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 Services
Amazon to support utility-bill payments with Alexa
MarketWatch | Emily Bary | Oct 27, 2019
The e-commerce giant will start letting consumers use Amazon Pay for bill payments by voice and online
Amazon.com Inc. is tapping into bill payments by letting customers use its Amazon Pay feature for their utility bills.
The e-commerce giant said during a Sunday keynote at the Money 20/20 financial technology conference that it would be partnering with fintech company Paymentus to add the feature, which will allow customers to pay online or else by voice using Amazon’s AMZN, +1.03% Alexa voice assistant.
See: Bank Customers Are Primed And Ready For Amazon
Prior to the announcement, Amazon Pay Vice President Patrick Gauthier told MarketWatch that the company saw an opportunity in bill payments as about 70% of consumers don’t enroll in automatic payments. The new feature will allow users to get notifications through Alexa when their bills are due and to ask questions about the bill amount or how it compares with prior ones.
PayPal Holdings Inc. PYPL, -0.30% , a rival to Amazon in payments, announced its own bill-pay partnership with Paymentus earlier this year.
Amazon expects to be able to reach 95% of ZIP codes with its feature by the end of the year. Consumers may learn about bill-pay availability through Amazon or through a supported utility company, Gauthier said, and they then will be able to connect their accounts. He argued that the function could be valuable for utility companies that often receive calls from customers asking basic information about bill amounts.
Amazon.com Inc. is tapping into bill payments by letting customers use its Amazon Pay feature for their utility bills.
The e-commerce giant said during a Sunday keynote at the Money 20/20 financial technology conference that it would be partnering with fintech company Paymentus to add the feature, which will allow customers to pay online or else by voice using Amazon’s AMZN, +1.03% Alexa voice assistant.
Prior to the announcement, Amazon Pay Vice President Patrick Gauthier told MarketWatch that the company saw an opportunity in bill payments as about 70% of consumers don’t enroll in automatic payments. The new feature will allow users to get notifications through Alexa when their bills are due and to ask questions about the bill amount or how it compares with prior ones.
PayPal Holdings Inc. PYPL, -0.30% , a rival to Amazon in payments, announced its own bill-pay partnership with Paymentus earlier this year.
Amazon expects to be able to reach 95% of ZIP codes with its feature by the end of the year. Consumers may learn about bill-pay availability through Amazon or through a supported utility company, Gauthier said, and they then will be able to connect their accounts. He argued that the function could be valuable for utility companies that often receive calls from customers asking basic information about bill amounts.
See: Cities and states around the country are banning stores from refusing to accept cash, and it’s a troubling trend for Amazon
Amazon has been building out the capabilities of its payments button, which lets users pay not only on the e-commerce giant’s own site, but also on those of other retailers that have added the button. The company first embedded the payment function within Alexa in 2017, and added ability to make charitable donations through Amazon Pay and Alexa in 2018.
Consumers are still warming to the idea of payments through a voice command, but Gauthier sees room for Amazon to ultimately expand into other types of bill pay, including phone bills, cable bills and insurance.
Amazon has been building out the capabilities of its payments button, which lets users pay not only on the e-commerce giant’s own site, but also on those of other retailers that have added the button. The company first embedded the payment function within Alexa in 2017, and added ability to make charitable donations through Amazon Pay and Alexa in 2018.
Consumers are still warming to the idea of payments through a voice command, but Gauthier sees room for Amazon to ultimately expand into other types of bill pay, including phone bills, cable bills and insurance.
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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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The slow death of Canada’s banking ombudsman
Investment Executive | Ermanno Pascutto | Oct 17, 2019
The independent dispute resolution service has been abandoned by most of the big Canadian banks
For several years, the federal government has failed Canadian retail consumers and small business in providing access to justice in banking, including for seniors, who have comprised 38% of ombudsman banking complaints.
The Ombudsman to Banking Services and Investments (OBSI) was created more than two decades ago by Canada’s largest banks as a national, independent and not-for-profit organization to resolve consumer disputes, in order to get ahead of the federal government before it went ahead with enacting a statutory ombudsman. OBSI was created initially for the resolution of banking complaints and its mandate was expanded to include investments.
