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FEDERAL RESERVE WARNS ON FINTECH RISKS AND MORE NEWS

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

Fed Williams Warns on Risks of Financial Technology

disruptive technologies, silicon valley, innovation culture, silicon valley innovation center, SVICWhat it is: A top Federal Reserve official warned that while financial technologies that enable online loans, digital currencies and other innovations hold great promise, they must be regulated with an eye to protecting consumers from unintended consequences.

Why it is important: The Fed, along with other regulators, believe financial technologies have the potential to help the economy and financial system run more smoothly and at a lower cost. Simultaneously, they believe fintech could penalize already marginalized groups, be used to aid terrorism, or make the global financial system less stable.

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Digital Disruption: How FinTech is Forcing Banking to a Tipping Point

disruptive technologies, silicon valley, innovation culture, svic, silicon valley innovation centerWhat it is: Despite all the investment and continuous speculation about banks facing extinction, only about 1% of North American consumer banking revenue has migrated to new digital models. Although FinTech companies have the advantage of new innovation, incumbent financial institutions still have the upper hand in terms of scale and have not yet reached the tipping point of digital disruption. Given the growth in FinTech investment, this is not likely to continue for long.

Why it is important: As customers shift their behavior and move more towards digital solutions, banks will need to rethink their digital strategy. Industry experts believe an omni-channel strategy is the winning solution for incumbent banks over the next decade.

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Regtech is On The Rise While Startups Threaten Disruption

disruptive technologies, silicon valley, innovation culture, svic, silicon valley innovation centerWhat it is: Regtech will be the key to facilitating the delivery of regulatory requirements, such as the forthcoming Markets in Financial Instruments repealing Directive (MiFID II) that comes into place in 2018. The disruption posed by new regulatory practices will contribute to a boom in regtech plaforms in areas as varied as algorithms, analytics, fraud detection, due diligence, authentication and verification of payments.

Why it is important: Threats to banks are absolutely everywhere. Taking a look at any revenue stream in a bank’s armory – foreign exchange, payments, lending etc – there are startups of varying success entering the marketplace. Accenture predicts 80% of banks’ entire revenue-generating business will be enroached upon by the end of the decade.

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The Big Flaw Few are Talking About in Fintech

disruptive technologies, silicon valley, innovation culture, SVIC, silicon valley innovation centerWhat it is: Investors are quickly falling out of love with online lending startups. Fitch released a report that reiterated the growing concerns about the banking upstarts: “The marketplace lender business model has yet to endure either a full interest rate cycle or a credit cycle.”

Why it is important: Online marketplace platforms are not actually lending, rather they typically match up potential borrowers with the source willing to fund the money – such as hedge funds, institutional investors, or even traditional banks. The trouble is that if quality is bad, the actual lenders are going to stop coming back for more.

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Banks and Fintech in 2025: An Unlikely Alliance

disruptive technologies, silicon valley, innovation culture, SVIC, silicon valley innovation centerWhat it is: In just 10 years, banks (and other financial institutions) are expected to look, from the outside, like a vastly different organization: a technology startup. Banks will place newfound emphasis on the design and customer experience paradigm that has changed while retail banking has been playing catch-up.

Why it is important: To maintain the dominance banks have enjoyed up to this point, they need a radical redesign of their customer-facing assets. If banks fail to overhaul their exteriors to offer a personalized, best-in-class product experience, they will be relegated to supplying the engine for sleeker-looking tech companies in 10 years.

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Political, Business Leaders Size Up Stability Risks From Fintech Growth

disruptive technologies, silicon valley, innovation culture, SVIC, silicon valley innovation centerWhat it is: New companies and established banks are spreading the use of fintech around the world, raising questions about how fast-evolving services such as person-to-person lending can affect financial stability.

Why it is important: A collection of executives from large banks, startups and regulatory agencies put forward four recommendations for a global approach to fintech under the banner of the World Economic Forum. They suggested debating “the ethical use of data,” establishing a forum for the public and private sectors to discuss issues in fintech, setting industry standards and monitoring changes so supervisors and regulators can mitigate potential risks.

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