Daily News Digest Featured News

Friday September 1 2017, Daily News Digest

fintech adoption
Source: Banking Technology

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United States

United Kingdom

China

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Asia

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News Summary

United States

The personal loan is back (American Banker), Rated: AAA

The personal loan is hip again.

Well, let’s not get too carried away. Just 4.33% of millennials ages 21 to 34 took out unsecured personal loans in 2015, according to a recent analysis by TransUnion.

Peerform is Back With an Interesting New Investment Partner Random Forest Capital (Lend Academy), Rated: A

Late last year Strategic Financial Solutions (SFS) a leading debt settlement company, acquired Peerform and they have been building out new product offerings.

SFS looked at many marketplace lending platforms before deciding to acquire Peerform. They were impressed by their underwriting and regulatory sophistication, their strong brand presence online, their low customer acquisition costs and how they had been frugal with the capital they had raised.

Enter Random Forest Capital. They are a new investment management firm started last year with a focus on data science and machine learning. They love taking masses of unstructured data and not only making sense of this data but finding new predictive power in this data.

Peerform overhauled their APIs to be able to pull in thousands of data attributes and millions of data points for analysis.

The team at Random Forest was able to build proprietary credit models using this new data which they said was more data than is available from any other marketplace lending platform today. As Kevin pointed out, “the money will go where the data is”.

Random Forest also invests in other asset classes beyond consumer credit. They have positions in secured auto, fix and flip real estate and secured commercial debt – bringing their unique data science skills to each asset class.

Out of the shadows: How fintech is infiltrating the mortgage industry (Housingwire), Rated: A

A study released in the National Bureau of Economic Research maintains that nonbanks, such as Quicken and loanDepot, essentially tripled market share for mortgage lending between 2007 to 2015.

Meet Sophie — the AI assistant that wants to save you money (Business Insider), Rated: A

Called Douugh, the app is designed to be a financial control center. More intriguingly, it employs an intelligent virtual assistant named Sophie to help users fully understand and manage their finances.

Users start by plugging in all their bank account information into Sophie. Once she has access to those, she’s able to use them to map out users’ financial situations. From there, she can categorize users’ spending and see if they’re living beyond their means.

Taylor previously worked at SocietyOne, a marketplace lending platform he cofounded. While there, he realized how much of a problem financial literacy was in Australia and the US. That led him to launch Douugh last year.

Right now, Sophie is in training mode. Taylor said the company will remain in beta for the rest of the year and launch in February once Sophie has been trained on enough data. Eventually, Douugh plans to build out a full suite of financial products and make Sophie accessible via Alexa and Siri, he said.

In the future, Sophie could serve as a kind of personal banker for users, operating on autopilot and making transactions. For example, if Sophie sees that you’re about to be charged an overdraft fee for an account you’ve kept empty, Sophie could transfer a few dollars from another account to prevent it.

LendingTree Announces Starbutter AI as Winner of $ 25,000 Startup Innovation Spotlight (Business Insider), Rated: B

LendingTree®, the nation’s leading online loan marketplace, has announced Starbutter AI as the winner of its Startup Innovation Spotlight, a new initiative by LendingTree to showcase the top startup companies in financial technology (fintech) lead generation at LeadsCon.

Starbutter AI is a voice and chat app development company that creates AI-driven chatbots for financial products.

AI-based chat is disrupting lead generation in financial ecommerce, and 2017 has seen a massive shift in the digital landscape toward voice search. Voice search is now 25% of all mobile search and is projected to reach 50% in 3-4 years.

HIGH-FREQUENCY TRADING AND SPOOFING (All About Alpha), Rated: A

Six years ago Michael Coscia placed orders through the CME Group’s Globex platform via a trading algorithm that amounted to “spoofing.” He placed both large and small orders in the copper market, for example, with the large orders (cancelled within milliseconds) designed to create the illusion of market movement in order to create the reality of movements, whence the small order would reap its profits.

In November 2015 a jury convicted Coscia of commodities fraud and sentenced him to three years in prison.

Coscia argued on appeal that Congress’ language on spoofing is void for vagueness, that is, that it fails to provide traders with clear notice of what they are and aren’t allowed to do, and thus is inconsistent with due process of law.

The New York based law firm Cleary Gottlieb has made public a memorandum on the case.

London fintech opens first overseas office in Charlotte at WeWork (Biz Journals), Rated: B

PCI Pal, a London financial technology company focused on call-center compliance, is opening its first overseas office in Charlotte. The company has taken space at coworking giant WeWork’s new uptown location.

