Rojin Nair, Advisor
June 1st, 2021
At Incyub8 Inc, Rojin is focusing on nurturing and guiding various national and international start-[...]
Why Open Banking Represents a Seismic Shift for Fintech
Wharton | University of Pennsylvania | Jan 16, 2019
Open banking, a collaborative model in which banking data is shared with third-party players, is expected to revolutionize the financial services ecosystem. For consumers, the opening up of banking data could mean better control over their finances. At the same time, the trend has also raised concerns over data privacy and security.
In a conversation with Knowledge@Wharton, Jane Barratt, chief advocacy officer at MX, a Utah-based company that provides data to financial institutions and fintechs, talks about how open banking will impact legacy institutions as well as nimble startups.
Knowledge@Wharton: What is open banking? What are some of the factors that have led to the opening up of banking data to make it shareable via secure APIs [application programming interface] with third parties?
Jane Barratt: Over the past decade or so, we have seen open government and other open initiatives. There’s an expectation now of increased transparency. The idea of people sharing their data — their financial data — is not a new one. It’s happening, and it’s happening with methods that aren’t necessarily private or secure or transparent. People don’t really know where their data is going. Open banking is basically accessing the APIs that the financial institutions use to get greater transparency into your own data, and then being able to share that, with your consent and permission of course, with third parties of your choice.
See: MoF Consultation (Deadline Feb 11): Department of Finance Canada Launches Consultations on Open Banking
Knowledge@Wharton: Could you give some examples of how this is happening, both in the U.S. and in other parts of the world?
Barratt: The U.S. is in the early stages of having an ecosystem built around open banking. Europe has had PSD2 [the revised Payment Services Directive]. You’ve got open banking in the U.K. European banks have a head start on the U.S. in terms of getting the frameworks and the technology in place.
There have been some gaps in terms of understanding by the general public about what open banking actually is. If there is a use case for sharing your data, most people understand. “I can use it to share data with my accountant or a budgeting app.” Or, “I don’t have to manually share my data through a statement or [by] writing it down for them.” But the ecosystem around it is still coalescing.
When you look at Europe or Australia, for example, or potentially Canada and Mexico, these are countries that are leading with regulators. Regulators and governments have come together, and they have a strong seat at the table. Australia has a singular consumer data right — not rights. It’s just the data right, which is that it’s yours. They’re starting with open banking as the first vertical, and then moving into energy and telecommunications. You can see your usage and pricing and competitive offers.
“There’s a lot of talk of the customers being at the center of everything we do, but organization charts do not reflect that.”
And you can see information that often used to be behind the scenes within institutions. The U.S. is much more of an industry-led solution versus a government-led solution. It is by far the most complex banking model in the world. There is a lot of momentum, but it’s still relatively early days.
Knowledge@Wharton: What changes do you think open APIs will bring to banks’ organizational structures and also their competitive positions in the market?
Barratt: From the early days of digital, I used to joke, “Show me a website, and I can draw you your org chart,” because it was always laid out by division and byproduct. There’s a lot of talk of the customers being at the center of everything we do, but organization charts do not reflect that. You now have companies investing heavily in, say, data lakes. These tell us where our customers are and what they do. I think that will start to coalesce around organizational changes.
For instance, who is driving the structure of this? Who is extracting the intelligence from it? How is it being put to work? That’s a more sensible organizational approach than every division having their own databases and CRM and all of the different product databases. It has gotten very messy over the years. Hopefully, true data centricity will come about through how data is collected and what tools are layered on top of it, and all this will help the end customer.
See: Fintech firms want to shake up banking, and that worries the Fed
We have some data on return on investment from both the institutional perspective and the individual perspective. We have seen that when someone can access their data and is given access to tools, their financial strength improves. Institutions spend a lot of money acquiring customers and cross-selling to customers. Instead of this, institutions could focus on reducing high-interest debt, increasing deposits and moving customers up the value chain to higher value products.
There is now so much more competition [to be the] customer’s primary financial institution — even Amazon could be a peer at some point soon. If financial institutions can organize themselves around customer outcomes, they will be able to retain that primary financial institution status. But if they continue to just cross-sell a bunch of products, then it’s going to be [downhill] for them.
