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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Tel Aviv-based fintech PayKey, which won Best of Show in its Finovate debut at our London conference in 2019, announced the availability of its new embedded banking solution this week. The offering leverages PayKey’s smartphone keyboard to enable users to manage investments and apply for personal loans directly without having to leave their WhatsApp, Facebook, Instagram, or Twitter app. PayKey’s embedded solution allows users to simply tap on their banks’ logo within the mobile keyboard and get instant access to their investment portfolios – as well as the ability to balance checks, pay bills, and make P2P payments – as seamlessly as a text chat.
“Embedded solutions like PayKey’s keyboard are vital to helping banks engage with customers at the right time and with personalized products,” said company CEO Sheila Kagan. “Investments and personal financing are just the beginning and we’re excited to continue expanding our embedded keyboard solution in the future to help banks support their customers financial health even further.”
The company sees the new functionality as a timely addition given the surge of interest in stock trading, most recently evidenced by the Reddit/Gamestop/Robinhood market frenzy early in the month. The offering also takes advantage of the embedded finance trend of enabling users to access a wider range of functionalities from a singular app or interface. The result is a smoother, more seamless experience, and a way for technology innovators to provide more features that customers want without overly complicating the process to access or use them.
PayKey’s technology has gone live with more than 20 leading banks around the world, including ING and Unicredit. Standard Chartered Bank Korea announced that it was launching the new solution within its SC Mobile Banking app back in August.
Founded in 2014 by Daniel Peled and Offer Markovich, PayKey has raised more than $26 million in funding.
In a round led by New Enterprise Associates, a featuring the participation of more than twelve investors – including executives from Plaid – digital banking solution provider Narmi has raised $20.4 million in new funding. The investment represents the lion’s share of the New York City-based fintech’s total capital, and will be used to help power Narmi’s mission to enable regional banks and credit unions to compete with big banks and neobanks, alike.
“We started Narmi with the mission to help financial institutions thrive in a digital-first world and that mission hasn’t changed,” company co-founder Nikhil Lakhanpal said. “Since launching over four years ago, we’ve experienced over 100% revenue growth every year, launched four enterprise-grade platforms, and helped our partner financial institutions delivery transformational results.”
Also participating in the Series A round were Patriot Financial Partners, Picus Capital, Contour Ventures, and Firebolt Ventures.
Narmi’s cloud-based, API-powered platform gives financial institutions the ability to leverage its digital account opening, consumer and business digital banking, and administrator console platforms to boost growth, increase deposits, and make operations more efficient. The fintech’s customers have reported a 55% increase in new account applications from non-account holders, a 65% reduction in application time, and a 50% decrease in support volume, helping lower back office costs.
And like many fintechs in the digital banking space, Narmi has seen a dramatic uptick in interest in digital solutions with the onset of the COVID pandemic. The company reported a 70% increase in digital activity and transactions across its customer base.
Partner Radius Bank credited Narmi for helping it launch its online and mobile banking experience “50% to 70% faster” than its competitors. Radius Bank, named one of the Best Online Banks of 2021 by Bankrate, and one of the fastest growing banks in Massachusetts, was acquired by LendingClub a year ago for $185 million. Liz Landsman, General Partner at NEA, further praised Narmi for its “understanding of the challenges that regional banks and credit unions are facing to keep pace with an increasingly digitally-centric customer base in banking today.”
Founded in 2016, Narmi also includes Freedom Credit Union and Berkshire Bank among its customers.
Two years after its debut at FinovateMiddleEast, Kuwait-based financial services aggregator FinFirst is celebrating a 2020 that saw the company facilitate millions of dollars worth of financing applications since the launch of its financial services app last summer. The company, founded in 2015 by CEO Abbas Hijazi, unveiled a financial superapp that serves as a marketplace for banks and financial services companies to offer auto, personal, student, and healthcare loans, as well as credit cards and Buy Now Pay Later installment loans. FinFirst promises a secure and fast, 20-click application process that averages less than 10 minutes to complete.
