Paul Schulte, Advisor, Banking and Financial Services
August 22nd, 2019
Paul Schulte is the Founder and Managing Editor of Shulte Research based in Singapore. Paul's roles[...]
Category Archives: Fintech International
Bank/Fintech Partnerships: The Fad Is Over
Forbes | Ron Shevlin | Oct 14, 2019
Partnerships are Not the Future of Fintech
“Bank/fintech partnerships are crucial to the future of banking” has become a widely accepted meme in the industry.
In a recent study from Finextra, 81% of bank executives surveyed said that collaborating with partners was the best strategy to achieve digital transformation. They’re going to be disappointed.
The vast majority of banks are not well suited to partnerships:
- Larger institutions may have the resources to identify, vet, and enter into partnerships, but their size and organizational complexity makes operationalizing and scaling partnerships difficult.
- Smaller institutions typically don’t have the resources or skills needed to identify, vet, and enter into any meaningful number of relationships. Operationalizing partnerships often requires integration into core apps which can be a challenge for smaller institutions.
Then there’s the issue of corporate culture which, in many banks, is not conducive to partnering with outside entities. The Competing Values Framework developed by Cameron and Quinn helps explain why–some cultures are more control-oriented than collaborative.
Partnerships Are No Piece of Cake from the Fintech Perspective
Brett King, founder of fintech Moven told me, “The biggest barrier to bank/fintech partnerships is banks’ procurement departments. They treat us like small IBMs and hammer us with performance and risk clauses that would kill us if we let them.”
See: 10 Key Issues For Fintech Startup Companies
Echoing that sentiment was Philippe Gelis, CEO of fintech Kantox, who wrote, “Inside banks, there is also no single decision maker. You need to convince multiple stakeholders that the partnership makes sense, that it will create significant extra value for both parties, and that the risk of cannibalization is low. Once that’s done, you then need to convince their compliance department, IT team and legal.”
What does this all add up to? According to Dr. Louise Beaumont from Publicis.Sapient:
“For banks, partnerships won’t generate the quantum leap they need to move beyond a decades-old, product-centric mentality to deliver next-generation financial services that consumers deserve. At best, they may gain a workable solution that squats awkwardly in the existing infrastructure and brand. At worst, banks will fail to deliver any noticeable difference to customers beyond a flurry of press releases.”
Industry Participants Will Be Connected, But Not in the Form of Partnerships
This isn’t to say that banking industry participants (e.g., institutions, fintechs, and vendors) won’t be highly interconnected–they will be. But one-to-one partnerships won’t be the predominant form of connection. The most prevalent ways to connect will be:
Platforms. Amazon is a platform. There are over five million marketplace sellers across all Amazon marketplaces (more than one million new to Amazon in 2019 alone). They’re hardly “partners” with Amazon. According to a Forbes article titled Digital Platforms Are Eating Banking, there five types of digital platforms taking over the banking world: 1) Megabank API toolkits; 2) Marketplace platforms; 3) Analytics platforms; 4) Business banking platforms; and 5) Core integration platforms. Platforms provide a plug-and-play capability that enables participants to interact, transact, and integrate without partnership or one-to-one contractual arrangements.
See:
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No banking charter? No problem. Fintech companies team up with small-town banks
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Introducing the Convergence Ecosystem
Open banking. Consulting firm EY defined open banking as: "Online banking and financial services enabled through consumers' ability to offer third-party providers access to their personal bank account data and payment initiation." This type of connection enables the sharing of data between parties without a contractual agreement (i.e., partnership) or transactional capability (like a platform provides).
[Banking]-as-a-service. The term BaaS is often used interchangeably with open banking, but I’m using the term here to describe what fintechs like Harvest (wealth management-as-a-service) or StreetShares (lending-as-a-service) provide to banks. These arrangements are somewhere between a partnership and a traditional vendor relationship. The BaaS fintech provides a “service” to the financial institution–in these examples by offering a product or service to the market–but with non-traditional service level agreements and support requirements.
Alliances and consortia. Partnering with each other may be a better starting path to partnering with fintechs. Examples include Alloy Labs Alliance, a shared innovation lab and accelerator, and CU Ledger, a credit union service organization focused on distributed ledger technology.
Continue to the full article -> here
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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Telegram Enforcement Action: “A reminder that the SEC not only has considerable enforcement tools but is willing to use them”
Crowdfund Insider | | Oct 15, 2019
Last week, Crowdfund Insider reported on the Securities and Exchange Commission (SEC) enforcement action against Telegram and the issuance of Gram tokens. The move by the SEC is a doozy and telling.
First, Telegram sold about $1.7 billion in a SAFT (simple agreement for future tokens) that appeared to abide by the rules. Telegram filed a Form D and apparently only sold to accredited investors in the US. As CI has heard, the token offering was wildly popular at the time of the offering.
But the SEC’s “emergency action” was predicated on the expectation the Gram tokens would be available to the general public and thus akin to an initial public offering (IPO). Once the Grams hid various and sundry crypto exchanges – anyone would be able to purchase them – not just the accredited investor types. In the US, an IPO requires registration with the SEC, a significant undertaking.
