Global fintech and funding innovation ecosystem

Inside the power struggle between big banks and fintechs to modernize financial services

Financial Post | Geoff Zochodne | March 27, 2019

powerstruggle fintech - Inside the power struggle between big banks and fintechs to modernize financial servicesInnovation Nation: Canada is lagging its global peers in adopting new financial technologies and more co-operation between established banks and startup fintechs would help

The federal government put the word out last July: it needed someone to study the landscape for financial technology companies, or fintechs, and figure out how they were getting along with the big banks and other financial institutions.

Sue Britton’s firm, Toronto-based Fintech Growth Syndicate Inc., won the contract for the study. In January, the group said it turned in a 240-page report, the first of its kind in Canada, that used only publicly available data sourced from more than 60 different websites.

What it found, among other things, was that there were approximately 1,000 fintechs across Canada offering services or products related to crowdfunding, insurance, wealth management, cryptocurrency, artificial intelligence, capital markets, lending and payments.

The majority of those companies were startups, founded in the years following 2012, and employed less than 99 people each, though combined they had more than 30,000 people. Perhaps more eye-catching was the estimated value of fintech startups in Canada: $30.5 billion.

What the study did not find, however, was 1,000 partnerships with financial institutions: Canada’s Big Five banks may have been increasing their engagement with fintechs, but “the majority of their efforts” were still on building their own products and digital experiences. They were also busy trying to update their “bowl of spaghetti” technologies and systems, some of which may be decades old.

See:  Competition Bureau weighs in on fintech: urgent action required

As a result, one of Canada’s biggest industries is innovating at a relatively tame pace, the country is lagging its peers in adopting new financial technologies and consumers of all types may be paying more for services than they should. The financial industry’s existing business models could eventually come under pressure as well.

“To the extent that we could find publicly available information, we were able to show that, yes, there are some fintechs that are partnering with financial institutions,” Britton said. “But certainly the majority of those partnerships are on the financial institutions’ terms. They’re not groundbreaking new business models … It’s not going to make the marketplace more competitive, because it’s going to, in fact, if anything, grow the business for the incumbent.”

Retaining the status quo may be all well and good for big banks and insurance companies for now. It may even be good for their customers — and most financial consumers have a connection to a big bank or insurer — who may be enjoying a smoother user experience or a new platform at their current institution of choice.

But legacy financial companies face a bit of a conflict of interest when it comes to innovation. After all, they have earnings targets to hit, shareholders to keep happy and thousands of employees and existing systems already in place to meet those goals. Why risk cannibalizing such profitable businesses or, moreover, give the vaunted stability of Canada’s financial industry a jolt?

Yet the incumbents could wake up one day to find their lunches being eaten by big-tech firms such as Amazon.com Inc. and Apple Inc., which are already offering a payments solution, some more aggressively than others.

“What our big banks aren’t doing is moving as quickly as other parts of the world, innovating their business models, extending financial services to more small businesses or reducing their fees,” Fintech Growth Syndicate said. “Perhaps, as Abraham Lincoln famously said, ‘give me six hours to chop down a tree and I will spend the first four sharpening the axe,’ they are still sharpening the axe.”

See:  Advancing Competition in a Changing Marketplace

It’s also possible that no one is even swinging an axe in the financial sector, despite the federal government’s efforts to push the innovation envelope in various industries.

Competition Bureau research “points to low levels of financial technology adoption in Canada relative to other countries, and limited consumer engagement driven, in part, by frictions associated with shopping around and switching,” according to a document published in February by the interim commissioner of competition. “These factors are symptoms of a market that is not functioning to its full potential.”

Britton believes the major banks and insurers face the innovator’s dilemma, first outlined in a 1997 book by Harvard professor Clayton Christensen: An incumbent with a big base of existing customers and shareholders demanding good returns is unlikely to welcome a company that could disrupt its own business.

On the other hand, “You don’t want to wake up one day and be Blockbuster,” she said.

Nobody, of course, wants to be compared to a bankrupt video-store chain, which is why the financial sector is certainly aware that the big-tech companies are making inroads into their business.

Royal Bank of Canada chief executive Dave McKay reportedly noted in mid-March that he was increasingly concerned with the prospect of Facebook Inc., Amazon.com, Apple, Netflix Inc. and Alphabet Inc.’s Google (the FANG companies) getting into banking.

“They are getting between us and the moments of truth of our customers, and currently what they do with that is they sell that insight back to us in the form of search and advertising and other perspectives, and they earn a certain amount of economic rent,” he said, according to Bloomberg.

RBC and the other big financial institutions know they need to up their game, something that was noted by Luge Capital, a Canadian venture fund focused on fintech and artificial intelligence, when it did its own scan of the fintech landscape for a report published last October.

