It’s mid-August. Who is even working now? Evidently, the folks cranking out new fintech (and their investors) are not letting up. So far this month, 24 startups have received a total of $102 million in new capital.
Tags: Investing, financing, New York
Social trading and wealth management platform
Total funding: $8.5 million
Automated 401(k) management tools and portfolio analytics
Source: Crunchbase
Total funding: $3.5 million
Tags: Underbanked, payday lending, California
Source: Crunchbase
Total funding: $3.2 million
Equity crowdfunding platform
Total funding: $1.5 million
Financial management software for small biz and individuals
Total funding: $1.4 million
Tags: Gift cards, prepaid cards, credit cards, California
Online platform providing small business financing in India
Source: Crunchbase
Total funding: $920,000
Source: Crunchbase
Total funding: $550,000
Total funding: $270,000
Latest round: $250,000
Facilitating payments for person-to-person vehicle sales
Tags: Escrow, vehicle lending, Switzerland
Identity theft protection
Total funding: Unknown
The 40 Fintech Graduates from Y Combinator (YC)
By most measures, Y Combinator (YC) is far and away the most important incubator in the technology space. Graduating from there is like facing the job market with a resume boasting summer internships at Google, Facebook AND Goldman Sachs. You are almost guaranteed a multi-million funding.
Fintech (note 1) has been part of YC from the beginning. The first class (Summer 2005) included one fintech startup, TextPayMe, among the eight companies. TextPayMe was acquired shortly thereafter by Amazon for a rumored $3 million.
But as YC grew from 2005 to 2009, the number of fintech companies stayed at roughly 1 per year. During those five years, YC graduated 5 fintech companies out of a total of 139 (3.5%). Suddenly in 2010, the fintech number grew dramatically, average of more than 7 per year. During the past 4.5 years, there have been 35 fintech startups out of a total of 406 (8.6%) (see note 2).
Table: YC Fintech Companies by Year
| Class | Total Companies | # Fintech Companies | % Fintech |
| 2014 (half year) | 56 | 5 | 9% |
| 2013 | 83 | 9 | 9% |
| 2012 | 117 | 8 | 7% |
| 2011 | 89 | 7 | 8% |
| 2010 | 61 | 6 | 10% |
| 2009 | 39 | 1 | 3% |
| 2008 | 43 | 1 | 2% |
| 2007 | 32 | 2 | 6% |
| 2006 | 17 | 0 | 0% |
| 2005 | 8 | 1 | 13% |
| Total | 545 | 40 | 7.4% |
Source: Y-Combinator (yclist.com), Finovate analysis
(see note 1 for Fintech definition)
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List of fintech YC alums by year
_________________________________________
2014 (Winter class only)
Abacus
abacus.com
Say goodbye to expense reports.
TradeBlock
http://tradeblock.com
Digital currency data and analysis. TradeBlock’s digital currency tools and research are trusted by hundreds of thousands of traders and enthusiasts across the globe.
Two Tap
http://twotap.com
Users can now order any product directly in your app with Two Tap.
Zidisha
http://www.zidisha.org
We are pioneering the first online microlending community to connect lenders and borrowers directly across international borders – overcoming previously insurmountable barriers of geography, wealth and circumstance.
Zinc
http://www.zincsave.com
Zinc is the best way to buy. Pay with with Dwolla or Bitcoin, and manage all your orders in one place.
2013
Buttercoin
http://buttercoin.com
Trade bitcoin with ease.
PayTango
http://www.paytango.com
PayTango links the cards in your wallet to your fingerprints.
RealCrowd
http://realcrowd.com
Featured investments available for funding.
SimplyInsured
http://www.simplyinsured.com
Simple health insurance for small businesses.
Standard Treasury
http://standardtreasury.com
APIs for commercial banks.
Swish
http://www.swish.com
Swish is a dynamic, specialized mobile payment company that has developed a ground breaking new card reader and application which provides a complete mobile point of sale solution to any size business.
True Link Financial
http://www.truelinkcard.com
We keep a watchful eye out for fraud and spending mishaps so you can spend your time doing what matters.
WeFunder
https://wefunder.com
We aim to give everyone – regardless of wealth – the opportunity to invest in startups.
Zenefits
http://www.zenefits.com
Zenefits runs your benefits, so you can run your business. Get affordable benefits for your company in minutes. Then set and forget them.
