A weekly wrap-up from Silicon Valley on what’s making the news in fintech, banking, and disruptive trends

Fintech Poses No. 1 Threat to Community Banks, Execs Tell FDIC

The emergence of new technology in financial services poses a serious danger for community banks, and they are scrambling to meet the challenge, a group of community bankers told the Federal Deposit Insurance Corp.

“Just one of the things that we have been monitoring and seeing is that some of the nonbanks, fintech companies, are really looking for that opportunity where they see there’s a particular aspect of a banking process that they can try to disrupt,” said David Seleski, president of Stonegate Bank, in Fort Lauderdale, Fla., at a July 20 meeting of the FDIC’s Advisory Committee on Community Banking. “There are so many services we offer our clients, but there’s also a threat from nonbanks eating into our traditional profit areas.”
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How Chinese Search Giant Baidu is Getting Deeper into Banking

Last Monday, Baidu announced an investment in ZestFinance, a startup taking on the credit scoring industry by using machine learning and a wide variety of data about borrowers to rate their ability to repay loans.

While the amount of the backing was not disclosed, Baidu also invested Bitcoin payments startup Circle Internet Financial last month, the Nikkei Asian Review reported last Wednesday.

Both investments followed Baidu’s decision last year to form an online bank in partnership with Citic Group’s banking unit. The new bank would be the first in China that “truly understands both the Internet and financial services,” Baidu CEO Robin Li said at the time.
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Can Tech Bring Small-Dollar Loans Back to Banks?

There might not be the will for banks to get into small-dollar consumer lending, but technology is providing a way.

Although many observers say the Consumer Financial Protection Bureau’s recent proposal for payday lending guidelines will keep banks, especially community ones, from making small-dollar consumer loans, there will likely be a few willing to maneuver the regulatory framework to get an edge. They’ll just need to figure out how to do it profitably.

Banks often avoid small loans because the economics aren’t there — they take a lot of work upfront and often don’t add much to the bottom line. But tech solutions focused on streamlining and automating the process have already helped banks get back into small business loans and now similar products are popping up for small-dollar consumer loans.
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Well Fargo to Test Robo-Adviser Next Year

Wells Fargo plans to pilot a digital advice platform in early 2017, according to a high-ranking executive.

The technology would eventually be available to all of Wells Fargo’s brokers and clients, Devon McConnell, head of digital for Wells Fargo Advisors, told On Wall Street.

In making the move, Wells Fargo would be joining a growing number of large financial services firms that are entering a fast-growing digital advice business. Charles Schwab, which was one of the early entrants, recently reported that its robo — Schwab Intelligent Portfolios — passed $8 billion in assets under management. Betterment recently reported that its AUM passed $5 billion.
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Mizuho to Conduct Blockchain Payments Trial with Ripple

Mizuho Financial Group announced this week it will pilot Ripple’s distributed ledger technology for use in cross-currency settlement.

The trial will find the Japan-based financial services firm and R3 member, along with SBI Holdings, using Ripple’s payment solutions to explore how cross-border payments could be conducteded between the financial institutions.
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Well-Regulated Financial Technology Boosts Inclusion, Fights Cyber Crime

Financial technology — or FinTech — is changing the financial sector on a global scale. It is also enabling the expansion of financial services to low-income families who have been unable to afford or access them. The possibilities and impact are vast, as is the potential to improve lives in developing countries.

The financial sector is beginning to operate differently; there are new ways to collect, process, and use information, which is the main currency in this sector. A completely new set of players is entering the business. All areas of finance — including payments and infrastructure, consumer and SME credit, and insurance — are thus changing.

The transformation allowed by digital finance can come from increased competition and efficiency gains in the financial services industry with the potential of huge benefits to customers. The significant likely difference to the lives of the 2 billion adults globally who are still financially excluded does not come, however, without risks. These risks should be addressed so that FinTech’s benefits can be fully developed.
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