Barham says about 30% to 35% of the company’s clients have operations in the U.S., so the firm decided it was time to build out infrastructure here to support them.

BCU goes live on Microsoft Azure with the Temenos Lifecycle Management Suite (Temenos), Rated: B

Temenos (SIX: TEMN), the software specialist for banking and finance, today announces that Baxter Credit Union (BCU) has successfully implemented the Lifecycle Management Suite in Microsoft Azure. The implementation, which included the Collection, Service, and Loan Origination modules, incorporated an upgrade spanning four major releases, as well as the inaugural launch of the Lifecycle Management Suite in the Cloud.

United Kingdom

2,000 IFISAs subscribed last year as consumers eschew low-yielding cash ISAs (P2P Finance News), Rated: AAA

TWO THOUSAND Innovative Finance ISA (IFISA) accounts were subscribed in the last tax year, with retail investors collectively putting £17m in to the tax-free wrapper, official figures show.

ISA statistics released on Thursday by HMRC include IFISA data for the first time for the 2016-2017 tax year. The IFISA was first mooted by then-Chancellor George Osborne in July 2015, as a tax-free wrapper around alternative investments including P2P lending, and was officially launched in April 2016.

The average amount of money invested through an IFISA was £8,500 – slightly less than the average £8,623 put in to a stocks and shares ISA but almost double the £4,622 put in to a cash ISA.

Is peer-to-peer lending heading for trouble? (Which?), Rated: AAA

Two of the biggest peer-to-peer (P2P) lenders in the UK have been beset by problems over the past month, with RateSetter forced to make up a near £9m loan-deal gone sour and Zopa customers experiencing a severe cut in returns. So, is the market for peer-to-peer lending headed for trouble?

RateSetter lent a total of £36m to Vehicle Trading Group from 2014. This was wholesale lending, which meant that Vehicle Trading Group lent that money to other borrowers, including £12m to an advertising firm called Adpod (an unusual choice for a company that offers car loans).

Vehicle Trading Group went bust in May 2017. The Financial Conduct Authority (FCA) has warned P2P firms that lending to other lenders may be in breach of regulations.

RateSetter took over the struggling AdPod in the second half of 2016, but its customers didn’t find this out until shortly after Vehicle Trading Group went bust.

As well as winding down any new lending to wholesale lenders, RateSetter says it no longer issues business loans over £750,000.

Meanwhile Zopa, another well-known P2P website and one of the ‘big three’ players in the market along with Ratesetter and Funding Circle, has warned investors that they may see their returns cut for products with higher projected rates of interest due to a rise in consumer debts going bad.

Which? has been contacted by a member who complained to Zopa after putting £1,500 into Zopa’s higher-risk product, which typically projects returns of around 6% after bad debt. One year later, however, he had made only £42 – less than 3%.

Fintech could be risky if banks don’t cooperate, says the Bank for International Settlements (City A.M.), Rated: A

Banks will need to take measures over the coming years to mitigate the risks of financial technology (fintech), according to a new report from the Bank for International Settlements (BIS).

It noted that while research from McKinsey & Co in 2015 estimated that between 10 and 40 per cent of revenues and 20 and 60 per cent of retail banking profits could be put at risk by fintech over the next 10 years, other market observers saw the developments as more positive.

It also advised institutions to vet any outsourcers through a thorough due diligence process, saying that any risks and liabilities incurred during the operations would remain with the bank.

The new bank: Replacement of incumbents by challenger banks

However, new players could prove just too agile in their ability to push the boundaries of technology, the report warned. In this scenario, new banks or tech companies with a banking branch could steal market share.

The disintermediated bank: Banks have become irrelevant as customers interact directly with individual financial services providers, for instance by using distributed ledger technology

In this case, incumbent banks would no longer be a significant player because there would be no need for a trusted third party or for balance sheet intermediation. Customers could have a more direct say in choosing the services and the provider. This futuristic scenario can be seen in its nascent form in peer-to-peer lending platforms and cryptocurrencies.

China

China’s $ 2 Trillion of Shadow Lending Throws Focus on Rust Belt (Bloomberg), Rated: AAA

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS Group AG.

By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry. Shadow loans grew almost 15 percent to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19 percent of economic output, he estimates.

Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said.

China shadow loans

Asset Quality

Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86 percent last year to a size equal to 308 percent of its formal book, the highest of any bank in China, according to Bedford’s report.

Still, the bank reported a bad-loan ratio of just 0.05 percent last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said. Bank of Tangshan representatives didn’t respond to an email seeking comment.