See: Cambridge: Global Regulator Survey Results – Regulation of Alternative Finance is Key to Make Sector Safe to Scale for the Masses
OBSI, the only independent referee and dispute resolution service for consumer and small business complaints with banks, has slowly been abandoned by most of the big Canadian banks. Consumers are forced to hope that they will be dealt with fairly and impartially by a for-profit dispute resolution service provider paid for by the banks. The Montreal Canadiens would never be happy about the Toronto Maple Leafs choosing and paying the ref for any game, but this is effectively what the banks are doing to consumers, except that banking consumers are worse off than hockey players. They are amateurs with no home game, always playing in the bank’s arena, against the bank’s staff, and in front of the bank’s referee.
Since OBSI’s inception, something went wrong and the largest Canadian banks abandoned OBSI, replacing it with their own for-profit dispute resolution service, hired and paid for by each bank. OBSI’s relevance has been dying at the hands of most of the same big banks that first established OBSI two decades ago.
The federal government sees this happening, and hasn’t done anything about it. To the credit of the securities regulators, the Canadian Securities Administrators, led by the Ontario Securities Commission, refused to permit the same thing to happen in investments: the regulator prevented banks, insurance companies and other dealers from abandoning OBSI for dispute resolution in investments.
See: Banks Must Act Now or Risk Becoming a ‘Footnote’: McKinsey
It certainly was not that OBSI was awarding too much compensation to consumers that caused the big bank mass exodus.
The banks have never paid $1 million in aggregate for an entire calendar year, which is less than a “rounding error” or one month’s compensation of a big bank CEO.
So the only logical inference to be drawn is that OBSI was a little too independent for the big banks’ liking. Some of its “too independent” behaviour may have included such OBSI practices as investigating problems discovered in complaint accounts that the customer didn’t themselves identify. Financial services industry members did not like this practice, but OBSI has said it is consistent with the practices of other financial services ombudsmen around the world.
An external bank ombudsman’s role is to investigate unresolved consumer complaints independently and recommend appropriate settlements. Banking complaints from retail consumers and small business (everyday Canadians) that require dispute resolution include excessive fees for prepayment of mortgages, fraud and missing and stolen funds. Investment-side complaints include high-risk investments that the consumer didn’t understand, unexpected fees, predatory practices, unsuitable investments that consumers can’t sell in times of crisis, fraud and problems with joint accounts and powers of attorney.
Seniors are particularly vulnerable, because of challenges such as physical or cognitive impairments, insufficient time horizon to replenish capital losses or death of partners who traditionally managed the finances. More than 38% of OBSI banking complainants are over age 65, and many are low income. They often need extra assistance and focused attention, which is more likely to be available from an independent non-profit ombudsman than a dispute resolution service provider that is focused on its bottom line.
See: Fintech’s fast pass to traditional banking is now cut off
Canadians, including the especially vulnerable seniors who need extra support and protection, need a statutory ombudsman that is independent from the banks. They need a statutory ombudsman to recommend solutions in cases that are big enough to warrant concern, but too small to be dealt with through the courts or too expensive to be dealt with through the courts for the average Canadian.
Increasingly irrelevant in banking, OBSI should recognize its inevitable and slow death at the hands of the big banks, announce that it will cease to act for any bank at a chosen date in the near future and inform Canadians that the big banks have killed the only independent ombudsman for consumer banking complaints.
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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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Interested in a High Interest Bitcoin Saving’s Account? Interview with Ledn CEO, Adam Reeds
NCFA | Craig Asano | Nov 1, 2019
NCFA recently sat down with Toronto-based Ledn's CEO and Co-Founder Adam Reeds (LinkedIn) to learn more about the rise of Decentralized Finance (DeFi) and the company's tremendous growth in Latin America.
There are a number of growing DeFi use cases based around blockchain technologies and decentralized networks from the issuance of stablecoins as a means to create monetary banking type services, peer to peer or aggregate lending and borrowing products as well as tokenized platforms all of which are providing underserviced markets with alternative solutions to traditional financial services with fewer intermediaries, lower costs and arguably improved security.
Q1. What’s the story behind the launch and ultimate vision of Ledn?
Adam Reeds: Ledn was conceptualized in 2016 after we, as founders, experienced a gap in the market for accessing financing for our bitcoin assets. Bitcoin has several fundamentals that make it very attractive for financing. Bitcoin is non-jurisdictional (it is the same everywhere, globally), has
established market value and trades 24/7, has strong liquidity and is divisible. Yet despite these strong attributes, at the time of conceptualizing Ledn, as still today, there are limited options for financing bitcoin.
