Tom Jackson

February 22, 2016: “Traditional bank-to-bank competition is not the issue. This new wave of competition is coming from both nimble, innovative, cloud- and mobile-first startups, as well as the major technology players largely unencumbered by policy and regulation,” says David Lynch, managing director at Hong Kong-based DBS Bank.

Lynch is under no illusions as to the threat posed by startups to traditional banks, saying banks are just as vulnerable as incumbents in other sectors that have been washed away by technological change. “These companies are able to arbitrage their own scale and customer reach to create new revenue streams. For banks, quite simply, we have a choice. We can passively observe and, if so, risk seeing large parts of our business lost to these new entrants,” he said.

The other option, and the one DBS Bank has chosen to take, is actively participate in the creation of a new fintech ecosystem that can benefit both banks and startups equally. The bank has partnered local venture capital firm Nest to launch the DBS Accelerator, which supports startups while allowing DBS to look for – and partner with – startups innovating in the space.

“Working with startups helps us to drive culture change within the bank. Bankers need to learn from these startups. Banks must adapt and those that don’t will not survive,” Lynch said.

Yet, startups also need banks. Derek White, chief design and digital officer at Barclays, says it is clear the financial services industry is changing and that startups are playing a major part in driving that change. But banks can assist such companies with mutually beneficial conclusions.

“If there’s anything that startups need, and that heritage companies can provide, it is customers,” he said.

Barclays is, in fact, becoming the customer itself. The bank has been establishing accelerators as part of its Rise open innovation platform. The latest programme was launched in Cape Town, South Africa, following previous launches in London, Manchester and New York. Another will follow next year in Tel Aviv.

From these accelerator programmes, already almost 30 startups have signed agreements with Barclays. The bank is utilising Austen, Texas-based firm LiveOak’s real-time communication, collaboration and e-signature tool for onboarding online customers. It has partnered cloud-based payroll solution Dopay to allow the startup to leverage its banking licence in Egypt to offer services. There are more, and there will be others in future.

White says the primary benefit for Barclays is the ability to rollout solutions quicker and more efficiently via startups than if the bank did so itself in-house.

“What we’re finding is that it is five to 10 times more efficient for us to work with startups, and three times quicker than when we do it ourselves.”

Another bank that has come to the same viewpoint is Citi, which recently hosted the Citi Mobile Challenge in Nairobi, Kenya, in a bid to identify innovative fintech solutions. Joyce-Ann Wainaina of Citi said while many banks may view new entrants in the space as competitors, it is important to view them instead as potential partners. “We believe gaining direct access to startups in Africa will help accelerate and uncover new opportunities for Citi to develop transformational approaches to banking,” she said.

Though Citi Mobile Challenge developers retain their intellectual property rights for the apps they create, Citi is partnering with these developers in order to help it leapfrog traditional infrastructure.

“The banking industry is redefining itself more quickly now than in recent memory and we believe that we have the opportunity to embrace new ideas and create strong new partnerships around the world including Africa,” Wainaina said.

“The entrepreneurs and small businesses we have encountered through the Citi Mobile Challenge have been inspiring. These innovators are helping us push the boundaries of fintech and reimagine banking. They bring an energy and passion for their work that is driving progress in the industry and fueling our own excitement about what’s next.”

Some banks are taking a less direct part in supporting and partnering fintech startups, but providing financial backing nonetheless. In Cape Town, South Africa’s First National Bank (FNB) has provided financial assistance to local startup support organisation Silicon Cape.

Sanjeev Orie, chief executive officer (CEO) of Business Value Adds at FNB, said the partnership is general, but the bank, through its Vumela Enterprise Development fund, is able to take equity in businesses. Silicon Cape’s entrepreneurs are that pipeline.

The company has partnered with startups before, for its range of FNB Business’ Instant Solutions, which were developed in partnership with a local startup technology company. FNB then bought and internalised these systems.

“We have not partnered or acquired any fintech startups to date. However, each proposition presented to FNB is considered on its own merit, particularly with regard to the business case as well as whether the products and services being offered are deemed to meet FNB’s customer needs,” Orie said.

