Category Archives: Fintech AI/ML, Data-driven

Why AI-driven financial advice is getting regulators’ attention

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The Globe and Mail | | May 22, 2020

AI and fintech models - Why AI-driven financial advice is getting regulators’ attentionThe emerging use of artificial intelligence (AI) to support or even replace human financial advisors is attracting the attention of regulators – mainly in Britain but also in Canada. While they’re broadly supportive of AI as a cost-efficient tool to broaden the reach of financial advice, they’re also monitoring the potential risks and challenges, trying to ensure that this advice remains both suitable and transparent for clients.

The current crisis is certainly putting the usefulness of the new technology to the test. Tony Vail, chief advice officer at Wealth Wizards, a fwell-known provider of AI-assisted financial advice in Britain, says: “We’re finding increasing demand for our technology solutions [as a result of the crisis]. For example, our digital financial advisor, MyEva, had an unprecedented response to an [online] nudge offering help and guidance with finances related to the impacts of COVID-19.”

See:  WealthBar rebrands as CI Direct Investing

Given the increased attention on AI-assisted advice, Britain’s Financial Conduct Authority (FCA) is taking a proactive approach on the matter. Last autumn, the FCA and the Bank of England conducted a survey of more than 100 financial services firms on their experience using AI, resulting in a report published in October 2019. That was to be followed by a forum this spring to solicit more industry feedback, which has been postponed as a result of COVID-19.

Some key areas of concern, FCA documents state, are the practical challenges and barriers to deployment of AI and its potential risks. Industry suggestions for regulatory principles are also being solicited.

In Canada, the use of AI in financial services is beginning to emerge, but at a slower pace. For example, Bank of Montreal introduced BMO Insights in late 2019, which it says “leverages artificial intelligence to deliver personalized, automated, and actionable insights for everyday banking customers.” On the regulatory side, the Ontario Securities Commission says in an e-mail that the topic of AI and financial advice is “an area of interest” and that OSC LaunchPad has worked with “novel” businesses in this area.

Mr. Vail welcomes the regulatory attention this topic is receiving in Britain – especially given the importance of the decisions that clients could be making using the new technology. For example, the firm’s MyEva platform is designed to offer customized, AI-powered, online advice to the employees of large firms such as Unilever PLC.

The platform uses machine learning to offer advice tailored to individual users on matters such as company pensions, saving and borrowing and making the transition to retirement, at no cost to employees. Those who wish to follow up with a human advisor may pay a fee. On average, about 20 per cent of them choose to do so.

See:  The research frontier: where next for AI and collective intelligence?

Mr. Vail says the FCA has encouraged his firm’s AI-driven innovation. Among other advantages, it has the potential to fill the so-called advice gap that has emerged in Britain after a decade of tighter regulation resulted in a sharp decline in the number of advisors. But he acknowledges that, as its use increases, more regulatory review is expected.

“Totally reasonably, [regulators have] to feel uncomfortable about something that is perceived to be, and is actually, a black box,” he says.

Cary List, president and chief executive officer of FP Canada, says there are many potential advantages of using AI to support financial planning. However, he notes that “every individual is different,” and that the quality of advice must be maintained, regardless of how it’s delivered.

Furthermore, the fact that AI is still a very new technology gives reason to be cautious, he says.

“Until there’s a sufficient repository of data in these systems, we are going to see a lot of room for error – and that causes a lot of challenges.”

Indeed, the quality of data collection and its application to individual situations should be a key concern for regulators, says Giulia Lupato, a lawyer and senior policy advisor with the Personal Investment Management & Financial Advice Association (PIMFA) in London, which represents most of Britain’s retail investment management firms.

See:  Top 12 AI Use Cases: Artificial Intelligence in FinTech

One of the most concerning issues, she says, is data bias – problems that arise when huge amounts of data are drawn from many different sources and, over time, are applied without sufficient customization.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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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Introducing Plaid Exchange

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Plaid blog | Niko Karvounis & Jesse Dhillon  | May 20, 2020

Plaid exchange - Why AI-driven financial advice is getting regulators’ attention

Plaid Exchange

The financial ecosystem is undergoing an unprecedented digital transformation due to new realities brought on by COVID-19. Consumers and businesses have turned to fintech to manage their finances in record numbers. Digital transformation that was expected to take years is now predicted to take place over a matter of months. Now, financial institutions everywhere must be prepared to meet their customers’ rising demand for digital connectivity.

