lump all these big players, big tech, and thin tech fans together into the same bucket. They're really pursuing different strategies.

Manseeb Khan : Of course. I mean, because now you're seeing how the consumer and just, I mean, not only our audience, but just like everybody else is starting to realize how important their data is and how powerful their data is. Right now, you're seeing how there's been this really big push for digital identity and digital privacy of just kind of, you know, hey, I should be able to pick and choose what and how much of what of information I get to give out to companies like Facebook, to Apple or to any of the companies. And the fact that Apple is taking a swipe and taking a stance of like, hey, you know what, we don't really, we don't want your data. We want you to be in charge of your data as much as you can. And that's kind of helping build that, I guess, like future brand equity.

Michael King : Yeah. Ownership of data is going to be central to competitive advantage of any kind of financial service company or non-financial service company. But customer trust in how you treat their data. Maintaining privacy and ensuring that you're a good custodian of that data is also going to be central to claim financial services. So, I think most people agree that more data that the competitive advantage, the big tech companies like Facebook and Apple is really they get to see so much of what customers are doing online and understand them in better ways. Amazon is certainly using that data to try and understand, hey, what kind of new products do our customers want? And it can be a great benefit to consumers if by understanding this data they can provide you with a product that you didn't even know you wanted. But on the flip side, if they go around and they sell it and they monetize it and there is a cyber hack or breach where your identity is stolen. That is a nightmare scenario and one that consumers, regulators, everyone is focused on.

Manseeb Khan : Yeah, that's definitely a very scary, scary situation of getting all of our data hacked. I mean, I mean, speaking of Apple and just the big five banks, this is slowly but surely moving towards open banking, which has been a theme on the show time and time again. This is like I'm a huge advocate for it. I mean like open banking it's a very bright future. It's a very exciting future, because now with Apple announcing their credit card, that's just one of the first of many steps towards, hey, you're looking for a mortgage. Well, you know what? Hey. Amazon actually has amazing rates on mortgages in Waterloo. So, once you get a mortgage to Amazon, right. You don't have to go through TD or RBC or anybody else. You can get it from a tech company. Right. Like in the next five to 10 to 15 years, getting a car loan from Facebook is not going to sound as crazy as it is today.

Michael King : Yeah. And I think open banking is really it's coming. It's coming to Canada. It's already presents in Europe, the U.K. and in some ways,  it's coming into the United States. But it's inevitable that we are going to own our own data and have control over it. And that whether it's held by a bank, whether it's helped by a social media company or by a utility, could be your Rogers could be your phone company. That data belongs to us. And we should be paid or at least given service for the access to that data. I think that forward looking companies are now recognizing that they've been able to use it as without compensating us for it. But at the end of the day, competition in the marketplace is going to lead people to focus on the ones that are best custodians and provide the best service. And I think bringing incisive that of that data is going to help consumers. You mentioned also that, you know, Apple is trying to really distance itself from that ad base, business models of Google and Facebook. It's going to be interesting to see how they have to pivot to address all the concerns that consumers have, although a lot of people seem to be favoring convenience over security when it comes to those to their data. By the way, a big shot up for one of Canada's best fintech companies, secure key. I think they in the realm of digital identity, are doing a fantastic job and really leading in terms of looking after consumers.

Manseeb Khan : Awesome shout out to secure key, you did mention a really good point of view. You know, it should be really interesting to see how Apple is going to pivot. I mean, you know, convenience over security. I mean, that's just kind of what that has been the norm for. I mean, forever now. Right. No one like when it comes to terms of services, everyone really laughs because no one's really reading them. I don't I'm in this space and I don't I don't either. I don't like any app that I download. I'm like, screw it. I'll be fine. I'm not going to whatever. I'll be OK. I'll have I'm not that crazy yet. But, you know, it should be really interesting to see how in the future companies not only like Apple, but all the big tech companies, how are they going to monetize or what does this pivot going to kind of look like? Because right now, the landscape has been very like ad focus. AD revenue focus. Right. That's what you're seeing. That's how traditional media has been. When it comes to TV and newspapers. That's now how you're seeing Facebook and Instagram and all these other social media platforms make money. It should be really interesting to see how the heck are these companies going to make money in the future if they're not selling me ads?