“The ultimate impact is the ability of small businesses to create employment opportunities. Banks, as financial service providers, perform best when the country’s economy is growing steadily, when there is consistent and strong demand for bank accounts and products. These conditions arise typically from stable economic growth and a working population that is gainfully employed. The role of SMMEs in this context cannot be over-stated.”

Lynch, whose bank recently we kicked off a project with a US-based predictive analytics company and is working with another startup in artificial intelligence and natural language processing, said there are a multitude of areas where banks and startups could partner.

“It’s clear that many of these new startup business models are gaining traction, such as P2P or alternative lending, P2P FX, online and mobile payments and overseas transfers,” he said.

“Many of them are focusing on underserved segments of banking and, as those models are proven, they will scale, and that presents a large threat to traditional banks. We have a choice. We can watch, buy, build our own, partner or participate and learn.”

He has a strong warning to banks that do not heed this advice, saying there is a real risk that if banks lose the engagement layer with a customer, they are resigned to being just the core.

“That can still be very profitable, but it’s a far less exciting existence and it will become commoditised,” Lynch said.

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Suparna Goswami Bhattacharya

February 19, 2015: If one were to describe India’s growth story in one line, it would read something like this– A nation of unrealised potential. The tag unfortunately has stuck with the country for a long time. And now, two decades after India started is liberalisation policy, the country finally seems all set to unleash its full potential – at least this is what most economists around the globe have to say.

Acting as a catalyst to this growth story is US President Barack Obama’s recent visit to India which may instill confidence in investors to pile up Indian stocks throughout 2015.

“Obama has put the seal of approval on the Modi administration, because his reforms are pro-growth and Modi appears more pro-US than previous Indian governments,” says Tom Elliott, international investment strategist, deVere Group. And there is an ideological aspect as well to US support. “Modi wants to cut the subsidies and licenses cultures, which are objects of scorn for the US,” remarks Elliott.

Interestingly, US has its own reasons to pitch for India’s growth story. A stronger and more vibrant economy will help India act as a counterweight to growing Chinese influence in Asia, which will be a relief to the US, which worries that it will be over-stretched in Asia should China become belligerent over territorial claims, amongst other factors.

On the heels of China posting its lowest GDP growth rate in 25 years, the International Monetary Fund (IMF) released an update to its World Economic Outlook report predicting that India’s economy will overtake China’s in terms of annual growth rate by 2016. It predicts India’s growth rate at 6.3% and 6.5% for 2015 and 2016, respectively. For the same period, China is expected to grow at 6.8% and 6.3%, respectively. This puts India’s projected growth in 2016 ahead of its estimates for China.

And though economies like Bangladesh, Sri Lanka, and Philippines might grow more than China, but from a global perspective, they will hardly make any major impact. “There is, bluntly, only one other economy which could eventually equal China’s punch: India. In terms of size and per capita income, the Indian economy stands where China’s did in the early 2000s – a time where the country started making its impact felt globally,” says Frederic Neumann, economist HSBC, in his report.

If a comparison is made of the date from which officials in both countries adopted reforms in an earnest way (China in early 80s and India in early 90s), then India is actually a little ahead of China at the same stage of development process.

The main factor why India could not match up China’s growth is the share of manufacturing in GDP. In China, the sector contributes 22% to GDP while for India the figure stands at 15%, according to data released in 2014 by United Nation. “The flip side is that services are much more important in India than in China (57% of GDP vs. 46%). Since efficiency gains are easier to attain in manufacturing than in services, the difference in productivity growth between the two countries is thus not too surprising,” says Rupali Sarkar, economist at HSBC.

This also means that if India wants to match China’s development trajectory, it will need to increase the share of manufacturing in the economy. Thus, the ‘Make-in-India’ campaign launched by the central government to tap into the large manufacturing potential of the country comes at the right time.