Knowledge@Wharton: Will a platform strategy be profitable for incumbent banks that own most of the deposit and lending market share?
Barratt: Banks are already platforms, especially institutions that have multiple product lines around insurance and deposits and lending. They just haven’t acknowledged it yet. It’s not that big of a stretch to put a level of intelligence on top of it with which people can engage. At present, the language is still around segments. For instance, if you’re newly married, you’re put in that segment. But your financial profile may be the same as a boomer because you’ve inherited money or you’ve got good financial habits and you’ve got good savings. And then you have boomers who have the same profiles as millennials.
It’s only when you get to a platform level that you can extract the intelligence around who a person is based on their true profile. Who I am with my credit card company is different from who I am with my insurance company, or who I am with my primary institution. No one has given me a really great reason to connect all of them. And that is the platform that an institution could be, because they have the biggest advantage out of anyone in the ecosystem, which is trust.
I’ve trusted you all this time with my money. I could trust you with my data. There is a great quote from Walter Wriston, who was the CEO and chairman of Citicorp in the 1970s. He said, “Information about money is as valuable as the money itself.” An institution could be a major value-add player in the data-as-currency space. No one’s talking about this as yet. It could be a seismic shift in the industry.
Knowledge@Wharton: How should challenger banks position themselves in this environment?
Barratt: Challenger banks have done a great job in different countries, to varying degrees. They have done a good job of being more digitally savvy. That has been their value proposition. “I’m going to give you a better app. I’m going to give you a better experience. I’m going to give you better transparency.”
See: Passion For Banking Innovation Fueled By Fintech, Big Tech Disruptors
They haven’t necessarily invested in their brands or in the trust. As your financial life becomes more complex, are you going to trust your deposit account with your mortgage or insurance provider? It’s still early days to be able to point to a challenger, but I think there are some examples of players who have done an amazing job, like Aspiration out of Los Angeles, which is a values-led bank.
“The newer players are telling compelling stories and offering compelling digital experiences.”
Knowledge@Wharton: What are some of the key lessons that the bigger institutions could learn from them?
Barratt: It’s about being able to tell a stronger story. There is a genuine human need to understand the story behind companies with which you do business. The newer players are telling compelling stories and offering compelling digital experiences. Of course, bigger institutions can do it. They can micro-target it down to the individual if they wanted to and tell a story that’s great for me. It’s just that organizationally they’re not set up for it at this point in time.
Knowledge@Wharton: Is the introduction of APIs going to bring improvements in banking services? If so, what might be some examples?
Barratt: Definitely. We are seeing giant institutions engaging in a deep way with the ecosystem from a contractual perspective. The data aggregators, who have traditionally been the middle men between the fintechs and the APIs, are doing a lot more direct connection. People no longer have to share their credentials. Out into the ecosystem, you can now have much more secure, token-led engagements.
What some of the institutions are doing is that they are opening up their internal APIs. It’s not heavy lifting for them. You can’t see everything. But they’re getting out there quickly, and they are then seeing how the data moves.
For them, it’s less around, “Let’s make this a uni-directional flow of data.” It’s very much the expectation that it’s bi-directional. And if I can get the incentive to connect my investments, insurance, etc. back to my primary institution, they’re in a much better place to be able to service me.
See: RBC first Canadian bank to open an API developer portal
Knowledge@Wharton: What do you think are the biggest challenges of open banking for both banks and for their customers?
Barratt: With increased transparency, there is definitely increased risk. There is an expectation that the industry should be able to solve these challenges and risks — because that’s what we’ve been doing. But there is a nefarious element to the financial services industry, and so [the question is] with more open data, is there more chance for more scammers, for example? The answer generally — and in theory — should be no, because the personally identifiable information (PII) is taken out. All I’ve done is to allow someone to have a look at my transactions. That’s not going to track back to me. So, the risk element from privacy and transparency should be reduced. However, there are some very creative scammers out there.