Michael King : Yeah. And I think Facebook, most recent announcement about its it's backing a stable coin, a digital cryptocurrency called Libra is a really fascinating look into potentially where they're going to see some more revenues in the future. As you know, and probably your listeners already know, they launched they announced this this plan to use this coin. That's basically going to be backed by. It's going to be held in by a consortium of companies at arm's length from Facebook announced with initially 27 partners. Not a single bank was in the initial group of partners, although they do envisage having banks and other companies there later. They did have a ride sharing on, you know, food companies as well as Visa, MasterCard and other kind of consumer products are there. But it's going to make payments, electronic payments free using WhatsApp and Facebook messenger. So, then the question is, if you're offering me something for free, how can you make money off of it? Clearly, by seeing all the ID that the spending payments is such a rich place to find out customer insights. You know, they must be believing that by seeing all that spending, they're going to be able to. On financial services where they make money from that, right?

Manseeb Khan : I mean, like you said, right. Like right now, they're not partnered up with any banks or anything based on our spending habits and based on where we're sending money, where we're receiving money, they're just going to add more and more players to the Libra ecosystem, right?

Michael King : Yeah, they will. If they've said they're going to basically expand it to at least 100 partners. And by the way, when you say that payments are free. We're talking about cross-border payments. So, there may not be a charge for actually sending the money, but there is a foreign exchange conversion. And typically, you know, PayPal and others, they add a two to three percent charge when converting currencies. Not to mention making a bid ask spread on that foreign exchange transaction. And that can be that can add up when it's billions or trillions of dollars of volume that can create a lot of profit for whoever is managing it.

Manseeb Khan : Yeah. It should be really interesting to see how Facebook handles that. And on top of that differentiates it from that. Right. Because if they're going to if they're going to still charge that 2 to 3 percent charge fee, it should be interesting to see how they kind of market it and how they kind of present it to the customers of like, oh, yeah, yeah. You want some money to Kenya for sure X amount of charge, but we'll try to like jazz it up.

Michael King : Well, it's instant and it's easy and it's convenient. So, you know, most people probably wouldn't think much about paying like 2 percent on a as a service fee.

Manseeb Khan : Yes. No, I actually agree with you. I like to throw it you what are you mostly excited about when it comes to I mean, like everything that we kind of talked about, what are you most excited about and what should I guess the audience and everybody keep in mind or keep top of mind when we're looking at Apple and all these big tech companies moving into financial services?

Michael King : What I'm most excited about is what this means for us as consumers or as customers and whether it's individuals or retail or it could be small business. I think we're going to just have a much better experience when doing our living, our digital or e-commerce lives and as well as offline in the physical commerce world. We're going to see that financial services are going to sort of fade into the background. They're going to not become front and center like the way or the way they are now. Nobody wakes up in the morning saying, hey, I can't wait to go to my bank, you know, pay those fees, or engaged with that individual and the bank. Most people would rather get on with their lives. They want to focus on their spending. They want to focus on their travel, their savings, meeting their friends. And I think financial services are going to become just the way that Jack Mind and Ant financial, they talk about it. They say it's just like tap water. You turn on the tap and water come out. You don't have to worry about where the water is. Is it clean? What's the source? It's available when you need it. You probably don't turn on your light and ask yourself, well, is this Ontario Hydro That's providing this electricity to me or who is. Where's this coming from? You just assume that the electricity is available. And I think that's what's going to happen with financial services. So, we're going to have a reimagined experience. It's focused on us. I would say that institutional markets, institutional clients have been getting a much better service for decades. And now it's the retail consumer and the small businesses turn. That's what fintech is going to deliver to us.

Manseeb Khan : Yeah. That's. That should be really exciting. I can't I can't wait for that future. Michael, is there anything else you want to share with the  audience before I let you go?