See:  Open Banking: What’s Really at Stake

Luge Capital, which has been backed by institutions such as the Caisse de dépôt et placement du Québec and Sun Life Financial Inc., found the climate for possible partnerships between startups and big banks or insurers had improved.

“Large incumbents have customers, well-established brands and vaults of financial resources,” the report said. “As a venture capital fund with large financial institutions backers, such as Sunlife, Desjardins, CDPQ and La Capital and Le Fonds FTQ, we see first hand their desire to partner with early stage innovators.”

The biggest banks may still have the “vast majority” of the market share in financial services, but there has been a shift recently, said Karim Gillani, general partner at Luge Capital.

“In the last three to five years, there’s been a widespread recognition amongst the FIs (financial institutions) that they need to work with the early stage or smaller fintech companies in order to enhance their service offering for their customers,” he said.

Gillani said there was value in financial institutions exploring new ways of “offering functionality,” such as robo-advisers as a form of wealth management, something several banks have already done.

“It’s a demonstration of how banks are shifting their view from the traditional wealth-management experience to something that’s more automated and driven by technology so that it becomes appealing to a different segment of the population,” he said.

The federal government might open another door for the fintechs to get to the market. Ottawa is currently considering the idea of open banking, which is supposed to give people more control of their data and make it more portable.

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

The competition commissioner, in a submission made in response to a government consultation paper that outlined the benefits and concerns of open banking, said the framework could allow consumers to shop around and compare prices, potentially stirring up competition by lowering search costs.

“Banks would be forced to compete harder for consumers, and consumers would have access to a broader range of services, if the benefits of technology could be more fully exploited through open banking,” the submission stated.

Yet bringing third parties into Canada’s financial system — renowned for its stability — has raised some concern for at least one federal regulator, who pointed out that such decentralization “magnifies non-financial risks and diffuses accountability.”

Continue to the full article --> here

 

 


NCFA Jan 2018 resize - Inside the power struggle between big banks and fintechs to modernize financial services The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Inside the power struggle between big banks and fintechs to modernize financial servicesFF Logo 400 v3 - Inside the power struggle between big banks and fintechs to modernize financial servicescommunity social impact - Inside the power struggle between big banks and fintechs to modernize financial services

Support NCFA by Following us on Twitter!







NCFA Sign up for our newsletter - Inside the power struggle between big banks and fintechs to modernize financial services




