Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Category Archives: Fintech Opinions
The UK’s PRA Commitment to International Competitiveness and Growth
Regulatory Insights | Sep 21, 2023
Image: Vicky Saporta, Executive Director, Prudential Policy Directorate at the Bank of England
A recent speech by Victoria Saporta at the Bank of England conference sheds light on the Prudential Regulation Authority's (PRA) vision and its commitment to bolstering the UK's position as a global financial hub focusing on international competitiveness and growth.
- Victoria Saporta, Executive Director, Prudential Policy highlighted the PRA's new secondary objective, which emphasizes facilitating the UK economy's international competitiveness and growth over the medium to long term. This objective aligns with international standards, ensuring that the UK remains a key player on the global stage.
- The PRA's approach to this objective isn't entirely new. They initiated a conversation about a year ago with a Discussion Paper that outlined their policy approach. Saporta's speech in February further solidified the PRA's stance, proposing regulatory foundations that would guide their approach.
Three Pillars of Competitiveness and Growth
See: Canada’s Competition Problem: 7 Reasons
Saporta outlined three main foundations that the PRA believes are crucial for harnessing the UK’s strengths:
- Trust: A strong emphasis on maintaining trust in the PRA and the UK's prudential framework.
- Effective Processes: The need for streamlined regulatory processes and proactive engagement.
- Responsiveness: A commitment to addressing UK-specific risks and opportunities head-on.
A pilot survey conducted by the PRA provided valuable feedback from stakeholders. A whopping 93% of respondents expressed trust in the PRA’s framework, and a similar percentage appreciated the PRA's stable and predictable regulatory environment.
Operational efficiency stands as a key area of focus for the PRA. The authority is taking steps to enhance transparency, with initiatives like more frequent reporting on regulatory transactions.
What Can Canadian Regulators Learn?
Canadian regulators, like their counterparts worldwide, are constantly seeking ways to enhance their regulatory frameworks, ensure financial stability, and foster economic growth. Drawing from the insights of Victoria Saporta's speech at the Bank of England conference and the PRA's approach, here are a few select lessons Canadian regulators can learn:
See: NCFA Response to FINTRAC’s ‘Knee Jerk’ Regulations Requiring Donation Crowdfunding Platforms to Register and Comply with AML/ATF Legislation
1. Embrace a Clear Vision with Defined Objectives
The PRA's new secondary objective emphasizes facilitating international competitiveness and growth. Canadian regulators can similarly define clear, actionable objectives that align with both domestic needs and global standards. These should be S.M.A.R.T goals with measurable outcomes with performance updates being regularly communicated to industry and the public in a transparent and timely manner.
2. Streamline Regulatory Processes and Agility
Operational efficiency is crucial for a responsive regulatory environment. By simplifying processes, adopting technology, and ensuring transparency, Canadian regulators can make it easier for institutions to comply with regulations and for consumers to understand their rights.
3. Engage with Stakeholders
The PRA's pilot survey is a testament to the importance of stakeholder feedback. Canadian regulators can benefit from regular engagement with industry participants, consumers, and other stakeholders to gather insights and refine their approach.
4. Collaborate Across Regulatory Bodies
Financial regulation often involves multiple agencies and bodies. By fostering collaboration and coordination among these entities, Canadian regulators can ensure a holistic and consistent approach to financial oversight rather than create political headwinds or inefficiencies.
Conclusion
Victoria Saporta's enlightening speech at the Bank of England conference underscores the PRA's unwavering commitment to fortifying the UK's stature in the global financial arena. By emphasizing trust, operational efficiency, and responsiveness, the PRA sets a gold standard for regulatory frameworks. The insights gleaned offer invaluable lessons, not just for the UK but for global counterparts like Canada.
See: March 1, 2019: NCFA Submission to the Ontario Securities Commission on Regulatory Burden
As the financial landscape continues to evolve, the principles of clear vision, streamlined processes, engage with stakeholders, and inter-agency collaboration remain paramount. These guiding tenets, as highlighted by Saporta, serve as a beacon for regulators worldwide, ensuring that financial systems are robust, transparent, and in tune with the needs of the times.
