A weekly wrap-up from Silicon Valley on what’s making the news in fintech, banking, and disruptive trends
How Small Banks Can Partner With Fintech Firms
What it is: Digital technology changes the way consumers interact with their bank and finances. How are smaller banks expected to compete with the new market entrants and larger banks that have developed innovation labs and are investing directly in fintechs?
While many small bankers appear eager to embrace digital capabilities, 55% of small, community and regional banks have not set up any meetings or presentations with potential partners, according to Al Dominick, President and CEO of Bank Director.
Why it is important: Much of the distrust and anxiety over fintech competition has transformed into a reappraisal of how partnerships between legacy organizations and start-ups can be a better road to success in the future. “It’s not the institution versus the startup anymore; it’s how to partner,” said JP Rangaswami, chief data officer at Deutsche Bank. “There will always be people smarter than you. You have to learn how to engage: None of us can scale without partnering.”
Marketplace Lending Was Just What Banks Needed
What it is: Despite all their recent woes and growing pains, marketplace lenders have succeeded in one major way: pushing banks to up their game. Commercial lending, specifically to small and midsize businesses, is an area ripe for disruption because it has historically been one involving a lot of human interaction and paperwork. Customers don’t necessarily want that anymore; instead, they crave the convenience of being able to apply digitally and get a loan quickly.
Why it is important: Banks have begun adopting technology to get their edge back. This week, Wells Fargo became the latest bank to roll out a small-business loan-focused product. FastFlex is a digital, fast-decision loan aimed at small businesses, with funding available as soon as the next day, the bank said. JPMorgan Chase CEO Jamie Dimon also highlighted innovation in small-business lending as a priority. He said the bank this year will begin offering a product called Chase for Business, which will include a digital application process allowing business customers to sign up for what Dimon termed the “triple play” — a deposit account, business credit card and Chase merchant processing — with one signature and in one day.
The Blockchain is the New Google
What it is: The blockchain is making us rethink the old ways of creating transactions, storing data, and moving assets, and that’s only the beginning. It cannot be described just as a revolution. It is a tsunami-like phenomenon, slowly advancing and gradually enveloping everything along its way by the force of its progression. Plainly, it is the second significant overlay on top of the Internet, just as the Web was that first layer back in 1990. That new layer is mostly about trust, so we could call it the trust layer.
Why it is important: Blockchains are enormous catalysts for change that affect governance, ways of life, traditional corporate models, society and global institutions, which is why infiltration will be met with resistance (it is an extreme change). Blockchains defy old ideas that have been locked in our minds for decades, if not centuries. They will challenge governance and centrally controlled ways of enforcing transactions while also loosening up trust, which has been in the hands of central institutions (e.g., banks, policy makers, clearinghouses, governments, large corporations).
Google Bans Payday Loan Ads
What it is: Google said Wednesday it will ban ads for payday loans to protect its customers from what it considers deceptive and harmful financial products. The ban goes into effect on July 13. The announcement is the culmination of a lengthy collaboration between a consumer and civil rights groups that have long sought to rein in payday loans. David Graff, Google’s director of global product policy, said the company will no longer allow ads for loans with annual percentage rates of 36% or higher, or where repayment is due within 60 days of the date of issue.
Why it is important: “Ads for financial services are a particular area of vigilance given how core they are to people’s livelihood and well being,” Graff stated. “When ads are good, they connect people to interesting, useful brands, businesses and products. Unfortunately, not all ads are — some are for fake or harmful products, or seek to mislead users about the businesses they represent.” Graff said that Google hopes that “fewer people will be exposed to misleading or harmful products.” The ban comes as the Consumer Financial Protection Bureau is expected to propose new rules to restrict payday loans.
Here’s What Bitcoin Offers That Private Wall Street Blockchains Won’t
What it is: A panel at a recent cryptocurrency event hosted by the Cato Institute discussed the differences between public blockchains (such as Bitcoin) and the distributed ledger technology currently being researched by various Wall Street firms and consortiums. Although many people view consortium blockchains as competition for Bitcoin, the reality is that these systems are mostly intended for different use cases. While Wall Street’s distributed ledger technology may offer substantial improvements over their current systems, these permissioned ledgers may not be able to provide the level of openness and regulatory arbitrage offered by Bitcoin.
Why it is important: To many, Bitcoin’s core value proposition is censorship resistance, and it appears that (for now) forms of bank-powered distributed ledger technology will not threaten this use case. In this regard, the centralization of mining power may be a more serious, existential threat to Bitcoin’s usefulness.
State of Blockchain Q1 2016: Blockchain Funding Overtakes Bitcoin
What it is: CoinDesk’s Q1 2016 State of Blockchain report summarizes key trends, data and events from the first quarter of 2016.
As blockchain hype begins to subside and entrepreneurs and organizations get down to the business of implementation and execution, a new debate has emerged over timing. Splitting industry observers is a key question – Are we just short distance (1-2 years) away from witnessing the radical, transformative effects of blockchain technology? Or is five to 10 years a more realistic timeframe before blockchain technology fully matures and achieves wide adoption?
In other words (and to stay with the Internet analogy), the skeptics would say blockchain adoption is actually closer to 1970s-80s Internet time, when foundational protocols like TCP/IP were invented, rather early-1990s Internet time. Who’s correct in this debate remains to be seen, but the stakes are incredibly high for an industry with over $1bn in venture capital investment.
Why it is important: Key trends from the quarter include: 1) Venture bounce back, 2) investors going for blockchain and blockchain in advance economies, 3) the rise of Ethereum, 4) Bitcoin price volatility subsides, 5) and open source politics.
SWIFT on Blockchain: ‘Unrealistic Expectations’ May Arise From The Hype
What it is: It seems every financial institution is ready to talk up the potential of blockchain – the technology that underpins the cryptocurrency bitcoin – but one firm has taken a more reasoned approach and warned about the “unrealistic expectations” that could arise. A research paper commissioned by the research arm of the global financial messaging service SWIFT – the SWIFT Institute – was published Monday based on interviews and focus group meetings with individuals from 75 organizations working in technology and post-trade processing. The conclusion was that while blockchain – a distributed ledger technology – will be important, there is currently too much hype.
Why it is important: “Understanding of the technology however lags well behind the hype, amongst practitioners, policy makers and industry commentators alike. ‘Blockchain’ technology seems to promise major change for capital markets and other financial services – some say it may ultimately prove to be as important an innovation as the internet itself – but few can say exactly how or why,” authors Alistair Milne from the U.K.’s Loughborough University and Michael Mainelli from Z/Yen Group wrote.
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