2012
Airbrite
http://airbritelabs.com
Exited
Airbrite is a cloud-enabled platform that powers mobile commerce We are the next generation of e-commerce. Our mobile-firs
t API powers modern shopping.
Coinbase
http://coinbase.com
Your Hosted Bitcoin Wallet. Coinbase is the easiest way to get started with Bitcoin.
Crowdtilt
http://www.crowdtilt.com
Crowdtilt allows users to pool funds for objectives in a simple, social, and frictionless way online.
Eligible
eligibleapi.com
Real Time Eligibility Checks for Health Insurance.
FundersClub
thefundersclub.com
FundersClub is a web service that gives investors unprecedented access to investment opportunities and the tools to review and invest online with ease and speed.
LendUp
lendup.com
LendUp is reinventing the payday lending industry
SmartAsset
http://www.smartasset.com
SmartAsset makes life’s biggest decisions easier by bringing full transparency to the financial decision making process.
ZenPayroll
http://zenpayroll.com
We are creating beautiful, modern payroll.
2011
DebtEye
http://www.debteye.com
We are an automated credit counseling solution to help customers get out of debt, a little like a “turbo tax” for those who need debt relief.
Giftrocket
http://www.giftrocket.com
GiftRocket sells a new type of gift card that works at any location.
GoCardless
https://gocardless.com
GoCardless is a UK-based service that allows smaller merchants to easily set up interbank transfers for customers.
Leaky
http://leaky.com
Leaky helps consumers make better decisions about insurance.
OrderAhead
http://orderaheadapp.com
OrderAhead is the easiest way to order from local merchants on your phone.
TrustEgg
http://trustegg.com
The simplest way to save for a child’s future.
SwipeGood
https://swipegood.com
SwipeGood allows users to enroll their credit or debit cards and automatically round up every purchase to the nearest dollar for charity.
2010
CardPool
http://www.cardpool.com
EXITED
Cardpool is a gift card exchange marketplace where anybody can buy, sell, or trade their new or pre-owned gift cards.
E la Carte
http://elacarte.com
E la Carte develops tablets for restaurant tables so guests can order, pay and play games from their seats
FutureAdvisor
https://www.futureadvisor.com
FutureAdvisor was founded in 2010 on the premise that investing for your future does not have to be difficult or expensive.
Indinero
http://indinero.com
Accounting, taxes & payroll. One solution. inDinero is your company’s accounting department.
ReadyForZero
https://www.readyforzero.com
ReadyForZero creates online financial software that helps people control and reduce debt.
Stripe
https://stripe.com
Stripe is a simple, developer-friendly way to accept payments online.
2009
WePay
https://www.wepay.com
WePay is an online payments platform for individuals, organizations, and businesses.
2008
Tipjoy
DEAD
Tipjoy was a simple, social payments engine that allows merchants to sell digital content and features, charities to raise money for causes, and individuals to give money to one another.
2007
Buxfer
http://www.buxfer.com
Buxfer is the next-generation personal finance solution, taking money management to the web.
SocialPicks
http://www.socialpicks.com
EXITED
SocialPicks provides individual investors with a trusted online investing community where they can invest smarter together.
2005
TextPayMe
http://www.textpayme.com
EXITED
TextPayMe was an SMS payment service that lets you send money to other people using cell phone text messaging.
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Note:
1. We are using a broad definition of fintech including payments, insurance, investments, gift cards and even a few that are ecommerce focused such as E la Carte which is an order entry and payments play for restaurants.
2. Some YC companies are in stealth mode, so this public list is not 100% complete.
The Surprising Banking Giant Behind New Savings Site Sumday
BNY’s Sumday.com homepage
Fintech Fundings: 75 Companies Raise $900 Million in July 2014
According to FT Partners, fintech companies raised $903 million in July 2014, $678 million in equity and $225 million in debt. Only the fundings during the last week of July are listed below (in alphabetic order). For all 75 deals in July, see the FT Partners database.