See: Your Complete Guide to Security Token Exchanges
We have received several comments on the SEC’s move to target an issuer that is not US-based but sold to US investors, approximately 39 purchasers who committed in total $424.5 million, according to the SEC’s complaint.
Dror Futter, an insider who frequently comments on the emerging digital asset sector and a partner at Rimon Law, told Crowdfund Insider that this is a reminder that the SEC carries a very big stick:
“For those that thought the Block.one settlement represented a kinder, gentler SEC, a reminder that the SEC not only has considerable enforcement tools but is willing to use them,” said Futter. “Telegram certainly has the war chest to fight and at least on the surface, appears to have a better fact pattern than Kik. If this case actually makes it to trial, it will represent an interesting opportunity for a ruling on the securities status of SAFTs. Literally billions of dollars were raised using these instruments. Most provided for conversion to tokens when their platform went live. Presumably, over the next months, more platforms will come online and raise the same set of issues.”
If this case actually makes it to trial, it will represent an interesting opportunity for a ruling on the securities status of SAFTs. Literally billions of dollars were raised using these instruments
In comparing the SEC complaint against Kik and the one delivered to Telegram, the SEC seems to have taken somewhat different positions on the nature of the securities violation, explained Futter.
“In Kik, the SEC stated: “Although Kik’s SAFT specifically stated that the SAFT was itself a security, it failed to state that the Kin to be delivered under the SAFT were securities sold pursuant to the SAFTs. And although Kik’s PPM claimed that the offer and sale of the SAFTs were subject to an exemption from registration under Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, among other United States laws, Kik did not claim any exemption for the offer and sale of Kin through the SAFT. As such, Kik’s offer and sale of the SAFTs and Kik’s offer and sale of the Kin purchased under the SAFTs were not registered.”
See: Waterloo-based Kik shuts down signature app, lays off staff amid cryptocurrency legal battle
In other words, it was the issuance of the Kik token that constituted the securities regulation.
“With Telegram, the complaint stated that once purchasers resell the tokens “Telegram will have completed its unregistered offering with billions of Grams trading on multiple platforms to a dispersed group of investors.” In other words, it is the resale of tokens upon issuance that gives rise to the securities violation.”
Philip Moustakis, counsel at Seward & Kissel LLP and former SEC Senior Counsel who was a member of the SEC’s Cyber Unit from its inception, where he focused on cryptocurrencies and initial coin offerings, had this to say:
“According to the SEC’s complaint, between January and March 2018, Telegram raised approximately $1.7 billion from sales of 2.9 billion Grams to 171 investors, $424.5 million of which was raised from 39 U.S. investors. One thing that makes the case different from some other ICOs the SEC has pursued is that the tokens have not yet been delivered to the investors. This allowed the enforcement staff to step in and attempt to prevent the tokens from being disseminated in the U.S. and resold in the secondary market, at which point it would have been a far more complicated endeavor to unwind or bring the offering into compliance.”
See: Regular investors are cut out of a major financial market and the SEC chief wants to change that
Moustakis said the case has significance because it shows the SEC will pursue overseas issuers of digital assets or cryptocurrencies who offer and sell those assets into the U.S. or otherwise access the U.S. capital markets.
Continue to the full article --> here
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 Era Starts in Australia (Feb 2020)
Sky News | Robin Scarborough, Deloitte Digital | Oct 14, 2019
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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Vanguard Developing Blockchain Platform for $6 Trillion Forex Market
Coindesk | David Pan | Oct 9, 2019
Mutual fund giant Vanguard has partnered with Nasdaq Ventures-backed blockchain startup Symbiont to develop a trading platform for the $6 trillion currency market, the companies said.
With the new platform, Vanguard, which manages $5.2 trillion, aims to lower transaction costs for the trillions of dollars worth of currencies it trades annually by boosting peer-to-peer trading for investors, connecting them directly via blockchain technology.
Symbiont CEO Mark Smith told CoinDesk the company teamed up with Vanguard to build the currency platform, confirming a Bloomberg report that cited an anonymous source.
The platform has been operational for two months and completed its first trades during the time, according to the report.
A Vanguard spokesperson told CoinDesk:
“Vanguard is currently piloting a project focused on improving the efficiency and reducing risk of FX hedging.”
The new platform is part of the fund manager’s commitment to lowering the cost of investing for all investors, the spokesperson said. Neither company would provide further details of the pilot.
See:
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HSBC settles FX deals worth $250 billion on blockchain in last year
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Machine Learning in Finance – Present and Future Applications
The project, if successful, would be another important milestone for Wall Street courtesy of Vanguard, which created the first index fund in 1975.
New York-based Symbiont actually worked with Vanguard on project related to its index funds before the currency trading platform, helping the fund manager in 2017 streamline its index fund data collection process with its patented smart contract technology.
The blockchain firm is focused on its smart contracts platform for institutional applications of its blockchain platform Symbiont Assembly to help build networks where multiple independent entities can share data and logic in real time.
The startup touted that it has been one of the most successful among its peers in the enterprise blockchain space when compared to Hyperledger, R3, Digital Asset and ethereum variants.
