In recent times, fintechs across Latin America have been working with open banking APIs, media reports said. FitBank is a white-label startup that raised an undisclosed amount from JP Morgan in its funding round.

Renata Vilanova Lobo, the head of Brazil wholesale payments for JP Morgan, told the media, “The strategic investment in FitBank is an important addition to sustaining and growing our leadership in wholesale payments within Latin America. Our clients, both local corporates and international MNCs, are looking to JP Morgan to help simplify digital payments in the region and provide them access to the various new payment types unique to Latin America.”

It is reported that the fintechs has more than 90,000 accounts on its platform. This in turn has facilitated transactions worth 1 billion Brazilian reais per month. The fintech startups offers bill payment, online treasury, banking, financial management transfers and escrow services.

João Chacha, Fitbank’s managing partner, told the media, FitBank can now accelerate its expansion of services to its core target clients as a fintech enabler in Brazil and in the near future, Latin America.”

The post JP Morgan acquires minority stake in Brazilian fintech FitBank appeared first on International Finance.

The UK fintech scene as Brexit looms
The UK finally withdrew from the European Union earlier this year. However, both parties have entered a transition period that will give them time to work on a new trade agreement. In 2019, a report published by Robert Walters — one of the leaders in recruitment for financial services and technology revealed that fintech firms in the UK received the highest amount of investments in Europe, accumulating $48 billion worth of investments.

However last year, around 275 financial firms moved a combined total of $1.2 trillion in assets out of the UK to other parts of Europe, a report showed. Dublin alone accounted for more than 100 relocations, while Luxembourg had 60, Paris had 41, Frankfurt had 40 and Amsterdam had 32. That said, a report published by Bovill showed that around 1,400 EU-based firms have applied for permission to operate in the UK after Brexit, with over 1,000 of those planning to establish their first UK office, which seems positive for the country in a post-Brexit setting.

Earlier this year, German neobank N26 informed its customers that it is closing its business in the UK due to Brexit. According to the neobank, it no longer has a licence to operate in the country post-Brexit — and will close all accounts on April 15.

In this context, the neobank has asked its customers to transfer its assets to alternate accounts. N26 started its business in the country just five months prior to its exit. Brexit has encouraged investment banking giants such as Bank of America Merrill Lynch, Citigroup, Goldman Sachs and JP Morgan to shift a significant proportion of their operations to Europe.
A report published by EY said that Deutsche Bank has shifted €400 billion from its balance sheet to Frankfurt, while JP Morgan moved €200 billion to Germany. Another report by thinktank New Financial found that 332 financial services firms have already moved jobs out of London because of Brexit.

Tom Bull, head of UK Fintech at EY told International Finance, “While some fintechs have moved parts of their financial assets out of the UK in preparation for Brexit, over the past few months we have seen a noticeable pause on firms announcing any operational changes to their businesses, as relocation announcements have dwindled. When it comes to the impact this has had on the country’s business landscape, our data suggests that firms have built out the infrastructure they need on the continent to ensure they will be able to serve clients once Brexit happens — be that with or without a deal.

“While fintech is still seen as a major foreign direct investment attraction for the UK, Brexit has pushed many fintech firms to create optionality in their business models by considering other locations for parts of their business. Going forward, firms are likely to be focusing on fulfilling their commitments to regulators in the EU and the UK to establish their new operations, while also deciding whether to operate multiple hubs across the Eurozone and in the UK or consolidate and restructure operations.”

It is quite evident that Brexit will significantly change the financial services which includes fintech significantly in the UK and especially London. Changes are expected when it comes to regulations, trade deals and investments. However, how big and impactful the changes will be remains to be seen.

London continues to be the fintech capital of Europe
London is now dubbed as the fintech capital of Europe. The number of startups and companies in the city have grown significantly — creating a positive impact on its fintech landscape.
It is reported that job creation has also increased over the years. According to London-based recruitment firms operating, job creation has increased by 61 percent over the past year. This growth is making financial technology the fastest growing sector in the city.

Interestingly, the fintech sector in the UK has continued to progress since the Brexit vote. The UK has always encouraged innovation, creating a surge of growth along with corporate friendly regulations and less bureaucracy, thus increasing investment opportunities for both local and foreign investors. This in turn has helped fintechs in the region grow at a fast pace. Brexit, on the other hand, seems to be limiting the growth of UK fintech companies working with European companies, especially with trade and employment becoming a cause for concern.

Experts believe that London will continue to the fintech capital of Europe despite the changes that Brexit will bring to its business landscape. In fact, Brexit might foster fintech growth in Dublin, Amsterdam and Frankfurt for that matter.

“At this point in time, no solid alternative has emerged to challenge London as the preeminent financial hub in Europe. London remains the most attractive destination for foreign direct investment in Financial Services, securing 67 projects in 2019, more than double that of Paris, the second most popular city with 29 projects,” Bull explained. “London’s dominance as the preeminent European financial centre remains unrivalled, however there is competition from financial centres around the globe and as such, we should not be complacent about London’s position as a top financial hub.”

Talent crunch might not take place
Many in the industry worry that the UK could find it difficult to get the right talent following its exit from the EU amid the potential loss of passporting rights. However, it is very unlikely that the UK will go through a talent crunch post-Brexit. The UK being a key financial services centre houses famed universities and demonstrates an impeccable academic culture.

Certain fintechs are likely to choose to set up in an EU country rather than the UK, thus potentially drawing talent to particularly EU cities and fintech hubs. Even though many fintechs are moving their businesses out of the UK to the European Union, they are still likely to retain some part of their business in the UK. Many fintechs have also moved some part of the financial assets out of the UK. Many of those fintechs will only establish a small presence in a new EU market and look to maintain their current UK operations. As such, roles and opportunities should remain in the UK, which should continue to prove attractive to talent. The evident changes will be seen in the mix of the talent pool driven by the impact on immigration both into and from the EU as a result of Brexit.

The UK government had assured companies operating in the country that it will support retaining talent post-Brexit. In fact, skilled employees will be given the rights to remain in the country because of their skillset and vast experience.

Fintech investment in a post-Brexit setting
The big question is whether investors would show the same interest in British fintech startups post-Brexit? Even though Brexit negotiations have been ongoing for the last five years, investors have not shied away from investing in UK fintechs. Despite looming Brexit uncertainties, investments in UK fintech startups have expanded by nearly 500 percent over the past five years, eclipsing the investment growth of 170 percent recorded by the US in the same period. The UK also outperformed the rest of Europe which recorded a 133 percent increase. This implies that investors are still willing to invest in the UK despite those uncertainties.