See:  With Plaid Acquisition, Visa Makes a Big Play for the ‘Plumbing’ That Connects the Fintech World

Today, Plaid is launching Plaid Exchange to accelerate consumer-permissioned data access strategies for financial institutions. As fintech adoption has grown, so have the needs of financial institutions that must now manage unprecedented customer connections across thousands of fintech apps. Plaid Exchange gives financial institutions, from banks to wealth management firms, an open finance platform that includes critical tools required to manage the secure and reliable data connectivity their customers’ financial lives demand, today and for years to come. At the heart of this platform is the ability for consumers to maintain control and transparency into where and how their financial information is permissioned and shared, increasingly important as more people rely on a variety of digital financial tools to manage their financial lives.

Over the past year, we communicated with over a hundred financial institutions to understand their evolving priorities and deliver a solution that fully encompasses what a financial institution needs to implement scalable API-led data access rooted in user transparency and control. With Plaid Exchange, financial institutions can bring an API solution to market in as little as 12 weeks. Implementing Plaid Exchange also means saving on the costs associated with standing up an API, such as building tools and programs to manage developer testing, implementation, and risk management.

Developed with shared security, transparency and reliability needs across the ecosystem in mind, Plaid Exchange is an API platform for financial institutions that provides the connectivity to:open finance x - Why AI-driven financial advice is getting regulators’ attention

See:  Microsoft And Plaid Should Target Small Businesses (Not Consumers) With Money In Excel

  • Establish token-based API connectivity. Financial institutions can leverage tokenization to maintain connectivity, and help ensure even more reliable integrations with the 2,600+ apps on the Plaid network today.
  • Optimize infrastructure load. With a bi-directional Plaid Exchange integration, financial institutions benefit from smarter scheduling and load management for data updates.
  • Build one integration for open finance needs. Plaid Exchange is a solution for the digital financial ecosystem stakeholders; it’s open finance in a box, so financial institutions can integrate with multiple data partners through the Plaid Exchange integration.
  • Align with key connectivity standards and principles in the industry. As an active member of FDX and multiple industry standards bodies, we’ve designed Plaid Exchange to reflect key principles around access, consumer control, transparency, and security.
  • Enable new control tools for consumers. Plaid Exchange includes the ability for financial institutions to easily build a consumer control center that gives their customers more visibility and enhanced control over how their financial information is shared and where their accounts are connected.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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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No going back: New imperatives for European banking

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McKinsey & Company | By Matthieu L, Debasish P, Ildiko R, Hiro S, and Marcus S | May 18, 2020

New imperative for european banking - Why AI-driven financial advice is getting regulators’ attention

Now is the time for Europe’s banking leaders to reimagine how their institutions operate and their role in society.

COVID-19 remains an unresolved health challenge that has resulted in tragic loss of life. The economic contraction emerging in its wake will likely be the deepest since World War II and the road to recovery will be long and challenging.

Over the past few months, banking leaders have displayed resolve and resilience, moving swiftly to protect the health of employees and customers, ensure the continuity of basic banking services, and build up capital, liquidity, and cost buffers to strengthen their institutions. In the coming months, banks will start to return to something resembling normal service, reopening offices and branches. But so much has changed over the past few weeks: customers’ financial needs, the way they engage, how employees work, and even society’s expectations of banks.

See:  Dealing with a crisis: FinTech versus Bank

The industry will likely face a prolonged period of economic pressure and banks’ actions in the coming months will set their performance trajectory for the years ahead. Banks have shown during the lockdown what is possible in terms of speed and innovation. There is no going back. Now is the time for banking executives to reimagine how their institutions operate. Bold vision and disciplined execution on a set of key imperatives will ultimately differentiate the leaders from the laggards as this crisis abates.

The crisis will put banks under prolonged

It is too early to predict the full impact of the pandemic. The outcome will depend on the length of lockdowns, the drop in demand, and the shape of the recovery. The scale of government support will also be critical—in the last month, some European governments have rolled out packages worth up to 30 percent of GDP and this level of intervention might continue.

All companies must think through possible scenarios to plan their next steps. Based on a recent survey of nine scenarios developed by the McKinsey Global Institute, more than a third of European executives expect a muted recovery. This is the basis of the analysis that follows, but we must keep in mind that other scenarios, both more optimistic and pessimistic, are also plausible.