Active Hours
Alternative lender for short-term loans
Latest round: $4.1 million
Total raised: $4.1 million
Tags: Lending, credit, underbanked, unbanked, loans, Palo Alto, California
Source: FT Partners
AvantCredit
Online alt-lender
Latest round: $300 million ($75 million equity, $225 million debt)
Total raised: $554 million ($329 million equity, $225 million debt)
Tags: Lending, underwriting, personal loan, SMB, Chicago, Illinois
Source: FT Partners
BeanStalk
Online tax prep
Latest round: $2 million
Total raised: $2 million
Tags: Tax preparation, fee-based services, OnSwipe (acquired), Salt Lake City, Utah
Source: FT Partners
Exchange Corporation
Japanese consumer loan marketplace lender
Latest round: $3.3 million
Total raised: $3.3 million
Tags: Lending, credit, consumer loans, P2P, person-to-person, crowdfunding,Tokyo, Japan
Source: FT Partners
FreshBooks
Cloud accounting
Latest round: $30 million
Total raised: $30 million
Tags: Accounting, money management, SMB, invoicing, bill payment, Toronto, Canada
Source: FT Partners
Privio
Online marketplace for private mortgage loans
Latest round: $3.8 million
Total raised: $5.9 million
Tags: Mortgage, lending, underwriting, alt-lending, California
Source: FT Partners
Rong360
Chinese lending search engine
Latest round: $60 million
Total raised: $60 million
Tags: Lending, personal loans, lead generation, Bejing, China
Source: FT Partners
Thinknum
Analytics for loan underwriting & investments
Latest round: $1 million
Total raised: $1 million
Tags: Analytics, enterprise, underwriting, investing, financial analysts, New York City, Finovate alum
Source: Finovate
TipRanks
Investment analyst ratings
Latest round: $3 million
Total raised: $3.7 million
Tags: Investing, analytics, Tel Aviv, Israel, Best of Show Finovate alum
Source: Finovate
Volabit
Bitcoin exchange platform
Latest round: $250,000
Total raised: $250,000
Tags: Cryptocurrency, San Mateo, California
Source: FT Partners
Wonder Technology
eGiftcard provider
Latest round: $800,000
Total raised: $800,000
Tags: Giftcards, prepaid, merchants, SMB, Burlingame, California
Source: FT Partners
ZipZap
Enables merchants to accept cash for online purchases
Latest round: $1.1 million
Total raised: $2.7 million
Tags: Merchants, acquiring, POS, payments, underbanked, SMB, Yorba Linda, California
Source: FT Partners
2015 Digital Banking Strategic Planning (Part 1)
I was on a call today with the digital strategy committee of a large U.S. bank. It was clear from their line of questioning that they are grappling with how to prioritize among the many major opportunities on the digital side.
I won’t list any of the specific topics here, but you could guess most of them (though one would surprise you I think). But the conversation got me thinking about what I’d recommend for next year if I was working in a bank, credit union or consumer fintech company.
In semi-prioritized fashion, here are my first three recommendations for 2015. More will follow.
_______________________________________
1. Insurance
_______________________________________
How are you going to replace NSF fee income once the CFPB gets around to capping it? (Timing hint: There’s a big election in 27 months.) One place to look: Insurance. It’s one of the last frontiers for retail banks, especially in the United States. FinovateSpring 2014 alum Insuritas (demo here) says it can launch your very own insurance store within 90 days. So if you move fast enough, you could have this running by end of year.
______________________________________
2. Lifetime transaction archives
__________________________________
I believe digital services will increase bank loyalty two or three-fold. So instead of accounts turning over every 7 years or so, it will be 15 or 20 years for digital-first households. Why? Once banks come to their senses and start archiving all your transactions like Google does for email, it will be much more of a pain to move.
________________________________________
3. Subscription fees
___________________________________
Back to the Gmail example. How much could Google charge me now that I have 100,000 messages archived there? $100/year easy. Probably more. Banks should be thinking the same way. Get #2 done, then charge $4.95/mo for a Peace of Mind package that includes lifetime archives, mobile document/receipt capture, priority customer service, and so on.
To be continued………..
Winning Checking/Deposits from Established Small Businesses
I was asked recently what it would take for me to move my business deposit relationship. My immediate answer: “There is nothing you could do to get me to move.”
We have changed banks only once in our 20-year history, moving to Washington Mutual (now Chase) in 2007 in order to get a better line of credit (which ironically, was never granted, as WaMu was about to go into a death spiral).
We’ve been happy with Chase for the most part, and now have so many services and payees connected to it, that I can’t imagine going through the headache of changing. Even if another bank or CU offered a fee-free account that matched Chase feature for feature, it’s just not worth the considerable investment in time and energy to switch.