Investors will continue to invest in fintechs in the coming years due to financial services requirements transitioning toward a digital, cloud-based industry.

A noticeable trend was observed in the UK fintech with ground-breaking investments worth $4.9 billion, which surpassed $3.6 billion record in the previous year and catapulting the country to second in the global rankings for venture capital investment.

UK fintechs have attracted huge capital and completed significant deals than the rest of the top 10 European countries combined. Seven of the top 10 deals in Europe involved UK fintechs. Greensill led the way with an $800 million round and OakNorth with $440 million. However, the scene on the continent saw its own impressive growth with total investment hitting $8.5 billion, up from $5.7 billion. German digital bank N26 raked in $470 million, with payments outfit Klarna raising $460 million.

“Investor sentiment from April this year suggests that the UK financial sector is in a strong position to adapt to the changes and continue to be a leading destination for overseas investment — with fintechs being no exception. How this continues after Brexit will depend on a number of factors, such as the incentives the UK will provide for foreign investors and the trade deals that will be negotiated with new countries. However, the UK is likely to continue driving growth in the sector,” Tom concluded.

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Franc was established in 2018 by Sebastian Patel and Thomas Brennan. The startup is a robot-advisor largely focused on helping people who are new to equity funds in the market.

The startup is currently operating in South Africa. It is reported that another South African fintech startup AuthGate is seeking to raise capital. It is a self-funded startup and is preparing to raise its first capital, media reports said.

Fintech is rapidly evolving in the country and more international investors are considering to put their money into new startups. It appears that Kenya, Nigeria and South Africa have attracted $3.9 billion venture capital deals during the period between 2012 and 2019, media reports said.

In fact, a report titled Venture Capital in Africa: Mapping Africa’s start-up investment landscape noted that 2019 was the best year for venture capital investments in Africa since 2014. In this context, AVCA’s board Chair, ‘Tokunboh Ishmael, told the media, “Africa’s VC industry continues to grow from strength to strength and we expect 2020 to be another strong year despite global macroeconomic headwinds. The continent’s VC ecosystem showcases the best of African innovation and entrepreneurship, which has the potential to be a key source of solutions to Africa’s intractable problems and a gamechanger for the continent’s development trajectory. AVCA remains committed to supporting the VC industry by charting its growth and providing authoritative research on the asset’s fundraising, deal, and exit activities.”

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Visa’s partnership with Paga does not involve investment. It is a strategic partnership aimed at expansion across the continent. Established in 2011, Paga expanded its business into Ethiopia and Mexico as well. 

Through the partnership, Paga account holders will be able to transact on Visa’s global network. Both companies will work toward enhancing payment technologies. The partnership will also introduce new merchant options into Paga’s network. 

It is reported that Paga will launch new QR codes and contactless payments in the country. For that reason, engineering teams of both companies have started working together. 

The Nigerian fintech startup offers money transfer and online purchase and payments services to more than 1.4 million customers in the country. These services are provided through its mobile app or 24,840 agents. 

Otto Williams, Visa’s Head of Strategic Partnerships, Fintech and Ventures for Africa, told the media, “We want to digitise cash, that’s a strategic priority for us. We want to expand merchant access to payment acceptance and we want to drive financial inclusion.” 

Visa has already established its presence on the continent through multiple collaborations with some of the largest African banks. It has also collaborated with other African fintechs such as Flutterwave and Yoco. 

Besides Visa, Mastercard invested $50 million in Pan-African e-commerce venture Jumia last year. Both companies are also working together to enhance financial services for Jumia customers. 

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Jumo was established in 2015. The startup will use the proceeds from the funding to expand into new markets and launch new products. Jumo is targeting entrepreneurs in emerging markets — and plans to offer next-generation savings, lending and insurance products to them. 

The startup currently operates in five African countries — Kenya, Ghana, Uganda, Zambia and Tanzania. It closely works with financial firms and telecoms to provide its services, media reports said. 

Andrew Watkins-Ball, JUMO’s Founder and Group CEO, told the media, “I’m excited for our next phase. This backing will help us build a better business and break new ground. The strong vote of confidence, along with the world-class tech talent we now have in the business, means we can achieve exceptional outcomes for our partners and customers.”

Jumo has served more than 15 million customers across  Ghana, Uganda, Kenya, Tanzania, Zambia and Pakistan. It has disbursed loans worth more than $1.8 billion. Also, the startup has partnered with financial service providers and mobile network operators to offer credit and savings solutions for customers. Jumo plans to foray into Nigeria, India and Côte d’Ivoire, media reports said. 

Foreign investors are showing significant interest in African fintech startups. Last November, Visa acquired a 20 percent stake in Interswitch for $200 million, making it Africa’s first fintech unicorn.

The post South African fintech Jumo raises $55 million in Goldman-led funding appeared first on International Finance.

Both Standard Chartered and Bahrain Fintech bay will carry out thought-leadership and mentorship programmes and also share their expertise and solutions to individuals or fintech startups in the country.

Abdulla Bukhowa, chief executive at Standard Chartered Bahrain told the media, “We are pleased to announce this strategic partnership with Bahrain Fintech Bay. In line with our strategy, this partnership provides another platform for the bank to share global expertise and innovative financial solutions that suit a steadily growing digital business market, led by a diverse population.”

“Given Bahrain’s position as one of the leading fintech hubs in the region, we are confident that the fintech sector will continue to grow, especially with the nurturing and cultivating environment Bahrain offers. We continue to invest and innovate in our digital offerings for clients. This allows us to extend our reach and provide offerings that reflect the changing needs and preferences of our clients.”

Bahrain is competing with the likes of Abu Dhabi, Dubai, and Saudi Arabia to develop a fintech ecosystem and become the leading fintech hub in the region.

Standard Chartered has also increased its footprint in the Middle East by opening a new representative office in the UAE. Situated at the Abu Dhabi Global Market, the new office will help customers access various financial services offered by Standard Chartered.

Rola Abu Manneh, chief executive at Standard Chartered UAE revealed that the emirate continues to be a strategic market for the bank and the new representative office is an important step to bring the bank closer to its clients in Abu Dhabi and across the Emirates.

The post StanChart and Bahrain Fintech Bay to nurture fintechs appeared first on International Finance.

