Sue Britton, Advisor, Corporate Innovation & Partnerships
September 26th, 2018
Sue Britton is CEO & Founder of FGS (FinTech Growth Syndicate) – Canada’s leading FinTech innova[...]
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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CNBC | Hugh Son | Feb 14, 2019 The first cryptocurrency created by a major U.S. bank is here — and it's from J.P. Morgan Chase. Engineers at the lender have created the "JPM Coin," a digital token that will be used to instantly settle transactions between clients of its wholesale payments business. Only a tiny fraction of payments will initially be transmitted using the cryptocurrency, but the trial represents the first real-world use of a digital coin by a major U.S. bank. While J.P. Morgan's Jamie Dimon has bashed bitcoin as a "fraud," the bank chief and his managers have consistently said blockchain and regulated digital currencies held promise. The lender moves more than $6 trillion around the world every day for corporations in its massive wholesale payments business. In trials set to start in a few months, a tiny fraction of that will happen over something called "JPM Coin," the digital token created by engineers at the New York-based bank to instantly settle payments between clients. See: Do Banks Even Want to Go Blockchain? J.P. Morgan is preparing for a future in which parts of the essential underpinning of global capitalism, from cross-border payments to corporate debt issuance, ...
Read More
Read More
Forbes | Alejandro Cremades | Aug 2018 Is debt or equity fundraising smarter for startups? There is more than one way to fund a new business venture and fuel its growth. For almost all, it is going to require bringing in outside money at some point. Even if that is only to multiply what is working or to create a source of emergency capital. The two primary options are to either leverage business debt financing or fundraise for equity investors. Each method can carry its own pros and cons. It is vital for entrepreneurs not to blindly follow the herd just “because everyone else is doing it.” Discover which is best for you, at your stage in business, and stack the most advantages in your corner. Once you have decided the course of action and have a lead investor covering at least 20% of your financing round you would typically also include in the pitch deck the form of financing in which you are raising the capital. I recently covered the pitch deck template that was created by Silicon Valley legend, Peter Thiel (see it here) where the most critical slides are highlighted. Debt Financing We’re all familiar with debt. At ...
Read More
Read More
Financial Post | James McLeod | Feb 9, 2019 The Innovation, Science and Economic Development Minister gives the Financial Post an early look at Ottawa’s report card on innovation that will be released next week Navdeep Bains wants Canadians to know that things are happening. Lots of things. The Innovation, Science and Economic Development Minister has a big job on his hands, hauling Canada’s economy into the 21st century by embracing artificial intelligence and a panoply of digital technologies to boost productivity and keep us globally competitive. But the federal government’s innovation agenda is still very much a work in progress. One of its pillars, the five marquee superclusters spaced evenly across the country, is mostly just an idea at this point, although $950 million in funding is beginning to flow. Does Canada feel more innovative than it did four years ago? Are we future-proofing our economy and seizing the jobs of tomorrow? Bains certainly thinks so and that belief will probably be part of the Liberal’s pitch to voters when the country goes to the polls later this year. Next week, he will release a 100-page government report called Building a Nation of Innovators that mostly serves as a ...
Read More
Read More
Modern Consensus | Leo Jakobson, February 4, 2019 Move is latest series of steps by regulator to bring clarity and less confrontational approach to regulations enforcement The U.S. Securities and Exchange Commission wants to know if the technology to help it monitor major cryptocurrency blockchains for risk and regulatory compliance issues exists. The SEC is not looking to buy big data analytics tools at this time, but characterizes its interest as “conducting market research to determine the availability and technical capability,” of the tools presently available on the market, it announced in a notice on Jan. 31 What the SEC wants to know about is the “ability to provide the requested data but also an overview of the processes used to extract the data, convert the data into a reviewable format, and the verification steps to ensure there is no loss in data completeness and accuracy due to the data transformation tools and processes applied.” The software it wants would also make the data easy for SEC staff to read and understand on an ongoing basis, and would provide insights about that data—notably identifying who the data belongs to—as well as a way of ensuring the data is accurate and ...
Read More
Read More
NCFA Canada | Feb 8, 2019 Ep24-Feb 8: Re-imagining Philanthropy with Daryl Hatton About this episode: On this Episode of the Fintech Friday's Podcast, our host Manseeb Khan sits down with Daryl Hatton the CEO of Connection Point. They chatted about microprojects, saving little girls and puppies and how to get hooked on Philanthropy. Enjoy! Focus on value and avoid the complicated terminology when growing new innovative markets Branding customer segment-focused funding products, white labeling collaborative uses cases Crowdfunding for good at the intersection of technology, people and impact Host: Manseeb Khan, NCFA, Fintech Fridays show host Guest: DARYL HATTON, Founder and CEO, ConnectionPoint / FundRazr (linkedin) BIO: Daryl Hatton, CEO of award winning international crowdfunding company FundRazr and of the innovative sponsored crowdfunding company Sponsifi has founded multiple start-ups and helped bring one to a successful NASDAQ IPO in 1999. He actively serves as board member or advisor to handfuls of other hot companies in Canada. In addition, he is a Director and Crowdfunding Ambassador for the National Crowdfunding Association of Canada. As a social media guy and frequent public speaker, his Twitter tagline includes words like “#KingOfGastown, entrepreneur, cardiac survivor, foodie, whisky nut, philosopher, mentor, father and friend.” * Senior Business and Technology ...