But a few minutes later I changed my mind. Yes, there is one thing that would make me move my entire business account. And it’s so basic that it seems ridiculous that I’d even have to ask for it.
It’s the one thing that Chase, or any bank that I know of, isn’t currently delivering to small business owners:
Guaranteed safety of our funds against all fraud/theft
Chase has state-of-the-art security as far as I can tell (e.g., two-factor authentication for all the risky moves). And we’ve never had a problem. However, every time I read about some nonprofit or small business having their account drained after a successful key-logging attack, I get that queasy feeling.
And I’m not even asking for the fraud guarantee to be free. I’d be more than willing to pay for it. How about $25/month for the first $100,000 covered, then $10 to $15 per $100,000 thereafter? That should be enough to make it a decent profit center for the bank and I could sleep better (note 1). A win-win.
————————-
Note:
1. Two years ago, I was encouraged by the new offering from EFTGuard (see post). They were offering coverage of $100,000 per account up to $500,000 total per customer. Insured customers were required to use fraud-monitoring software from Trusteer, Iron Key or Webroot. The price was $25/mo to the end-user with $10 of that pocketed by the bank distribution partner. But I haven’t run across any banks currently offering it.
Create Subscription-Based Banking Services for Frequent Travelers
Having just returned from an all-too-short vacation, I continue to believe that banks are missing a lucrative opportunity to help customers reduce their financial anxiety while away from home. Following are the financial travel services I’d love to buy as a package priced at under $10/mo (not including insurance which would likely be sold on as-needed basis).
Travel services not only could be a solid source of fee income, but also put the bank in a great position to sell add-on insurance and credit services to road warriors and frequent travelers.
__________________________________________________
1. Easy-to-set travel flags
__________________________________________________
Most travelers have been trained to inform their bank about international travel plans to avoid unnecessary declines. It’s a perfect feature for mobile banking, but many (most) banks still require a tedious phone call to the call center. I’ve written about this before (here and here) and I’m seeing some improvements, though I still had trouble earlier this month with my bank of 20+ years (see note 1 for details). I’d also like to receive an “all clear” notice upon expiration of the flag.
__________________________________________________
2. Financial management services
__________________________________________________
While spending like crazy on holiday, it would be nice to have the option of seeing a running total of all travel expenses (at least those that weren’t prepaid). That would help us pace ourselves to keep from overspending and/or running out of cash before before we get home. Ideally, it would be nice to set up the “vacation ticker” at the same time we set the travel flag (see #1). The info should also be emailed/texted to travelers at the start of each day.
__________________________________________________
3. Personal trip journal
__________________________________________________
There are already some great services for managing reimbursable expenses on the road such as Expensify. But I want the same thing for personal travel. Sure, my perfect self would keep a neat journal of all the cool places where we visited and dined. But realistically, that’s just not going to happen. But I’d love my card app to help me keep a “spending journal” that would be a good substitute. As each expense occurred, the app would prompt me to snap a photo and/or jot down a few words to annotate each expense as they happened. And the bank would store these “travel journals” within secure online/mobile banking for the life of the account, thereby creating a powerful retention tool.
__________________________________________________
4. Special travel service reps (concierge)
__________________________________________________
Normal customer service reps aren’t always that savvy on the nuances of card usage while on the road, especially overseas trips (case in point, see #1). Provide a special email/text/phone number to “financial travel specialists” to get questions answered and problems resolved.
__________________________________________________
5. Convenient travel insurance that covers financial transaction
__________________________________________________
Not all the opportunities are around spending. There are important avenues of risk reduction available to savvy FIs. Due to a previous bad experience, I’m always a bit concerned about the safety of my personal belongings on the road. So, I’d like to buy travel insurance that covers:
— My personal belongings at the hotel or on my person (includes lost luggage)
— Details re: fraudulent use of my card
— Rental cars’ damage (not covered by my existing auto policy)
And the whole area of travel interruption is another possible avenue (see previous post).