Ideally human beings need to be able to plan and save for important life events and goals such as higher education for self or their children, marriage, buying a house or retirement. Walk into a traditional bank and ask for a final solution for one of these goals and you are likely to be sold a product that is profitable for bank or the agent rather than the customer. How do customers understand that the financial services options that they are choosing are contextualised to their lives and goals?

To answer this question, Laurent Bertrand and Robert Lonsdorfer founded Singapore fintech startup BetterTradeOff on the belief that by leveraging technology they could offer individuals as well as financial institutions solutions that provide transparent and unbiased financial information to make better decisions about their future.

The fintech startup’s flexible, modular, white label SaaS solution Aardviser can quickly and efficiently capture the financial status of a new or existing client of a financial institution to help it engage the customer with relevant financial solutions to build trust in financial institution-client relationships.

In November 2019, the startup launched a direct to consumer solution Up which helps individuals develop their own financial plan online helping anyone, regardless of financial acumen, to explore and plan a better future. Based on the concept of holistic lifetime planning, the platform dramatically simplifies the financial planning process.

For advisors it provides a collaborative tool that allows them to give clients a meaningful and intuitive understanding of their current financial situation, while enabling the advisor to deliver a transparent and unbiased plan for achieving a client’s future goals and dreams.

The direct-to-consumer solution provides people with a do-it-yourself tool for exploring and understanding different financial choices and outcomes. Interactive, highly visual, and fun to use, ‘Up’ makes it easy for people to see and understand the impact of each decision they make, while exploring a wide range of financial situations, including family composition; life events (such purchasing a new home); expenses and income; savings and investments (including tax implications); education costs and financing; insurance and debt.

In an exclusive Interview with International Finance, the co-founder of BetterTradeOff Laurent Bertrand speaks about how the fintech startup’s twin solutions help individuals achieve holistic lifetime planning instead of piecemeal financial solutions that don’t serve the purpose. BetterTradeOff has raised over $3 million in its Series A, and is planning to instigate a Series A2 institutional fund raising of $10 million in the first half of 2020.

International Finance: How does BetterTradeOff’s product differ in the application of the concept of holistic lifetime planning compared to other financial planners? Among the many B2C financial planning solutions out there in the market, what is Up’s unique value proposition?

Laurent Bertrand: Up significantly differs from other platforms. Theplatform provides a comprehensive picture of all the elementsi mpacting a person’s financial plan, with real-time data, delivered in a way that’s interactive and visual, making it easy to see and understand the financial impact of every decision. This provides transparency and clarity with respect to a person’s financial needs, as well as the potential risks they face – helping them build a plan to both finance and protect their dreams. With all the elements at their fingertips, users can build a plan they can trust and find the peace-of-mind that comes with knowing they are covered. You can’t dream if you can’t sleep.

In addition, our solution has been designed to be easily deployed across jurisdictions (we typically open a new country in four to six months including incorporating all the relevant rules such as those involving taxes). This makes it easy and convenient to maintain our solution up-to-date with regulatory and economic changes, so large financial institutions can deploy our solution across their geographical footprint effectively.

How does the solution work?

It starts with a quick onboarding where we only capture the basics: age, household composition, housing, income, existing assets and retirement assumptions.

Having pre-populated your plan based on advanced statistics like salary evolution and living expenses and all the relevant rules like taxes, property and social security, we bring you immediately to your dashboard where you’ll see visualisations of your current financial situation – savings, net wealth and cashflow.

Rather than answering a hundred questions before getting any insight, you gradually increase the accuracy of your plan while acquiring an intuitive understanding of the financial impact.

This is where the fun starts – planning the future. You can select different financial goals, or dreams as what we call it in the tool – from retiring, buying a house, travel, sending kids to university, and so on – and simply drag and drop them into your plan. As you do, your financial situation is immediately updated, so you can see the impact of each selection.

This allows you to explore endless dreams and financial possibilities – ultimately – building the plan that’s right for you. The tool also allows you to simulate risk, such as visualising what would happen to the financial stability of your loved ones in case of your death, or should you face permanent disability – so that people can see the importance of incorporating the right level of protection, such as insurance, into their plan.

When you speak of financial advisors, what is the profile of the typical financial advisor that you are targeting?

Currently we partner with some of the world’s leading financial institutions, enabling their financial advisors to provide clients with a transparent and unbiased plan for achieving their life goals and dreams. Our B2B solution can be found in four countries: Singapore, the Philippines, the UAE and Switzerland.

Since BTO’s solution is available in Asia, the Middle East, and Europe, how does the solution ensure relevance across markets?

We use advanced analytics and statistics taken from every country of operation, to ensure that the life plan is not just comprehensive, but hyper-localised and market-relevant. We incorporate the relevant rules regarding family, taxes, property, social security, retirement, healthcare, insurance, investments to ensure that the results are reliable, and users can explore all their options.

In markets where people have not warmed up to algorithm driven financial planning how do you sell BTO’s value proposition?

There isn’t a single market where people don’t want to plan for a safer, better financial future. They might plan with Excel, on paper or with the help of a certified financial planner but in the end, in developing and developed markets alike, every one of us want to know how much is enough and how to achieve our goals and dreams.

BetterTradeOff takes care of the complexity for you and makes the process fast, intuitive, transparent and fun, helping you to feel confident in taking better decisions for your future. Armed with the knowledge of what you need to achieve your dreams, you can then easily use robo-advisors or traditional financials institutions like banks, insurances or brokers to trade or buy the financial products they need.

Can you quantify (if possible with numbers) the value financial advisoirs and their clients can derive by using your solution over a life time vs the traditional methods of financial planning?

Having deployed our solution in four countries with multiple leading banks and insurance providers in various setups, we have observed consistently the following key results

Effectiveness: investment size up to two times larger
Efficiency: up to 15 percent closure in the first meeting compare to the norm of three to four percent;
Acquisition: seven out of 10 surveyed clients recommend our solution
Activation for dormant and orphan clients

From the client’s side, what kind of data does the solution gather and what are the integrations required?

We collect only necessary data to build a reliable plan for the clients. They can see transparently how the information is impacting their financial future. They can input all their data manually or through secured API with data sources like bank accounts.

Uploading existing client data to avoid unnecessary re-entry is key in terms of change management. We naturally collect all activities happening on our platform for audit purpose as well as to support improved client experience through advanced analytics.