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The muted-recovery scenario translates into a drop in GDP of 11 percent across the Eurozone in 2020, and recovery in late 2023. 1 For banks, this would lead to sharp drops in revenue, a squeeze on capital and a hit on return on equity.

No going back - 6 imperatives to win

The crisis has upended the world in which banks operate in terms of customer behavior, ways of working, and government actions.

McKinsey’s European customer survey shows how customer behavior and needs have changed over the past month: digital engagement levels have climbed up to 20 percent, the use of cash has halved, 30 to 40 percent of customers have expressed a greater need for advice, while 20 to 40 percent want products to help them through the crisis. 4 Pension shortfalls are a particular challenge with those close to retirement facing a very immediate problem. Banks will need to reflect on the propositions and channels through which they can best meet these evolving needs.

See:  Open banking review faces ‘worrying’ delay as pandemic drives Canadians to fintech

  1. Innovate new products and propositions. COVID-19 has triggered a range of new financial needs that are waiting to be addressed.
  2. Lock in the shift to digital sales and service, and reshape physical distribution. In just a couple of months, customers’ adoption of digital banking has leapt forward by a couple of years.
  3. Create a structurally leaner and scalable cost base. To offset the effect of spiking risk costs and sluggish income, and to free up resources for building digital capabilities, banks need to aim for a cost improvement of 25 to 35 percent (or 20 to 30 percent net increase after reinvestments) over the next two to three years.
  4. Reset the organization and technology for speed. During the lockdown, many bank teams turned agile overnight and delivered the impossible—such as enabling thousands of employees to work from home, or deploying new digital journeys in record time.
  5. Double down on risk and capital management. Credit losses will be the defining differentiator of performance over the next year. Early detection and proactive intervention are critical to manage non-performing loans.
  6. Rebalance the business mix and seek targeted M&A deals. Industry landscapes are often redrawn after crises.

See:  COVID-19: A Test Of The Stakeholder Approach

The role of banks in society: A time for purpose-driven choices

Crises often prompt self-reflection and change and this may be a perfect time to reset what has been, at times, a challenging relationship with society. Banks have already been involved in economic support measures, but some may want to be even more proactive, as in Switzerland for example, where banks supported the government-initiated COVID-19 small-business loan program.  This could also be a time for banks to rethink their culture. Moving from a control-based culture to one based on strong values supported by smart controls might prove far more effective in steering European banks towards recovery in the volatile future.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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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RegTech: The Financial Industry Disruptor

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Guest Post | May 13, 2020

Regtech sector - Why AI-driven financial advice is getting regulators’ attentionSince the global financial crisis of 07/08, firms have had more and more stringent rules enforced upon them to ensure that such a catastrophe isn’t allowed to happen again. This increase in regulatory burden has gone a long way in keeping disasters at bay, but at the same time it has put a lot of pressure on people working in the financial industry.

Observing an ever-changing onslaught of compliancy rules is no mean feat, that much is for certain. Professionals in the field of finance could have the rug pulled out from underneath them at any moment, which is why they’ve long called for a bit more support. Fortunately, thanks to the emergence of RegTech, they now have the exact level of assistance that they require.

See:  TC Webinar (May 21, 2020): FinTech, RegTech, and SupTech Community of Practice with Simone di Castri

RegTech has well and truly changed the face of the financial industry… and many will say for the better. To find out what kind of an impact it has had, be sure to read on.

The impact of RegTech

The Institute of International Finance has recently pinpointed seven key areas of compliance and regulatory reporting that RegTech has had a distinct impact on:

Risk-data aggregation

This makes it easier for finance professionals to draw up capital and liquidity reports.

Modelling and forecasting

Finance professionals now have the capacity to better manage their risk because of the fact that it is now easier for them to analyse future trends.

Payment transaction monitoring

This gives finance professionals a tighter grip whenever they enter into an agreement with a new client/partner.

Market trading

Finance professionals can now calculate interest margins and study the choice of trading venue, which in turn allows them to make much sounder investments.

New regulations

RegTech automates the interpretation of new compliancy regulations, which ultimately allows finance professionals a better chance of being able to observe the rules that are enforced upon them.

 

The different types of RegTech

To ensure that it is capable of optimizing the daily workflow of a wide range of finance professionals, RegTech comes in a plethora of shapes and size. Here are the three different types of Regulator Technology that you should be aware of:

Tracking

Finance professionals can automate the process of tracking their compliancy laws by investing in CUBE DRP regulatory compliance software.