Devashish Mitra, Professor of Economics & Gerald B. and Daphna Cramer Professor of Global Affairs, The Maxwell School of Citizenship and Public Affairs, Syracuse University, said India’s success heavily depends on how fast the government is able to bring about further reforms, most importantly labour reforms (getting rid of outdated laws) and reforms in land acquisition laws. “Tax laws need to be simplified and the legal system needs to improve so that contracts can be enforced,” says Mitra.

Recovery of rupee, general positiveness about the economy post elections are other factors generating interest among investors. In 2013, the rupee experienced a sharp depreciation in reaction to the anticipated tapering by the US Federal Reserve. However, India has now won back the confidence of the international financial markets and depreciation has been halted.

Also, GDP rose to 6% in 2014 and there has been a fall in inflation. Thanks to these factors, marked improvements in the economy are anticipated.

In Asia, China and India are the two major economies. Elliott feels that India has an edge over China since it is a more vibrant society and is a democracy (the economy is expected to be more stable in the long run). “Although India is often perceived as a difficult place to do business, it is manageable. Bureaucracy is also expected to reduce under the new government,” says Elliott.

“China is expected to slow down and if the Indian government uses its mandate to push through the next generation of reforms, India can easily overtake China in the next couple of years,” remarks Mitra.

Many feel that for India, a growth rate of 8-10% per annum in the next five years is manageable, provided it utilises its cheap, unskilled labour, which will help in the growth of the manufacturing sector.  Also, India happens to have excellent soft skills and English is widely spoken.

The sooner it does away with its long bureaucratic process, the better it stands a chance to win the battle against China.

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The post Betting big on India appeared first on International Finance.

Tom Groenfeldt

January 7, 2015: With over 7,000 attendees from 2,250-plus companies and coming from more than 60 countries, Money 20/20 in Las Vegas offered the chance to meet with just about anyone who counts in financial technology. For many, the program, even with keynotes by CEOs from top players like First Data, American Express and Western Union, took second place to the networking opportunities.

Josh Reich, founder and CEO of Simple, the banking, budgeting and savings company — sold to BBVA earlier this year — had time for just one session — the one he presented with BBVA’s executive director for strategy, Jay Reinemann. The rest of the time he was in meetings, including an update from the Federal Reserve on improving the payments system in the US. Reich values the show’s networking; he said the foundations of the BBVA acquisition were laid at Money 20/20 last year.

Dan Latimore, senior vice-president of Celent’s banking group, likes the efficiency of being able to meet dozens of people in one place over three or four days. In addition to attending track sessions and keynotes, he had set up more than 20 appointments.

“There’s no substitute for face-to-face meetings, and we were heavily booked, although we also blocked time for keynotes. In addition, I had four or five serendipitous meetings, which you can’t get anywhere else. That is part of the fun too. The conference has very high quality people, from early stage companies to incumbents.”

In his blog, he noted the emphasis on partnerships at this year’s show.

“Discover, Visa, and a host of others mentioned their eagerness to team with other members of the ecosystem to drive more activity in ways that are better, faster, and/or cheaper.”

Latimore was more skeptical about POS (point of sale) systems: “…why does every POS terminal still look like it came from 1985 (Poynte and Clover being two exceptions)?”

KBW (Keefe, Bruyette & Wood) sent three analysts to the conference and developed a detailed 10-page report for its customers, which concluded in a high-level overview:

“Last year’s conference dealt with a lot of concepts around mobile payments and companies’ strategies, though there was limited traction. This year, the promise of Apple Pay seemed to be the rallying cry despite limited progress in mobile thus far…”

The investment bank analysts were impressed by the scope of the conference.

“Having 7,000 fintech people that touch every aspect of payments is quite a feat,” said Sanjay Sakhran, a specialist in card payments processing at KBW. “It fosters significant group think and also allows for a group dialogue among all the key constituencies involved in the payments chain.”

Networking, networking, networking

I was standing near the FIS stand on Wednesday when Marcy Liu, marketing director for Geoswift, stopped to talk. I had met her along with the company’s executive team the previous day when they described how they conduct two-way payments in and out of China. Licensed by the central bank, they serve everyone from Western companies buying Chinese goods to Chinese parents paying their children’s tuition at universities abroad.