Our solution has been designed so our clients can gradually integrate with it from Single Sign-On for security to quotation engine and fulfilment.

To build momentum early-on, most of our clients start with light integration (upload of existing client data, existing financial products and white labelling) and gradually increase integration to generate further efficiency gains and seamless experience.

Which are your main markets today and which are your target markets? As far as your B2C solution Up is concerned what are BTO’s plans for markets outside Singapore?

The B2B platform is currently deployed in Singapore, the Philippines, the UAE and Switzerland. Discussions are already underway to add markets in Asia, the Middle East and Europe. Our direct-to-consumer tool – Up – was launched in Singapore last month (November 2019). We hope to launch in two new, to be determined, markets next year.

Rarely do fintech companies offer both B2B and B2C solutions. How do you plan to balance the demands of having both B2B and B2C offerings?

We are obsessed with making a difference for the end-client and that obsession applies to both our B2B and B2C solutions. What we observed very early on is that once end-clients are convinced about a financial decision, the next question becomes where to find the relevant financial products.

Our B2B and B2C solutions reinforce each other: we offer a broader distribution channel for financial institutions with our B2C platform while our B2B solutions can be used by professional advisors to provide the human touch so often required for life-decisions.

The post Lifetime financial planning: What is the better trade off? appeared first on International Finance.

Hong Kong’s MA has already gone ahead and licenced eight virtual banks from a pool of more than 30 applicants. “The new digital bank licences mark the next chapter in Singapore’s banking liberalisation journey,” Tharman Shanmugaratnam, head of the Monetary Authority of Singapore, had said in a statement.

Singapore and Hong Kong are highly banked regions with close to 95 percent of the population in both regions having access to banking services. And the traditional banks in the region have deeply entrenched operations with a stranglehold over the banking market while enjoying high levels of customer trust. In addition, these traditional banks have enabled a fairly high level of digitalisation compared to their peers in the region.

HSBC, for example, claims that it is already a digital bank with 90 percent of transactions happening digitally in Hong Kong. So, in these highly advanced and banked markets, is there space for standalone virtual banks? What are the make and break factors that will determine the success or failure of virtual banks? And which jurisdiction among Hong Kong and Singapore is likely to see virtual banking success in five years?

Banking the underserved and unhappily served

Razer, basically a digital gaming hardware company that has achieved success with a payments app in Southeast Asia, is one of the companies interested in applying for a virtual banking licence in Singapore. As soon as Singapore’s MAS announced its decision on virtual banking licences, Razer’s chief strategy officer Lee Limeng had said in a statement that the company would ‘definitely consider’ applying for a virtual banking licence in Singapore. Razer told International Finance that the company had no further comments on the matter at this moment.

In July, Reuters reported that Grab, a Southeast Asian unicorn that started off primarily as a ride-hailing company, was gearing up to apply for a virtual bank licence. A virtual banking licence in Singapore could help Grab to benefit from its data on mobility metrics, payment transactions, and consumer behaviour.

The entry of Razer and Grab, which are companies with large existing customer bases, could shake up Singapore’s banking sector so far dominated by DBS Group, Overseas-Chinese Banking Corp, and United Overseas Bank. With a banked population of close to 96 percent, which is the demographic that fintechs like Grab and Razer are targeting at? What is the differentiated value proposition that they are trying to deliver?”

Grab first created its mobile wallet GrabPay to meet the challenges of cash in Southeast Asia. While SMEs contribute more than 50 percent of Asean’s GDP, two-thirds of SMEs cite business funding and financing as their biggest problem. Grab claims to have served more than nine million micro-entrepreneurs over the last six years.

It expects to leverage scale and data insights to bring financial services products to market at a more competitive price point than anyone else. With its Grab SuperApp, the fintech already provides a wide range of earnings and financial security opportunities for entrepreneurs in Southeast Asia. It presents a formidable challenger bank contender for the existing banks, sitting on a data goldmine.

Singapore’s 2018 SME Development Survey showed that 50 percent of Singapore SMEs face financial challenges in managing cash flow, liquidity, and credit risk, up from 38 per cent in 2017. SMEs make up close to one-third of all companies in Singapore. Regionally, more than half of all micro-enterprises and SMEs in southeast Asia faced a financing gap of about $175 billion, according to McKinsey.

Singapore’s Business Times had reported early this month that OCBC is engaged in discussions with Keppel Corporation, peer-to-peer lender fintech startup Validus, and venture-capital fund Vertex Ventures to form a digital-bank consortium.

The major banks in Singapore are risk-averse in lending to SMEs, especially those that do not have a track record of operating for more than three years. These SMEs typically address their financing gaps through financing through family and friends, angel investors, and peer to peer lenders. The virtual banks are expected to address the needs of these segments using technology and also to potentially nudge the incumbent banks to examine how to serve these small businesses.

Validus itself is a good example of a fintech reaching out to the underserved SME segment of Singapore. The P2P lender works with a number of large enterprises in Singapore to match the group of small vendors and contractors that have contracts with the large companies with financing. It is in the interest of the large enterprises to ensure that their small enterprise vendors are sufficiently financed.

Validus uses the risk profile of the large corporates to finance the SMEs at a lower cost. Validus said in the press release that it had facilitated over 5,000 loan facilities, amounting to nearly S$250 million (US$184.4 million) in growth financing to Singapore’s SMEs without needing to pledge hard collateral.

Since 2015, Validus has disbursed an average of S$20 million (US$14.8 million) per month and claims to have brought down the financing costs for SMEs by almost 80 percent as compared to other sources. A Validus spokesperson told International Finance that the company is reserving comments on the virtual banking licence for the moment.

Behind the Singapore government’s decision to licence three wholesale banks focused on SME lending is the need to digitise SME services and to increase SME productivity. A lot of SME services are not digitised while at the same time, the SMEs are getting digitised to a certain extent. Services such as invoice discounting or getting a letter of credit are not fully digitised in Singapore and Hong Kong.

Singapore has a major government programme called SME Go Digital, with a focus to increase the productivity of SMEs through digitisation. “This means that the financial services aspect of the SMEs must also be digitised. Which includes digitising their payrolls, expense management, claims management, and the reconciliation of their accounts payable and receivable to bring efficiency in all these areas,” Varun Mittal, Ernst & Young’s Global Emerging Markets FinTech Lead told International Finance.