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The Law Society Gazette | | Michael Cross | Oct 14, 2021 As far as his acolytes are concerned, the ministry on earth of Satoshi Nakamoto lasted just over two years. During that time, from the end of 2008, ‘he’ - Satoshi is a male given name - published a brilliantly written white paper setting out the principles of a currency that could operate without a central authority. He also released the computer code to turn Bitcoin in to practice (written in the programming language C++) and engaged in web conversations about its debugging and development. The last public comment appeared in December 2010. Email exchanges with developers continued for a few months, but then Satoshi Nakamoto disappeared without trace. 'I’ve moved on to other things,' he wrote in April 2011. His, or their, identity remains a mystery. See: Privacy laws might prove to be a blessing in disguise for crypto At least that is the widely accepted version of history among the mixture of geniuses, visionaries, hard-headed entrepreneurs, gullible punters and outright rogues who make up the global Bitcoin community. However a series of actions in the English courts could rewrite the authorised version. They are being brought by ...
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Read More
Decrypt | Scott Chipolina | Oct 12, 2021 Crypto exchange Binance has launched a $1 billion growth fund to spur on the adoption of blockchain technology, as well as to support the Binance Smart Chain blockchain itself. “With the $1 billion initiative, our focus will be widened to building cross-chain and multi-chain infrastructures integrated with different types of blockchains” Gwendolyn Regina, investment director of the Binance Smart Chain Accelerator Fund reportedly said in a statement. Approximately half of the funds will go to blockchain services, as well as other, more niche areas of the crypto world such as gaming and virtual reality. See: Binance: The low-down on the drama-ridden crypto exchange In addition, about $300 million will reportedly go to a builder program, and another $100 million will go to talent development and liquidity incentives. Liquidity incentives in this context suggest the fund will provide additional bonuses to crypto platforms. Increased yields for a limited time on decentralized finance (DeFi) platforms has been one example of this. News of the fund comes amid a long and drawn-out period of regulatory controversy for Binance. It’s been a difficult few months for Binance, as the exchange has raised the ire of financial ...
Read More
ComplianceX | Jack J. Kelly | Oct 13, 2021 Miami will advance a plan to pay city workers in bitcoin, Mayor Francis Suarez told Bloomberg on Tuesday, expanding on his push to make the Florida city a major hub for digital assets. “We’re going for a request for proposal in October to allow our employees to get paid in bitcoin, to allow our residents to pay for fees in bitcoin and even taxes potentially in bitcoin if the county allows it,” Suarez said in an interview with the business channel. A formal solicitation would come after the city commissioners in February backed his resolution to direct the city manager to procure a vendor to offer employees the ability to receive a percentage of their salary in bitcoin. See: Miami’s mayor says MiamiCoin generated over $5 million USD for the city in the last 30 days At the time, bitcoin traded close to $48,000, then hit an all-time high of $64,804.72 in April, fell below $30,000 in July, and recently reclaimed the $55,000 mark. Despite the price volatility, Suarez also wants the state of Florida to allow Miami to hold bitcoin on its balance sheet. Statutes at the state and federal levels currently don’t ...
Read More
Finliti | Jennifer Schell and Dr. Stefano Di Domenico | Oct 13, 2021 Harnessing information and channelling its energy to improve people’s financial activities is the very essence of FinTech. The promise is to thrust traditional financial services—banking, insurance, and investment management—into cyberspace where they can be reimagined and elaborated by mobile software to add both capability and fluidity to people’s lives. This frontier of possibilities also brings new challenges to the forefront: With more people carrying their investment portfolios on their mobile devices, FinTech is asked to deliver high-quality, customized financial guidance wherever and whenever people want it. Finliti is ready to meet this challenge. Our goal is to engage with investors in the ways that are most personally meaningful and helpful for them. We believe that investing should be as fun and immersive or as serious and disciplined as investors desire. We believe in financial inclusion—that every investor, no matter their experience or the size of their portfolio, deserves access to personalized financial advice. And most of all, we believe that all investors deserve the opportunity to earn good returns and meet their financial objectives. See: The Trading Game This is why we developed the Finliti Investor Profile ...
