“There is no right or wrong answer,” says Chrystina (Tina) M. Giorgio, president and CEO of ICBA Bancard about how banks can work best with fintechs. Ahead of her session at FinovateSpring 2018, Giorgio gives banks some best practice tips from the perspective of someone who has worked as a banker, board member, and innovator.
As community banks look to blend the strength of their operations with fintech innovations, bankers are questioning how to best work with fintechs and their core system providers to bring new products and services to market.
To navigate this terrain, bankers should first prioritize fintech opportunities that complement their banks’ strategic plans. Opportunities could include real-time payments, digital delivery, data analytics and artificial intelligence. They should then share these priorities with their core processors. Due to the present lack of an open banking standard in the United States, a community bank’s core processing system remains a top infrastructure element, and as such, can significantly influence software decisions. Most core processors are already working with or investing in fintech. However, open and ongoing dialogue can help guide core vendors’ investment choices.
There are three primary models banks can follow when choosing how to develop a fintech project that each come with its own risks and rewards:
Banks can build a proprietary solution in-house.
Banks can collaborate with a third-party to build a solution.
Banks can purchase a fintech solution.
There is no right or wrong answer. Ultimately, the “three T’s”-time, treasure and talent should drive the decision. When working with a fintech company, banks will want to follow the process they would for any new vendor and should be sure to look at additional risk factors that pertain specifically to the solution they are acquiring. For example, depending on the solution, more thorough review may be required to properly assess fraud risk, data encryption standards, and KYC (know your customer – the process used to identify and verify customers). More general questions to ask include how long the fintech has been in business, whether it is connected to your core, how much capital it has, who is investing in it, and who its customers are.
Banks will also want to do their diligence to assess whether the vendor can meet regulatory expectations. Fintechs are not regulated like FIs, so bankers should thoroughly evaluate the vendor and the solution for regulatory compliance. Ultimately, balancing fintech utilization against the risks to consumers is the responsibility of the bank. It is vital to put compliance and regulatory issues at the forefront of any fintech deployment, whether the bank builds, collaborates or buys the solution.
ICBA released its Fintech Strategy Roadmap for community banks as they increasingly work in partnership with fintech firms to deliver services to their customers. The roadmap, written in collaboration with Hunton & Williams LLP, offers a look at how community banks can successfully create, collaborate, or invest in fintech partnerships while providing necessary considerations to ensure these strategic decisions fit within regulatory risk parameters.
The Fintech Strategy Roadmap is available exclusively to ICBA members and is the first community bank resource that takes a deep dive into the legal and compliance elements associated with fintech partnerships.
Join Chrystina Giorgio at FinovateSpring 2018, May 8 through 11, 2018 at the Santa Clara Convention Center in California. Find out more >>
How do traditional financial services firms successfully innovate to move nimbly from fintech idea to full customer availability? Ahead of speaking at FinovateSpring 2018, Jim Van Dyke, Founder & CEO at Futurion reveals his truths around the idea of ‘successful innovation.’
Last year, I interviewed leaders from banks, credit unions, and other FIs (ranging from the nation’s largest to smallest) to reveal specific speed bumps, potholes and pitfalls amidst rare fast stretches of smooth pavement. These leaders all know that without finding a faster and better way to innovate quickly on the path toward fulfillment of customer, competitive and market opportunities, organizations will quickly become irrelevant. This research report asked 30 leaders the same three questions about their largest innovation processes: how they work, how long they take, and what they’ve learned along the way.
Project durations vary widely—ranging from a 6 months to five years—with the most common response being 21 months and the average being 24. Specific project management methodologies make all the difference.
Innovation practices at financial services firms appear to be significantly less mature and productive than those at software firms, representing risk that the latter will outmaneuver the former. Financial sector firms’ project stages vary dramatically among all respondents and had very inconsistent mention of lean methodologies (such as prototyping or customer journey maps).
Some traditional financial sector firms only allow innovation ideas to originate from top executives. At all such firms, demonstrated respondent confidence and morale was markedly lower (when compared to all other interviewees).