AI Regulation | May 24, 2024 The Council of the European Union greenlights the first Artificial Intelligence (AI Act) Regulation The Artificial Intelligence Act (AI Act) was given final approval on May 21, 2024 by the Council of the European Union, possibly setting a new global standard for AI regulation.  This regulation aims to protect the fundamental rights of the EU citizens while supporting innovation and the development of AI technologies.  The Act exclusively applies under the EU legal framework with some exemptions for military, defence, and research applications. Here's the timeline of events... The Act on the AI, proposed by the European Commission under the aegis of Thierry Breton, was submitted in April 2021 On 8 December 2023, a provisional agreement between the co-legislators (the European Parliament and the Council) was reached On 21 May 2024, the EU Council concluded its deliberations on the AI Act Risk-Based Approach in AI Regulation The AI Act is based on a 'risk-based' approach and classifies AI systems in three groups, considering the potential harm they could cause to society. See:  Australia to Regulate High-Risk Artificial Intelligence If an AI System is determined to be a 'Limited Risk', limited transparency obligations will apply ...
Freepik robot shakes hand with human - Inside the power struggle between big banks and fintechs to modernize financial services
May 24, 2024 Gardeners with green thumbs are not able to escape the dreary look that outweighs the spring look. With passing seasons, springs are shorter and summers are extended, making it impossible to grow long stalk peonies, dahlias, and heirloom roses. The heat is rendering a bitterness to the kale leaves, and those tomatoes are best found in sundried preserves. Fresh vegetables, fruits, and flowers are becoming sparse as the weather conditions are changing dramatically and without any forewarning. The case of a passionate green space enthusiast is not lost if they choose a custom built greenhouse where they can grow tomatoes year-long and grow varieties of flowers, even the super delicate ones that need hand holding. In a controlled environment that protects the plants including seedling trays in the nurseries from harsh changes in the climate, a greenhouse is a haven for all garden needs. The best part is, should you choose you can even landscape your greenhouses and make them as an extension of your sunrooms. You can spruce up the old sofas that you never discarded because of their Victorian upholstery in this space, and make it your escape route to your happy space. Throw in ...
AI Custom built greenhouse - Inside the power struggle between big banks and fintechs to modernize financial services
Payments | Release | May 24, 2024 Lightspeed partnership with Uber Direct and Uber Eats to unlock new opportunities for merchants Lightspeed's new North American partnership with Uber Direct and Uber Eats is expected to streamline delivery services and operational capabilities for merchants like hotels, restaurants, and retail, while expanding their market reach by accessing millions of new potential customers. The new partnership promises cost-effective delivery through Uber Direct, keeping merchants free from the headache and resources needed to build and maintain a delivery fleet. This will slash overhead costs and logistics, so merchants can focus on their core operations and growth. The Montreal-based payments technology company said the integrations create an option for Lightspeed customers to list menu offerings and receive orders direct from the Uber Eats marketplace. They will also be able to take orders through their own branded website with the order-anywhere system of Lightspeed and then use Uber Direct for delivery. Other offerings from Uber Direct include a same-day or next-day delivery service that uses API integrations and no-code tools for its business customers. See:  Embedded Finance: Banking Meets the Customer Prior to the company's collaboration with Lightspeed, Uber Direct and Uber Eats managed their integrated ...
Lightspeed partners with Uber Eats Marketplace and Uber Direct CNW Group Lightspeed Commerce Inc 1 - Inside the power struggle between big banks and fintechs to modernize financial services
Cybersecurity | May 24, 2024 A recent leak of biometric data in India is a 'stark warning' about the evolving risks that law enforcement bureaus across the world are now facing Tens of thousands of Indian police officers and applicants have had their personal biometric data compromised, consisting of fingerprints, facial scans, and other sensitive information in what is now the most massive data breach in the country.  Security researcher Jeremiah Fowler discovered close to 500 GB of sensitive data on an exposed server linked to ThoughtGreen Technologies. See:  Unlocking Opportunities in India: Ontario’s Fintech and Cybersecurity Export Events Fowler said the exposed data was critical in nature because biometrics cannot be changed like most other personal information if the data was compromised. More than 284,000 documents on police personnel were among the leaked data, underlining the enormity of the hack. The risk increased when these cyber criminals began advertising the sale the same biometric data through outlets like Telegram. ThoughtGreen Technologies has secured the breach of its data and notified law enforcement however, the breach triggered discussions about the adequacy of measures for data protection and the biometric information that is subject to misuse.  As the accumulation of biometric ...
Freepik macrovector biometric - Inside the power struggle between big banks and fintechs to modernize financial services
Regulation | May 23, 2024 Regulatory Milestone:  SEC Approves the first batch of 19b-4 Forms of Ethereum ETFs On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) cleared a major hurdle in approving 8 Ethereum Exchange-Traded Funds (ETFs), which would allow investors to gain exposure to Ethereum through a regulated financial product. The ETPs include: Grayscale Ethereum Trust Bitwise Ethereum ETF iShares Ethereum Trust VanEck Ethereum Trust ARK 21Shares Ethereum ETF Invesco Galaxy Ethereum ETF Fidelity Ethereum Fund Franklin Ethereum ETF As reported by Reuters, although the applications for a rule change to list new products has been approved by the SEC, still need the SEC's approval of ETF registration statement details and S-1 filings related to investor disclosures before they are able to begin trading. Unlike the exchange filings, there is no set time frame in which the SEC needs to decide on those statements. Two sources familiar with the process said that "...many issuers are ready to launch but the corporate finance division of the SEC has indicated that it is likely to request changes and updates in coming days and weeks." The SECs order basically states that they are comfortable that the proposed ETPs can ...
Unsplash Kanchanara Ethereum - Inside the power struggle between big banks and fintechs to modernize financial services