Listen: Bitcoin Backed Loans and 2x Credit – Putting Your Crypto to Work
From inception, we wanted to be sure that Ledn was accessible to everyone globally. To do so we knew that we had to build a platform that was simple and secure with a strong focus on compliance. We assembled an experienced team of technology, finance, legal and regulatory professionals and set out to build an online platform where individuals and businesses can access financial services for bitcoin.
Ledn’s mission is to help more people save in bitcoin, while standardizing rates and service for financial products globally.
Q2. We see that Ledn has a growing list of products, can you give us a brief run-down and talk about the markets and traction to date?
Adam Reeds: Launching from Canada, Ledn now active in 51 countries and has launched 3 products to date.
Its first product is Borrow - a bitcoin-backed loan which allows people to borrow dollars without selling their bitcoin. The second product is Save - a interest-bearing savings account that pays interest on bitcoin, in bitcoin. Its most recent product is B2X - a product that allows customers to instantly double their bitcoin holding by tying the purchase of bitcoin together with a dollar loan.
Given the need for improved financial products in the region, and the background of Ledn’s team, Ledn’s focus market (outside of Canada) has been Latin America and is seeing very strong traction of its products in the region to date. Over 51% of Ledn’s customers are now from Latin America.
Q3. Are all borrowers/loans considered equal or are there restrictions on who can borrow, use of funds, liquidity?
Adam Reeds: The great thing about dealing only in bitcoin is that we can treat all of the assets of our customers equally. Given our loans are asset-backed, we do not consider the credit quality of our borrowers in our underwriting. Our qualification in considering who we interact with is completely tied to ensuring we follow Canadian and local laws.
The great thing about dealing only in bitcoin is that we can treat all of the assets of our customers equally.
We abide by the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) regulations with respect to know your customer (“KYC”) and anti-money laundering procedures. We require all of our customers to complete KYC documentation regardless of the amounts we deal with, and consider strong compliance a key factor of our success to date.
See: Living on Defi: How I Survive Argentina’s 50% Inflation
Q4. A high interest bitcoin savings account is interesting given the low rate that consumers and businesses generally earn in traditional savings accounts. How does this work and has there been a lot of interest to date in the service?
Adam Reeds: The economics of the savings account relies on a market demand for borrowing bitcoin. Typically, there are three main use cases for borrowing bitcoin; (1) providing working capital for an exchange that needs to keep a float of bitcoin to facilitate buy-orders, but does want to take bitcoin price risk, (2) facilitating short positions, for proprietary trading firms to bet a price decline in bitcoin or (3) facilitating trading arbitrage opportunities such as differences that exist in the price of bitcoin on various futures markets or exchanges.
The interest rate that Ledn is able to pay on its Savings account is dependent on the demand for the various activities above.
Ledn has had strong uptake in its savings account as it is a complementary product to the loan portfolio - providing a way for users to earn more bitcoin with their bitcoin.
Q5. What kind of Canadian regulations govern the Ledn platform and services?
Adam Reeds: Canada’s FINTRAC rules related to AML and KYC were recently updated to include dealers in virtual currency. However, FINTRAC has not yet opened up registration for this activity, as the requirement to register as a Money Service Business (“MSB”) will not come in place until June 1, 2020. Despite the registration not yet being available, we have taken a proactive approach and have built KYC requirements into our technology platform from day one. All of our customers are required to complete KYC documentation to access any of our products.
We also follow and abide by regulations related to consumer protection and private lending activities both in Canada, as well as the local laws for which its customers are resident. On top of it all, we abide by a simple concept - there’s what you have to do, and what you should do - we do what we should do and have enforced strong compliance in all of our technology and processes. We treat our customers fairly, and focus on keeping our products simple and transparent.
Q6. Tell us what inspires you the most these days?
Adam Reeds: Most of the world does not have the savings tools that Canadians benefit from. In Canada, we have the luxury of stable real estate and capital markets, and have many options for investing and storing our wealth. For those that lack these savings tools, bitcoin is proving to be an incredible alternative. Ledn is excited by the potential to work with an asset that can unify standards for financial products, and deliver a better experience to people around the globe.
Most of the world does not have the savings tools that Canadians benefit from.
Q7. Do you have any insights or lessons that you’d like to offer the community on founding a fintech startup in Canada?