___________________________________________________
BONUS: Chip-and-PIN prepaid cards for USA cardholders traveling abroad
___________________________________________________
Last week, I was that guy at the A9 toll booth making everyone back up to get over to the cash lane since none of my U.S. cards would work in the card reader (though they had worked earlier in the day). This included my fancy new BofA chip-and-signature card. We had more trouble than ever with U.S. credit cards in our latest trip across the Atlantic. So, please U.S. card issuers, sell me a prepaid card that really works in Europe. I’d pay a $100 fee (at least) just to avoid another toll-booth incident.
——————
Note:
1. I called my bank from the airport departure lounge to inform them I’d be using their ATM/debit card in Europe. The CSR insisted that I had to provide the last 4-digits of my checking account number before she could place a travel notice on my account. Since I was sitting at the airport without that info, we were at a standstill. Only after I asked for a supervisor did she come back and agree to do it for me.
20 Mobile Banking Landing Pages
Last week, I caught up with the USAA folk to share thoughts on the future of mobile banking. They explained how they are converting visitors on the mobile web to their native app with a popup (interstitial) prompt (see inset). It’s the first time I’ve seen a bank use that desktop technique on the mobile web.
It had been more than a year since I took a tour of major banks using my phone’s browser (Safari, iPhone 5, iOS7). The last time proved relatively uninspiring. Several banks showed a mobile-optimized view, but most defaulted to their desktop-PC view which is unusable without tedious “pinch and zooming.” And no one pushed users to the native app.
Today, that’s changed dramatically. Of the 20 major mobile banking websites I visited, only one (Citibank) delivered a desktop-PC view (and that varied depending on which URL was used to enter the Citibank site). And four of the 20 pushed their mobile app heavily (and three more showed a download link to the app store).
________________________________
Recommendations
________________________________
- While there has been much talk about pushing customers to less-costly HTML5 and responsive-design mobile websites, it’s still an app world (1 million and counting on iOS alone). And that’s not changing if Apple has anything to say about it. If you have a native app, make sure your mobile customers know about it.
- Every mobile web front landing page should include a prominent link (above the fold) to your native app(s). And it’s not enough to simply show the Apple and Android app store logos. That’s too subtle for many novice smartphone users.
- The call-to-action should list at least one benefit to the native app. Facebook, for instance, simply says, “browser faster.”
- Test an interstitial landing page such as the one currently used by USAA. Users can choose “remind me later” to defer their decision to download the app, or they can kill the interstitial permanently by choosing “no thanks.”
Table: Mobile web default view from 20 major mobile FIs
Key: Native promo = Promotes native app
Mobile web = Delivers mobile-optimized view
Pinch & Zoom = No mobile optimization on main landing page, requires pinching and zooming to navigate
| Mobile Optimized View? | Native App Call to Action? | App Store link? | Large Promo? | |
| Native app promo | ||||
| Bank of America | Yes | Yes | Yes | Yes |
| Barclays (UK) | Yes | Yes | Yes | Yes |
| Moven | Yes | Yes | Yes | Yes |
| USAA | Yes | Yes | Yes | Yes |
| Mobile web | ||||
| American Express | Yes | No | No | No |
| BB&T | Yes | No | No | No |
| BECU | Yes | Yes | No | No |
| BMO Harris | Yes | No | No | No |
| Capital One | Yes | No | No | Yes |
| Chase | Yes | No | Yes | No |
| Fifth Third | Yes | No | No | No |
| ING Direct (Turkey) | Yes | No | No | Yes |
| Regions | Yes* | No | No | No |
| Schwab | Yes | Yes | Yes | No |
| Simple | Yes | No | No | Yes |
| SunTrust | Yes | No | No | No |
| US Bank | Yes | No | No | No |
| Wells Fargo | Yes | No | Yes | No |
| Pinch&Zoom | ||||
| Citibank | Varies by URL | No | No | No |
| GoBank | No | No | No | No |
*Regions uses popup to provide choice of mobile view or full website
4 Amazon Fire Smartphone Features that Should Be Used in Mobile Banking
Seattle was abuzz today with the launch of Amazon’s long-rumored smartphone, dubbed Fire. Naturally, I look at everything through a digital banking lens. So here are its innovations that could be leveraged or imitated for mobile banking.
_______________________________
1. Tilt to scroll
_______________________________
Description: Fire users can tilt or swivel the phone to navigate through an app. For example, on the Kindle app, users can advance the page by tilting the phone so they don’t have touch the screen every time you get to the end of the page.