As we were talking, Peter Gordon, who heads the FIS real-time payments network, Paynet, walked over. I have interviewed him several times on US payment issues and the way Paynet will connect 1,000 member FIS client banks in real-time by the end of this year. I introduced him to Liu who explained what Geoswift does.

Gordon’s interest was immediate; FIS has just launched a remittance service, he said, and the two of them began exchanging information. That’s just a snapshot of how the conference works.

A VC executive from the Netherlands expressed regret that he hadn’t planned his conference — the size of Money 20/20 overwhelmed him

“Planning ahead of time is critical,” said Celent’s Latimore. “Block the content you want to see, plan meetings, and leave some time for serendipity, on the floor or at a meal. Money 20/20 has found a sweet spot of an expanding eco system of players who are eager to partner. They are casting a much wider net and creating a place to see what is happening in payments. The number of merchants was astounding. The founders tapped into the right concept at the right time and executed it ferociously.”

Change in venue

Money20/20, which was bursting at the seams in the Aria this year, will move to the much larger Venetian next year and expects an even bigger conference. It has entered into a multi-year partnership with i2i to expand its US event and launch Money 20/20 Europe in the spring of 2016.

“Our partnership includes acquisition by i2i, with Money 20/20 continuing to operate under its current leadership, including founders Anil D Aggarwal and Jonathan Weiner. Our entire team has worked under this partnership to produce our 2014 event and will continue to do so for many years to come to deliver the exceptional experiences our attendees, sponsors and other partners have come to expect,” the company said in a release.

Highlights

Money 20/20 provided a great venue for startups — the number of 20-somethings wandering around with CEO titles on their name badges was impressive.

But in addition to the innovative startups, incumbents weighed in with their institutional power and their own investments in innovation.

Western Union unperturbed

Although a slew of international money transfer companies have launched with the promise to reduce the costs of traditional players, Western Union CEO Hikmet Ersek isn’t worried.

“I’ve heard for 15 years that people want to eat our lunch,” said Eersek, who didn’t appear worried. “Our competence is moving currencies across borders; 80 percent of our transactions are out of the US. It is not easy once the money moves across borders. We are fast and reliable, how the customer wants it and we have been doing that for 160 years.”

Western Union moves cash to cash and settles in 120 currencies in 500,000 locations, and now it has moved into digital transfers as well.

Existing companies also have scale. Western Union has set up a digital lab in San Francisco that now has 250 people, bigger than Zoom, a digital money transfer service whose stock has roughly halved in the last year.

Ersek said 80 percent of digital customers are new to the company. It is spending 3.5 percent of revenues on compliance, he added.

“AML (anti-money laundering) should be a competitive edge for us. Many financial institutions are coming to us saying this is a hard environment, can we help them.”

Western Union fills a service gap, he added.

“Seventy-five percent of our customers globally are banked, but 100 percent are underserved. There’s a big difference. In Egypt, you can open a bank account easily at the post office, but it’s not easy to do something with that account.”

Other payment enablers

Although AngelList, the Silicon Valley crowdfunding platform, lists 1,459 payment startups, Hill Ferguson, COO PayPal, thinks the opportunity in digital payments is huge. “Over 85 percent of payments still occur in cash.”

American Express entered a partnership with Walmart for Bluebird, a way to bank, save and spend with a card and mobile phone. It also launched Serve, a prepaid card. Recently, the company launched a way to use Amex points to pay at McDonald’s and introduced OptBlue, a service aimed at small and mid-sized businesses.

“We are changing the Amex brand and making it more inclusive,” America Express CEO Kenneth Chenault said. “There has been no diminution of the brand; in fact, it has been enhanced….90 percent of the customers we bring in on Bluebird are new to our franchise and 54 percent are under 35.”

Amazon Payment Services

Amazon guarantees increased sales or it will refund up to $100,000 in fees, said Tom Taylor, vice-president.