Reporting

This allows finance professionals the opportunity to submit reporting data with ease, which in turn allows them to draw up important reports at a much quicker pace.

Training

The training feature that is installed into most RegTech solutions makes it possible for whole workforces to learn about this type of technology while on the job.

Ask all of your friends in the finance industry what they think about RegTech, and they’ll no doubt all say the same thing — it has made life a whole lot easier. Without this tech at hand, finance professionals would be forced to study a countless amount of compliancy documents each day. This would inevitably lead to errors being made, and it would drain the workforce of any enthusiasm they once had for regulator reporting.

 


NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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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Less Than 20 Days to Go Before the Next 2020 Bitcoin Halving

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BitcoinKE | CryptoGuru | Apr 22, 2020

Bitcoin halvening - Why AI-driven financial advice is getting regulators’ attentionAs the Bitcoin halving clock ticks closer to the May 10 D-day, we take a look at what this monumental event will mean for the largest crytocurrency by market cap amid the Covid-19 pandemic.

First, a few definitions:

What is the Bitcoin Halving (or Halvening)?

New bitcoins are issued by the Bitcoin network every 10 minutes. For the first four years of Bitcoin’s existence, the amount of new bitcoins issued every 10 minutes was 50.

Every four years, this number is cut in half. The day the amount halves is called a “halving” or “halvening”.

In 2012, the amount of new bitcoins issued every 10 minutes dropped from 50 bitcoins to 25. In 2016, it dropped from 25 to 12.5. Now, in the 2020 halving, it will drop from 12.5 to 6.25.

The halving happens every 210,000 blocks. The 2020 halving will happen on block 630,000. The 2024 halving will happen at block 840,000.

See:  $14M Bitcoin Fund Gets Listed on Toronto Stock Exchange

What is the Significance of the Bitcoin Halving Event?

The halving decreases the amount of new bitcoins generated per block. This means the supply of new bitcoins is lower.

In normal markets, lower supply with steady demand usually leads to higher prices. Since the halving reduces the supply of new bitcoins, and demand usually remains steady, the halving has usually preceded some of Bitcoin’s largest runs.

Here is a look at previous halvings and their effects on Bitcoin prices 150 days later:

2012 Halving

The November 28th block halving was the first halving:

  • New BTC Per Block Before: 50 BTC per block
  • New BTC Per Block After: 25 BTC per block
  • Price on Halving Day: $12.35
  • Price 150 Days Later: $127.00

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2016 Halving

The second halving occurred on July 9th, 2016:

  • New BTC Per Block Before: 25 BTC per block
  • New BTC Per Block After: 12.5 BTC per block
  • Price on Halving Day: $650.63
  • Price 150 Days Later: $758.81

Each halving lowers Bitcoin’s inflation rate. As shown in the image below, note how the price jumps significantly after each halving:

Bitcoin was designed as a deflationary currency. Like gold, the premise is that over time, the issuance of bitcoins will decrease and thus become scarcer over time. As bitcoins become scarcer and if demand for them increases over time, Bitcoin can be used as a hedge against inflation as the price, guided by price equilibrium is bound to increase.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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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What do the next ten years hold?

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Expoential View | Azeem Azhar | Jan 2020

twin towers - Why AI-driven financial advice is getting regulators’ attentionI’m Azeem Azhar. I’m exploring how our societies and political economy will change under the force of rapidly accelerating technologies and other trends. I convene Exponential View to help us explore these topics.

Making predictions is complicated once we understand that the system we are trying to predict is a complex one, of interwoven forces that affect each other, each layering one atop the next. And that we don’t have clarity of when certain technical breakthroughs will occur or how political forces will shape the implementation of technologies (or vice versa).

Then presenting predictions as a list, a set of steps, in this case one to ten, is necessarily a shallow representation of this dynamic system built up of feedback loops of uncertain gait.

And then the prediction-maker is faced with the next challenge. At what level of abstraction should one make predictions? At the atomic level of technological progress (that chips will get faster, the cost of genome sequencing will decline), or at a highly macro level that describes population aggregates. I think the mezzanine layer that sits between the micro- and macro- is most relevant for understanding how our lives will change. This is where things get complicated and where our social institutions (like cities, firms, industries, communities) exist: where, in short, we spend most of our time.