Read More
Read More
Forbes | Michael del Castillo | Feb 4, 2019 It’s a balmy 80 degrees on a mid-December day in Singapore, and something is puzzling Allen Day, a 41-year-old data scientist. Using the tools he has developed at Google, he can see a mysterious concerted usage of artificial intelligence on the blockchain for Ethereum. Ether is the world’s third-largest cryptocurrency (after bitcoin and XRP), and it still sports a market cap of some $11 billion despite losing 83% of its value in 2018. Peering into its blockchain—the distributed database of transactions underpinning the cryptocurrency—Day detects a “whole bunch” of “autonomous agents” moving funds around “in an automated fashion.” While he doesn’t yet know who has created the AI, he suspects they could be the agents of cryptocurrency exchanges trading among themselves in order to artificially inflate ether’s price. “It’s not really just single agents doing things on their own,” Day says from Google’s Asia-Pacific headquarters. “They’re forming with other agents to have some larger group effect.” Day’s official title is senior developer advocate for Google Cloud, but he describes his role as “customer zero” for the company’s cloud computing efforts. As such it’s his job to anticipate demand before a product ...
Read More
Read More
Bloomberg | Doug Alexander | Feb 4, 2019 Without digital keys, clients lose access to coins, funds Board said last week that it was seeking creditor protection Digital-asset exchange Quadriga CX has a $200 million problem with no obvious solution -- just the latest cautionary tale in the unregulated world of cryptocurrencies. The online startup can’t retrieve about C$190 million ($145 million) in Bitcoin, Litecoin, Ether and other digital tokens held for its customers, according to court documents filed Jan. 31 in Halifax, Nova Scotia. Nor can Vancouver-based Quadriga CX pay the C$70 million in cash they’re owed. Access to Quadriga CX’s digital “wallets” -- an application that stores the keys to send and receive cryptocurrencies -- appears to have been lost with the passing of Quadriga CX Chief Executive Officer Gerald Cotten, who died Dec. 9 in India from complications of Crohn’s disease. He was 30. Cotten was always conscious about security -- the laptop, email addresses and messaging system he used to run the 5-year-old business were encrypted, according to an affidavit from his widow, Jennifer Robertson. He took sole responsibility for the handling of funds and coins and the banking and accounting side of the business and, ...
Read More
Read More
Forbes | Jeff Kauflin | Feb 4, 2019 This article was updated on 2/4/19 to include Ripple, the fourth-most valuable private fintech company in the U.S. Financial technology startups continue to attract a growing amount of attention and capital. In 2018, valuations of the biggest private companies bulged, and at least six new fintech unicorns were minted in the U.S. U.S. fintechs raised $12.4 billion in funding, or 43% more than 2017, reports CB Insights. That growth outpaced the 30% increase in venture investments across the entire U.S. market. And fintechs will need those dollars—they tend to burn about two to three times as much cash compared with other startups, according to an analysis by Brex, likely due to factors like regulatory hurdles. Here are the 10 most valuable private, venture-backed fintechs in the U.S.: 1. Stripe, $22.5 billion Originally a service to help small online sellers process payments, today Stripe serves tech giants like Microsoft and Amazon, too. In 2018 the company announced three new high-profile products, including credit card issuing technology, point-of-sale software and a billing platform for subscription businesses. Cofounders: CEO Patrick Collison, 30, and president John Collison, 28. Irish-born brothers, dropouts from MIT (Patrick) and Harvard (John) ...
Read More
Read More
CNBC | Elizabeth Schulze | Jan 31, 2019 Navigating the uncertainties of Brexit is proving to be a tough task for newcomers in the financial services sector. Fintech firms are proactively applying for licenses in EU countries ahead of the Brexit deadline. So far Brexit uncertainty hasn't dented investment into London's thriving fintech market. Europe's fintech companies are getting serious about the possibility of a no-deal Brexit. As uncertainty looms over the U.K.'s split from the EU, the industry gathered this week at the Paris Fintech Forum. Payments providers, cryptocurrency exchanges and digital banks all said they were taking steps to prepare for the worst-case scenario. But navigating the uncertainties of Brexit is proving to be a tough task for newcomers in the financial services sector who are luring in users with borderless, frictionless payment and banking solutions. "It is obvious the bigger the market is, the better it is for fintechs, the faster it is they can start, the more opportunities they have," Wim Mijs, CEO of the European Banking Federation, told CNBC on Wednesday. "If you cut off that market, you're hurting yourself, which is Brexit in one word." See: Who’s afraid of Brexit? Here’s why Canadian fintechs ...
Read More
Read More
Crowdfund Insider | JD Alois | Feb 1, 2019 Regulation Crowdfunding (or Reg CF), created by Title III of the JOBS Act, has been available for several years now. While not without its shortcomings, Reg CF has been leveraged by hundreds of issuers, typically smaller firms, raising over $100 million since May 2016. This past week, Crowdfund Capital Advisors (CCA) published a report on Reg CF entitled “2018 State of Regulation Crowdfunding,” providing a snap-shot of the securities exemption and its overall performance. Crowdfund Insider communicated with CCA principle Sherwood “Woodie” Neiss regarding the report. Neiss told CI the promise of Reg CF as a jobs creator and economic engine is starting to prove true: “Back in 2012, the promise of Regulation Crowdfunding was jobs, a local economic generator, and an industry revitalizer. With the close of the 3rd calendar year of Reg CF we can see that those promises are holding true. Reg CF is proving to be a jobs engine (creating on average 2.9 jobs per issuer), economic generator (pumping over $289 million of revenues into local economies) and industry supporter (enabling 82 unique industries in regions across the USA).” See: Prominent Group of Fintech Leaders Send Letter to SEC Chair Jay Clayton Demanding an Increase in Regulation Crowdfunding ...
Read More
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