Read More
Cambridge Centre for Alternative Finance | Michel Rauchs | Oct 13, 2021 The latest update to the Cambridge Bitcoin Electricity Consumption Index (CBECI) has confirmed the impact of the Bitcoin mining crackdown in China, showing that the leading share of global Bitcoin network hashrate now sits in the US, followed by Kazakhstan and the Russian Federation. See: How This Billionaire-Backed Crypto Startup Gets Paid To Not Mine Bitcoin This new data (to the end of August 2021) shows the US with a global hashrate share of 35.4% (up from 16.8% at the end of April), Kazakhstan with 18.1% (up from 8.2%) and the Russian Federation with 11% (up from 6.8%). This confirms the hashrate trajectory identified in the last update (to end April 2021) which showed those three countries were already gaining market share prior to the crackdown in China. The immediate effect of the government-mandated ban on crypto mining in China was a 38% drop in global network hashrate in June 2021 – which corresponds roughly to China’s share of hashrate before the clampdown, suggesting that Chinese miners ceased operations simultaneously. New data reported by partnering mining pools BTC.com, Poolin, ViaBTC, and Foundry confirms this observation: declared mining operations ...
Read More
Morning Consult | Nick Catino , Jonah Crane & Daniel Gorfine | Oct 13, 2021 In recent years, there have been several debates over how best to regulate and facilitate financial technology innovation in the United States. These debates frequently pit federal regulations against state-based regulation, and banks against nonbanks, in unfortunate zero-sum contests, resulting in legal challenges and increasingly tense congressional hearings that risk losing the forest for the trees in terms of what’s best for the country. At the same time, the Federal Reserve is considering whether certain kinds of banks — but only banks — can directly access federal payment systems. When it comes to consumer-centric payments innovation, there is a way to preserve state-based regulation of payments companies and allow them to participate directly in our national payments systems, without requiring that they have full banking powers. Our idea for a hybrid federal/state payments oversight model is rooted in the “unbundling” of financial services brought about by financial technology companies competing in discrete markets. These entities do not resemble the full-service, brick-and-mortar banks of decades past. Some payments innovators, for example, are focused on using modern technology to provide faster, lower-cost, transparent and more convenient payments for their customers — not on taking deposits or making loans. Read: 2021 McKinsey Global Payments Report In recognition of this changing industry landscape, many other high-income countries have recently implemented ...
Read More
The Law Society Gazette | | Michael Cross | Oct 14, 2021 As far as his acolytes are concerned, the ministry on earth of Satoshi Nakamoto lasted just over two years. During that time, from the end of 2008, ‘he’ - Satoshi is a male given name - published a brilliantly written white paper setting out the principles of a currency that could operate without a central authority. He also released the computer code to turn Bitcoin in to practice (written in the programming language C++) and engaged in web conversations about its debugging and development. The last public comment appeared in December 2010. Email exchanges with developers continued for a few months, but then Satoshi Nakamoto disappeared without trace. 'I’ve moved on to other things,' he wrote in April 2011. His, or their, identity remains a mystery. See: Privacy laws might prove to be a blessing in disguise for crypto At least that is the widely accepted version of history among the mixture of geniuses, visionaries, hard-headed entrepreneurs, gullible punters and outright rogues who make up the global Bitcoin community. However a series of actions in the English courts could rewrite the authorised version. They are being brought by ...
Read More
Read More
SEC | Martha Miller | Oct 13, 2021 If you’re taking in news by simply scanning the headlines—particularly those about capital raising activity—you’ve likely missed the story for some splashy titles. Today I’d like to delve into the story and facts behind the headlines about how entrepreneurs are raising capital from investors, deconstructing some of the big numbers we see in large print. “Entrepreneurs Should Quit Their Day Jobs; Paychecks are Irrelevant” Many assume that unless an entrepreneur is focused on their startup 100%, they’re not truly dedicated. The reality for most entrepreneurs is that sticking with their day job before their side hustle has been de-risked is not only a smart financial decision, but often a necessary one. Our Office regularly hears from minority and women entrepreneurs who talk about building their companies while maintaining a stable income stream to support their families, pay off student debt, and avoid taking on too much dilutive capital too early. Their decision is a smart one. Entrepreneurs who keep their day jobs while building their businesses are 1/3 less likely to fail than those who quit and go all in from the beginning. Wharton Professor and author Adam Grant attributes this phenomenon ...