Today, in the shadow of the climate threat, there is no guarantee of a naïve direction of aggregate progress, the sort of simple analysis which merely tracks longer lifespans, larger populations, wealthier societies. Wealth and health are undisputable markers. In the last century we did pretty well on that basis; we increased global GDP per capita on a purchasing-power-parity basis 5.7 times while increasing human population 4.1 times.

A climate catastrophe could unpick that simple teleology and reverse it sharply.

See:  Can Fintech Make the World More Inclusive?

And, of course, values and beliefs change. The wealthiest societies in the world now have fewer children, absolute population levels are no longer a marker of bounty and power. The richest nations have lower birth rates, many with declining populations.

One of the largest collective fictions we’ve engaged in, the nature and operation of the economy itself, is ripe to be unpicked. It will be clarified by new methods from science and social science that better help us understand the processes that underpin economic behaviour and outcomes. This rethinking of economics will happen, given urgency by our collective experience at the sharp end of neoliberal, financialised economic thinking.

Many of these dynamics will result in the transfer of power from one group to another, some equitably, some less so. I can’t gauge accurately how willingly those transfers of power will occur.

We do have some clear choices, forks in the road, up ahead.

My suggestions for the shape of the next decade are based on what I consider a roughly optimistic reading of those choices. I’d welcome your comments, particularly from members, below.

  1. Climate change will be the dominant narrative. We will achieve global peak emissions this decade, as Michael Liebreich argues. I believe we can go further than. Renewables are cheaper than most forms of new fossil fuels and are getting progressively so, even when you add the costs of storage. Founders I meet are bringing the same entrepreneurial skill set that brought us Facebook, Google and Amazon to the climate change problem, including those hard-to-decarbonise sectors (like steel or chemicals). Governments, like the EU and the UK, have announced net zero targets to be enshrined in law. And the financial markets are under pressure to better price in carbon risks, which will increase the financing costs of climate-deleterious investments relative to clean ones. What we can’t be certain of is how rapidly our climate is changing (something we discuss in this briefing call with one of the lead authors of the IPCC 1.5 degrees report, Professor Myles Allen). The speed of this change will determine how we shape our investments into urgent mitigations and disaster relief against sustained investing in shifting our energy mix. We’ll probably need to do both. Addressing climate change will require a concerted effort of World War II scale, but a genuinely global one. During 2019, I had dozens of conversations in boardrooms, with public market investors, entrepreneurs and venture capitalists which lasered in on the imperative to achieve net zero. So perhaps we have a chance to launch a modern-day Manhattan Project to tackle climate breakdown.
  2. Our geopolitics will continue to fragment and this will result in more conflict. This is not merely a story about China’s growing economic power and global influence, exporting its political capitalism and authoritarian capabilities through its technologies and across the One Belt, One Road initiative. Global geopolitics will need to factor a broader rise of Asia, India becoming the world’s 3rd largest economy by 2030, closing in on a $10 trillion GDP. The world will comprise of three major blocs. The EU promotes a citizen-centric model, China a state-centred one. The US lacks an up-to-date cri de l’esprit: the American dream has got mired into the tar of social immobility & profit-at-all-costs companies, which puts off the young, the environmentally-minded, and even many financiers (see trend three.) An inconsistent and unilateral foreign policy chafes capitals around the globe. America’s status as the home of opportunity and world’s moral guardian is weaker than it was twenty years ago.
    Outside of those major blocs, there will be significant players whose alignment will be somewhat unclear, including hypersonic Russia, brexit Britain, the major African and Pacific economies. Lurking, demanding a seat at the table, are the major technology platforms—how will they play their cards? Critically, we’ll need to ask where the forums for co-operation and mutual benefit will reside. Much of the benefit of the Internet derived from its widely available standards and global interoperability, as it starts to fragment into four, or more, Internets, will we lose those benefits associated with openness and the democratisation of technology?
  3. In what we have generally thought of as the West, we’ll rethink the shape and purpose of our economies. We’ll ask hard questions about ‘rentier capitalism’, which is the end-state of the Fordist mass production model, the Friedman doctrine coupled with corporate capture, particularly of antitrust. Yes, neoliberalism will be put to bed. We may go as far as rethinking the purpose of our economies to sustainably deliver on the needs of its population, as some have suggested. We might break the simple linear division society encouraged by neoliberalism: markets which work and states which do the rest, each measured solely by their efficiency. Rather, we’ll recognise the value that responsive states provide in creating a secure, kind, purposive substrate in which we can live our lives. Many states will rethink the ‘social contract’ for a new world of work. They will also realise they need to take a more active role in directing investments in technology and shaping our societies. This will take the form of DARPA-like basic research, what economist Marianna Mazzucato calls the mission-driven state. Smart nations will figure out how to do this while facilitating basic science and accelerating the entrepreneurial urge.