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, artificial intelligence, 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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A Scaling Fintech’s Decision “To Bank or Not to Bank?”
Digital Banking | Sep 18, 2023
Image: Unsplash/Susan Q Yin
As the industry matures, the decision to become a bank or remain an independent fintech entity is becoming increasingly significant. The recent decision by Figure, led by its visionary CEO Mike Cagney, to withdraw its bank application has ignited a fresh debate on this topic.
Mike Cagney's leadership at Figure (and Co-founder of SoFi) has always been characterized by forward-thinking and innovation. His decision for Figure not to become a bank wasn't a reflection of the company's inability to do so, but rather a strategic choice rooted in a broader vision for the fintech industry. Cagney's perspective offers valuable insights for other fintech leaders grappling with similar decisions.
When my startup, Figure, recently withdrew our OCC bank application, many in the media took it as a sign that fintechs like us need to become a bank to survive—but that the process is simply too hard. They got it wrong.
- While becoming a bank can simplify licensing processes, it also brings with it a slew of regulatory hurdles and licensing challenges. For fintechs like Figure, which already hold numerous state licenses, the allure of a single banking license might be outweighed by the regulatory constraints that come with it.
- Traditional banking models come with stringent capital requirements, especially for specific loan types. These requirements can make certain financial products uneconomical for banks but lucrative for fintechs.
- Fintechs, unlike banks, trade on earnings, allowing for more dynamic growth opportunities. Banks, on the other hand, often trade on a multiple of book value, potentially limiting their market capitalization growth.
- One of Figure's standout achievements under Cagney's leadership has been its pioneering work with public blockchains. Regulatory views on such innovations can be restrictive for banks who are less flexible, potentially stifling the very innovation that fintechs thrive on.
See: The OCC is Facing Calls to Pull Guidance That Allows Banks to Do Some Crypto Business
Having said that, there are numerous pros of becoming a bank that we shouldn't overlook!
- Fintech companies often have to manage multiple state licenses for various financial services. Becoming a bank would simplify the licensing process, allowing them to operate under a single banking license across states.
- Having one regulator can lead to significant operational and compliance savings.
- Banks have the ability (and the requirement) to accept deposits insured by the FDIC. This can provide a more stable and predictable source of financing compared to wholesale capital markets.
- Banks can access funding backstops such as the FHLB and the Fed Window, which can offer lower costs.
Where Does the Rubber Hit the Road for Growing Fintechs?
For many fintechs, the decision to become a bank is not just about regulatory and capital considerations. It's about identity. Fintechs, at their core, are disruptors. They challenge traditional financial models, introduce innovations, and often operate at the cutting edge of technology.
See: When Big techs and fintechs own banks
The real question is: Can fintechs maintain their innovative edge within the confines of a traditional banking model? Or do they risk losing their unique value proposition by becoming too enmeshed in the very system they set out to disrupt?
As more fintechs reach the crossroads that Figure encountered, they would do well to consider not just the immediate benefits of becoming a bank, but the long-term implications for their brand, their innovation potential, and their role in reshaping the financial landscape.
While the allure of becoming a bank is undeniable, as Mike Cagney's leadership at Figure illustrates, sometimes the boldest move is to chart a course that aligns with the company's core values and vision for the future of finance.
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, artificial intelligence, 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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The Hub OpEd: The Online News Act is Flawed
OpEd | Sep 5, 2023
Image: Unsplash/Austin Distel
In a compelling op-ed by The Hub, the Trudeau government's recent draft regulations for the Online News Act, Bill C-18, are scrutinized. The regulations aim to ensure tech giants like Google and Meta compensate Canadian news media organizations, but the underlying assumptions and approach of the legislation raise significant concerns.
The regulations, designed to clarify the implementation of the legislation, are based on flawed assumptions. They attempt to dictate the intricacies of business-to-business relationships, turning private companies into instruments of public policy. This has significant implications for policy outcomes, public accountability, and market functioning.
