Fintech News Issue #114 April 19th, 2017

Fintech entrepreneurs should think about how they can make incumbents lose, says Guy Shone. It’s the first rule of fintech fight club.

Despite the hype over challenger banks and their potential threat to traditional players, the game is not easy for anyone in the financial services industry. Meant to challenge traditions in the banking industry, challenger banks have their own challenges to overcome.

A banker and I were talking about the function of a bank. He gave me the classic view: “A bank is there to take people’s money and lend it out at a profit, whilst ensuring the risk of non-payment is minimised.” No it isn’t, I said.

Understanding customers is the foundation to a sustainable competitive advantage in banking. Therefore, financial marketers can no longer wait to embrace the power of advanced analytics to gain insights and evaluate opportunities that will improve cross-selling, up-selling and enhance share of wallet.

For far too many of us, asking about our finances elicits an immediate stress response. Whether the inability to shake off university debt, the difficulty in building future savings, or the juggling of multiple conflicting demands, the state of our finances has an undeniable and intrinsic link to our quality of life and overall physical and mental wellbeing.

Companies are regularly compromised by social engineering schemes, such as phishing and ransomware. Here’s what they can do prevent attacks and, if that’s too late, mitigate the damage.

Fintech companies identify customers’ needs better and facilitate payments in the easiest way possible and with simplified user flow. Their payment forms include just essential information and there’s no need to redirect users to external payment, or bank, services to pay.

Goldman Sachs’s internal technology revolution cannot come soon enough. The Wall Street firm’s young online retail-banking unit is growing and could, once big enough, crank out far higher returns than the investment bank. Goldman could do with some of that extra juice.

Until recently, we've relied on trusted intermediaries to send information over the internet. In 2008, a pioneering payment method and cryptocurrency entered the market--bitcoin. The technology behind it, called blockchain, has forever changed both online payment and information sharing networks.

New technologies and regulatory change are reinvigorating commercial payments, sparking increasing collaboration between fintechs and traditional financial institutions. But significant challenges remain in this diverse and complex sector, despite the opportunities.

How can one enable innovation in banking? The answer lies in convincing the end client that innovation is safe and banks are not taking any risks. Of course, this is easy to say but not that easy to execute.

How well do you know your bank’s customers? No, really, be honest. Sure, you know their current account balance and how often they’ve overdrafted in the past year. But do you know that they just had a baby? Or that they’re planning to purchase a home in the next few months? What about their vacation plans for next year?

In some use cases, it is impossible for humans to replicate the performance of artificial intelligence. But businesses will need a lot of data for AI systems to be effective.

Unlike political regulation, blockchain governance is not emergent from the community. Rather, it is ex ante, encoded in the protocols and processes as an integral part of the original network architecture.

The report, "The Challenger Bank Battlefield," provides an analysis of over 30 fintech start-ups encroaching on the turf of traditional banking organizations. With interviews of fintech and banking leaders, the report provides an understanding of the upcoming challenges and opportunities for partnership and competition.