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[...]
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.
Continue to the full article --> here
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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Collaborative Fund | Morgan Housel | Oct 16, 2019 An irony of studying history is that we often know exactly how a story ends, but have no idea where it began. Find something that’s important to you in 2019 – social, political, economic, whatever – and with a little effort you can trace the roots of its importance back to World War II. There are so few exceptions to this rule it’s astounding. But it’s not just astounding. It’s an example of something easy to overlook: If you don’t spend a little time understanding World War II’s causes and outcomes, you’re going to have a hard time understanding why the last 60 years have played out the way they have. You’ll struggle to understand how the biggest technologies got off the ground, and how the most important innovations are born from panic-induced necessity more than cozy visions. Or why household debt has risen the way it has. Which raises the question: What else is like World War II? What are the other Big Things – the great-grandparents – of important topics today that we need to study if we want to understand what’s happening in the world? The three big ...
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Read More
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Brookings Institution | Dec 4, 2019 Facial recognition technology has raised many questions about privacy, surveillance, and bias. Algorithms can identify faces but do so in ways that threaten privacy and introduce biases. Already, several cities have called for limits on the use of facial recognition by local law enforcement officials. Now, a bipartisan bill introduced in the Senate proposes new guardrails for the use of facial recognition technology by federal law enforcement agencies. See: Smart Cities Offer Promises and Concerns Over Privacy On Thursday, December 5, the Center for Technology Innovation at Brookings will feature Senators Chris Coons (D-Del.) and Mike Lee (R-Utah), who introduced the bipartisan Facial Recognition Technology Warrant Act this past November. The discussion will focus on how placing procedural safeguards on facial recognition technology, such as requiring warrants and limiting the duration of surveillance, can alleviate concerns over security and privacy while encouraging innovation. Thursday, Dec 05, 2019 8:45 AM - 9:30 AM EST Brookings Institution Falk Auditorium 1775 Massachusetts Avenue N.W. Washington, DC 20036 More information on registering for the Webcast or attending --> here The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry ...
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Read More
OECD | Mats Isaksson | Nov 27, 2019 27/11/2019 - Asia is rapidly growing into the world’s largest stock market. In 2018, 51% of all equity capital raised through initial public offerings (IPOs) went to Asian companies. Today more than half of the world’s listed companies are from Asia. This development is reshaping global stock market in several ways, according to a new OECD report: Households outside of Asia have increased their investments in Asian companies through pension funds, mutual funds and other intermediaries; it is increasingly common that listed companies are majority owned by the public sector or by other private companies; and smaller growth companies from Asia are using capital markets to raise money more extensively than smaller companies from the rest of the world. See: Social equity must be central to urban tech innovations OECD Equity Market Review of Asia 2019 says that Asian non-financial companies raised an annual average of USD 67 billion during the last decade. This means that they surpassed the combined amount of equity raised by companies from Europe and the United States. The development in Asia is largely due to a significant increase in the use of public equity markets by companies ...
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Read More
Collaborative Fund | Morgan Housel | Oct 16, 2019 An irony of studying history is that we often know exactly how a story ends, but have no idea where it began. Find something that’s important to you in 2019 – social, political, economic, whatever – and with a little effort you can trace the roots of its importance back to World War II. There are so few exceptions to this rule it’s astounding. But it’s not just astounding. It’s an example of something easy to overlook: If you don’t spend a little time understanding World War II’s causes and outcomes, you’re going to have a hard time understanding why the last 60 years have played out the way they have. You’ll struggle to understand how the biggest technologies got off the ground, and how the most important innovations are born from panic-induced necessity more than cozy visions. Or why household debt has risen the way it has. Which raises the question: What else is like World War II? What are the other Big Things – the great-grandparents – of important topics today that we need to study if we want to understand what’s happening in the world? The three big ...
Read More
Read More
Of Dollars and Data | Nick Maggiulli | Dec 3, 2019 Psychological Tricks for Worry-Free Spending I want to teach you how to spend money. You may think that statement sounds ridiculous and say to yourself, “Nick, I don’t need help with spending money. I’m an expert at that!” But I’m not talking about how to spend money extravagantly. I’m talking about how to use your hard-earned cash in a worry-free way. There have been thousands of personal finance articles written on how to spend money. Some of these articles emphasize frugality and reducing your expenses, while others focus on growing your income so you don’t have to worry about expenses at all. But, the problem with many of these approaches is that they are based upon one thing—guilt. Between Suzie Orman telling you that buying coffee is equivalent to “peeing away $1 million” and Gary Vaynerchuk asking you whether you are working hard enough, mainstream financial advice is built upon sowing doubt around your decision-making. Should you buy that car? How about those fancy clothes? What about a daily latte? Guilt. Guilt. Guilt. This kind of advice forces you to constantly second guess yourself and creates anxiety around spending ...