“The overall aim is to make SMEs more efficient. Hence, the focus is to build financial institutions that can serve these types of digital-native businesses and customers. The premise is that since these niche financial institutions do not have legacy technology, they can leapfrog certain process steps, focus on innovation, and drive financial inclusion through innovation,” adds Mittal.

The three virtual wholesale bank licencees cannot take deposits from individuals except in the case of fixed deposits of at least SG$250,000 but they will maintain business deposit accounts for SMEs and other businesses. Although capital and liquidity rules or the wholesale virtual banks are the same as existing wholesale banks, and they are mandated to keep a minimum paid-up capital of SG$100 million.

” Mobile penetration is extremely high in Singapore at 144 percent and 22 percent of the population is made up of millennials. According to an Ipsos survey, 48 percent of Singapore millennials who regularly check their bank account do so through mobile phone. There is possibly another segment of the Singapore banking market who are not adequately supported by the incumbent banks – who can be called the ‘unhappily served’ segment of the population.

For example, according to a survey published by Blackrock early this year, 90 percent of Singapore millennials said that they were overwhelmed by the sheer number of investment options available while 77 percent found investing too hard to understand due to the “lack of clear and user-friendly information.” Today’s customers want banks to empower them with the right financial decisions. But are banks doing it? Probably not.

“The core function of a bank is threefold. First, to safeguard the customer’s assets. Second, to enable their lives – such as helping them make payments or lending money. Third, to help them build their wealth. Today with regard to the third aspect, there is an emerging sense from customers that banks have moved to selling products, rather than empowering them,” Harjeet Baura, Partner and Asia Pacific Digital Banking Leader, PwC Hong Kong told International Finance.  How do banks use technology to nudge customers and help them make smarter decisions? This is the function the traditional bank relationship manager used to do for customers.

“When you approach that problem from a tech mentality you look at that problem very differently compared to a bank and that is where real innovation begins. Banks in the region can do that because they still retain customer trust, unlike say, the UK banks after the crisis. But customers are not receiving that education and empowerment that they are expecting from traditional banks and many feel that they are being sold to,” adds Baura. This is one aspect in which virtual banks can bring a differentiated value proposition.

Another value proposition is convenience. An ecommerce company understands its customer’s behaviour, account, and how much the customer is selling to give a loan on the basis of the records it has. The value proposition of a virtual bank run by an ecommerce company is that the customer need not present further documents for financial services. “A ride-hailing company might be able to give a driver a loan to buy a car because it knows when, where, and how of the way he operates and issues the loan without further documentation. These kinds of user experiences can drive people towards virtual banks run by the technology companies,” says Varun Mittal of EY

Hong Kong – targeting the mobile banking underbanked

On the surface, Hong Kong might seem to have similar dynamics to Singapore in the sense that 96 percent of the population in Hong Kong is banked. But there’s a major difference – according to a JD Power survey, Hong Kong is significantly underbanked as far as mobile banking is concerned – only 30 percent of Hong Kongers interacted with their banks through mobile phones compared to 41percent in Singapore and 78 percent in China.

Also, according to the same survey, close to one-third of Hong Kongers are considering switching their main bank account compared to around one-fifth of Singaporeans. In Hong Kong, the licenced banks control virtually 99.3 percent of total loans. Among the licenced banks, Standard Chartered, Bank of China (HK Holdings), and HSBC (with unit Hang Seng Bank), — control two-third of retail banking and three-fourths of mortgages and credit cards. So, is there space for eight virtual banks?

A spokesperson for SC Digital told International Finance that the fact that Hong Kong is underbanked as far as mobile banking is concerned and also the fact that online services of traditional banks are just digitalised versions of traditional services is the reason that they believe that virtual banks can make inroads into the Hong Kong banking market with niche products.

“We will be bringing together a new brand, a new technology stack, and a whole new customer experience that will be cloud-based and service-led, leveraging on our unique partner ecosystem, including with PCCW, HKT and CTrip.com to deliver a differentiated banking experience for customers,” the SC Digital spokesperson told International Finance. We will update the market with more details of our products and services closer to launch,” the spokesperson added.

One of HKMA’s key goals for licencing virtual banks is to promote financial inclusion for target retail segments and SMEs. Of the eight licenced virtual banks in Hong Kong at least four have an explicit SME financing focus. Standard Chartered and Bank of China (Hong Kong) are among the eight virtual bank licencees in the city.

The others are ZhongAn Online, WeLab, Ping An OneConnect, a unit of Ping An Insurance Group, Ant Financial Services’ subsidiary Ant SME Services, a Xiaomi-AMTD Group venture named Insight fintech, and the Fusion Bank consortium — including Tencent Holdings, ICBC (Asia), and Hong Kong Exchanges and Clearing Limited (HKEX).

” Ant SME the virtual bank of Chinese fintech giant Ant Financial and Ping An OneConnect the virtual bank of Chinese financial conglomerate Ping An are going solo for their virtual banks. At the same time, SC Digital is a consortium between Standard Chartered, telecom majors PCCW and HKT and leading Chinese online travel company CTrip.

Chinese internet giant Tencent has won a virtual banking licence in a consortium. The impact the virtual banks are trying to make is on customer experience and the effect of the competition is already visible in the recent actions of the traditional banks who have mostly done away with or reduced minimum balance fees in Hong Kong. Virtual banks are not allowed to charge anything for low balance.

Carmen Lee, a spokesperson for Tencent, told International Finance that with regard to Fusion Bank, the consortium’s digital bank, the focus is on delivering a better banking customer experience through the use of technology. “As a virtual bank based in Hong Kong, local customers are Fusion’s primary target users as we hope to promote financial inclusion in Hong Kong. We also aspire to understand customer needs better, deliver solutions at a more cost-efficient manner, and adapt to evolving market changes quicker. Fusion is now in the preparatory stage and we are hoping to gradually put (it) into service as soon as possible,” Lee added.

Does the consortium model provide a workable model for running a virtual bank or is going solo better? “This consortium model shows how potentially powerful such partnerships can be and how they can offer services that traditional banks are not able to deliver. In addition to quickly achieving scale, partnerships also help to bring a differentiated value proposition to the market. The winners are going to be the virtual banks that bring a differentiated proposition to the market quickly – different to the way banks operate today in Hong Kong and across the region,” said Harjeet Baura of PwC Hong Kong.