There was a strong observed (i.e. generally not explicitly stated) correlation between an organization’s current ability to rapidly execute and a respondent’s demonstrated morale and level of engagement. In turn, the author predicts that a likely by-product of the ability to rapidly innovate with high alignment to customer needs might be the benefit of a stronger ability to attract, motivate, and retain top quality talent in the competitive fintech labor market.
Many top innovations are viewed as neither discretionary nor of direct contribution to customer value, but are ultimately viewed as no less important than others. For example, many cited efforts to adopt an API framework or particular vendor relationships that only make future areas of direct customer value more possible. In addition, several smaller FI executives lamented actions on the part of their technology vendors that they viewed as standing in the way of their ability to release new innovations to market.
Risk or security-focused team members are unexpectedly incredibly valuable in ideation or problem-solving at several FI shops, possibly because they are required, on an ongoing basis, to creatively address dynamic and formidable problems.
Join Van Dyke at FinovateSpring 2018, May 8 through 11, 2018 at the Santa Clara Convention Center in California. Find out more >>
A look at the companies demoing live at FinovateSpring on May 8 through 11, 2018 in Santa Clara, California. Register today and save your spot.
Flybits offers an end-to-end intelligent recommendation platform that enhances enterprises’ digital personalization strategy.
Fast time-to-market – go from ideation to production within 90 days
Data unification – seamlessly normalize public and proprietary data
Privacy first – data tokenization to protect consumer privacy
Why it’s great
Flybits offers an end-to-end solution that hides the complexity of data intelligence, enabling enterprises to harness endless sources of public and proprietary data.
Dr. Hossein Rahnama, Founder and CEO
Rahnama is a recognized figure in ubiquitous computing. His research explores AI, mobile human-computer interaction, and contextual services. He is currently a visiting scholar at the MIT Media Lab. LinkedIn
Justin Lam, Software Engineer, Product
John Waupsh is Chief Innovation Officer of Kasasa, an award-winning financial technology and marketing technology provider. Ahead of his session at FinovateSpring where John will talk about the role of the branch in a digital world, he discusses how loans should help people save for retirement.
Building retirement savings is not a strong suit for many Americans. According to a 2018 survey by GoBankingRates, more than 40 percent of Americans have less than $10,000 saved for retirement, including the 14 percent with $0 saved for retirement. Financial planning experts frequently recommend having at least eight times your salary saved for your post-career future, and with life expectancy continuing to increase, the minimal recommend savings will likely rise even higher.
It’s so easy for consumers to put off saving for retirement. Their last day on the job seems so far away, and bearing today’s financial burdens like bills and loan payments often means restricting, reducing or simply never beginning to save for tomorrow.
But there’s a better way.
Historically, consumers have often felt like they must jump through three hoops before starting to save for retirement or increasing investments in their future. First, they must be meeting their primary needs like paying power bills and buying groceries. Second, many want to build cushions of both emergency and “fun money,” in case the need arises to pay for a last-minute home repair, an unforeseen medical expense or even a spontaneous weekend vacation. Last, many want to pay off their debt before beginning to save or increasing retirement contributions. These second and third hoops are where many consumers are missing out.
Despite the fact that most Americans want to pay off their loans faster to increase retirement savings, those that meet their primary needs rarely pay extra toward their monthly loan payments because it’s money they can never get back if they need or want it later.
That’s changing with the Kasasa Loan. It is the only loan product that can serve as a tool for building savings through the ability to take-back extra payments.
A loan that allows borrowers to pay ahead to reduce debt, but take that extra back if they need it, eliminates the fear of parting with ‘extra money,’ enabling the consumer to make better financial decisions like paying down debt faster. And when debt is paid down sooner, consumers are freed up to boost retirement savings earlier, when it really counts due to the power of compound interest. Consumers like this option. In fact, according to a recent study, nine out of ten consumers prefer a loan with take-back functionality over comparably priced loans, and 98 percent of consumers say they would refinance existing debt at the same rate to have the flexibility of taking back their extra payments.