Mobile banking use: Tilting would make a convenient way to page through transaction records. It could also be used to open additional functions such as tagging transactions or initiating a payment (e.g., Starbucks “shake to pay”).
Verdict: Until I get my hands on the phone, it’s a little hard to know how useful this feature will be. But it sounds like a nicely useful UI improvement (note 1).
_____________________________________
2. Mayday button
_____________________________________
Description: Like the Kindle Fire, the Fire smartphone has one-button access to 24/7 video customer service with response time measured in seconds. Amazon calls it the “mayday” button.
Mobile banking use: Most mobile banking applications include telephone integration for a voice call to the call center. Instant video conferencing could be a good premium feature for high-value and/or fee-paying customers.
Verdict: While video customer support is not a killer feature, it has a nice ring to it when listed on your feature/benefit list. Certainly, banks should work on quicker response times for various types of products and/or customers.
_________________________________
3. Unlimited cloud storage
_________________________________
Description: Amazon raised the bar for photograph storage, promising unlimited storage for all the pictures snapped from your Fire’s camera.
Mobile banking use: Unlimited cloud storage for all transactions and statements.
Verdict: I know your compliance team gets queasy when discussing long-term data storage. But it’s time to rise above all that and invoke one of the best customer-retention tools imaginable, unlimited secure storage of all banking records (see note 2).
_____________________________________________
4. One year of Amazon Prime membership
_____________________________________________
Description: Fire smartphone buyers get one year of Amazon Prime membership free of charge. This savings of $100 covers half the cost of the 32GB phone ($199 with 2-year contract).
Mobile banking use: Premium channel
Verdict: Digital banking channels need an identifiable revenue stream to help pay for needed innovations and specialized services. A $4 to $5/mo “bank prime” membership program would go a long way in making digital a profit center (see previous post, note 2).
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Notes:
1. For more info, see our latest OBR Report on advanced mobile features (published June 2014, subscription).
2. For info on fee-based financial services, see Online Banking Report (subscription) on fee-based online services (May 2011); paperless banking and online storage (late 2010); and lifetime statement archives (2005).
New OBR Published: The Rise of Mobile Banking
Seven years ago we published our first full report on mobile banking. At that point, you could see that it would be widely used to access current balances and transactions. However, the broader services powered by the camera (remote deposit); GPS (location-aware alerts); and the audio jack (Square) were practically unimaginable back then.
But now it doesn’t take much of an imagination to see that banking is best done on a smartphone. The screen size is perfect for managing the small amount of data needed to understand your current financial position. And the always-on, always-with-you device is ideal for handling issues that just can’t wait until you are home in front of your desktop computer.
So let’s no longer think of mobile as a support channel. It’s the other way around. Branches, call centers, and even online banking will support mobile banking, which is destined to be the dominant form of money management for the next 20 to 30 years.
Last month, we looked at a key missing ingredient in mobile banking, the new account application. This month, we look at the advanced capabilities banks must support to make the mobile UX superior to online.
About the report
Advanced Features for Mobile Banking (link)
A guide to the important smartphone features coming in 2015 and beyond
Authors: Julie Schicktanz, Research Analyst &
Jim Bruene, Editor & Founder, Online Banking Report
Published 9 June 2014
Length: 44 pages
Cost: No extra charge for OBR subscribers, USD $395 for others (here)
Companies mentioned: ABN AMRO (Netherlands), Amazon, Apple, Bank of America, BBCN Bank, Blippar, BNP Paribas (France), Chase Bank, Cluster, Emirates NBD Bank, First National Bank (South Africa), Fiserv, Fitbit, Google, Greater Texas Federal Credit Union, Halifax Bank (UK), Isis, Malauzai, Mitek, PayPal, Pixeliris (France), PrivatBank (Ukraine), Rabobank (US), Royal Bank of Canada, Samsung, Simple (BBVA), Square, Southern Bancorp, St. George Bank (Australia), Starbucks, USAA, Verity Credit Union, Wells Fargo, Westpac (New Zealand)
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Report excerpt:
Apple Touches Off First Wave of Mobile Banking Biometrics
We’ve known this day was coming ever since Apple acquired AuthenTec two years ago for $350 million. That was real money back in the pre-Beats/Nest/Oculus days.