FinFirst also announced this week that it has secured a total of $4 million in equity investment. The investors were not disclosed. Hijazi said the funding “demonstrates the level of confidence in the market for a product which is simply transforming the face of the financial services sector.”
Since it began offering services to the small business community in March of last year – just before the COVID-19 crisis hit – FinFirst has received $40 million worth of financing applications from SMEs. FinFirst also has received $7.7 million worth of consumer financing applications since it began offering consumer-based solutions in the fourth quarter of 2020.
The majority of FinFirst’s personal finance customers are pursuing consumer financing – approximately 60% – while auto financing represents the remaining 40%. The company reports a high 90% lead conversion rate on its superapp, making the platform an attractive option for FinFirst’s financial services partners.
“These first-year results stand us in good stead to build upon a solid foundation of strong business and consumer appeal, which is enhanced by the speed and ease of our digital application app,” explained FinFirst Chief Operating Officer Afrah Al-Hubail. She added that FinFirst plans to spend 2021 enhancing its offering, collaborating with financial services providers and fintechs, as well as forging more partnerships and adding new products.
Among the more recent alliances announced by FinFirst is its partnership with Kuwait’s Boubyan Bank. An Islamic digital bank with total assets of more than $17 billion as of 2019, Boubyan Bank has the National Bank of Kuwait as its major shareholder, and is regarded as one of the up-and-coming banks in the Gulf region. The institution’s CEO and Vice Chairman, Adel Al-Majed, was named Arab Banker of the Year 2020 by The Union of Arab Banks.
Visa CEO and chairman Alfred Kelly announced the plan in an earnings call last week. Kelly noted that not only would Visa allow buying and selling of cryptocurrencies on its platform, but also that the company was “uniquely positioned” to do so, and to do so safely and securely.
Visa’s plan is to divide digital assets into two categories: cryptocurrencies and digital currencies. Cryptocurrencies, per Kelly, represent the “digital gold” of the digital asset market insofar as they are not typically used as a form of payment. For these assets, Visa plans to work with wallets and exchanges to allow users to buy these currencies using their Visa credentials. Visa also plans to enable users to cash out of their cryptocurrencies onto a Visa credential to make fiat-money purchases wherever Visa is accepted globally.
With regard to digital currencies, Visa defines these assets as “fiat-backed digital currencies including stablecoins and central bank digital currencies.” These assets, per Kelly, could find use cases in global commerce “much like any other fiat currency” and could run on public blockchains as additional networks much like RTP and ACH rails.
Kelly noted that Visa already has a strong relationship with 35 digital currency platforms and wallets, including BlockFi and BitPanda. These partnerships, Visa claimed, represent potentially more than 50 million Visa credentials – a significant size advantage over the company’s rivals. “And it goes without saying,” Kelly added, “to the extent a specific digital currency becomes a recognized means of exchange, there’s no reason why we cannot add it to our network, which already supports over 160 currencies today.”
Visa’s positive news on cryptocurrencies comes on the heels of the company’s announcement that its planned $5.3 billion acquisition of fintech infrastructure provider and fellow Finovate alum Plaid is now off the table. Visa is an alum of both our Finovate conferences, making its Finovate debut at FinovateSpring ten years ago, and participating in our developers conference, FinDEVr Silicon Valley, four years later in 2014.
It looks like the Merry Men of Ribbit Capital have come to the rescue of the social trading app named after the mythological bowman who robbed from the rich to give to the poor.
Between the final trading days of January and the first trading day of February, Robinhood has raised a whopping $3.4 billion in convertible debt financing. The financing was provided to help the brokerage firm manage the tidal wave of activity that the platform experienced during last week’s trading moshpit in shares of heavily-shorted GameStop.
And with the additional participation from Little Johns and Friar Tucks like Iconiq Capital, Adreessen Horowitz, Sequoia, Index Ventures, and NEA, it looks like the social trading app for Millennials has more than picked up the requisite funding to continue its mission of serving its increasingly active trading and investing clientele. Note that Robinhood CEO Vlad Tenev said the company’s clearing house initially had requested $3 billion in margin deposits last Thursday, before lowering the requirement by more than 75% to $700 million.