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See:

Three Big Things: The Most Important Forces Shaping the World

Davos 2020: How to Survive the 21st Century by Yuval Noah Harari

The future of Asia: Asian flows and networks are defining the next phase of globalization

What to expect from social fundraising world in 2020

The research frontier: where next for AI and collective intelligence?

MOF: Consumer-directed finance: the future of financial services

Not cashless, but less cash: Economic justice and the future of UK payments

 

 


NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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 in coronatimes: Why some sub-sectors are especially vulnerable in a downturn

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Sifted | Isabel Woodford | March 25, 3020

Covid impact on fintech - Why AI-driven financial advice is getting regulators’ attention

This graphic was created in collaboration with Finch Capital.

A sector-by-sector analysis of what might happen to European fintechs during a downturn. Which are most at risk and which might profit?

During the past five years, financial technology startups have been some of the most hyped, fastest-growing and best-funded in Europe.

But as the coronavirus pandemic begins to weigh on the economy, fears are growing that financial startups will be hit hard, as investors invest less and consumer spending slows.

Yet fintech is a broad sector, making it hard to generalise about the impact of coronavirus. So we’ve analysed how the different sub-sectors within fintech might fare in the short to mid-term amid virus shock and a potential recession.

An overview: Fintech during coronavirus

The graphic above summarises how each sub-sector will be affected by the coronavirus outbreak, according to an analysis by Sifted in collaboration with Finch Capital. Those marked in red are predicted to see a downturn, yellow indicates it’s a mixed bag and green means it will likely see a boost.

Finch Capital Report:  Future of Disruptive and Enabling Financial Technology post covid-19

Our thesis is that digital banks, foreign exchange (FX) companies, wealth manager apps and small and medium-sized enterprise (SME) lenders will struggle the most in the next six months and are likely to see a decline in revenue and users.

It’s worth noting that, of course, these sub-categories aren’t everything; the fate of companies will also depend hugely on the stage they’re at, their market fit and their cash reserves. For some, the crisis will also breed opportunity; particularly cash-rich, lean startups.

Nonetheless, by explaining the logic behind our core conclusions, we hope to help you make sense of how the next six months might play out.

Challenger banks

Such as: Monzo (UK), Monese (UK), Bunq (Holland), N26 (Germany)

Digital banks are still plagued by a trust gap, demonstrated by the fact most users still use them as secondary accounts. A financial crash could amplify that trust gap, leading to fewer users moving their salaries into their challenger accounts, or even causing existing users to withdraw the bulk of their deposits into ‘brick and mortar’ accounts. This could have an impact beyond the immediate crisis, worsened by reduced-interest rates, further reducing the margins they make on their remaining deposits.

Meanwhile, in the short term, payments are declining as consumer spending falls due to the global lockdown. Given the likes of Monzo make a portion of their money on interchange fees, this is a problem.

See:  Coronavirus: New Challenges and Opportunities for Fintech

Digital banks that charge for their accounts, like Monese, N26 and Revolut, are also likely to see a dip in subscription openings, especially amid a crackdown in travel.

N26 cofounder Maximilian Tayenthal confirmed that the Berlin-based bank has already seen this. “Our customers’ card sales in March have so far declined. In certain markets we’re seeing a 10% drop in account openings,” he told Bloomberg.

Moreover, if the crisis spills into a recession, investors expect business-to-consumer (B2C) challenger banks to be an obvious target for opportunistic M&A, assuming valuations dip to a more affordable level.

“[A recession] will especially hurt challenger banks,” concluded Rosenblatt Securities, a US brokerage company, in an analyst note, highlighting these companies’ high burn rate, reliance on marketing and incumbent players’ advantages in a crisis.

Nonetheless, Angelique Schouten, chief commercial officer of cloud-banking platform Ohpen, argued that incumbent banks will face greater pressure during the lockdown because of “the number of processes that are still human and/or paper-driven and initiated“. Indeed, digital banks at least have the benefit of digital onboarding and an existing infrastructure for mobile-only banking.