Read More
Read More
AngelList | Matthew Speiser | Oct 8, 2021 “The barriers to entrepreneurship and investing have never been lower, and our generation is very aware of the opportunity we have.” See: Why is venture capital still ignoring women? The case for investing is clear. Gen Z has become the target market for many new businesses—and founders and venture firms want to work with them. Hence the rise of Gen Z VCs, an online community where young investors swap knowledge and deal flow. Gen Z VCs has grown to 10k members since launching in November 2020. “Gen Z is unique in that we’re entrepreneurial, digitally native, values-focused, and we don’t accept the status quo,” said Meagan Loyst, the 24-year-old founder of Gen Z VCs and an early-stage investor at Lerer Hippeau. Leveraging Personal Brands “More so than previous generations, Gen Zers are really great at building their brand, and that’s something that’s helped me a lot personally,” said Chang. “The whole pre-seed and seed space is about who you know, and if founders know you because of your brand, it can go a long way towards earning an allocation.” “I think we owe some of our success to the fact that more ...
Read More
Read More
Bank of England | Jon Cunliffe, Deputy Governor, Financial Stability | Oct 13, 2021 Jon Cunliffe's Speech Overview delivered at Sibos: Jon Cunliffe looks at the impact of ‘crypto’ on the stability of the UK’s financial system. He says unbacked crypto-assets (eg Bitcoin) and backed crypto-assets for payments (stablecoins) have begun to connect to the financial system. And he talks about how regulators are responding to their rapid growth. I want to talk today about whether the world of ‘crypto finance’ poses risks to financial stability. Cryptoassets have grown by roughly 200% in 2021, from just under $800 billion to $2.3 trillion today. They have grown from just $16 billion 5 years ago. $2.3 trillion of course needs to be seen in the context of the $250 trillion global financial system. But as the financial crisis showed us, you don’t have to account for a large proportion of the financial sector to trigger financial stability problems – sub-prime was valued at around $1.2 trillion in 2008. See: Moody’s says Crypto regulation a plus for banks, fintechs Task Force on Financial Stability: Report release When something in the financial system is growing very fast, and growing in largely unregulated space, financial stability ...
Read More
Read More
PC Gamer | Andy Chalk | Oct 14, 2021 Buyers got their NFTs, but a promise of a fighting game built around them went up in smoke. Evolved Apes is a collection of 10,000 unique NFTs available for purchase on the NFT marketplace OpenSea. Each of them was also meant to be a character in an Evolved Apes fighting game, in which NFT owners would pit their apes against one another in battles for Ethereum cryptocurrency rewards (just as ancient hominoids did thousands of years ago, as I understand). See: Kraken Report: Non-Fungible Tokens (NFTs): Redefining Digital Scarcity But it's all gone disastrously off the rails: According to a Vice report, one week after Evolved Apes went live, the head of the project vanished, taking 798 Ether—worth roughly $2.7 million—with them. The money was raised through the sale of NFTs, and was expected to be used to support the development and marketing of the game. But the situation started to look sticky in September, according to the report, as project leaders began to fall off the radar and communications grew erratic. It also came to light that the artist on the project hadn't been fully paid, and winners of a ...
Read More
Read More
Decrypt | Scott Chipolina | Oct 12, 2021 Crypto exchange Binance has launched a $1 billion growth fund to spur on the adoption of blockchain technology, as well as to support the Binance Smart Chain blockchain itself. “With the $1 billion initiative, our focus will be widened to building cross-chain and multi-chain infrastructures integrated with different types of blockchains” Gwendolyn Regina, investment director of the Binance Smart Chain Accelerator Fund reportedly said in a statement. Approximately half of the funds will go to blockchain services, as well as other, more niche areas of the crypto world such as gaming and virtual reality. See: Binance: The low-down on the drama-ridden crypto exchange In addition, about $300 million will reportedly go to a builder program, and another $100 million will go to talent development and liquidity incentives. Liquidity incentives in this context suggest the fund will provide additional bonuses to crypto platforms. Increased yields for a limited time on decentralized finance (DeFi) platforms has been one example of this. News of the fund comes amid a long and drawn-out period of regulatory controversy for Binance. It’s been a difficult few months for Binance, as the exchange has raised the ire of financial ...