“This funding is a strong sign of confidence from investors and will help us build for the future and continue to serve people through the exponential growth we’ve seen this year,” Robinhood’s blog read on Monday morning.
With more than 13 million users – and an alleged 600,000 new accounts added on Friday alone – Menlo Park, California-based Robinhood has become the face of retail trading in recent months. The company raised more than $1 billion in funding last year as a stimulus-fueled stock market – and an absence of opportunities for other financial-risk taking such as sports betting – helped drive short-term traders into the gamified, regular Joe-enabling, environment of Robinhood. The online trading and investing platform offers the ability to buy and sell stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies including Bitcoin, Ethereum, and Dogecoin – all commission-free.
“We’re witnessing a movement of everyday people taking control of their own financial future, many investing for the first time through Robinhood,” the blog post continued. “With this funding, we’ll build and enhance our products that give more people access to the financial system.”
As the frenzy in trading over Gamestop shares grew, Robinhood came under pressure for its decision to restrict trading in the shares, as well as in a number of other stocks that had experienced similar spikes in activity. Although Robinhood’s actions were clearly permissible given its Term of Agreement, the episode further fueled the Us (retail trader) vs Them (Wall Street hedge fund) narrative that, ironically, Robinhood was founded to champion on behalf of the “Us.”
Ribbit Capital Managing Partner Micky Malka spoke to this irony in his comment about the funding. “Robinhood has served millions of people who have felt left behind by America’s financial system,” Malka said. “We’re confident that Robinhood will emerge stronger through this phase of growth and unprecedented demand.”
Earlier this week we reported on the $400 million Series G closed by Brazilian neobank – and Finovate alum – Nubank. The firm, founded in 2013 and based in Sao Paulo, serves more than 34 million customers in Brazil, Mexico, and Colombia, and offers a digital savings account, a no-fee credit card, as well as personal loans. This week’s investment boosts the company’s total capital to $1.2 billion and gives the Brazilian digital bank a valuation of $25 billion.
We also suggested that Nubank’s news was a good opportunity for fintech fans to “brush up” on fintech in general when it comes to Latin America – and the region’s challenger banking industry in specific. To this end, for this week’s Finovate Global Reports, we are sharing this look at neobanks in South America, courtesy of Fintechnews Switzerland.
“South America has seen an exceptionally dynamic evolution of its neobanking landscape,” the authors wrote, “with now more than 30 live neobanks and digital banks that serve over 50 million customers out of the region’s 430 million+ population (+11%), data from Dutch fintech consultancy firm Fincog shows.”
Swedish payments company Trustly, which made its Finovate debut back in 2013 at FinovateEurope in London, is betting that even after a year that featured a record number of initial public offerings, the investing public is hungry for more.
Reuters reported earlier this week that Trustly is planning an initial public offering in Q2 of this year that could earn the company a valuation of $11 billion (EUR 9 billion). Nordic Capital, which acquired Trustly in 2018, is said to be working with Goldman Sachs, JP Morgan, and Carnegie, with additional banks to be brought onboard as well. According to Reuters, the company is targeting “late April or early May” for an IPO. Both Trustly and Nordic Capital have not commented on the IPO rumor.
Headquartered in Stockholm and founded in 2008, Trustly specializes in enabling payments directly from customer online bank accounts. Trustly processes more than four million payments a month and reported revenues of EUR 130 million in 2019. The company estimates 2020 revenues of EUR 200 million. Trustly has more than 7,600 bank partners and 600 million consumers in Europe and North America who rely on its account-to-account network to bypass the card networks simply and securely.
In 2019, Trustly merged with PayWithMyBank, a U.S.-based company, to provide what Trustly CEO Oscar Berglund called “the first and only online banking payments network with transatlantic coverage.” Berglund added that the union of the two firms was “transformative” and said it would “accelerate” Trustly’s goal of reaching global coverage.
