FINTECH BRIEFING: Regulation threatens banks - Marketplace lenders form trade association - Citi explores virtual reality
Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in Europe and around the world, produced by BI Intelligence.
Want to receive The Fintech Briefing to your inbox? Enter your email in the box below.
Email: Subscribe
REGULATION IS THE BIGGEST THREAT TO BANKS IN EUROPE: The Payments Services Directive 2 (PSD2) may be the biggest threat to European legacy banks, according to the BBC. More specifically, a particular article of the regulatory framework forces banks to give fintechs access to their systems in order to pull customer data and to initiate payments. PSD2 will come into force in January 2018 and applies to all countries in the EU.
Fintechs can provide a better user experience only if they have access to account data. The value of many fintechs is their customer-centric products. They've leveraged digital technology to create a better front-end user experience than their legacy competitors. At the same time, they still need legacy banks because most do not have a banking license and which prevents them from collecting meaningful customer data. Banks' ability to control who can access their data, how it's accessed, and how it is formatted provides significant leverage for determining what the relationship between fintechs and banks will look like. But PSD2 forces banks to provide access which is going to leave them scrambling to differentiate their products and services as fintechs become intermediaries.
What might save banks is time. Banks have two years before they'll be forced to open up access to their data. That means that they have time to imitate the products of fintechs or form partnerships on favorable terms. Many fintechs, for example, don't have access to two-years worth of funding and need to scale - something banks can help with given their relatively large customer portfolios.
MARKETPLACE LENDERS FORM US TRADE ASSOCIATION: Funding Circle, Lending Club, and Prosper, three of the largest US marketplace lenders, announced the launch of a trade association called the Marketplace Lending Association (MLA) last week.It has already established a code of conduct for members which promotes transparency, responsible lending, governance and controls, and risk management. The MLA is open to other marketplaces provided they meet the membership criteria and agree to the code of conduct.
The formation of the MLA is an attempt to get ahead of impending regulation, according to the Financial Times. In the UK, which had the largest P2P lending industry per capita as of 2014, alternative lenders have been regulated since 2014 - and now it looks like the US is headed the same way. Last month the Office of the Comptroller of the Currency (OCC) issued a white paper related to responsible innovation in fintech, including alternative lending, and the Consumer Financial Protection Bureau (CFPB) set up a marketplace lending complaints service.
Preparation is key if the lenders want a well-regulated industry. Recent regulator interest in alternative lending is partly due to banks calling for increased scrutiny of the industry. The banks claim alt lending threatens wider financial stability. P2P lenders' biggest fear is that banks will be the ones who dictate what alternative lending regulation looks like. This is because the banks would likely make the regulation as restrictive as possible, in order to protect their own loans businesses. By forming a members association, the lenders can agree on key concerns and present a unified front.
BI Intelligence
CITI EXPLORES VIRTUAL REALITY: The bank's traders have been using Microsoft's HoloLens augmented reality headset as a virtual workstation. The Holographic Workstation was designed by virtual reality (VR) startup 8Ninths and lets users see data as 3D images. Traders then use hand and voice commands to interact with the data. The virtual workstation is not designed to replace the physical trading desk, but to complement it, making it quicker and easier for traders to access the data they need. VR is also being used in other areas of finance, including wealth management, where Fidelity Investments has been experimenting with turning stock portfolios into "virtual cities." It believes providing customers with a more intuitive way to view their portfolio will drive engagement and encourage more people to invest. Financial services firms are hoping that virtual and augmented reality can help with their problems across the board, from driving efficiency, to increasing customer loyalty and revenue.
Enjoying The Fintech Briefing? Enter your email to receive it directly to your inbox.
Email: Subscribe
Around the world...
BNP PARIBAS PARTNERS SILICON VALLEY ACCELERATOR: BNP Paribas has become a corporate partner of Plug and Play, a Silicon Valley based accelerator and investor, according to Finextra. Plug and Play runs 3-month fintech accelerator programs designed to encourage corporates to work with startups, and provides a co-working space that currently houses 400 startups. Corporate partners get to help select the startups for the programs. BNP Paribas hopes that the partnership will give it an edge over competitors when it comes to getting access to innovative startups. The bank's digital strategy is based on partnerships - what it calls an open innovation ecosystem. This involves partnering with a range of digital players including sector giants, fintech developers, and startups.
LONDON FX STARTUP GOES LIVE IN SINGAPORE: R5 enables the buying and selling of emerging-market currencies and derivatives through its platform. This week it began trading in Singapore after receiving authorisation from the Monetary Authority of Singapore (MAS), according to Finextra. Singapore is a major centre for FX trading, making it a strategically important location for R5. R5's expansion is also important to Singapore. Regulators in the country are working hard to encourage foreign fintech to come to the region.
BLOCKCHAIN TESTS COME TO WALL STREET: Blockchain startup Markit has been working with major banks, including Bank of America, Citigroup, Credit Suisse, and JPMorgan Chase, to test blockchain-based technology as a method of record-keeping for credit swap default trades, according to The Wall Street Journal. Testing was run in partnership with the Depository Trust & Clearing Corp. (DTCC), Wall Street's central bookkeeper. Financial institutions are flocking to blockchain because it could streamline processes and cut operating costs. For this trade in particular, blockchain technology could cut trading settlement costs for banks by about a third, equivalent $16 billion a year, according to The Wall Street Journal. And this test puts the industry one step closer to actual blockchain implementation. DTCC is looking to see if other banks and regulators are interested in using blockchain technology for trading functions. The DTCC's oversight and involvement could be critical as the blockchain ecosystem matures.