In addition to flexibility, visual transparency is something that the lending world has been lacking until now. The innovation of sleek, mobile-friendly dashboards in personal financial management (PFM) apps have long helped consumers budget and visually understand their money. Consumers should now expect the same features from a loan. Having the ability to actually see the impact of extra payments enables borrowers to comprehend better the impact of paying down their loan faster and therefore, make smarter financial decisions for their future.
As Baby Boomers, Gen Xers, Millennials and even Generation Z inch closer to retirement, there is an opportunity for these consumers to make better borrowing decisions by choosing a loan that is extremely flexible, easy to work with, and visually transparent. In the past, taking out a loan has prevented consumers from saving for their future. Now, it is possible for them to borrow in a way that not only doesn’t hurt their retirement funds but actually helps them save.
Banks and financial institutions have long been at the forefront of adopting technologies to increase efficiencies and provide better service to customers. From ATMs to online banking, they’ve helped to seamlessly integrate transactional technologies into the customer’s daily life. Financial institutions currently find themselves at the forefront of adopting new cognitive AI technologies that are redefining and elevating the customer experience. To add to our webinar, we speak to Grant Thornton about the realities of what fintech really means, and how you can capitalize on the impressive challenges we should expect over the next decade.
Finovate: How can your organisation prepare for and embrace the rise of intelligent automation? What are the key steps to consider?
Grant Thornton: Intelligent automation, including robotics and artificial intelligence, have transformed entire industries over the last two decades. Now it’s time for the financial services industry. Although it’s still early, financial services is headed down the same inevitable path to disruption and towards an explosion in productivity and efficiency.
In the next 5-10 years, the productivity of the enterprise will be transformed through multiple technologies, such as Robotic Process Automation (RPA), Natural Language Processing (NLP), or Artificial Intelligence (AI).
Fintech represents a long-term, systemic change in the industry. The only successful way forward is to take a long-term view. The key is to plan for a steady pace of adoption for interrelated technologies rather than focus on individual projects and siloed technological innovations that will not build upon each other.
The first step is to improve your “digital quotient” — the extent to which your processes, information, data and activities are in digital form. A high digital quotient makes your path to the cognitive enterprise easier.
To build your digital quotient, take a clear look at your efficiencies and operating model:
How many processes and activities are digitally accessible?
How much data is available?
How much conversion work is needed?
Start by piloting small, focused projects that are clearly measurable and materially understood. Engage your C-Suite and ensure that they understand the importance of building your organization’s digital quotient. They need to support the significant operational and cultural changes that come with becoming an automated cognitive enterprise. This is critical to your organization’s success.
Finovate: Do customers expect AI-driven experiences in their interactions with businesses?
Grant Thornton: Thanks to their experience with leading retailers and technology giants—including Apple’s Siri and Google’s Alexa—we believe customers will not only expect, but will actually demand AI-driven experiences in their interactions.
In fact, AI will soon seem normal:
By 2020, IBM projects that more than 85% of all customer interactions will be handled without the need for a human agent.
By 2025, Forbes Magazine estimates that 95% of customer interactions will be supported by AI technology.
AI empowers personalization like never before. Customers don’t want to be treated as “one of the crowd.” Companies such as Amazon, Walmart and Google set high standards for quality of personalized customer experience, and customers routinely compare their experiences with financial institutions to their most recent shopping experience.
Finovate: What are the key advantages of offering chatbot interaction? Do customers consider communication with chatbots as a 2-way communication channel? In the future, will banks have something like an Alexa to guide their customers through their website and services?
Grant Thornton: According to a report by Grand View Research reported on BusinessInsider.com, the global chatbot market is expected to reach $1.23 billion by 2025, an annual growth rate of 24.3 percent. Likewise InfoWorld.com reports that approximately 45 percent of global users prefer chatbots as the primary mode of communication for customer service inquires.
