Banking

BANKING DISRUPTED WEEKLY DIGEST: SEPTEMBER 11 EDITION

In this issue:


Wall Street steps up its game against fintech

Fintech ProtectionMarcus, Zelle and Concord. They’re not names for Silicon Valley start-ups, nor is this list drawn from a pre-K register in Brooklyn’s Park Slope. This is what Wall Street has been doing to defend itself from the growing threat of financial technology, or fintech. “They’re reacting to the realization of what customers are using,” said Bob Ramsey, senior vice president of equity research at FBR & Co And most customers are using their phones increasingly often. Zelle, which, according to The Wall Street Journal, was conceived at least in part hoping to invoke the imagery of a speedy gazelle, is the new name for a payments platform between major Wall Street banks allowing users to transmit money between phones. The payments platform, which includes U.S. banks like JPMorgan Chase, is nothing new, although the name is. It’s also a clear shot across the bow at digital competitors like PayPal, which has consistently expanded customer accounts and transactions and, perhaps more frightful to Wall Street banks, has logged increasing gains in total payment volume. In other words, PayPal users are driving up growth in payments volume with its products, including Venmo, suggesting it is still catching on with consumers.

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Next Wave of Fintech: Ditch the Humans

Rise of RegtechWhile much of fintech over the last few years has been about improving the front end of banking, the focus is now shifting to streamlining the back office. More startups are eyeing technology that would help ease the burden banks face in maintaining compliance with regulation. They are helping banks look for ways to cut back on paperwork and automate some manual processes, and in some cases, looking for ways to cut humans out of the equation entirely. Of course, there are still plenty looking to change the way people interact with money and their banks. These trends were apparent in New York this week at a pair of gatherings. On Wednesday, Next Money, a fintech conference with a pitch competition for three BBVA Open Talent winners, was abuzz with talk of artificial intelligence and identity. On Thursday and continuing on Friday, nearly 75 startups are pitching banks, investors and analysts on their business at the annual Finovate Fall conference.

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Santander: Bitcoin Threatens Credit Card Issuers

SantanderA securities affiliate of Spanish banking group Banco Santander is predicting bitcoin will have a significant impact on the legacy finance ecosystem should it see wider adoption. The report, published earlier this week, stems from a meeting involving Santander researchers, Santander Investment Securities, Brazilian bitcoin brokerage Mercado Bitcoin and local investors. While short, the publication offers a take on the risks (or opportunities) card issuers, acquirers, exchanges and banks would face in a future should the use of digital currency become more mainstream. Perhaps most at risk, according to the report, are the card issuers and acquirers.

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You’ve Heard of Fintech, Get Ready for ‘Regtech’

RegtechHow can banks better manage one of the costliest and most troublesome activities – complying with regulations? Increasingly, banks may benefit from working with “regtech” firms. Consumer financial services products are being transformed by the fintech revolution, but automation, data innovation and other technological efficiencies can also benefit banks’ efforts to comply with a growing regulatory burden and improve their internal governance controls. Given the high stakes, however, banks should gain a better understanding of their regtech options and make a careful assessment of which high-priority objectives they are trying to accomplish in partnering with a regtech firm. They will need to bring regulators into the conversation before committing to such a partnership. And they must ensure that combining third-party technology and services with their internal processes does not create more system complexity.

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US Fintech SoFi’s $500M Raise Will Enable Growth and Global Reach

$500M RaisedThe word on the street is that one of the US’ largest online lenders, SoFi, is pitching a new $500 million fundraising effort, according to the WSJ; the San Francisco-based privately held lender helmed by CEO Mike Cagney will reportedly use the funding for new growth initiatives among mass-market borrowers and international markets. SoFi targets HENRY’s or High Earners Not Rich Yet customers with their growing portfolio of lending and financial services. SoFi has now originated over $10 billion in loans.SoFi targets a far wider audience than its initial targeted demographic of Ivy Leaguers with little credit history but solid earnings potential, helping them refinance their steep student loans. The platform is looking to extend its student-lending business to Europe, according to the WSJ.

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Why Fintech Startups Might Not Want to Become Unicorns

Fintech in public marketIn mythology, unicorn sightings are blessed events. In fintech world, they might be increasingly ill-fated. Striving to achieve a valuation of $1 billion or more may no longer be in a start-up’s best interest, according to recent valuation trends and the venture capitalists who invest in the space. Fintech firms in particular are posing a headache for investors as rising valuations create a limbo-like state in which start-ups become too pricey for larger firms to buy, but don’t have business models that are scalable enough for a debut in the public markets. “What you don’t want to do is get into sort of this half pregnant phase when you’re past where you’re digestible but not clearly on the trajectory for long term, self sufficiency,” said Sean Park, co-founder of venture capital firm Anthemis Group. Funding data lends credence to these concerns, with research firm CB Insights showing second-quarter funding to venture capital-backed finch companies dropping 49 percent on a quarterly basis. High-profile troubles at LendingClub Corp., which debuted at a hefty $5.4 billion valuation in late 2015 but has since sunk to $2.1 billion, have also increased investor nervousness around the space.

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The fintech ecosystem explained

Fintech ecosystemWe’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs. No firm is immune from the coming disruption and every company must have a strategy to harness the powerful advantages of the new financial technology (“fintech”) revolution. The battle already underway will create surprising winners and stunned losers among some of the most powerful names in the financial world: The most contentious conflicts (and partnerships) will be between startups that are completely reengineering decades-old practices, traditional power players who are furiously trying to adapt with their own innovations, and total disruption of established technology & processes:

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The 4 Essential Upcoming Silicon Valley Fintech Events of 2016

 

phpjn5gcEAM.jpgWe are halfway through the year, but there are still a handful of informative, engaging, must-attend events addressing fin sec and fintech trends/developments coming up in Silicon Valley.

These seminars, summits, and networking events are a must for industry executives and CEOs to gain insights into the current financial sector and what the future holds.

Attending any of the following will fortify a leader’s skill set and knowledge regarding how Silicon Valley is now the engine under the hood of the financial industry.

 

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