Michael King : Yeah, I would say that the model that we're seeing. I mean, we've talked about big tech. We talked about tech fins. There are some really interesting fintech companies that are actually building up marketplaces very similar to what we're seeing. You may have seen that Borrowell, for example, as has pivoted from being a platform providing loans to consumers to now being a basically a financial marketplace, offering at least products from 40 or more third parties. That's kind of the way that we're these multi sided business models are really going to become much more prevalent. I think we're going to get away from having individuals fintechs and seeing instead collaboration between them to offer us a variety of products and services. So, I don't know whether people call that fintech 3.0 or 4.0. I'm losing track, but I do think that this is a fast-moving industry and there's lots of innovation going on.

Manseeb Khan : Yeah, no, I'm super excited to see the future of fintech and for it to be just as background as turning the latter turning on the tap. Michael, thank you so much for sitting down with me today. What would the best way for the audience to either reach out to you personally if they have any more questions about the book, if they want to pick your brain out? If you have a new research paper like this through email, Snapchat, Twitter,

Michael King : They say they can certainly find me on LinkedIn, feel free to connect with me on LinkedIn or to email me at michaelking@uvic.ca. And once the book's out, I'll set up a Web site as. To add to advertising, to share the content with people for free.

Manseeb Khan : Perfect, can't wait to have you on when the book is officially launched. Michael, again. Thank you so much for joining me today and can't wait to have you on next.

Michael King : Thanks, Manseeb.

Outro : you've been listening to fintech Fridays brought to you by NCFA and partners. Tune in weekly for the latest fintech Friday podcast by subscribing to this channel. The National crowdfunding and FinTech Association of Canada is a non-profit actively engaged with social and investment fintech sectors around the globe and provide education research industry stewardship services and networking opportunities to thousands of members and subscribers. For more information please visit and see if a Canada dot org. Oh yea.

 

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NCFA Jan 2018 resize - Fintech is Driving Financial Inclusion 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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taking ownership community empowerment through crowdfunded investment - Fintech is Driving Financial Inclusion
NCFA Canada on behalf of our partner's Lending Loop | Sep 11, 2019 HAVE YOU EVER SEEN A CHESHIRE CAT SMILE? Well they deserve it. Back in October 2015, NCFA made this introductory video with Cato Pastoll, CEO and Co-Founder of Lending Loop, about a peer to peer lending marketplace for small businesses model that was new to Canada but was achieving significant growth internationally. The question and opportunity was back then:  why not here in Canada? A question that many of us ask ourselves, ask the community and point fingers at strict regulations and high operating costs.  Well fast forward several years and growth obstacles later, and the Lending Loop story continues to impress with their latest milestone of lending over $50 million to deserving small businesses to help them grow and expand operations while providing retail and accredited investors direct access to a wide range of lending and investment options, a robust community and the chance to strengthen Canadian small business - here here! The early vision... Brandon Vlaar, Co-founder and CTO of Lending Loop sharing their good news! CONGRATS to the entire Lending Loop Team for achieving this latest milestone.  We've 'got your back' and look forward ...
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Lending Loop passes 50 million - Fintech is Driving Financial Inclusion
NCFA Guest Post | Sep 9, 2019 The world was shook when online money was first introduced. Some people didn’t like the idea. They’d prefer having something tangible, something that they can actually see and touch to use as currency. Some people were positive about the new experience. They believe that it can certainly make life more convenient. But hey, we’re now in 2019 and online currency is still widely in use. In fact, its uses have expanded way more since it was first introduced (read more). One of the most popular and controversial of its time was BTC or Bitcoin. Even without studying cryptocurrencies, you’ve probably heard this term once or twice before. You may have come across it in the internet or someone may have encouraged you to try trading it. After all, when cryptocurrency was first brought to light, many people saw its potential in the trading market. And it has been making noise ever since. See:  New Regulatory Framework for Canadian Retail Payments Coming in 2019 At first, Bitcoin was surrounded with a lot of controversy – and of course, a lot of doubt. People were scared of exchanging real world money for something that you ...
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digital tokens and coins - Fintech is Driving Financial Inclusion