In fact, according to ForbesMagazine, chatbots are becoming so common that consumers are growing to expect them. For example:
Domino’s uses a Facebook Messenger chatbot named Dom that allows customers to place an order simply by sending a message that says “pizza”. The bot gets the details and the order is completed faster than a customer could call the store or drive to place an order.
China Merchant Bank, one of the largest credit card companies in China, takes advantage of AI bots to interact with a huge number of customers. The bank’s WeChat Messenger bot handles 1.5 to 2 million customer conversations each day, mostly about things like card balances and payments. Customers can quickly get the information they need, and it saves the bank from hiring thousands of human employees to match the same volume of requests.
In banking, chatbots can go beyond the basic functions of mobile banking, enabling banks to start a conversation about each customer’s finances. They can use predictive analytics, and cognitive messaging to perform tasks ranging from making payments to checking balances and paying down debt and even notifying customers of personalized savings opportunities.
Millennials, in particular, seem to be enthusiastic about computer-generated advice and services. This trend reflects the fact that they typically gravitate toward the latest in digital banking technologies as digital natives. This is not just because these tools are cool or cutting-edge, but because they deliver banking customer experiences that are simple, consistent and relevant.
Finovate: Can you share what intelligent opportunities are available for the customer within personalised eCommerce experience?
Grant Thornton: It’s one thing to know what the consumer wants and what should be done to provide a differentiated and contextual consumer experience—it’s another to be able to deliver on the “personalization promise.”
Staying relevant in today’s competitive environment demands personalization. Unlike most banks, Fintech firms provide consumers with an improved digital experience based on contextual insight and simplified delivery of financial services. These smaller start-ups build solutions that often are superior to those from legacy financial institutions by leveraging advanced analytics of consumer data and digital technology.
Whether they’re patronizing traditional legacy banking institutions or the newest of Fintech startups, consumers demand deals and discounts, convenience, relevance and customer experiences that combine the latest in digital banking with human interaction. They will share personal data to get what they want, and will switch if they do not.
Finovate: How to achieve balance between the human touch and technology in customer experience? Does AI contribute to the true currency of a customer relationship – engagement and loyalty?
Grant Thornton: Because consumers do the vast majority of their shopping for a new financial institution using digital channels, it is no longer adequate to wait until the customer or member walks into a branch or decides to purchase a new product online or via smartphone.
Instead, banks need to engage customers at the earliest stages of their purchase journey.
AI is an important tool for institutions that seek to become a bank with a “personal touch.” They should not, however, presume that frequent customer interactions alone create true engagement or develop enduring relationships. What really matters is the quality and personal relevance of customer communications.
Banks must put customers’ wants and needs at the heart of all activities. They need to shift their focus from simply selling products and services towards providing relevant and contextual financial advice. In other words, a bank should demonstrate a true interest in customers’ financial well-being. AI affords banks the insight and capability they need to make this shift in focus.
Finovate: How can an organisation capitalise on the deployment of a smart AI/ML solution?
Grant Thornton: At the most basic level, technological advances can boost process efficiency, which translates to faster, around-the-clock responses to customer inquiries. Additionally, chabots powered AI/ML can assist customers through the online account opening process by proactively suggesting personalized services based on life events and previous banking experiences.
Beyond traditional uses for financial performance and regulatory reporting, data can be collected, processed and analyzed as a means to understanding customers’ expectations in order to enhance their experience. As banks advance their digital programs, they can uncover insights about trends, products and services to improve, which to discontinue, and where to devote resources. This results in institutional cost savings, but more importantly, in greater customer satisfaction.
At a higher level, AI/ML solutions can reveal new opportunities by tapping into underutilized data sources. For example, monitoring internet browsing and uniting customer, product and pricing data can reveal new insights into customer desires and preferences. With this knowledge, a bank can nuance solutions and target ads to specific consumer groups and influencers.
Finally, smart AI/ML solutions can help banks access data that supports or enhances their overall strategic framework. In the process, they can develop a holistic understanding of their customers, opening the door to faster, more flexible product prototypes that are responsive based on the data and interaction that the customers are providing.