Millennials have active lifestyles and they seek curated lifestyle experiences, so bank in partnership with a travel company can get involved in the end-to-end customer journey with regard to travel. The involvement can be from the moment they start planning to save for the holiday right to providing the financing for the trip and to the travel experience, the ability to pay for shopping and the transactions overseas, in the same manner, a credit card distribution bank would be doing today. In this regard, the SC Digital spokesperson told International Finance, “Leveraging available technology, we can provide products and services that are more contextual and personalised to customers.”

What makes a virtual bank successful?

Virtual banks that have attained profitability have done so by growing personal loans massively. The key make or break factors for virtual banks include achieving scale in terms of customers, lowering operating costs over time, and getting the business model right. According to Varun Mittal of EY, for digital banks, one make or break factor is whether the virtual bank can become the primary bank of its customers.

“The measures for success would be the share of wallet a virtual bank has, or the share of services that it has, the percentage of loans it gives, the insurance it sells, and the share of wealth management it does. If a virtual bank’s customers are mostly secondary accounts, the question is how can the bank be the best secondary account possible as well as how the bank can build a sustainable business out of it,” he adds.

The winners are going to be the virtual banks that bring a differentiated proposition to the market quickly. And it is also about the digital banks being able to integrate the differentiated proposition into how people live their lives, says Harjeet Baura. Integrating financial services and payments into a chat platform is a great example of such integration. Baura cites the example of Russian digital bank Tinkoff which is public about the fact that it wants customers to visit its app ten times a day. Today, banks have to be on the same real estate the customer lives his life.

“Customers do not check their bank balance ten times a day, but they do live their lives on many apps and platforms – people check their chat messages with friends many times a day and they may also pay money to buy coffee and other daily goods and services many times a day through a payment app. And when you build a platform where people come in ten times a day and you enable their lives through financial services and payments on top of that, you have a great business model,” adds Baura.

Kakao Bank of South Korea, one of the few, if any, profitable virtual banks in the world, is a clear example. Launched in mid-2017, by September 2019, Kakao had over 10.69 million customers with total deposits at 19.9 trillion won ($1.7 billion) and lending at 13.6 trillion won ($1.1 billion). It made a profit of 15.3 billion won or $13.1 million in the first nine months of 2019. Kakao Bank was built off South Korea’s highly popular messaging platform, Kakao Talk.

60 percent of the Korean traditional banks costs come from branch operations. With mobile-only operations, Kakao reduced overseas remittance commissions to one tenth of existing banks and offered much better prices for deposits and loans. What’s more, it cut in half the number of steps customers need to take to open accounts and access financial services, bringing real convenience.

Fact is with virtual banks, top-class customer experience is a given expectation. Where virtual banks can make a difference is in offering differentiated products with convenience. The long-term success of the virtual banks depend upon differentiated products – technology is just an enabler. The virtual bank licencees realise this as we understand from the SC Digital spokesperson’s statement that “digital and technology, in our view, are enablers. Only when we solve real customer pain points are we bringing something real to the table, and that’s our goal.”

Hong Kong vs Singapore virtual banks: A different approach?

The HKMA and Singapore’s MAS have got their regulatory requirements right although their prerogatives and approaches are different. According to MAS, to get a virtual banking licence, a company needs to have S$15 million paid-up capital and paid-up capital of S$1.5 billion within three to five years’ time of setting up business. In addition, making the audience of the licencing process clear, MAS also stipulated that at least one company that holds a 20 percent stake in the applying group needs a track record of three years running a technology or ecommerce business. Also, MAS requires applicants to provide five-year financial projections with a clear road map to profitability.

MAS does not want consistently loss-making technology or ecommerce companies to apply for a licence. Also, it is interesting to note that Singapore does not expect the virtual banks to destroy existing value or, in other words, it does not want virtual banking innovation in a way that destabilises the existing banks’ businesses. This is also probably the reason why MAS has limited the number of licences given that traditional banks were allowed to run virtual banks outside of the quota since 2000.

Unlike the HKMA, the MAS seems to be keen to ensure that the virtual banks prove themselves first. A full-fledged bank status will be provided after MAS is assured of the management’s ability to manage risk. The HKMA’s capital requirement of HK$300 million or approximately $40 million is seen as a high bar, although the HKMA’s concern as well is about stability and safety of customer’s money.

At least one fintech startup withdrew its Hong Kong virtual banking licence citing the high cost compared to the European Union where virtual banks need only approximately $6 million to start. Given the eventual capital requirement of $1.5 billion, the MAS is ensuring that only the financially strongest of the technology companies will apply for the licences. MAS’ interest also seems to be in the need to introduce digital innovation and better customer experiences at the incumbent banks through the backdoor.

A challenge for Hong Kong virtual bank operators is the fact that millennials in the region prefer a combination of high technology integration in their banking experiences with a high touch experience, which would mean higher costs and investment in more human resources for on-demand interaction.

One pertinent question that remains is whether Hong Kong needs eight virtual banks at the moment? Is the HKMA experimenting and expecting that there will be some consolidation down the line? Outwardly, it might seem that it is willing to see out which of these challenger banks will be successful in five years compared to the MAS approach of ensuring that only the potentially successful enter the game. In Singapore, the two-staged licencing process also ensures that new entrants can course-correct after the first stage, if need be, and then target a larger market.

Both Hong Kong and Singapore are expecting the virtual banks to take their virtual banking value propositions to populations outside the cities – the Greater Bay Area, which has a population of 68 million, for Hong Kong banks, and the Asean market for Singapore banks – while retaining Singapore and Hong Kong as their headquarters.

“Hong Kong has always played a pivotal role in connecting businesses in Greater China with the rest of the world and Singapore has similarly connected Southeast Asia. In future, that will continue, but the focus with the digital banks will be around connecting the digital economy,” says Harjeet Baura adding that virtual banks in both regions will have a significant wealth play considering the concentration of wealth in the region.

Varun Mittal of EY warns that comparing virtual banks in Singapore and Hong Kong is not an apples-to-apples comparison. “It is important to note that the premise of the digital banking licence in Singapore is that it is sufficient to meet the demand for now; in future, if the country needs more digital banks, it can add more. Hong Kong has other objectives such as connections to businesses in mainland China.

So the difference between Singapore and Hong Kong is not just a matter of numbers, but it is also about the amount of capital, the extent of controls, the overall economic objectives, and the primary concerns of the banking regulator that mandates the need for more players,” Mittal told International Finance.