Shadow loans can be used to circumvent regulations capping loans to a single borrower at 10 percent of a bank’s assets, or 15 percent in the case of a group company and its subsidiaries, according to Bedford. For example, he said that Baoshang Bank, an Inner Mongolia lender, has extended shadow loans equivalent to 126 percent of its net assets to one borrower.

Car Finance Penetration Rate in China Expect to Double in Five Years (Xing Ping She), Rated: A

According to a public report, from 2005 to 2015, the ratio of purchasing cars by loan in China has grown rapidly from less than 10% to 25% ~ 30%. During the past ten years, auto finance in China has been developing so fast. And from 2016 to 2017, during the short two years, the car finance penetration Rate continue to rise. Now the rate has reached to 35%~40%, among which the luxury car financial penetration rate is even higher. Furthermore, it is expected to double in five years.

On the prevention of various types of ICO to absorb investment-related risks in the name of the tips (National Internet Finance Association), Rated: B

To protect the legitimate rights and interests of the public, the relevant risk issues are as follows:

First, some institutions at home and abroad use all kinds of misleading propaganda means to ICO in the name of engaged in financing activities, the relevant financial activities without any permission, which is suspected of fraud, illegal securities, illegal fund-raising and other acts. The majority of investors should remain sober, vigilant, beware of being deceived. Once found to have involved in illegal acts, should immediately submit to the public security organs.

Second, due to ICO project assets are not clear, lack of investor appropriateness, a serious shortage of information disclosure, investment activities are facing greater risk. Investors should be calm judgments, be careful to take their own investment risk.

Third, China Internet Finance Association member units should take the initiative to strengthen self-discipline, to resist illegal financial behavior.

European Union

Credit Unions embrace FinTech as loans flood in through Facebook (Independent.ie), Rated: AAA

Credit Unions around Ireland have entered the FinTech arena, with some credit unions reporting a 10-fold interaction with younger adult members since they began rolling out digital loan service initiatives earlier this year.

Since its launch, the “Facebook Loan” initiative has already been a huge success for several credit unions throughout the country – now accounting for up to 15pc to 20pc in loan enquiries per month for some credit unions.

Following an initial successful pilot project, this has now become an established channel for credit unions, with close to half of consumers using the facility to take out a loan never having borrowed from a credit union before.

New European fintech hubs are on the horizon (Business Insider), Rated: A

Sweden‘s deal share of the European fintech investment market is growing for the third consecutive year. Its share expanded 2% between 2015 and 2016 to reach 8%, and currently stands at 12%, meaning it’s already ahead of last year’s figure. The country’s share of deals is also increasing ever-more quickly, from 2% over 2015-2016 to 4% between 2016 and 2017 year-to-date (YTD).

France is also seeing its deal share increase for the third year in a row, and like Sweden, its 2017 YTD share (11%) has already overtaken its 2016 figure (10%). However, its deal share growth has slowed down slightly, from 4% during 2015-2016 to 1% between 2016 and 2017 YTD.

sweden france fintech hubs

International

Mobile Fintech vs Traditional Banking products: 15 awesome things winners do well (Robosoft Technologies), Rated: AAA

As of 2017, banking executives are completely missing the mark at correctly understanding the rise in popularity for fintech products. It all comes down to the user experience. Banks are misinterpreting and miscalculating the role user experience plays in the overall satisfaction customers have with a banking product.

Fintech vs Traditional banks – attitudes and missed expectations

In 2016, Capgemini Consulting in collaboration with EFMA conducted a global study to gauge customers’ attitudes towards financial service companies – banks and fintech companies alike. As part of the study, the researchers asked customers to rate the most important reasons why they are using financial products coming from fintech companies. In parallel – they asked banking executives to do the same.

The results show a complete disconnect between what consumers want and appreciate about fintech and what banks think consumers appreciate about fintech products.

But what they completely missed is that 80% of consumers rank faster service and good experience as a primary reason why they’re using fintech products (the two being completely correlated). In contrast, only 40% of banking executives believe good service/ experience is critical to fintech’s rise in popularity.

mobile fintech banks
Source: Invoiceinterchange.com

Banking executives do not understand what consumers want.

Consider the following stats to understand the result of banking executives missing the mark on user experience from the Millennial Disruption Index Report:

  • 71% of consumers would rather go to the dentist than listen to what banks are saying
  • 1 in 3 consumers are open to switching banks in the next 90 days if a better product is made available to them
  • All 4 of the leading banks in the US are among the ten least loved brands by Millennials
  • 33% of Millennials believe that in the next five years they won’t need to do business with a bank at all
  • Nearly 50% of Millennials believe that innovation in the banking industry will come from outside the banking industry
  • 73% of Millennials would be more excited about a financial service product coming from Google, Amazon, Apple, Paypal or Square than from their own national bank.