The government's stance is that challenges in journalism indicate a market failure requiring policy intervention. However, the Online News Act outsources the implementation of this policy to private platforms, determining which media organizations should receive financial support, which is a questionable approach.
See: Are we headed towards Meta-Banking?
The proposed funding formula for supporting journalism is convoluted. It ties the compensation from tech giants to their global revenues and Canada's share of global GDP, rather than focusing on their Canadian revenues and the journalism sector's share of Canada's GDP. This approach seems to double the level of public subsidies to media organizations without a clear rationale.
While there's a genuine concern about supporting news journalism, especially at the local level, the current approach of the Online News Act is circuitous and flawed. A direct government intervention, transparent and accountable, might be a more effective solution to address the challenges faced by the journalism industry in Canada.
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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Aligning Fees with Sustainability Goals – Impact Linked Carry
Impact Investing | Aug 23, 2023
Image: Unsplash/John Cameron
In the intricate dance of finance, impact investing is taking center stage, pushing for a harmonious blend of profit and purpose. Drawing insights from a recent PitchBook article, we delve into how limited partners are influencing the alignment of fund fees with sustainability goals.
The Rise of Impact Funds
- Environmental, social, and governance (ESG) factors have become a cornerstone for LP mandates.
- Recent reports, such as the 2022 PwC study, highlight an anticipated growth in ESG-related assets under management (AUM) to a staggering $33.9 trillion by 2026, up from $18.4 trillion in 2021. This surge underscores the increasing importance of sustainable investments in the global financial landscape.
- Despite a general slowdown in PE fundraising, impact-focused funds have shown remarkable resilience. Data from PitchBook reveals that 2022 saw impact funds amass nearly $22 billion across 21 global funds, setting a new benchmark for capital accumulation.
See: Alternative forms of capital will be key to develop sustainable economic systems
- Paula Langton, a renowned figure in fund placement at Campbell Lutyens, noted a surge in sustainability-focused activities. She emphasized the growing willingness of LPs to commit to newer, previously unheard-of entities, especially those centered around climate action.
Impact-Linked Carry
- Furthermore, LPs are now advocating for GPs to tether their carried interest to tangible goals, such as carbon emission reduction or enhancing gender and racial diversity within portfolio company boards.
- The concept of impact-linked carry isn't novel. It traces its origins back to the late 2000s when Aureos Capital in London introduced a base rate of carry with provisions for enhanced rates upon achieving impact targets.
- Fast forward to today, and industry giants like Apollo Global Management and EQT have adopted similar models, linking carried interest to the realization of an impact fund's mission.
Challenges and Authenticity
- However, the road to impact investing is not without its challenges. Luke Dixon, a key player at Dot Investing, highlighted potential pitfalls, such as GPs potentially prioritizing data collection over genuine impact. The onus of proving an investment's impact lies with the GPs, but LPs and consultants are investing heavily in ensuring authenticity and preventing practices like greenwashing.
See: Report: ESG Ratings and Data in Financial Services – Practitioners Perspective
- With the rapid growth of impact investing, regulatory bodies are stepping in. Proposals from the European Securities and Markets Authority suggest stringent criteria for funds using "impact" in their names, emphasizing measurable social or environmental impacts. The European Investment Fund pioneered the emphasis on genuine impact investments back in 2008. Today, the sector is witnessing exponential growth, with GPs bolstering their presence in this promising domain.
In Conclusion
- The landscape of impact investing is undergoing a transformative shift. As the sector matures, collaboration between LPs, GPs, and regulatory bodies will be pivotal in ensuring that impact investing not only promises but also delivers a sustainable future.
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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Behind the Delays and Push to Modernize Canada’s Banking and Payment System
OpEd Analysis | Aug 23, 2023
Image: Unsplash/Parker Johnson
In a recent op-ed piece from The Globe and Mail, authors David Dodge and Bob Fay shed light on Canada's outdated banking and payments system.