“Together we’re thrilled to be able to offer merchants and billers a unique alternative to card payments, allowing them to accept payments from 600 million consumers across Europe and the U.S.,” he said.
EyeVerify, which twice won Finovate Best of Show awards for its biometric authentication technology, may be on the market after being acquired by Ant Financial in 2016 for $100 million.
Followers of Finovate Global, our weekly look at fintech innovation around the world, are likely familiar with the story of Brazilian challenger bank Nubank. But with news of the firm’s $400 million Series G round – announced today – we suspect there will be quite a few fintech fans brushing up on the fintech industry in Latin America.
Company founder and CEO David Velez said that the funding will help Nubank grow and diversify its client base, as well as fuel expansion. He added that bringing more products to market is key to becoming the kind of “full service financial institution for clients” that Latin American consumers need. Nubank currently offers a digital savings account, and a no-fee credit card, as well as personal loans. A recent acquisition of Brazilian broker Easyinvest last fall, Nubank’s third of 2020, suggests that investment products also may soon be among the challenger bank’s offerings.
Headquartered in Brazil’s largest city São Paulo, NuBank has earned a valuation of $25 billion with its latest investment. The Series G was led by GIC, Whale Rock Capital Management, and Invesco, and featured participation from existing investors Sequoia Capital, Tencent Holdings, Dragoneer Investment Group, and Ribbit Capital. The investment more than doubles Nubank’s previous valuation, based its July 2019 funding. The funding also takes the company’s total capital to $1.2 billion and places Nubank among the top five financial institutions in the region.
Nubank serves more than 34 million customers in Brazil and Mexico, and recently expanded to Colombia. The company is part of a growing neobank movement in the country – and the region – that is taking advantage of the inefficiencies of incumbent banks. This, in fact, was a major motivating factor for Velez, as he explained last fall announcing the move into neighboring Colombia.
“Nubank was born out of the conviction that through technology, design, data science and a customer-centric vision we could create a new generation of financial services that make people’s lives easier, with no complexity and no bureaucracy,” Velez said last fall. “All Latin Americans deserve a more simple, transparent and human banking experience. Today, I’m proud to announce the arrival of Nubank in Colombia, my motherland. Our goal is to have a positive impact in the life of millions.”
Founded in 2013, Nubank participated in our developers conference, FinDEVR New York in 2016. At the event, Nubank co-founder and CTO Edward Wible and Principal Software Engineer Lucas Cavalcanti dos Santos led a presentation titled, “Our Money, Our Rulebook,” that explained how they build an in-house accounting system based on functional programming principles. For the past two years in a row, Nubank has been named by Forbes magazine as the Best Bank in Brazil, and Fast Company has dubbed Nubank the “most innovative company in Latin America.”
The following is a guest post by Jack Warner, a cybersecurity expert with Techwarn.
According to a recent ImmuniWeb study, 98 percent of the world’s top 100 fintech startups are vulnerable to cyberattacks. And it’s not surprising that fintech is an attractive target for threat actors.
The rapid growth of financial technology combined with lagging regulations means there’s much more data to analyze and too few rules to govern how data is protected. These same factors make the sector susceptible to breaches and vulnerabilities, particularly in the wave of COVID-19 inspired cybercrime.
Financial institutions are increasingly adopting fintech solutions to handle the digital wave that’s happening all over the world. This swift tech transformation comes hand in hand with emerging cybersecurity risks, alongside a few old “favorites.”
With that in mind, it’s imperative that fintech enterprises take appropriate measures to secure data and systems as well as possible. Here, we take a look at the most pressing cyber risks facing fintech and why cyber resilience and not just cybersecurity is critical.
The cyber risks fintech companies face
While not comprehensive, the below attack types and recognized vulnerabilities are among the most concerning in the financial technology sector. Let’s begin with one of the most common attacks, malware.
Malware
Malware is a portmanteau term that combines malicious and software, and it designates any program that is explicitly designed to cause harm, be it to devices, data, or individual users. Within fintech, hackers may design malware to breach a company’s system and collect sensitive or critical information.