This holistic picture of the customer needs enables financial institutions to be proactive and to cross-sell more effectively. In essence, they are able to more effectively anticipate and serve customer needs, helping them on their journey while increasing share of wallet.
A look at the companies demoing live at FinovateEurope on the 6 through 9 of March 2018 in London. Pick up your tickets today and save your spot.
aixigo offers the fastest wealth management technology. It enables innovation leaders to digitalise all aspects of the personal investment business.
Offers the fastest wealth management platform
Manages millions of portfolios
Provides millisecond responses combined with big data scalability
Why it’s great
aixigo’s wealth management technology is the fastest available. It will manage millions of portfolios your way.
Mario Alves, Head of Sales and Partner Management
Alves is a proven expert in retail and private banking, with a special focus on investment and advisory in MiFID related markets and products. LinkedIn
Marcus Gruendler, Head of Portfolio Management Systems
Gruendler is Head of Portfolio Management Systems at aixigo with international project experience. He develops aixigo’s high performance wealth management platform. LinkedIn
The fintech revolution continues to gather pace globally and there is heated debate about the challenges and opportunities fintech could bring. The critical question of whether fintech start-ups threaten traditional providers of financial services or will become trusted partners remains unanswered.
For Europe 2018 is set to be a pivotal year. Major developments including the unfolding of Brexit; the onset of the General Data Protection Regulation (GDPR); open banking and the implementation of the Payment Services Directive 2 (PSD2) will all have a huge role to play in reshaping the future of financial services in Europe. Globally the fintech train is unstoppable with game changing developments in artificial intelligence; robotics; identity verification; internet of things; RegTech; InsurTech; challenger banking; Blockchain and crypto capitalism. With so much happening it is hard to know where to really pay attention.
In the run up to Finovate Europe, our panel of experts, chaired by the inimitable Ruth Wandhofer, will share their views on what’s hot and what’s not in global fintech in 2018.
Moderator: Ruth Wandhöfer, Global Head of Regulatory & Market Strategy, Citi
Ruth is highly recognized in the European payment industry as one of the foremost authorities on the PSD and she is the Chair of the European Expert Group on the transposition of the Payment Services Directive, a joint initiative of the three European Credit Sector Associations.She is also a member of the Plenary of the European Payments Council as well as a member of the SEPA schemes working group, driving the continued evolution of SEPA.
Zilvinas Bareisis, Senior Analyst, Payments and Banking, Celent
Zilvinas Bareisis researches and advises clients on consumer payments. He has a keen interest in payments innovation, and how the “perfect storm” of competitive (e.g. Fintech), regulatory (e.g. EMV, PSD2), and technology (e.g. digital, blockchain, Internet of Things) developments shapes consumer payments today and tomorrow. Zilvinas has over 20 years of experience advising senior executives at the leading financial institutions and their technology and service providers. He joined Celent in April 2010 from Oliver Wyman.
Michelle Evans, Head of Digital Consumer Research, Euromonitor International
Michelle Evans is the Head of Digital Consumer Research at Euromonitor International. In her role, she oversees the firm’s research on the digital consumer, providing actionable insights and in-depth analyses into how technological advances are reshaping the way consumers browse and buy goods and services globally. She regularly writes and speaks about Euromonitor’s research with her specialty spanning mobile payments, digital commerce, e-commerce, m-commerce, digital marketing and social media. Recognized as a thought leader in digital commerce, she was named a Power Women in Fintech by Innotribe in 2015, a Woman on Top in Tech by Asian Entrepreneur in 2016 and a Woman to Watch by Remodista in 2018. She has shared her expertise across industry events, including Money 20/20, Trustech, Forum E-Commerce Brasil, Mobile Shopping and CONNECT Mobile CX Summit in the capacity as a speaker, chairperson or juror. Leveraging her master’s degree in journalism from Northwestern University, she has a reoccurring column in Forbes and is regularly quoted in publications globally.