Read More
Read More
Cointelegraph | Anatol Hooper | Dec 5, 2019 Blockchain is transforming the financial industry right before our eyes, with many market onlookers anticipating a complete replacement of existing payment, trading and banking infrastructures. Blockchain and finance seem like the perfect match, but there are other sectors, for which the technology may play a game-changing role. For one particular industry, the latter adjective isn’t figurative at all, because blockchain can do just that – change the gaming market. This is a unique chance for investors, and it seems like they don’t want to miss it. During the last few years, the gaming industry has been pampered with several innovations at once – virtual reality (VR), augmented reality and artificial intelligence. But it is blockchain that can have the greatest contribution, bringing more transparency and trust to the gaming space. Investors don’t want to be simple observers and are jumping on the blockchain gaming bandwagon. For them, the technology has a disruptive potential that can be converted into profitable deals. Thus, they consider this emerging technology to be a breakthrough in the gaming industry. See: Podcast Ep27-Mar 1: Blockchain Gaming and Esports with Shidan Gouran Transforming gaming at all levels But how can ...
Read More
Read More
Financial Post | Julius Melnitzer | Dec 5, 2019 Canadian banks have become 'incubators and accelerators' for tech talent, helping to get new innovations to market more quickly For all the buzz about the disruption that’s occurring in Canada’s financial services sector, the country ranks a lowly 23 among 27 countries in its market adoption of fintech. The information appears in an infographic prepared by Fortunly, an online knowledge base and financial product review-website. The charts examine the significant disruption that fintech solutions are causing in the world of finance, including mobile wallets, cash transaction systems, the rise of blockchain currencies and artificial intelligence. See: A major UK lender just launched a digital bank to compete with Monzo and Revolut | Interview with Bó CEO Which is not to say that Canada is standing still. The country’s market adoption rate of fintech stands at 50 per cent, not insignificant but still way behind China and India, leading the pack at 87 per cent. Rounding out the top 10 are Russia and South Africa, Colombia, Peru, Netherlands, Mexico, and Ireland and the United Kingdom. Canada’s adoption rate, however, is ahead of that in the United States, France and Japan. Globally, adoption ...
Read More
Read More
Entrepreneur | Murray Newlands | Dec 3, 2019 You can raise a million, too. Here's how to be successful with equity crowdfunding. There's an art to raising money for a startup. I recently joined Commerce AI as Chief Strategy Officer, and my role has two main functions: fundraising and marketing. My goal in the first 30 days was to raise a million dollars from crowdfunding. This can be a viable goal for your company as well. Here’s how. Equity crowdfunding Under the Jumpstart Our Business Startups (JOBS) act, there are a number of routes to crowdfunding. The starting point is a Form C round, which in essence means you can raise $1.07 million per year -- yes per year -- from non-accredited investors. This means anyone can invest over $250 at a time. This time we worked with accredited investors only but most people will start with a Form C round. Architecting a New World: Investment Crowdfunding and Digital Assets This model is like Kickstarter, but you give backers equity rather than a product. The equity can be a convertible note, a safe note or a fixed price round. If your goal is to raise more than $107,000, an independent CPA ...
Read More
Read More
Novacap | Release | Dec 3, 2019 Novacap is the first private equity firm in Canada to launch a fund dedicated to financial services. MONTREAL, Dec. 3, 2019 /PRNewswire/ - Novacap, one of Canada's leading private equity firms, announced the introduction of a new sector fund and its first closing. Novacap Financial Services I (the "Fund") gathered initial commitments of C$260 million, a strong start toward its target of C$500 million. A second group of institutional investors is expected to close in Q1 2020. Driven by strong demand from new and existing investors, the Fund will be managed by three seasoned executives: Marcel Larochelle, as Managing Partner, as well as Rajiv Bahl and Alain Miquelon as Senior Partners. With a dedicated investment team, they will fully leverage Novacap's infrastructure and apply Novacap's proven investment methodology. Novacap Financial Services I aims to invest in mid-market companies established in North America, with a focus on Canada, with strong growth potential. Four segments are of particular interest: 1-specialty insurance and distribution, 2-asset and wealth management, 3-alternative lending and 4-financial infrastructure. The Fund will make equity investments in order to support companies with their organic growth initiatives and to drive strategic acquisitions. See: Portag3 Ventures ...