Adam Reeds: The most important thing in a start-up is to start. Great ideas are 10%, execution is 90%. Surround yourself with people that bring diverse skill sets and motivate each other. Each person you add to the team at the beginning of the company will make or break your success. Choose wisely, and for those that agree to join you on the journey, treat them well and align them with what you want to build - as a team.
See: Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America
Along the way, make sure tasks are solved in this order.
- What do we want to do
- Why are we doing it
- How do we do it
Most people forget about the why - it is the most important part.
Canada’s diversity is definitely its strength. Albeit all Canadian citizens, Ledn’s team consists of only one born and raised Canadian, with the rest of our full team originally from Venezuela, Panama, Cuba, Croatia, Egypt and Hong Kong. We are proud to have built Ledn in Canada and to bring our company to the world stage.
Thanks Adam - wishing you and the entire Ledn team all the success at scaling Ledn's model globally!
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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Globalizing Fintech In Action: A Discussion With Harinder Takhar of Paytm
Forbes | Alex Lazarow | Oct 27, 2019
Fintech used to be a local game. Increasingly, fintechs are taking a global stance. In my recent op-ed, I covered some of the drivers of this phenomenon, including an evolution towards regulatory openness, the rise of fintech enablers and a shift towards a more global outlook.
To dig deeper into this growing trend, I sat down with founders of leading fintechs who have successfully navigated multi-market expansions. The first in the series was with David Vélez, Founder and CEO of Nubank, an emerging markets financial services provider. Today, I sat down with Harinder Takhar, the CEO of Paytm Labs Inc., and former CEO of Paytm India.
Below we discuss Paytm’s multi-market lens, from starting out in India, to expanding across Canada, Australia, Japan and beyond.
Alex Lazarow: Could you tell us about your business?
Harinder Takhar: Paytm was founded in 2010 and is one of the first digital payment platforms in India. Not only does the company offer individual transactions, merchant payments and point-of-sale systems. It now also offers financial products such as credit cards and the first mobile-first bank with zero online transaction charges and no minimum balance requirement. Paytm has also invaded the ecommerce space with Paytm Mall, event ticketing services, wealth management, insurance and digital gold services.
See: India Challenges China in Global Fintech Fundraising
In 2014 we expanded to Toronto, Canada and started Paytm Labs Inc. We began as a research and development division of Paytm where we’ve applied big data, artificial intelligence and machine learning to Paytm’s data assets to provide optimal financial products to over 420 million consumers and over 12 million merchants in India.
In 2017, the Paytm Canada application launched and offers a consumer-facing mobile app allowing Canadians to pay their bills using multiple payment options and the ability to earn rewards via their smartphone. We are a registered Money Services Business (MSB), which is regulated by FINTRAC. As we continue to grow our operations in Canada, we opened an office in Montreal in the summer of 2019.
In 2018, we embarked in a joint venture between Paytm, Softbank and Yahoo! Japan; known as PayPay. Teams from three different countries came together to launch a QR-based smartphone payment settlement service in Japan offered to both merchants and customers.
Lazarow: How did you choose your first market?
Takhar: It was a tough personal decision to relocate to Canada. However, once I officially received an invitation to immigrate to Canada, I could not pass on the opportunity for myself and my family.
Upon settling into Canada, both myself and Vijay Shekhar Sharma (Paytm Founder) agreed that opening a research and development division in Toronto, Canada would be in the company’s best interest. With the some of the world’s best educational institutions located within the province of Ontario, offering the best computer science engineering programs, it was a quick and easy decision for both of us.
See: India Challenges China in Global Fintech Fundraising
Lazarow: What factors went into the decision to expand? How did you know it was the right time?
Takhar: Back in 2014, big data, machine learning and AI were still gaining traction. At that time, the Paytm app had ~22 million registered customers. While we were able to identify the problem, in our case fraudulent transactions, finding a solution was trickier. This is when we knew that we must develop a system internally.
And, we did just that! We built an in-house anti-fraud platform that uses machine learning to identify fraudulent transactions. It provides real-time streaming data processing engine that allows small business owners and larger retail merchants with the ability to build customer risk profiles. The profiles can be used to create rules and render a fraud action recommendation.
Today, this platform makes up to 50 million decision points per day, and over 130 billion in transaction volume per year.
Lazarow: How did you prioritize your next couple markets?
Takhar: We prioritized by the individual opportunity in the market, and the readily resources that are available to us.