1. Integrated products & services (Mint and YES Bank)

It gets tiring to jump from one product to another at every given moment to get a good feeling of your overall financial life.

That is why Mint.com has managed to grow from nothing to 20 million active users in only 11 years. What Mint.com does is to order and organize your entire financial life in a seamless way to give to a bird’s-eye view of your financial life.

YES bank’s mobile solution, YES Mobile 2.0 is developed keeping in mind today’s customer’s mobile lifestyle. The app offers consumers with a seamless omnichannel experience across platforms – smartphones, tablets and smartwatches. Further, the mobile app also has some innovative features to enable easy transactions on the app. Some of these are:

  • One-touch bill payment.
  • Speech to text capabilities to enable hands-free complaints/queries registration
  • On-the-go bill payments from Wearables including Apple and Android smart watches.
  • Easy transfer of money to phone book contacts, Facebook friends and Twitter followers etc.

2. Personalized recommendations (Credit Karma)

Credit Karma is a simple credit history monitoring tool with an added benefit. Whereas they can use the service for free, they will receive personalized recommendations based on their credit reports, credit card usage and other factors. What is very interesting – and smart – for Credit Karma is that while offering these suggestions they also inform their users of their odds of acquiring a new line of credit – credit card, loans, mortgages and more. And most importantly, the user experience is clean, easy to follow and to act on it.

4. Access credit card balance without logging in (Citibank)

Remember how users ranked “speed of service” as the second most important criteria on why they love fintech products? Citibank actually leads the wave of banking institutions that allow their customers to do just that. Instead of logging in to see the most frequently sought for account information, their mobile app allows users to get a glimpse of their account simply by firing the app.

7. Seamless digital payment option (Apple Pay)

It is literally impossible for banks to create something simpler than this. For readers who are not iOS users, Apple Pay works by double tapping the home button. It then pulls up the Wallet application allowing users to pay at different retailers with the default card on file.

9. Text message notifications (Digit)

Digit is a fintech savings platform which analyzes a person’s checking account balance and spending habits and subtracts a small amount from the account every 2-3 days which is deposited in a savings account.

14. Password entering and password retrieval (Acorns)

First and foremost, Acorns has adopted the widely accepted retail practice of allowing users to unmask their password. This is an acceptable practice which reduces user authentication errors. By simply adding a “show” button, Acorns makes the login experience just a little easier.

In addition, the password reset flow is as simple as they come.

non-traditional financial servicesFintech: beware the fake news (Banking Technology), Rated: AAA

A few years back, the general consensus was that banking as we knew it was over.

Fast forward two years and opinion has arguably swung too far in the other direction. The consensus now is that fintech firms tried to disrupt banks but couldn’t.

If we were to apply Gartner Hype Cycle terminology to fintech in general, we would argue that fintech went from the peak of inflated expectations to the trough of disillusionment in the last two years. If you look at the investment figures, however, the picture is not so clear. While there has been a correction in VC funding, Q2 2017 was the largest quarter of investment yet. Maybe Q2 was a blip, maybe we are heading out of the trough of disillusionment to the slope of enlightenment – or maybe investors are more sanguine about the prospects for fintech, seeing through the hype cycle.

The truth is that fintech is neither going to kill all banks nor is it a fad.

But the pessimism has become exaggerated for four main reasons:

1. Some extremely successful and highly disruptive fintech companies have been born, such as Ant Financial and PayPal (which, if a bank, would be one the ten largest in the US);

2. Adoption rates for fintech products are growing and are already material in many countries around the world (see chart below), meaning that fintech firms are successfully changing customers’ banking habits, which should help lower the cost of acquiring customers in future (a key hurdle for many fintechs);

3. Fintech companies are evolving, pushing further in middle and back office functions, extending the range of services they offer and generally becoming asset heavier and more vertically integrated, putting them in a position to compete more effectively; and,

4. Because the indirect impact of fintech has been massive.

fintech adoption
Source: Banking Technology

UAE Remittance Giant Taps Ripple Blockchain for Instant International Payments (CryptCoinsNews), Rated: A

A report by regional publication Arabian Business has revealed that UAE Exchange, one of the region’s earliest remittance operators with some 800 offices across 31 countries, is looking to partner San Francisco-based FinTech firm Ripple to facilitate instant international money transfers.