In Singapore, “MAS supports innovation while seeking to achieve a level playing field among the players. This is why the capital requirement and the end-stage for virtual banking licence is the same. The Singapore model seeks to serve the unserved and underserved segments of the banking market such as the SMEs, the gig economy and the silver economy,” he adds.

The post Virtual banks in Singapore and Hong Kong: Who has the edge? appeared first on International Finance.

Finnovista predicted that Mexican fintech startups have the potential of taking over 30 percent of Mexico’s banking market in the next 10 years and this is where fintech startups in Mexico can make a difference to the common man’s life considering the archaic laws under which the banking system in the country operates.  Yet another survey revealed that the business models of a majority of the fintech startups in Mexico’s are designed to tap into the need for financial services of those sections of the society that are not part of Mexico’s formal financial system.

In short, these Mexican fintechs seek to provide affordable financial services to the unbanked or underbanked Mexicans. 20 percent of the Mexican fintechs are focused on payments and remittances while 14 percent are focused on consumer lending.  A minority of the Mexican fintech startups are focused on providing services such as credit scoring and other payments solutions including cross-border trade.

In spite of the potential it possesses, the Mexican fintech system still remains relatively small. According to a report published by Ernst Young, 36 percent of Mexicans have adopted the services provided by fintechs.  The percentage is higher when compared to a global average of 33 percent.

In Mexico, the birth of fintech startups over the past few years. has prompted many traditional financial services providers to actively become interested in getting a foothold in fintech innovation through mergers and acquisitions. BBVA Mexico – Mexico’s largest financial institution with a financial services market share of 20 percent – acquired fintech startup OpenPay in 2016. Similarly, fintech startups also rely on traditional financial institutions or banks for funds or to boost their customer base. The Mexican government has brought about a number of regulatory changes to help fintechs flourish in the country. In fact, Mexico became one of the first countries to bring in a comprehensive fintech law in 2018 to regulate the sector.

Recently, the Comisión Nacional Bancaria y de Valores – the Mexican banking regulator, revealed that 85 new fintech startups have applied for licences under its new fintech law. While over the years, traditional banks have failed to accelerate financial inclusion in Mexico, fintech startups have the potential to help achieve the government’s aim to make Mexico a cashless economy while driving higher financial inclusion.

Mexican fintech startups are on investors’ radars

A research report published by Finnovista revealed that around 63 percent of the fintech startups in Mexico have received external funding. Out of those who have agreed to take part in the research, around 62 percent of them revealed that they were in the market in search of funding. These figures highlight the role of fundraising and venture capital firms when it comes to the Mexican fintech sector.

Also, 69 percent of these startups have received funding from a third party in the market. However, only 4 percent of the total startups surveyed have raised funds of more than $10 million.  While around 18 percent of them have raised around $100,000 to $500,000, interestingly, 44 percent of them have raised investment of less than $100,000. The total investment accumulated by the Mexican fintech startups is estimated to be around $800 million.

The CEO and co-founder of Smart Lending – a Mexico-based financial services company that provides mortgage loans digitally – Bernardo Silva told International Finance that, since Mexico is one of the strongest fintech ecosystems in Latin America, a lot of external investors have their eyes on Mexico. According to him, the fintech sector in Mexico provides tremendous opportunities to investors to participate in fintech projects of various dimensions.

“As for the funding environment in Mexico, it is very competitive, the private equity investors, mainly banks or investment funds, are those who participate in the financing of new or small projects in the financial sector. In our experience, we have recently been recognised by DILA Capital, Jaguar Ventures, and other international investor angels, including founders of similar companies in the United States, securing US $80 million in capital and debt to operate and grant mortgage loans,” said Silva.

A spokesperson for Albo,  a leading Mexican challenger bank, corroborated the view that Mexican fintechs were attractive targets for investors. “A lot of funds are eager to invest in the country and fintech firms. That’s why we have seen a lot of huge investment rounds. Albo, for example, managed to raise 7.4 million dollars in a Series A investment round in January this year, the spokesperson told International Finance.

Challenges with old regulations in Mexico

Prior to the introduction of Mexico’s fintech law in 2018, the sector in Mexico was highly unregulated. Some of the conventional financial activities carried out by fintechs now such as crowdfunding, financial consultation, loans to SMEs and individuals, payments and remittances and foreign currency exchange services were unregulated.

Another problem for the Mexican fintech sector was the lack of supervision from the National Banking and Securities Commission. Neither the consumers nor the investors were provided with any kind of security despite the existence of two consumer protection bodies in the Commission for the Protection and Defence of Users of Financial Services (CONDUSEF) and the Federal Consumer Protection Office (PROFECTO).

To put things into perspective, the legislations were highly inadequate to monitor the activities carried out in the fintech sector. Even though regulators amended various laws to bring in stability and bring the fintech sector under its blanket, such attempts proved futile. These very challenges faced by the Mexican fintech sector led to the creation of the new fintech law.

What is the impact of the Fintech Law 2018?

The financial technology Institutions law (Fintech Law) was enacted on March 9, 2018 to promote financial inclusiveness in Mexico and to build a regulatory framework aimed at the fintech sector. It also aims to promote the development of financial services, regulate competition, accelerate Mexico’s financial inclusion and also position Mexico as the strongest fintech ecosystem not only in Latin America, but globally. The law also aims to promote innovation and provide testing grounds for new technology; facilitate innovation experimentation; and encourage the sharing of data between different players in the financial sector.

The CNBV, Mexico’s central bank, published certain general provisions in the Federal Official Gazette on September 10, 2018. The provisions made it mandatory for the Mexican fintech startups to follow proper documentation and licencing processes before carrying out any activities related to fintech. The provisions also gave the Mexican central bank and other authorities the ability to supervise and monitor the activities being carried out in the fintech sector.

The fintech law also created the anti-money laundering provision to prevent or detect transactions that could lead to fraud or money laundering. Despite the central bank publishing the general provisions of the fintech law, it is expected to amend or further develop the provisions of the law in the near future.

While speaking about the new fintech regulations in Mexico, co-founder and CEO of Smart Lending, Bernardo Silva told International Finance,“As far as Smart Lending is concerned, the open banking regulation being pushed through by the Mexican government could provide a huge benefit. This regulation will allow us to have equal conditions in terms of obtaining information from potential clients. This will allow us to perform a better risk analysis, to better understand their finances and, therefore, will give us the opportunity to lend to more clients and at lower rates, it will be for the benefit of the entire market.” However, according to him, the legal process of recovering a property in case of defaulting customer is arduous and requires a more balanced approach.