Highlighting the inefficiencies and delays faced by consumers, they emphasize the urgent need for modernization. Drawing comparisons with other nations that have successfully implemented real-time payment systems, the article underscores the potential benefits for both consumers and businesses in Canada. Amidst the backdrop of high transaction fees and a rapidly evolving digital economy, the authors call for a comprehensive overhaul of the country's financial infrastructure.
Current System Limitations
- In Canada, daily transactions such as moving money between accounts or paying bills online can cause extensive delays due to the involvement of multiple parties and platforms.
- Transactions like paying for coffee with a debit or credit card seem quick, but they rely on outdated financial infrastructure. This results in credit-card processing fees that may be passed on to consumers.
Need for Modernization
See: How the Big Five Banks Control Canada’s Payment Systems
- Canada's delay in implementing a modern, national real-time payments system is costly for consumers.
- A modern system would allow immediate exchange, clearing, and settlement of payments. It would also be more secure, available 24/7, and have lower usage costs.
- Such a system would also allow for more information to be shared with the payment, which could drive competition and innovations in the Canadian economy.
Government Has Known for a Over a Decade
- A report from 2011 warned that Canada needed a modern digital payments system to engage in the digital economy of the 21st century. Despite this, Canada is still lagging behind.
- Payments Canada's Real-Time RAIL payments system faced significant delays, risking it being outdated by the time it's implemented.
- Other countries, like Brazil, India, and the US, have already implemented new real-time payments systems.
Canada's Delay is Attributed to a Lack of Political Will, Regulatory Challenges, and Incumbent Interests
- Canadians and small businesses face high fees, some of the highest in the world, every time they make a payment.
- Canada has the opportunity and talent to build a modern payments system. This requires a comprehensive vision, updated policies, and investments in cybersecurity and network resilience.
Takeways from the Article Comments
There is no shortage of comments on the piece. Summarized below are some key takeaways this far, which provides a more diverse range of perspectives:
- The Single Euro Payments Area (SEPA) is indeed a great example of how a unified payment system can facilitate business and reduce costs. It's a model that other regions could potentially adopt.
See: FinTech Executives Disappointed with Budget 2023’s Lack of Open Banking Update, Raising Doubts on Delivery Timeline
- The mention of COBOL applications highlights the challenge of modernizing legacy systems. These older legacy technologies can be a bottleneck for innovation and efficiency.
- The skepticism towards big banks "playing nice" is a concern shared by many. Financial institutions have a vested interest in maintaining their market share and may not be quick to adopt systems that could disrupt their revenue streams.
- The point about businesses benefiting more than consumers from reduced fees is valid. There's no guarantee that businesses will pass on the savings to consumers, as illustrated by the "bag and cup fee" example in Vancouver.
- The issue of hidden fees and lack of transparency is a significant consumer protection concern. It's something that regulatory bodies need to address.
- The delay in processing payments, especially during weekends and holidays, is another area that needs improvement. Real-time processing should be a standard feature of a modern payment system.
- The need for real-time compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations is crucial. Delays in such compliance checks can have serious consequences, as you mentioned with purchasing a house.
- Lastly, consumer awareness and advocacy can play a significant role in pushing for these changes. The more people voice their concerns and demand better services, the more likely institutions are to listen.
Read: Vass Bednar: Canada’s Glaring Banking Protections Gap and Implications for Consumers and Fintechs
The overarching theme is that while technological solutions exist to modernize payment systems and make them more efficient and consumer-friendly, there are various hurdles—be it legacy systems, vested interests, or regulatory challenges—that need to be overcome.
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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Support NCFA by Following us on Twitter!Follow @NCFACanada |
Ontario’s OSC Innovation Office Needs Your Voice! (Deadline Aug 28, 2023)
Capital Markets Innovation | Aug 21, 2023
Image: OSC Innovation Office
As we set our sights on contributing an impressive $29 trillion to the global economy by 2035, the collaboration, voice and feedback of startups and SMEs is paramount. The OSC is looking to understand what's working and what can be improved in Ontario's capital raising environment.