Kieran Hines, Head of Industries, Ovum IT
Kieran Hines is Head of Industries at Ovum, providing research to support clients across a range of sectors including financial services, retail, government, education, healthcare and utilities. He specializes in retail banking, primarily digital channels, and regularly produces research and advises customers on the issues driving change in this sector. Kieran also examines the payments area, with a special emphasis on digital commerce and merchant payment strategy, He leads research into payments technology, strategy and infrastructure. Before joining Ovum, Kieran spent 11 years at Datamonitor Financial where he led research into consumer payments and private wealth management.
Challenges, Successes and Opportunities of Financial Inclusion in MENA
Financial inclusion has been identified as a key topic for the MENA region. Technology on its own will help us connect with the digitized financial world but it will not be the only factor. We need to build technologies that expand the horizons of electronic payments and work with partners across industries and segments. We need to create deeper, inclusive and intelligent experiences to enhance how people live and businesses grow. The webinar will cover the challenges, successes and opportunities of financial inclusion in MENA.
Digital technologies have spread rapidly in much of the world, yet, there is potential to boost digital dividends but also to simply enhance efficiencies, reduce costs and expand access to financial services.
The webinar is expected to draw on the global fintech landscape and how better data collection and analytics can inform customer choice better. It will cover the opportunities, challenge and successes in financial inclusion around the world and how best to serve the digital customer.
Hjh Rosmah Ismail
Member, Board of Director, Arab Malaysian Chamber of Commerce and Board Member, AmBank Islamic
Hjh Rosmah is an international banker with a total of more than 25 years of comprehensive experience in the Banking and Financial sector, covering Conventional and Islamic Finance across both corporate and consumer client segments across all banking products, and 3 years in the Financial Consultancy sector. During her career, she has been commended by top international Sharia Advisors for having authored among the best Shariah Compliance, Risk and Business Operational Policy & Procedures Manual for Islamic Banking and Finance. She has set up Islamic Banking entities in the Middle East and Malaysia, and the businesses under her leadership had also won corporate awards during her tenure.
Devie Mohan is an influential writer, speaker and commentator on fintech, and has been listed as a top 10 global fintech influencer by several groups. Devie is the co-founder and CEO of Burnmark, a fintech research company, that supplies research and data to all players of the fintech ecosystem.
Devie has helped several banks, fintech startups, innovation groups and investors understand the trends in the fintech industry, helping them set their corporate, marketing and investment strategies. She is also a proponent of a fintech ecosystem where banks and startups collaborate to drive innovation.
Continuing with our PSD2 series we speak to Brian Costello, Chief Information Security Officer, Envestnet | Yodlee about what it means to the industry’s back office compliance.
Finovate: According to Strategy&, 68% of bankers are worried PSD2 will cause them to lose control of the client interface. What’s your advice to these banks?
Costello: While this seems on the surface to be a valid concern, Envestnet | Yodlee has a different perspective from our years of powering innovative digital channel and data-driven solutions. There are, of course, different profiles of banks, but in general the use of third party services that either are not offered by the bank or compete with the bank’s offering do not materially impact competition. In the former case, clients stay or leave the bank, based on the suitability of the bank’s products and services, the effectiveness of the digital and traditional channels (i.e. branch, ATM and phone), and the quality of the experience. In the latter case, competition either drives banks to innovate at the breadth and pace required to keep (and gain) clients or to partner with third parties to expand their service offerings.
With this in mind, PSD2 simply requires participation in a payments ecosystem and facilitates client access to their own data. Neither of these negates the bank’s ability to preserve the client relationship via quality products and experiences. Just the opposite, in fact, it empowers the bank to offer expanded payment and data-driven services under the protection of the new regulation. Our advice, therefore, is to identify what services are most needed by their customers and build them or seek out qualified partners to incorporate them into the client experience.
Finovate: Will PSD2’s enhanced security requirements increase friction for end consumers?