Lazarow: What was required to expand in the new market?
Takhar: Whenever we enter into a new market, we start with looking at the infrastructure. We focus on getting to the core of the problem, building a solution that works for that market, and then using technology to solve that problem.
Team perspective is also very important to us. We look for and hire individuals that have passion and ambition. So, whether we are looking for buy-in internally, or building a new team in a that market, it’s important for the team to emotionally connect with the cause, so that they can help build the best solution.
See: Fintech Investor Interview: Karim Gillani, General Partner, Luge Capital
Lazarow: What were some of the biggest challenges in expanding to new markets?
Takhar: Naturally, each market has faced its own challenges. The key is to not get discouraged, but to look to the end-user and solve the problem that you know will help to simplify their lives.
Lazarow: How do you work with regulators in your new markets?
Takhar: It is important to work with the regulators in any new market. We make a point to get to know the key stakeholders, build a trusting relationship with them, finding out what it is that they require from us, and showing them what it is that we are trying to build.
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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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Global FinTech Report 2019
PwC Global | Oct 15, 2019
Crossing the lines: How fintech is propelling Financial Services and Technology, Media, and Telecommunications firms out of their lanes
The lines between financial services (FS) and technology, media and telecommunications (TMT) firms have blurred to the point that the roads are a free-for-all and previously distinct sectors are colliding.
Many TMT companies are applying for FS licences, and FS organisations have begun calling themselves technology companies. Fintech, or financial technology, is at the epicentre of this transformation.
Technology transformation
The FS and TMT industries are both using it to sharpen operational efficiency, lower costs, improve customer experience and heighten the appeal of their products and services.
They’re also carving out new commercial possibilities. Digital-only banks are offering redesigned client propositions and cost profiles. Investment managers are deploying fully customised robo-advice. Insurers are using sensors to monitor people’s health and help prevent illness. And according to a recent PwC survey, consumers are ready for the digital shake-up. The question is no longer whether fintech will transform FS, but which firms will apply it best and emerge as leaders.
See: The Globalisation Of Fintech – The Australian Example (Part 1)
In this year’s Global Fintech Survey, we polled more than 500 FS and TMT executives worldwide and analysed their responses. We think the winning companies will be those that not only embrace fintech-driven business models but figure out how to navigate wider and more crowded lanes with approaches that make the most of FS and TMT’s combined strengths. This report will explore the current fintech landscape, the factors that will determine the likely winners and losers in coming years, and the steps that organisations can take to put themselves in the best position to lead.
“The really big changes have to be top-down. They have to be strategic. They have to be something that leadership, the board, and the executives are closely involved in and have decided the organisation needs to pursue.”
See: Blockchain Startup Backed By Big Banks Ushers In New Era Of Banking
How to position your firm for success
See: Designing a data transformation that delivers value right from the start
- Digital advances have the potential to revolutionise capabilities and open up new markets. Robo-advice, for instance, highlights the evolving customer offer because it paves the way for customised investment solutions for mass-market consumers that used to be available only to high-net-worth clients.
- Capitalising on these and other fintech-enabled commercial openings requires the ability to leverage technology in new, personalised and real-time offers.
- Success also demands a clear understanding of customer expectations. Customers need to trust the technology, think that it offers better value for their money than current products and services, and believe that the institution will use their data responsibly.
- The workforce is as important as technology in staying relevant. People, not systems, drive innovation. As industry boundaries disappear, it’s important to reach beyond traditional sources of recruitment when filling roles. For FS, this includes gaining access to agile, digital-ready employees within TMT and fintech organisations. Almost three-quarters of FS executives in our survey said they are looking to the technology industry to access engineering, data analytics and other key skills they need to develop and implement fintech.
- Just as important as finding the right external employees is upskilling within your business. Organisations that pull ahead of the competition will be those that foster a fintech mind-set within their business, for instance by pushing for data-driven decision making.
- Incorporation of fintech also presents an opportunity to take down siloes and facilitate the flow of data throughout the organisation. This is critical in today ́s data-enabled world.
See: Canadian fintech adoption rate hits 50 per cent, but still trails global peers: EY
- For FS, access to fintech talent, tech and innovative potential through collaboration or full acquisition could be especially important in improving the stickiness of customer relationships, especially when coming into direct competition with the digitally intuitive capabilities of TMT.