The Gustuff banking trojan, for example, emerged in the first half of 2019 and has since targeted numerous traditional institutions but also newer players, such as PayPal and Revolut.
Data breaches
Because many fintech platforms allow customers to store payment data such as card details and password credentials for convenience’s sake, these platforms are inherently vulnerable, and an attractive target. Even a small breach could lead to sensitive financial user details being compromised.
If third-party providers are involved, the risks are heightened, which is exactly how the 2020 Dave breach occurred.
Cloud environment vulnerabilities
Fintech providers often lead the pack when it comes to incorporating cloud-based computing into their information management systems. It’s something the industry can pride itself on and something other sectors lack. However, strong cloud security measures matter. If the cloud environment is vulnerable, so too is the company’s data.
Why cyber resilience is important for fintech companies
Firstly, it’s helpful to consider the differences and similarities between cybersecurity and cyber resilience, and how these two are intimately linked.
Cybersecurity versus cyber resilience
Cybersecurity refers to a set of defensive tools, strategies, standards, and protocols, all of which are designed to keep threats out of a fintech enterprise’s systems. In this sense, cybersecurity is purely a defense strategy.
Cyber resilience, on the other hand, encompasses cybersecurity’s aim to defend against threats, but takes things a few steps further. Cyber resilience can be defined as an entity’s ability to prepare for, respond to, and recover from a cyber attack.
It merges cybersecurity in the preparedness phase but also integrates solid business strategies to ensure an organization stays afloat after an attack occurs. After all, an attack doesn’t end after the fact, rather, the effects are long-lasting, expensive, and highly damaging to a company’s reputation.
In fintech, losing customer confidence is much more damaging than in other industries as we are dealing with financial information. To that end, having a solid cyber resilience plan in place is essential. That plan should cover all the bases, from getting prepared to financially recovering and mitigating reputational losses — the more detailed and in-depth, the better.
Creating cyber resilience
A fintech company’s cyber resilience plan may be more or less detailed depending on the size of the organization, any third-party links, the number of platforms available to clients, and other such factors. However, some basics should be standard across all companies:
Create a culture of cybersecurity — All staff should be aware that cybersecurity is everyone’s job, not just the IT department’s domain. Good digital hygiene and exacting standards make a lot of difference. Starting from the ground up means the company’s culture accepts cybersecurity as integral. Staff training and regular updates to standards and procedures help here.
Use a full suite of cybersecurity tools — Of course, logging out of accounts and avoiding suspicious links can only get an entity so far. Proper cyber resilience covers preparedness, and that’s where security software like VPNs and email scanners comes in. One of the functions of VPNs is encrypting data transmissions, while email scanners detect threats and can make a big difference to a company’s defenses.
Ask what happens when an attack occurs — Understand that an attack is more likely a matter of when and not if. How will the company deal with the immediate fallout, who does it need to inform and when, and how can the threat be removed as swiftly as possible?
Staying afloat — Fintech companies should have plans in place for retaining clients, getting back on their feet after an attack, and continuing to be financially viable. This part of a resilience plan can include all sorts of factors, such as post-attack PR and ways to pay off any regulatory fines.
There’s no doubt about it, cybersecurity risks and threats are increasing both in number and sophistication. Attacks can and will occur, so having a proper cyber resilience strategy in place is critical, especially in an industry where clients entrust us with their most sensitive information.
Jack Warner is an accomplished cybersecurity expert with years of experience under his belt at TechWarn, a trusted digital agency to world-class cybersecurity companies. A passionate digital safety advocate himself, Warner frequently contributes to tech blogs and digital media sharing expert insights on cybersecurity and privacy tools.
More than two years in the making, the FedNow payments initiative – launched by the U.S. Federal Reserve to accelerate payments and transfers – is picking up speed. The project currently has more than 110 banks, financial services providers, and other organizations slated to participate, and among them are ten Finovate alums.
“We’re gratified by the industry’s tremendous interest and willingness to devote time and energy to help us develop the FedNow Service,” Esther George, executive sponsor of the Federal Reserve’s payments improvement initiatives, said. George, who is also President and CEO of the Federal Reserve Bank of Kansas City, added that the pilot has had to “adjust” to accommodate greater than expected interest.