Albo, on the other hand, believes the new regulations are necessary but calls for improvement by better understanding the new technologies and the regulator being faster in adapting to innovation and the new initiatives and services offered by the fintech companies.

Mexican fintechs drive efficiency in financial system

Fintech startups are definitely driving efficiency when it comes to the financial system of Mexico. A Mexican can today send money to another part of the globe just by logging into his mobile phone. Smart Lending, for example, has redesigned the experience of acquiring a mortgage loan focusing on the needs of the consumer, the digitalisation of operations, and the attention to customer service by leveraging a high degree of technological and financial knowledge. “We improve and update mortgage processes and procedures that are currently frustrating, bureaucratic and slow; and that without a doubt should remain in the past,” says Smart Lending’s Silva.

“We are the only automated platform in Mexico that provides a completely online experience and we have the power to adapt the credit products based on customer needs. To mention some technological solutions, we have automatic integrations for the validation of income and credit history and we make appraisals with big databases,” added Silva.

Meanwhile to access Albo’s services, a consumer does not need to walk into the nearest branch, but all he needs to do is download Albo’s app and his bank account will be ready within the next five minutes and free of cost. Such is Albo’s business model that it does not need to charge any additional cost from its clients. While the traditional way of opening a bank account by walking up to the branch and filling up paperwork would require a minimum of 24 hours, the same can be done within five to ten minutes on Albo’s app. Same goes with applying for loans, deposits, withdrawals and transfer of funds.

Where Mexican fintechs outdo banks

Fintech startups in Mexico have been so successful because they tap into those sections of the market which are often overlooked by traditional banks. In Latin America, Mexican fintech startups have caused disruption throughout the lending, payments, trading and crowdfunding sector.

While traditional banks in Mexico have been operating in the country for a very long time, they are still not easily accessible by the unbanked or underbanked Mexicans. The very problem of access is being solved by the fintech startups. The digital products and services offered by fintech startups are easily accessible compared to products of traditional banks.

Traditional banks offer their products with high commission and long operating processes. Fintech startups such as Albo are taking on the traditional banks by providing affordable services that are accessible through a digital device.

Many fintech startups have taken advantage of the low-quality service provided at a high cost when it comes to cross-border transfer of funds. Similarly, fintech startups have also targeted the 69 percent of Mexicans who still do not have access to credit. Many startups are now offering fast and easy international money transfer services and also offering credit products at a lower and competitive rate.

Collaborate or compete with banks?

But are traditional banks willing to willing to collaborate with fintech startups? When International Finance asked the same questions to Smart Lending’s Bernardo Silva, he said that there is a huge possibility of collaboration between with traditional banks in Mexico because fintech startups could gain from these banks’ size and the scale they operate in, the way they raise capital and the cheap capital cost they handle. He revealed that Smart Lending seeks such kinds of collaboration as it would improve its product offerings.

Albo, too believes there is potential for such collaborations as its ultimate goal is to improve client experience. However, Albo did also point out that many traditional banks in Mexico currently do not have the technological infrastructure to form alliances with fintech startups. Similarly, PayU the fintech and electronic payments division of Prosus, also revealed its priority is growth and to improve Mexico’s financial ecosystem. Therefore, it is open to and actively seeking partnership opportunities. PayU is also working closely with banks in Mexico to improve its product offerings

Are digitalising banks a threat to Mexican fintechs?

While the transition of many Mexican traditional banks into the fintech sector provides an opportunity to collaborate and form alliances, it also brings along a degree of threat to the fintech startups. The size and structure of the traditional banks that are operating in the market for years might overshadow the newly formed startups. But according to SmartLending’s Bernardo Silva, the fintech startups have an edge over the traditional banks because of characteristics such as speed, convenience, and transparency.

In this regard, he told International Finance, “It is true that every day more traditional Mexican banks add similar products and services to fintech companies, they don’t want to be left behind in this technological revolution, but it’s also true that fintech’s DNA is made up of innovation, extensive use of technology and a 100 percent customer-oriented approach, which makes it difficult for banks to compete against fintech.”

While PayU, on the other hand, sees the traditional banks’ entry into the fintech sector as a possible sign. PayU believes it represents an understanding across the industry that there is a need to innovate especially in the way the players in the fintech sector deliver banking services, particularly within densely underbanked populations.  However, PayU highlights that the investment from fintech in technology is superior to that of the legacy banks as it underlines its core business approach. PayU even states that the real threat is faced by the traditional banks and not the fintech startups as technological investment is key to survive in the Mexican financial ecosystem.

Regulatory flexibility and dynamism is key for Mexican fintechs

Authorities in Mexico are not oblivious to this fact and the fintech law proves that. Even though it is at its initial stage and various amendments are anticipated, the law aims to provide a regulatory framework and protect the players in the sector. It is highly important that regulators understand the rapid changes taking place and keep themselves up to date with regards to innovation in fintech. The growth of fintech will also depend on the rules and regulations that the regulators will set and the enabling ecosystem they create.

The post Mexican fintechs are daring to take risks which the banks didn’t appeared first on International Finance.

Termed as GrabPay Card, it is currently available in Singapore; however, the startup plans to launch it in the Philippines in 2020 and other Southeast Asian countries as well.

With the GrabPay card, Singaporeans will be able to use their balance in their GrabPay ewallet and carry out transactions at any of Mastercard’s network of nearly 53 million merchant outlets. For overseas transactions, the

GrabPay app will display the exchange rates or fees so that users can track their overseas spending.

Ooi Huey Tyng, managing director at Grab, called the new service an extension of the GrabPay mobile wallet.

He told the media,” As the leading everyday super app in Southeast Asia, we are at an inflection point in the adoption of digital payments. The GrabPay Card, powered by Mastercard, is a continued evolution of GrabPay.”

With the launch of the numberless GrabPay card, the startup is venturing into the fintech sector. In a bid to become a regional fintech leader, Grab is expected to add further features and also launch new services.

According to media reports, Grab is among the three dozen companies in Singapore that are planning to apply for a digital banking licence in Singapore. This follows the Monetary Authority of Singapore’s announcement that it will issue five new digital banking licences to non-bank players.

Last month, Grab’s co-founder and chief executive officer Anthony Tan revealed that the company might go public once it is profitable.

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