Amazon’s “Login and Pay with Amazon”, where consumers use the payment and shipping information stored in their Amazon account to pay at other online merchants, is guaranteed to increase a company’s sales in 30 days or Amazon will refund all fees up to $100,000, said Taylor.

The Amazon payment button at an online shopping site lets customers pay with three clicks, with no need to enter their information if they are already an existing Amazon customer. AllSaints, the edgy London clothing merchant, saw a 34 percent increase in conversions and a 24 percent increase in their shopping basket when the company started using the Amazon payment methods.

Rich Ascott, AllSaints global director for digital, said that tens of thousands of transactions went through the Amazon payment services without generating any comment. Only in late October did one customer remark that paying with Amazon was much quicker. Nobody else, apparently, gave a second thought to using Amazon to pay for attire purchased through an East London company’s online site.

Bitcoin and Japanese regulators

Benjamin Lawsky, Superintendent of Financial Services for the State of New York, said his department launched an extensive inquiry into virtual currencies in August 2013 and now has a team of about 15 people working on the topic.

When Mt. Gox, the world’s largest bitcoin exchange, suddenly stopped trading in February, Lawsky was in Basel for a meeting of financial regulators. Lawsky said he took aside the Japanese regulators at the meeting and offered assistance; he said he would send New York’s entire virtual currency team to help. “Unfortunately, the Japanese regulators had no idea what I was talking about.”

Cybercrime

Marc Goodman, author of Future Crimes due out in February, introduced a new abbreviation:  CaaS — Crime as a Service.

In Brazilian favelas, CDs with stolen credit card numbers are sold with SLA guarantees that 80 percent will work or you get your money back. They also provide tech support for users who have troubles. “Crime is becoming software, it is becoming automated.”

Startups

A dozen or so fintech startups got the equivalent of speed-dating with the audience — six-minute presentations spread over two days. Two had found uses for the digital spare change — the amount left over if consumers round up their mobile payment to the next full dollar.

Spare will use the money to provide food for the poor, or food insecure in the words of founder Andra Tomas who said that 10 cents can provide a meal through a New York food bank. Spare has a deal for donors and restaurants — the third time a consumer rounds up in the same restaurant in a single month, she gets a free cocktail. Continued patronage can result in a free appetizer. The phone app also shows how much a donor has given and the results for the program in the city. Restaurants get a relatively low-cost loyalty program — cheaper than Groupon — not to mention the feel-good factor.

Acorns, another company in pursuit of digital spare change, funnels it into an  ETF-based investment program for participants. The firm said it signed up 250,000 people in just a few months; half are active users. They can also contribute real money to their investment fund at any time, and a simple graphical interface allows them to choose the risk/reward levels they feel like. Ease of use is paramount — one new participant said he signed up while waiting in line at Starbucks.

Another innovator in the speed dating was Viewpost, which offers secure electronic invoicing and payment, including negotiation over discounts for early payments. It announced a partnership with U.S. Bank to provide a solution for small businesses. It is entering a business with established players, including Ariba, now part of SAP, Traxpay and Basware.

ModoPayments provides a way to combine payments, including credit cards, loyalty points, coupons, gift cards and merchant offers, into a single payment card on a phone that can also offer shoppers loyalty points through Beacon for simply stepping into a store. Companies can distribute gift cards and drive traffic to brands or stores while learning more about their customers.

24-hour Hackathon

The 24-hour Hackathon ahead of the conference drew 450 participants. A team of three people who did not know each other before Hackathon won the top prize with Payperless. Like all five top winners, they received $20,000 and also got to present their solution, which lets merchants accept bitcoins without changing their payment systems, to the conference. Taking turns in a smooth presentation, Aldo Briano, Veronica Borges and Eduardo Medina explained how they used APIs to Mercury Payments and chain.com to build their application.

“Our solution will enable merchants to accept a bitcoin payment as easily as accepting a payment through a gift card, and we see this as the future of payments,” said Briano. “We were able to convert bitcoin to a payment method the merchant already understands.”

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