To this point, Speedinvest partner Stefan Klestil told German media Finance Forward that the lockdown will highlight the benefits of digital banking and could trigger a “growth-spurt” in future. He also argued that “existing investors will continue to support their good companies [like N26]”, countering theories that digital banks will see down-rounds if the turmoil exists.

This may well help N26 and Revolut’s early efforts in the US; however, bank branches have already seen a gradual decline in footfall in Europe, so a better digital interface alone is unlikely to sway local users.

Payments

Such as: Checkout.com (UK), SumUp (Germany), Modulr (UK)

In the payments sector, we are unlikely to see startups crash and burn because of coronavirus. Payments has proven itself it be a fairly resilient industry during past crises, leading the Mercator research group to predict “lower growth…rather than negative growth.” Yet how hard individual firms get hit depends on a couple of key differentiators.

Those will a big online exposure should be ok. There has been a surge in e-commerce payments in the lockdown as people order online, which should help mitigate for the general downturn in consumption, transactions and cross-border payments.

See:  How payments can adjust to the coronavirus pandemic—and help the world adapt

Business-to-business (B2B) payment companies which automate invoices, for instance, are also better insulated because they enjoy long term contracts.

However, Visa and MasterCard have warned that sales will fall short this quarter by 2-4%, which will also trickle down to merchant acquirers (like Worldpay, which process your card details).

Purely offline payment services, like German startup SumUp, will be worst hit during the lockdown.

Trading

Such as: Bux (Amsterdam), Freetrade (UK), Trade Republic (Germany)

Uncertainty breeds volatility and volatility is gold dust for trading companies, as each trade executed provides a small revenue cut.

Digital trading startups like FreeTrade and Bux have reported a boom in volumes in recent weeks as traders attempt to “buy-the-dip”, so for now, it’s good news for the sector, which has taken on incumbent players with cheaper fees. Indeed, Germany’s Trade Republic has extended its Series A this week to attract new investors hoping to profit from the uptick.

Having said that, the likes of US-based Robinhood may have seen too much trading, given their system has collapsed several times in recent weeks due to technical overload.

See:  FintechBeat Podcast: Save the Money

And the biggest gains will come if Europe’s “zero-commission” startups can retain new users and sell them more lucrative products than basic single-stock UK trading. It remains to be seen if they will be able to convert customers in this way.

The other short-term winners will be fintechs providing trading infrastructure.

Wealth managers/ Robo advisors

Such as: tickr (UK), Liqid (Germany), Wealthify (UK)

A wave of digital wealth managers have emerged in recent years to attract Europe’s millennial traders (notoriously reticent retail investors). Wealth managers differ from trading apps in that they do not encourage “buy-and-sell” behaviour, but rather long-term investing. With their friendly interfaces, pre-packaged stocks and low fees, they’ve managed to gently lure in a new audience.

However, a financial downturn could be damaging for wealth managers, as investors get scared and withdraw their deposits.

“Severe volatility and the lack of recovery in public stocks may scare away investors, especially millennials… Investors using robo advisors… may gravitate away towards established wealth management shops (Charles Schwab, Fidelity Investments, Morgan Stanley) who have matched the ‘zero commission’ model of e-brokers and also offer the comfort of human advice,” the Rosenblatt report highlighted.

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This is bad news as robo-advisors largely make money from fees on their assets under management. That means the smaller the uptick in assets, the less money they make. Nonetheless, the economic effects of coronavirus are still under debate, so many users are reportedly holding their nerve.

‘We are still growing positively despite the worst financial market in over 30 years. User behaviour has held up despite the environment,” the cofounder of ethical trading platform tickr, Tom McGillycuddy, told Sifted.

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NCFA Jan 2018 resize - Why AI-driven financial advice is getting regulators’ attention 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

Latest news - Why AI-driven financial advice is getting regulators’ attentionFF Logo 400 v3 - Why AI-driven financial advice is getting regulators’ attentioncommunity social impact - Why AI-driven financial advice is getting regulators’ attention
NCFA COVID 19 letter to government to support Fintechs and SMEs - Why AI-driven financial advice is getting regulators’ attention

Coronavirus resources 800 1 - Why AI-driven financial advice is getting regulators’ attention

NCFA Newsletter subscribe600 - Why AI-driven financial advice is getting regulators’ attention

FFCON20 Homepage Banner v3 updated - Why AI-driven financial advice is getting regulators’ attention

 

share save 171 16 - Why AI-driven financial advice is getting regulators’ attention