Read More
Read More
ComplianceX | Jack J. Kelly | Oct 13, 2021 Miami will advance a plan to pay city workers in bitcoin, Mayor Francis Suarez told Bloomberg on Tuesday, expanding on his push to make the Florida city a major hub for digital assets. “We’re going for a request for proposal in October to allow our employees to get paid in bitcoin, to allow our residents to pay for fees in bitcoin and even taxes potentially in bitcoin if the county allows it,” Suarez said in an interview with the business channel. A formal solicitation would come after the city commissioners in February backed his resolution to direct the city manager to procure a vendor to offer employees the ability to receive a percentage of their salary in bitcoin. See: Miami’s mayor says MiamiCoin generated over $5 million USD for the city in the last 30 days At the time, bitcoin traded close to $48,000, then hit an all-time high of $64,804.72 in April, fell below $30,000 in July, and recently reclaimed the $55,000 mark. Despite the price volatility, Suarez also wants the state of Florida to allow Miami to hold bitcoin on its balance sheet. Statutes at the state and federal levels currently don’t ...
Read More
Read More
Finliti | Jennifer Schell and Dr. Stefano Di Domenico | Oct 13, 2021 Harnessing information and channelling its energy to improve people’s financial activities is the very essence of FinTech. The promise is to thrust traditional financial services—banking, insurance, and investment management—into cyberspace where they can be reimagined and elaborated by mobile software to add both capability and fluidity to people’s lives. This frontier of possibilities also brings new challenges to the forefront: With more people carrying their investment portfolios on their mobile devices, FinTech is asked to deliver high-quality, customized financial guidance wherever and whenever people want it. Finliti is ready to meet this challenge. Our goal is to engage with investors in the ways that are most personally meaningful and helpful for them. We believe that investing should be as fun and immersive or as serious and disciplined as investors desire. We believe in financial inclusion—that every investor, no matter their experience or the size of their portfolio, deserves access to personalized financial advice. And most of all, we believe that all investors deserve the opportunity to earn good returns and meet their financial objectives. See: The Trading Game This is why we developed the Finliti Investor Profile ...
Read More
Read More
Cambridge Centre for Alternative Finance | Michel Rauchs | Oct 13, 2021 The latest update to the Cambridge Bitcoin Electricity Consumption Index (CBECI) has confirmed the impact of the Bitcoin mining crackdown in China, showing that the leading share of global Bitcoin network hashrate now sits in the US, followed by Kazakhstan and the Russian Federation. See: How This Billionaire-Backed Crypto Startup Gets Paid To Not Mine Bitcoin This new data (to the end of August 2021) shows the US with a global hashrate share of 35.4% (up from 16.8% at the end of April), Kazakhstan with 18.1% (up from 8.2%) and the Russian Federation with 11% (up from 6.8%). This confirms the hashrate trajectory identified in the last update (to end April 2021) which showed those three countries were already gaining market share prior to the crackdown in China. The immediate effect of the government-mandated ban on crypto mining in China was a 38% drop in global network hashrate in June 2021 – which corresponds roughly to China’s share of hashrate before the clampdown, suggesting that Chinese miners ceased operations simultaneously. New data reported by partnering mining pools BTC.com, Poolin, ViaBTC, and Foundry confirms this observation: declared mining operations ...
Read More
Read More
Morning Consult | Nick Catino , Jonah Crane & Daniel Gorfine | Oct 13, 2021 In recent years, there have been several debates over how best to regulate and facilitate financial technology innovation in the United States. These debates frequently pit federal regulations against state-based regulation, and banks against nonbanks, in unfortunate zero-sum contests, resulting in legal challenges and increasingly tense congressional hearings that risk losing the forest for the trees in terms of what’s best for the country. At the same time, the Federal Reserve is considering whether certain kinds of banks — but only banks — can directly access federal payment systems. When it comes to consumer-centric payments innovation, there is a way to preserve state-based regulation of payments companies and allow them to participate directly in our national payments systems, without requiring that they have full banking powers. Our idea for a hybrid federal/state payments oversight model is rooted in the “unbundling” of financial services brought about by financial technology companies competing in discrete markets. These entities do not resemble the full-service, brick-and-mortar banks of decades past. Some payments innovators, for example, are focused on using modern technology to provide faster, lower-cost, transparent and more convenient payments for their customers — not on taking deposits or making loans. Read: 2021 McKinsey Global Payments Report In recognition of this changing industry landscape, many other high-income countries have recently implemented ...
Read More
Read More
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