If you're an entrepreneur at the helm of a start-up or SME in Ontario, or an investor backing these ventures, your perspective is crucial. Your experiences and insights can significantly influence policies and processes, ensuring a conducive environment for businesses to excel.
From the OSC Innovation Office:
At the OSC Innovation Office, we’re committed to working together with businesses, investors, academic institutions and other partners to create the right conditions for innovation to flourish. We believe that innovative businesses that call Ontario home, or those looking to establish or expand their operations here, should have access to the money they need to build successful businesses in Ontario. As part of our commitment, we’re actively studying Ontario’s capital raising environment. We want to learn what's working and what could be improved.
Join Us in This Endeavour
Your experiences, both the challenges and triumphs, in capital raising can provide us with invaluable insights. By sharing your journey, you can assist us in devising strategies for a more prosperous future for all Ontario businesses.
See: March 1, 2019: NCFA Submission to the Ontario Securities Commission on Regulatory Burden
We invite you to collaborate with us in this pivotal initiative. Please participate in our confidential surveys by deadline August 28 and make your perspective count.
🔗 Entrepreneurs from start-ups & SMEs can access the survey here.
🔗 Investors in start-ups & SMEs can begin their survey here.
Together, let's fortify Ontario's position as the leading hub of innovation, and ensure every promising idea achieves its potential.
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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Support NCFA by Following us on Twitter!Follow @NCFACanada |
The Transformative Impact of Instant Payments on Financial Crime Mitigation
Payments | Jul 30 2023
Image: Unsplash/Blake Wisz
The advent of instant payments is revolutionizing the financial landscape, acting as a catalyst for speed and innovation in financial crime mitigation.
This article explores the insights shared by Adam Gable, Product Director of Financial Crime, Treasury, and Risk at Temenos, and Hani Hagras, Chief Science Officer at Temenos, during the Temenos Community Forum in Vienna.
Instant payments demand real-time processing
- This necessitates swift and precise security checks to prevent financial crime. Any inefficiency in this process can lead to interruptions in customer experience, loss of customer goodwill, and potential damage to brand reputation. For instance, a security check that ends up in a queue for manual review or inaccurate checks that lead to customer fraud can have serious repercussions.
- Impact for banks:
- Banks must ensure robust security protocols are in place.
- Gable emphasizes that as checks are conducted, some will invariably require investigation. This time-consuming process can negatively impact customer experience.
- There is a cost factor for banks transitioning to instant payments. They need to proactively consider the systems and processes required for this shift and others payment trends driving the future.
See: Future of Neobanking: Exploring the Landscape of AI-Powered Digital Banks
- Artificial Intelligence (AI) plays a pivotal role in mitigating crime in instant transactions.
- Hagras explains that AI can leverage automation to provide a seamless user experience, coupled with a solid audit trail, making it easier for banks to scale up.
- AI can combat financial crime through sanctions screening and anti-money laundering processes. It can automatically detect fraud while allowing false positives to be processed without interrupting the customer experience.
- AI is responsible for generating models that comply with various regulatory requirements, enabling banks and financial institutions to use AI with trust.
- The key is to use explainable AI, where generated models are easily understood, analyzed, and audited by business users and authorities.
The battle against fraud is ongoing
- Opaque [AI] box models, which do not sufficiently explain the decision-making processes, are not accepted by many regulators.
- Hagras concludes that explainable AI processes are a key focus for Temenos, and meeting current and future AI 'explainability' regulations will be essential.
See: FedNow Real-Time Payment Service Launches: A Game Changer in the U.S. Financial System
Conclusion
In conclusion, the introduction of instant payments is accelerating innovation in financial crime mitigation. With the right systems, processes, and the use of AI, banks can effectively combat financial crime, ensuring a secure and seamless customer experience.
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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Support NCFA by Following us on Twitter!Follow @NCFACanada |