The idea behind the service is to expand the reach of instant payment services offered by financial institutions and enable businesses and individuals to send and receive instant payments, with full access to their funds within seconds. The FedNow Service will leverage the Federal Reserve’s FedLine network, which connects to more than 10,000 financial institutions directly or via their agents.
The pilot program is designed to review the technology’s features and functionality, assess the user experience, and greenlight the product for further testing and eventual general availability. Participating institutions will be retained, post-launch, to provide additional review and advice with regard to issues like adoption roadmap, industry readiness, and overall payments strategy.
“The FedNow Service marks a turning point in the industry’s move to making real-time payments a reality,” Booshan Rengachari, founder and CEO of Finzly, explained. Finzly is one of Finovate’s newest alums – most recently demoing its technology at FinovateWest Digital last fall – and is one of the participants in FedNow’s pilot program.
Rengachari further suggested that this “turning point” was a moment his company had anticipated. “We created our Payment Hub specifically to help FIs prepare and go to market faster with newer RTP networks,” he said. Finzly’s CEO added that this helps “address the challenges of offering single payment API for multiple payment networks without having to run disparate payment systems from multiple vendors.”
The 10 Finovate alums participating in the FedNow project are listed below.
In a round led by SBI Investment and Sony Innovation Fund, open banking payments platform company Token has raised $15 million in new funding. The Series B round also featured participation from existing investors Octopus Ventures, EQT Ventures, and Opera Tech Ventures, the VC arm of BNP Paribas. The company, which made its Finovate debut at FinovateSpring in 2015, now has $50 million in total capital.
“The market’s appetite for open payments accelerated dramatically last year as more merchants and payment providers have tuned into the cost and efficiency gains that they offer,” Token CEO Todd Clyde explained. “Token’s payment volumes have more than doubled every month since March and our platform is now processing live transactions through PSD2 APIs from over 600 banks in 14 countries across Europe.” He added that the investment was an affirmation that Token would continue to lead in the open payments space and will help fuel further development in the company’s technology.
An early innovator in the open banking payments space in the U.K., Token was one of the first companies in the U.K. to earn authorization from the Financial Conduct Authority (FCA) as a payment initiation and account information service provider (PISP, AISP). In 2018, Token was the first PISP to complete an end-to-end payment via a PSD2-compliant bank API.
“Token offers a credible alternative to card and wallet payments while helping merchants, PSPs, and banks offer streamlined UX’s that deliver better payment experiences for customers,” said Sony Innovation Fund Chief Investment Manager Gen Tsuchikawa. Token’s open payment and data services support the transition away from traditional payment methods and toward account-to-account payments. This not only helps lower the cost of digital payments; it also introduces a variety of use cases for open payments, from funding accounts and billpay to credit risk analysis and cash flow management. Combine this with what SBI Investment Director and Chairman Yoshitaka Kitao described as “Token’s unrivaled bank connectivity and depth in payment services” and you have a company Kitao called a “market leader” that “has continued to outperform the competition.”
Founded in 2015 and maintaining offices in London, San Francisco, and Berlin, Token brings Pan-European connectivity to more than 3,000 banks. The company’s partners include Sberbank, Konsentus, Caxton, and HSBC, which recently launched its online payment alternative, HSBC Open Payments.
Cash management innovator MaxMyInterest has sealed a new integration deal with Redtail Technology, a leading client relationship management (CRM) firm. The integration will enable advisors and client service teams that rely on Redtail’s CRM to have one-click access to an onboarding solution that will give their clients access to preferred rates of up to 0.75% APY on their FDIC-insured cash deposits.
“We are excited to bring our cash management solution to Redtail users and honored to work with a company whose dedication to innovation in the advisor community matches our own,” MaxMyInterest Head of Partnerships and Business Development Michael Halloran said.