Costello: Yes, for those customers that already use consumer-permissioned aggregation solutions today but not for new customers. However, the friction is short-lived as the third party providers (TPPs) will provide a “cut-over” mechanism. Ultimately, participation in the PSD2 ecosystem will provide better protection to the customer, so this small amount of friction is justified and enhances security. It’s also important to understand that without PSD2, friction would have increased for these customers as banks tightened online access controls with dynamic authentication which, while reducing online banking fraud, prevented some aggregation-powered applications from working without customer intervention.
Finovate: How do you suggest banks and fintechs communicate about PSD2 to consumers who are scared to share their data because of privacy issues?
Costello: First, there is good guidance provided by authorities that can be used to craft consistent messages. In general, banks should consider the following key points:
It is the consumer’s data. They control what to share and with whom to share it with.
Exercise due diligence in selecting third parties based on their value to you and your needs. Read their terms of service and privacy notices. If they seem unclear, too broad or otherwise concerning, then find another provider.
Participants in PSD2 are authorized and must follow the laws; including the current Data Protection Act and upcoming General Data Protection Regulation. Consumers are protected by each of these laws and regulators are actively enforcing them.
Finovate: The benefits of PSD2 to fintechs are obvious. How can banks make sure they’re benefiting, as well?
Costello: Envestnet | Yodlee believes that there are many benefits of PSD2 to banks as well. We pioneered Personal Finance Management (PFM) offerings for financial institutions knowing that if the bank had a broader view of their customers’ financial picture, they could offer personalized services, proactive advice, and build better products. PSD2 provides clarity to banks on how to collect, protect, and use their customers’ data to improve their financial well-being. It also reduces banks’ risk as online banking credentials will no longer need to be provided to third party providers.
Finovate: Should banks be worried that, by opening their APIs to third parties, they risk increased security vulnerabilities?
Costello: No, as long as banks apply the same security rigor to these new API end-points as they do for online and mobile banking interfaces. The same controls for vulnerability management: secure builds, patch management, change management, monitoring, etc. apply to PSD2 APIs. As PSD2 takes hold, cybersecurity sharing forums will become a valuable source of information so that all members of the ecosystem (banks, TPPs and regulators) can work together to ensure that all customers can enjoy the full potential of improved payments and data-powered services.
The information, analysis, and opinions expressed herein are for informational purposes only. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
With the FCC voting 3 to 2 to repeal net neutrality today, let’s take a look at the impact a post-net neutrality internet may have on fintech and banking.
Politics and opinions aside, the repeal of net neutrality may have two main effects in our industry:
Pay up for fast fintech
Though Comcast has said it will not offer paid prioritization for websites, many are concerned that lack of regulation for internet service providers (ISPs) will create tiered offerings for fast lanes and slow lanes. In other words, if you want your site to load faster, you’d better have some extra cash. Since consumers have little patience for website loading times, this could be an extra stumbling block for fintechs with a grand idea but limited funding. The players with the bigger pocketbook, not the better innovation, may win out.
While this same principle applies to banks, it is not as large of an issue, since banks are cash flow positive and have income to foot the larger internet bill. Additionally, consumers have a lower elasticity of demand for banking services than fintech services. In other words, because online banking is seen as more of a true need, they are not only willing to pay more but they will also be willing to wait for a longer web page loading time.
The counter-argument is that, if net neutrality remains in place, everyone will end up with a larger internet bill since ISPs will need to find a way to build and maintain faster online networks. “If the rules stay in place… ISPs will have to find other ways to fund these robust networks,” Nicol Turner-Lee, a fellow in Governance Studies at the Brookings Institution told U.S. News.
An eye on competition
Another area of concern of an unregulated internet is competition. Currently, net neutrality prevents ISPs from discriminating toward competing applications. This argument isn’t generally heard in the banking/ fintech space, since ISPs do not own any competing banking or fintech applications. However, if an ISP was to create or acquire a P2P payment app, it could speed up that service, while potentially throttling performance for Zelle and Square Cash.
The counter-argument here is that we should allow the markets to operate freely and that the Invisible Hand will allow for faster innovation. In this line of thinking, perhaps if our favorite P2P payment apps are too slow we’ll be more likely to begin using the blockchain?