Regulation | May 23, 2024 Key Digital Finance Legislation in the European Union Digital finance in the EU refers to all financial services and instruments that rely on new Information and Communications Technology (ICT) from digital payment services and instruments to new market infrastructure for crypto assets using distributed ledger technologies. Below is an overview based on the European Parliament's briefing update on 'Digital Finance Legislation:  Overview and State of Play".  It is quite essential for the regulation and framework set upon by the EU to find a balance between innovation and digitization that will in turn provide an environment that is safe both for risk management and the consumers' protection. 2020 Digital Finance Package Collectively, the digital finance regulations are called, "The 2020 package" and they are a foundational regulatory framework focusing on: Tackling market fragmentation Facilitating digital innovation Promoting a financial data space Addressing new digital finance challenges See:  EU Lawmakers Approve Historic AI Regulation Act Overall, the package aims to improve market efficiency, strengthen consumer protection and support innovation by: Streamlining digital finance regulations Providing clear regulatory frameworks for digital finance innovations Providing a supportive regulatory environment, fostering new financial technologies Four (4) Key Digital Finance Regulations ...
Freepik EU - Inside the power struggle between big banks and fintechs to modernize financial services
DeFi Legal Battle | May 23, 2024 Uniswap Legal War with the SEC: A DeFi Test Case Concurrent to the recent passing of the FIT21 bill by the U.S. House, the ongoing legal battle between Uniswap and the U.S. Securities and Exchange Commission (SEC) is a monumental test case for decentralized finance (DeFi) with regulatory implications and challenges facing open-source financial systems globally.  The SEC has accused Uniswap of operating an unregistered securities exchange and claims that its UNI token constitutes an investment contract. On the other hand, Uniswap counters these allegations by emphasizing the decentralized nature of their protocol. Uniswap argues that its software is autonomous, enabling peer-to-peer transactions without the need for intermediaries. This, they claim, exempts them from the definition of a securities exchange.  Uniswap’s protocol has demonstrated remarkable efficiency and security, facilitating over $2 trillion in trading volume without significant security breaches. This achievement highlights the potential for DeFi platforms to provide efficient, secure, and transparent financial services, potentially surpassing the capabilities of traditional financial systems. Legal Precedents and Weak SEC Case Uniswap’s legal team, which includes former high-profile SEC officials, is focused on the perceived weaknesses in the SEC’s case. They argue that historical court ...
Uniswap labs - Inside the power struggle between big banks and fintechs to modernize financial services
Crypto | May 23, 2024 The U.S. House of Representatives has officially passed the Financial Innovation and Technology for the 21st Century Act (FIT21) Now, crypto in America is one step closer to getting the bill that will regulate digital assets in the country. That passage of FIT21 with bipartisan support shows growing consensus of the need for clear regulatory frameworks that foster crypto innovation while protecting consumers. Vote Stats FIT21 passed with a notable majority with bipartisan collaboration: Total Votes in Favor: 279 Democratic Support: 71 Democrats voted in favor Republican Support: 208 Republicans voted in favor Votes Against: 136, most by the Democrats due to some reservations that they hold about some of the bill's regulatory provisions Key Features of the FIT21 Bill Remove the confusion between the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) regarding which regulator is actually in charge. The current confusion leaves users vulnerable to fraud and stifles innovation in the sector. See:  Responsible Development of Digital Assets (Crypto): Decoding Biden’s Executive Order It ensures the appropriate consumer protections are in place to help prevent scenarios like the collapse of FTX, safeguarding customer funds. With a clear regulatory framework, it ...
Pixabay US Capital - Inside the power struggle between big banks and fintechs to modernize financial services
AI | May 22, 2024 Project Astra Introduction and 3 Real-Time, Multimodal AI Use Cases Project Astra is the most ambitious project born to Google DeepMind, which aspires to be an all-encompassing AI agent with real-time understanding and interaction capabilities of it's surroundings. This builds on Google's Gemini work to ensure richer capabilities for Google's AI assistants and multimodal capabilities in how it can handle voice, video, text, and other forms of interaction. See:  AI’s Ethical Dilemma Grows as Innovation Surges Google hasn't provided a date (yet) for when we will see it land in public hands but it was demonstrated at Google I/O 2024 how developers could use it to 'see' and answer complex questions about objects and provide context-enriched information in real time. Here's a video of Google's vision for 'the future of AI assistants' demoing early capabilities. Project Astra is Multimodal and Real-time Project Astra processes—voice, video, text—and uses them when interacting with the environment for impressive results. The user can simply point a camera or smart glasses at an object, and Astra will give detailed information on it in real time. Astra will be able to remember the context of interactions and understand context within a ...
Project Astra Multimodal AI Assistant - Inside the power struggle between big banks and fintechs to modernize financial services
May 22, 2024 Ottawa house owners are now turning to green doors are fashionable patio doors as they look for sustainable alternatives. Ottawa has sliding patio doors that provide the best and most convenient views as well as access to external spaces and at the same time are good for the environment These doors have been designed to experience minimum energy consumption through the utilization of materials with superior insulation and minimal impact on the environment. Eco-friendly sliding doors are not only a stylish and practical element but also contribute to the reduction of your home's carbon footprint makes the living place comfortable. These doors serve the purpose of styling the home and they are also vital in the move toward more sustainable and eco-friendly home design. What Are Eco-Friendly Patio Doors? Eco-friendly patio doors are exactly what their name suggests—a type of door designed to minimize environmental impact while maintaining functionality and style. These sliding patio doors Ottawa consist of sustainable materials that contribute positively to ecological conservation efforts, such as glass made from recycled materials and wood sourced from sustainably managed forests. The attention to detail is evident throughout the production process, from the choice of materials to ...
Freepik Sliding patio doors - Inside the power struggle between big banks and fintechs to modernize financial services

 

Leave a Reply

Your email address will not be published. Required fields are marked *

4 × two =