“Max provides advisors with a quantifiable value add by providing the ability to offer a high-yield solution for a typically overlooked and under-earning asset class,” Halloran added. “By integrating with Redtail, we are excited to help even more advisors grow their AUM, while their clients earn the highest yields in the market.”
A service of Six Trees Capital, MaxMyInterest made its Finovate debut at FinovateFall 2014. The company offers a way for individuals to optimize the interest they earn on their cash by providing a solution that automatically allocates cash balances to those banks offering the best interest rate at any given point in time. The technology ensures that balances are kept below the FDIC-insured limits at each institution, and features additional cash management functionality including monthly cash sweep and intelligent funds transfer.
Last year, MaxMyInterest announced an integration with Morningstar, combining its automated cash management technology with Morningstar ByAllAccounts’ data aggregation service. Last month, the company announced that veteran banking executive and fintech investor Jill Denham – founder and president of Authentum Partners – had joined MaxMyInterest’s advisory board.
“I see the MaxMyInterest team as true fintech innovators, dedicated to helping clients get the highest interest rates on insured deposits,” Denham said. “Their platform is notable in the manner in which the relationships they build between banks, depositors, and their financial advisors make all parties better off, and I’m excited to join and bring my expertise to their Advisory Board.”
Founded in 2013, MaxMyInterest is headquartered in New York City. Gary Zimmerman is CEO.
Is fintech’s final frontier the last chapter for banks?
A provocative new essay from Andreessen Horowitz General Partner Alex Rampell suggests that the way governments have directly intervened to provide financial support to citizens and businesses during the COVID-19 crisis could point the way to a new banking relationship between “people” and “We, the People” – with fintechs playing a starring role.
Rampell’s theme is disintermediation, which he calls the Internet’s greatest legacy. By enabling individuals to get access to the things they want – products, services, information – without a series of (often) fee-charging and rent-seeking gatekeepers, disintermediation has empowered users and rewarded those institutions that are best able to respond – quicker, safer, more accurately, and more completely – to customer demand.
The spectacle of governments – particularly the U.S. government – attempting to provide COVID-19 relief funding was for Rampell a dramatic example of what can happen when effective gatekeepers are NOT present. Because the U.S. government has few options to provide quick financing to its citizens and their businesses, a host of intermediaries were enlisted to help get relief money from Washington, D.C. to the American communities where it was needed. This, as we have since learned, has been time-consuming. Unfortunately, in some instances, it has also appeared to be wasteful in directing some funds to areas where none were needed and, in instances where support was needed, not distributing available funding, at all.
As Rampell put it: “The reason why things like the Paycheck Protection Program (PPP) have been such a disaster , or that stimulus checks still have to be mailed in 2021, is that there is no ‘direct connection’ between consumers and government for money. The government is the mainframe for money, but there’s not really an Expedia yet.”
And Rampell doesn’t see the point in waiting around for one, either. Instead, he asks why not use what the government already has access to, namely, social security accounts, and treat them like bank accounts?
“With an SSN as a permanent financial account with the government,” he writes, “the government could deposit money directly to consumers, or allow person-to-person transfers, or pay overnight interest on deposits directly.” Rampell imagines not only the ease of paying taxes (or receiving tax refunds) under such a regime, but also how much more efficient a government relief program might be with this SSN 2.0 approach.
Rampell is quick to insist that he is not interested in nationalized banking or what he called “postal banking” (generally, the idea of turning post offices into bank branches). Instead he argues that, in some instances, incumbent financial institutions are playing no more than a filtering role when it comes to facilitating savings in a country. And while this filtering has a role in modern capitalist economies, it is not exclusive and there is a good argument against treating legacy financial institutions as if it is.
“Fintech—’apps for money’—represents the most powerful tool that governments have to make their monetary services available directly to their own citizens,” Rampell writes, “helping accomplish monetary and policy goals and benefiting consumers equally.”
There’s more to Rampell’s discussion – including a key caveat on the role of private capital and risk-taking in such a system. But in a world that is getting increasingly comfortable with government playing an active role in the economy, a disintermediation that brings citizens closer to the government that rules in their name may be an idea whose time has arrived.