Read More
Read More
Brookings Institution | Dec 4, 2019 Facial recognition technology has raised many questions about privacy, surveillance, and bias. Algorithms can identify faces but do so in ways that threaten privacy and introduce biases. Already, several cities have called for limits on the use of facial recognition by local law enforcement officials. Now, a bipartisan bill introduced in the Senate proposes new guardrails for the use of facial recognition technology by federal law enforcement agencies. See: Smart Cities Offer Promises and Concerns Over Privacy On Thursday, December 5, the Center for Technology Innovation at Brookings will feature Senators Chris Coons (D-Del.) and Mike Lee (R-Utah), who introduced the bipartisan Facial Recognition Technology Warrant Act this past November. The discussion will focus on how placing procedural safeguards on facial recognition technology, such as requiring warrants and limiting the duration of surveillance, can alleviate concerns over security and privacy while encouraging innovation. Thursday, Dec 05, 2019 8:45 AM - 9:30 AM EST Brookings Institution Falk Auditorium 1775 Massachusetts Avenue N.W. Washington, DC 20036 More information on registering for the Webcast or attending --> here The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry ...
Read More
Read More
Wealthsimple | Isabelle Kirkwood | Dec 2, 2019 Toronto-based FinTech startup Wealthsimple is separating its direct to consumer and Wealthsimple for Advisors businesses and will transition the advisor-focused offering to a new company, BetaKit has learned. “We’re currently focused on identifying the right partner to support your business on a future platform.” Wealthsimple for Advisors is the company’s automated management platform targeted toward financial planners, investment advisors, portfolio managers, and dealers. The company announced the news to separate the entities in an email obtained by BetaKit and sent to clients on Monday. Wealthsimple plans to announce the move on Tuesday morning. In a statement to BetaKit, the company noted that Wealthsimple for Advisors will transition in the coming months, and is currently looking for partners to support advisors on a new platform. See: Wealthsimple launching zero-commission trading platform “We are at a pivotal stage in our business where we have a very real, very unique, once-in-a-generation opportunity to transform financial services for Canadians,” said Michael Katchen, co-founder and CEO of Wealthsimple, in the statement to BetaKit. “To take full advantage of that opportunity, we need to be laser-focused on delivering transparent, accessible financial services to consumers, both directly and in ...
Read More
Read More
OECD | Mats Isaksson | Nov 27, 2019 27/11/2019 - Asia is rapidly growing into the world’s largest stock market. In 2018, 51% of all equity capital raised through initial public offerings (IPOs) went to Asian companies. Today more than half of the world’s listed companies are from Asia. This development is reshaping global stock market in several ways, according to a new OECD report: Households outside of Asia have increased their investments in Asian companies through pension funds, mutual funds and other intermediaries; it is increasingly common that listed companies are majority owned by the public sector or by other private companies; and smaller growth companies from Asia are using capital markets to raise money more extensively than smaller companies from the rest of the world. See: Social equity must be central to urban tech innovations OECD Equity Market Review of Asia 2019 says that Asian non-financial companies raised an annual average of USD 67 billion during the last decade. This means that they surpassed the combined amount of equity raised by companies from Europe and the United States. The development in Asia is largely due to a significant increase in the use of public equity markets by companies ...
Read More
Read More
TechCrunch | Darrell Etherington | Dec 3, 2019 Canadian venture capital firm Portag3 Ventures has closed a second fund focused on investing in fintech startups, with final commitments from institutional and strategic LPs totally $427 million CAD (around $320 million USD). The fund will focus on early-stage investments, and it’ll look to invest in companies globally, but with a particular focus on Canada, the U.S., Europe and some markets in the Asia-Pacific region. “We’re on a mission to build global champions from a Canadian base,” Portag3 CEO Adam Felesky told TechCrunch regarding the firm’s base of operations and investment targets. “Canada has the talent, the expertise and one of the biggest markets in the world directly to our south. All the ingredients are there, we just need more success stories — and we are on our way to getting them. Success will breed more success. In order to understand what it takes to succeed globally, you need to invest and work with the best of the best from around the world. Many of the early fintech unicorns are based in Europe on the back of substantive, helpful policy changes. Canada needs to learn from these examples so we get the ...
Read More
Read More
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