The remittance operator sees blockchain technology as the solution toward faster and efficient money transfers at significantly lower costs for customers. Ripple uses its bank-friendly public blockchain, the Ripple Consensus Ledger, to link its international partners and facilitate real-time money transfers globally.

FinTech, The Financial Crisis And The Smartphone (Forbes), Rated: A

It is ten years since the Financial Crisis and I am often asked if FinTech was born out of the crisis.

In June 2007 two Bear Sterns hedge funds hit problems, by August BNP Paribas shut down access to hedge funds with sub-prime mortgage exposures, and in September Northern Rock, a UK savings and mortgage bank had a run on it, the first bank to suffer this consequence in 150 years in the UK.

It would be another full year before the collapse of Lehman Brothers in September 2008 and the global financial system melted down.

Chris Skinner, the global FinTech pundit, heralds the beginning of FinTech with the launch of Zopa, a UK peer to peer lender started in 2005. It was the first time he had heard the word FinTech.

US market place lenders Prosper, launched in 2005, and Lending Club, launched in 2006, were out of the gates before any evident signs of the impending crisis.

It appears FinTech was not born out of the Financial Crisis.

India

Rubique Launches New Features On Its App (DQ India), Rated: AAA

The interactive app will now focus on complete digitization of the loan and credit card application process. The most significant new feature of the app is ‘Digital Profiling’ and once the profile is created, all the bank policies and algorithms are run against the user’s profile for tailor-made offers.

The key features of an app:

  1. Digital profiling: created based on the back-end by collecting data through SMS scrapping, network type, device characteristics and certain key data points
  2. Pre-qualified offers: The data engine keeps evaluating the offers available on the platform versus customer profile available & proactively keep notifying users on the eligible offers
  3. Document Upload & instant approval: Aiming towards 100% digitization and create a paperless experience for the user, the app allows user to upload the supporting documents required & Rubique’s unique integration feature which is one of its kind in the entire industry, let user get in principal approval online for his/her requirement making it entie digital
  4. Status tracking: Due to direct integration with financial instituions’ system, user can check the application status in real time
  5. Wish List: The app also allows user can also maintain its wish list related to his/her futue loan & credit card requirement
Asia

Blockchain solution aims to stop trade invoice fraud (GT Review), Rated: A

Trade finance is rife with cases of document duplication and the industry is currently exploring ways in which blockchain can be used to prevent these cases of fraud. Earlier this year, warehousing company Access World experienced a number of cases of warehouse receipt duplication, while the costs of the Qingdao fraud, which also involved multiple warehouse receipts, are still being counted.

Invoice Check from Trade Finance Market (TFM), a Singapore-based fintech company, is one of the early products to launch with this aim in mind. It has been developed over the past year on the Ethereum platform and uses smart contracts.

Canada

Bianca Lopes of Bioconnect Presents Building the Human into FinTech (StartUp Toronto), Rated: A

Latin America

New fintech law: what you need to know (International Law Office), Rated: AAA

On March 23 2017 the draft Financial Technology Law was published. The law will regulate:

  • the organisation, operation, function and authorisation of companies that offer alternative means of access to finance and investment (so-called ‘financial technology (fintech) institutions’ (FTIs));
  • the issuance and management of electronic payment funds; and
  • the exchange of virtual assets or cryptocurrencies.

The Ministry of Finance and Public Credit Comments (SHCP) has sought comments on the draft law from the Mexican banking and financial industries.

Under the law, the main authorities in the fintech field are:

  • the SHCP;
  • the National Banking and Securities Commission (CNBV); and
  • the Bank of Mexico (known as Banxico).

Pursuant to the initiative, the following institutions that undertake financing, investment, savings, payments or transfer activities through interfaces, the Internet or any other means of electronic or digital communications will be considered FTIs:

  • electronic payment institutions – these offer issuance, management, accountability and transfer of electronic payments services. Electronic payment funds include:
    • the amounts or units of an asset that can be assigned a monetary value and are recorded in an electronic transaction accounting ledger; and
    • the amounts accepted by a third party as receipt of an amount of money or respective virtual assets;
  • virtual asset management institutions – these contact third parties through digital means in order to buy, sell or dispose of their own or a third party’s virtual assets and receive virtual assets to make transfers or payments to a person, including another virtual asset management institution. Virtual assets are digital units that have similar uses to the Mexican peso, as determined by Banxico in accordance with certain criteria; and
  • crowdfunding institutions – these serve as mediators to investment seekers and potential investors through digital platforms, such as websites or mobile applications, so that prospective investors can fund applicants through such digital platforms.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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