- For fintech firms, joint venture or sale is an opportunity to apply their innovations on a much bigger scale and gain access to the openings created by an established brand.
- For TMT, the benefits of converging include access to customers, infrastructure, markets, operating licences and regulatory expertise.
- The most significant development could be a megadeal initiated by a big tech group looking to compete with potentially slower and less innovative traditional businesses in FS markets that it sees as ripe for disruption.
Risk and regulation Priorities:
- When asked about the impact of regulation, TMT executives said their biggest concern was how it would affect their ability to develop and capitalise on new business models. The clear priority, therefore, is meeting regulatory expectations while sustaining innovation, personalisation and customer appeal.
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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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Verafin’s quiet, huge success: Canada’s $515 million largest venture funding deal goes to an N.L. company
CBC | ·| Oct 24, 019
With more than half a billion in new venture funding, Verafin is stepping into the spotlight
On Wednesday, Canada's largest-ever venture funding deal was made for $515 million — a sizeable sum of money by any measure — going to a world leader in providing financial crime management software to financial institutions.
The lucky recipient of more than half a billion dollars in funding is one of this country's largest tech companies using artificial intelligence and isn't based in Toronto. It's not based in Vancouver, or in the Kitchener-Waterloo tech hub that built up around BlackBerry.
The company is called Verafin, and it's based here in Newfoundland and Labrador, with most of its 500 or so employees working out of St. John's — a homegrown success story bolstering a growing tech industry that many in this province are largely unaware of.
"Partially by design," Verafin co-founder and product specialist Brendan Brothers said, laughing. "We have tried to stay under the radar a little bit."
That is changing somewhat with this deal, which shone a light not just on Verafin but on the surrounding players that have both helped the company — which works with almost 3,000 banks and credit unions in Canada and the United States to detect activity like fraud and money laundering — grow over the past 16 years and have benefited from its expansion and international success.
See: Cyberattacks now cost small companies $200,000 on average, putting many out of business
"It's already been generating quite a bit of interest in Genesis over the last 24 to 36 hours," said Michelle Simms, the CEO of Memorial University's Genesis Centre, where Verafin spent its first few years and where its founders now work with startups in the tech industry it now anchors.
This is a major, major, major investment of capital.- Paul Preston
Simms is uniquely placed to know about Verafin's success, and wasn't surprised the company brought in new funding. The deal's size, however, was a "big, pleasant surprise," she said.
Paul Preston, CEO of the Newfoundland and Labrador Association of Technology Industries, was similarly enthusiastic. "It's huge," he said. "This is a major, major, major investment of capital."
That capital is significant for St. John's, where Verafin is by far the largest of the province's 80 digital technology firms, with annual revenues of $1.5 billion — more than the traditional fishery, tourism or farming in the province. Those revenues increased eight per cent each year between 2014 and 2017 — more than the national rate of five per cent, according to a report of digital technology firms in Atlantic Canada released by the Atlantic Provinces Economic Council earlier this month.
It's a small tech industry compared withToronto or Vancouver, but it's here — and there's no reason why it shouldn't be, Brothers said.
"We always joke with our customers, there's a natural moat around this island," Brothers said. In Silicon Valley, the next big thing is always right around the corner, he said, but in Newfoundland and Labrador, people tend to stay put if they enjoy their work and the company they're doing it for.
"We give people an interesting problem to work on, and we create an environment where people want to work," Brothers said.
"And I don't think there's any reason that we can't do that from here."
See: 10 Key Issues For Fintech Startup Companies
The Verafin story
About a decade and a half ago, Brothers, Jamie King and Raymond Pretty were doing graduate work in robotics software at Memorial University when they met alumnus David Kelly, who had identified a problem with money laundering and fraud in the banking industry.
"He came back to the engineering business schools and basically said, 'This is something that somebody could probably do something about,'" Brothers said.
At the time their research focused on artificial intelligence and decision-making, Brothers said, but that technology could also be applied to identifying financial crime. So Brothers, King and Pretty — all three of whom are still with Verafin today — pivoted.
To understand what Verafin does, think about credit card fraud: credit card companies phone customers when they notice unusual activity on their accounts, to ensure that nothing fraudulent or unapproved is happening.
If we focus on that underlying crime, and think about that as the motivation, you're not just building software, you're actually doing good.
"It's that kind of idea, but more broadly applied to different kinds of fraud and different kinds of unusual activity," Brothers said.