“I would argue that we are the only enterprise blockchain solution,” Smith previously told CoinDesk. The others either aren’t really blockchains, have privacy and security shortcomings or haven’t produced anything beyond ideas, he argued.
Continue to the full article --> here
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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Swiss National Bank and BIS use innovation hub to explore digital central bank money and DLT
Finextra | Oct 8, 2019
The Swiss National Bank (SNB) is working with the Bank for International Settlements (BIS) on an innovation hub in Switzerland that will initially focus on research into digital central bank money and distributed ledger technology.
The SNB is working with SIX on the research, embarking on a proof of concept to explore how digital central bank money could be used in the settlement of tokenized assets between market participants.
The project is making use of the SIX Digital Exchange (SDX) platform, which is currently being built and promises to be the world's first end-to-end exchange for digital assets when it launches next year offering listing, trading, settlement and custody service.
See: Mark Carney’s Trojan Unicorn — Are Central Banks Considering Stealth Nationalization in Sovereign Digital Currencies?
The SDX system will be used to explore technical possibilities for integrating digital central bank money into DLT platforms. Options include the connection of the existing Swiss Interbank Clearing System or the issue of digital Swiss franc tokens by the SNB for financial market participants.
Jos Dijsselhof, CEO, SIX, says: "We are pleased to contribute to this initiative and, through SIX Digital Exchange, to explore the technological possibilities with which the SNB could support token-based financial ecosystems in the future by providing digital central bank money for financial market participants."
The new innovation hub will also work on a second research project, looking into the rise in requirements placed on central banks to be able to effectively track and monitor fast-paced, automated electronic markets.
Continue to the full article --> here
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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Inflection point:Seven transformative shifts in US retail banking
McKinsey & Company | Oct 2019
Ten years ago
10 years ago, the US retail banking industry was in the depths of the global financial crisis, with many one-time leading institutions struggling to survive.
Since then, after bringing in billions in fresh capital, US banks have made a return to stable ground and greater liquidity. Despite this progress, aggregate return on equity is at the lower bound of sustainability, and the industry’s price-to-book value is about 1.4, not far above where it stood in 2009.
Customer trust has improved from the downturn but is still well below pre-crisis levels. Though most banks were able to avoid unsettling challenges in the following ten years, few were able to break out and significantly outperform the industry.
Now, however, several major forces are accelerating the evolution of the US banking industry–the encroachment of new competitors, rising expectations from customers on service levels and corporate responsibility, and an intensifying war for talent—and promising to make doing business more challenging in the coming ten years.
Further, US banks have yet to go through the restructuring that has already swept European and Asian markets, where a majority of services are delivered digitally. In this report, we describe seven transformative shifts reshaping US banking. The current state of US retail banking can be thought of as an inflection point for the industry.
Coupled with the difficult macroeconomic environment, and political and economic uncertainty, the seven shifts will decisively alter the operations, economics, and efficiency of US retail banking.
See:
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No banking charter? No problem. Fintech companies team up with small-town banks
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What does the future of banking look like, according to the experts?
Banks face a steep climb
To rank the relative performance of companies, McKinsey uses the Power Curve, which measures value created in terms of economic profit (defined as firms’ returns less their cost of capital). From 2010 to 2017, we assessed close to 2,400 companies across multiple industries on the Power Curve and found two surprising results. First, companies ranking in the top 20 percent generated more than 30 times the profit of those in the middle 60 percent, while the lagging firms made only marginal economic profit. Second, the curve is broadly stable over time, and a company’s position on it is persistent: between 2010 and 2017, only 1 in 12 companies rose from the middle ranks to the top of the Power Curve, while approximately 40 percent of companies in the bottom third stayed there.
Continue to the full article --> here
Download the 15 pg PDF McKinsey & Company research -> here
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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Facebook faces EU grilling over Libra ‘cryptocurrency’ after losing PayPal backing
TNW Hard Fork | Yessi Bello Perez | Oct 7, 2019
As Facebook deals with the loss of PayPal‘s backing for its ‘cryptocurrency‘ Libra, the tech giant must now get ready to answer EU regulators’ questions about the potential risks posed by the project.
The European Commission has requested that Facebook and the Libra Association – the body tasked with supervising the digital currency – answer questions relating to financial stability, money laundering, and data privacy risks.
According to the Financial Times, which saw the commission’s questionnaire last week, this is all part of EU financial commissioner Valdis Dombrovskis’ efforts to asses whether projects such as Libra should be regulated in the EU, if new regulation is required, or whether the ‘cryptocurrency‘ should be allowed to operate at all.
See:
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Libra: France opposes the development of Facebook’s currency “on European soil”
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News on China cryptocurrency and more reforms
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Competition Bureau’s call for intel on anti-competitive conduct in digital economy raises eyebrows
The news couldn’t come at a worse time for Facebook, which has faced increasing scrutiny and opposition from regulators in recent months.
Just last month, Libra‘s founders were subject to questioning by 26 central bank officials in what was the first encounter between the technology giant and regulators.
Prior to that, in August, Brussels’ antitrust body raised concerns about Libra potentially causing competition restrictions.
Continue to the full article --> here
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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