The company's software scours financial transactions for unusual patterns that indicate fraud, money laundering and human trafficking. With its cloud-based system and machine-learning algorithms, which analyze enormous amounts of financial data shared by the banks and credit unions Verafin works with, the company can flag suspicious activity that can then be investigated for criminal ties.
The trio first began this work in a MUN research project, before deciding in 2003 decided to make a go of the company. For Verafin's first several years, they were hosted by the Genesis Centre's startup incubator program. That experience was invaluable, Brothers said — they were surrounded by like-minded people who were also trying to figure out how to start a business. It also helped them find their very first customer.
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"We went far and wide, travelled the world, everywhere looking for our first customer," Brothers said, "until somebody on our board of advisors was like, 'Well, have you ever tried asking Newfoundland and Labrador Credit Union?'"
They had not. It turned out that the province's credit union had the same issues with money laundering and financial crime as any other financial institution. They took a chance on Verafin and became their first customer, which led the company to focus on credit unions in other parts of the country: throughout Atlantic Canada, the Prairies, British Columbia, Ontario.
A few years later, Verafin launched into the United States, Brothers said. That was a different landscape: more than 10,000 financial institutions there versus about 400 in Canada. For more than a decade the company has focused on the U.S., with apparent success. In the first quarter of 2019, Verafin hit $100 million in annual recurring revenue — growth of 87 per cent since the beginning of 2017. Sales bookings and deal size at the company each grew by more than 100 per cent between 2017 and 2019.
That growth comes from successfully identifying those fraudulent patterns for financial institutions, and the challenging problem solving involved there is part of the motivation, Brothers said. But in more recent years for Verafin, the underlying crime — and its human victims — has shifted into focus and become key to their motivation as a company, Brothers said.
"Whether it's human trafficking, drug trafficking, terrorist financing — those are the reasons that people launder money, because they've committed some kind of crime," he said.
"If we focus on that underlying crime, and think about that as the motivation, you're not just building software, you're actually doing good. I think that's pretty powerful for a lot of people here."
The talent pipeline
With the growth sure to come from its new funding deal, it's clear which challenge Verafin must tackle next: finding the talent it needs to both continue its own expansion and to fuel the growth of the tech sector surrounding it.
For now, that often means looking outside the province, Brothers said, either to lure back expat Newfoundlanders and Labradorians or to draw in graduates from more robust computer science programs at schools in Nova Scotia and New Brunswick.
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It also means hiring new Canadians — Brothers estimated that 20 per cent of Verafin's workforce is made up of international hires. And the company is working to encourage high school students to consider careers in tech, he said, in order to keep that talent pipeline flowing.
Increasing the number of tech-focused college and university graduates is another piece of the hiring puzzle, for Verafin and the other tech companies in the province. Getting the talent needed to sustain and grow the province's tech sector is that sector's biggest challenge right now and NATI's top priority, Preston said.
"Our ability to really benefit from that $500-million investment is going to be directly related to, can we get people to work here, stay here, attract people here?" he said. "So we need to figure out how we're going to address the talent gap."
The size of the province's digital labour force increased by 11 per cent between 2011 and 2016, but the share of Newfoundlanders and Labradorians in the labour force in digital occupations was Atlantic Canada's lowest at 2.9 per cent. The Brookfield Institute has predicted that about 2,000 tech positions will need to be filled in the province in the next three to five years, Preston said, but right now MUN and the College of the North Atlantic are producing just a few dozen graduates a year for those positions.
"We don't have two years to figure this out," Preston said of the trickle coming through the province's tech talent pipeline. "We've got to move fast."
That work has begun at multiple levels. At CNA, next fall's planned relaunch of its software engineering program comes in direct response to that need in the local tech industry, says Stephen Warren, dean of CNA's school of business and information technology.
"There's no doubt that right now the big need in the province is entry-level software developers," Warren said.
See: Goldman Sachs is slashing employee pay as it ramps up new tech ventures like the Apple Card
To help meet that need, in the fall of 2020 the college will offer three-year software development programs with a paid co-op component to 25 students each in both St. John's and Corner Brook. A cybersecurity program is also in the works, and the school expects growth in tech sector to also fuel continued interest in its business programs focused on human resources, marketing and accounting, he said.
Simms acknowledged that talent recruitment is a challenge for the sector, but it's one she's confident that all parties working together can solve.
"We see one company that's thriving, and other companies now know that it's possible to do the same," she said.
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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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Malaysia’s potential as the fintech hub for the ASEAN region
Labuan IBFC | Oct 18, 2019
Malaysian Digital Economy Corporation Sdn Bhd (“MDEC”) recently announced that Malaysia has the potential to become a digital hub for ASEAN as Malaysia is in a position to spread the growth of the digital economy throughout the region. Likewise, Ernst & Young’s ASEAN FinTech Census 2018 dubbed Malaysia as an “emerging fintech hub in Asia”. The country’s increasingly digitalised economy, which is tailored to boost start-up presence and draw in investors, together with support from Malaysian government and regulators, will also create a mature fintech ecosystem which will contribute to Malaysia’s potential to be the hub for digital economy of the ASEAN region.
Whilst Singapore stands out in terms of being a mature fintech market in the region this also means that there is an emerging opportunity for less-developed markets that are growing rapidly in terms of income per head, population growth, online access and smartphone usage. According to the Network Readiness Index (“NRI”), Malaysia is ranked at number 31 out of 139 countries in terms of their readiness to transition to a digitised economy and society. Whilst Singapore is ranked at number 1, the rest of the ASEAN countries were ranked quite low in the NRI (with ranking between 60 and 80). This measure is important for businesses looking to enter new countries as it can easily determine if the country can support a business that relies on the Internet.
See: Swiss National Bank and BIS use innovation hub to explore digital central bank money and DLT
This, coupled with the support from the government, regulators and industry players, provide Malaysia with the opportunities and potential as an emerging market to catch up to Singapore and to be the preferred fintech home in ASEAN.
Malaysia’s unique value proposition to fintech players
Creating a fintech-friendly industry
The various regulatory authorities in Malaysia have set up various initiatives to promote the fintech industry, including:
- The “Alliance of FinTech Community” or “aFINity@SC”, was launched by the Securities Commission of Malaysia (“SC”) in September 2015. It is a focal point for development initiatives under Fintech and serves as a hub for raising awareness, nurturing the fintech ecosystem and providing policy and regulatory clarity to promote responsible financial innovation. In 2019, aFINity saw 109 engagements involving 91 participants with a total of 210 registered members.
- The Financial Technology Enabler Group (“FTEG”), was set up by Bank Negara Malaysia or the Central Bank of Malaysia (“BNM”) in June 2016. It comprises a cross functionality group within BNM, which is responsible for the formulation and enhancement of regulatory policies to facilitate the adoption of technological innovations in the Malaysian financial services industry.
- The Fintech Association of Malaysia (“FAOM”), was established by the fintech community in Malaysia in November 2016. It seeks to be the key enabler and a national platform to support Malaysia to be the leading hub for fintech innovation and investment in the region. FAOM aims, among others, to be voice of Malaysia’s fintech community and to engage with industry players including regulators in policy making in order to foster a healthy fintech ecosystem.
- In November 2017, the Malaysian government launched its Digital Free Trade Zone (“DFTZ”) to facilitate seamless cross-border trade and enable local businesses to export their goods with a priority for e-commerce. This is easily done through collaboration with Alibaba as the e-fulfilment logistics hub and e-services platform and establishment of Kuala Lumpur Internet City which will be the primary digital hub for the DFTZ.
See:
- MDEC introduced the “Malaysia Digital Hub” which supports local tech startups by providing, among other things, facilities to help them to expand globally. This includes:
- establishing “Orbit” as a co-working space for fintech startups to encourage innovative fintech ideas and to create an access to regulators through, among others, quarterly regulatory bootcamps with participation from both BNM and the SC;
- launching “Titan”, a platform where startups with proven potential can expand their business and reach in South East Asian and European markets via MDEC’s market access programmes;
- creating various initiatives, such as the Malaysian Tech Entrepreneur Programme, Global Acceleration and Innovation Network and the Digital Finance Innovation Hub to, among other things, encourage fintech founders to set up their business in Malaysia, provide opportunities for local and foreign investments, expand their market reach and accelerate innovation in digital financial services; and
- setting up a dedicated Islamic Digital Economy unit and making available a board of Shariah advisors to help fintech startups make their financial products Shariah compliant. Doing so could potentially help them tap into the global Islamic economy that is expected to grow to the tune of USD3 trillion by 2021.
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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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