Monday, Apple made it official at its annual developers’ conference: The fingerprint authentication system built into the iPhone 5S (Touch ID) will open to outside developers in the next iOS update (v8.0 expected in mid-September). That means that app publishers, including banks, credit unions & wallet providers, will be able to use it to provide initial authorization into a secure app.
The new feature was demonstrated on stage by logging in to Mint (see inset, screen cap tweeted by Bradley Leimer Monday). In the demo, Mint users are prompted to use the touchpad to open the app (the small type says, “Please authenticate in order to proceed”). Users are also given a password option.
Most likely, banks will use Touch ID, as well as other handset-resident biometric systems (note 1) to deliver “read-only” access to data. It’s an approach that’s been catching on around the world even before Apple’s biometric wizardry. Citibank is the most recent to provide a no-login glimpse in its mobile app (called SnapShot), rolling it out nationwide two weeks ago (press release). It’s also used at Westpac (NZ), Commonwealth (AU), Bank of the West, City Bank of Texas and many more (note 2).
For anything transactional, such as a wire transfer, banks will likely require additional authentication (see our Nine Circles of Security).
And of course, these security changes will generally need to be optional for customers until they become commonly accepted practices. Most users are still extremely wary of security on mobile phones, even though it is a marked improvement over the desktop (note 3).
While it’s too early to know if any financial institutions will have it enabled by September, one fintech payment provider, CardFlight, wasted no time, announcing support for Touch ID just a few hours after the Apple keynote (note 4).
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Notes:
1. Celent’s Jacob Jegher showed me his facial recognition login on his Android phone (Samsung?) at last month’s FinovateSpring. Very cool, though he doesn’t have it enabled since it slows up the login process just slightly.
2. Malauzai Software powers more than 90 credit unions and banks alone (post).
3. See our latest report on Mobile Security (March 2014, subscription) for more info.
4. Cardflight will be showing off its latest tools at our first developer event, FinDEVr, 30 Sep 2014, in San Francisco.
The Rise (finally) of Online Specialty Lenders
One thing that always struck me as odd about the financial services startups of the late ’90s and early 2000s was their obsession with deposits. I can understand the appeal of having people send you money; it’s a rock-solid, low-risk part of the banking business model. But it also contains massively entrenched players who already have the consumers’ trust, along with a vast branch network to back it up. And it’s a commodity.
The much bigger opportunity for newcomers, to my thinking, is to go after the loan side. Consumer trust is almost a non-issue since you are handing them the money. And loan underwriting is both an art and a science with thousands of variables to innovate on.
But it’s a dicey area for investors. The economic downturn of 2000-2002 spooked the VCs as dotcom-darling NextCard went belly up (as did other non-online, sub-prime lenders). Then the big hit in 2007/2008 killed whatever business plans had been drawn up in the post-2002 period. And there will always be concerns about where to find more funds to lend out, especially in the post-securitization world.
Fast-forward seven years. We are finally seeing an explosion of consumer and small business lending online (with mobile coming on). This newfound activity is being led by the so-called crowdfunders and P2P lenders tapping institutional money along with accredited investors (and VCs) to deliver capital using a mix of debt and equity terms.
Another specialty lending area exploding online is secondary educational financing (note 1). For example, Sofi started by targeting graduates of elite U.S. universities. CommonBond is focusing on graduate students. ProdigyFinance lends to international MBA students.
The latest entrant in the educational space is CoderLoan (screenshot below). The NYC-based startup is working with employers and educational institutions to help finance participants in coding bootcamps, where tuition can run $10,000 for a summer-long program. Employer sponsors can repay the CoderLoan after a set amount of time on the job. Or the graduates themselves can afford to repay the loans with their developer-level salaries.
Bottom line: The uptick in digital specialty lending is win-win-win. There are potentially good returns for investors (note 2) while more capital flows to both entrepreneurs looking to expand and employees wanting to sharpen skills. Ultimately, that leads to a more productive and engaged workforce and a more rigorous economy.
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CoderLoan homepage (link, 27 May 2014)
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Notes:
1. For a 38-minute discussion on crowdfunding student lending, check out the panel at the Lendit conference in San Francisco three weeks ago (link). The panel included Vince Passione, LendKey; Mike Cagney of SoFi; David Klein of Commonbond; Cameron Stevens of Prodigy Finance; and Brendon McQueen of Tuition.io.
2. Most of the activity is too recent to fully understand whether the risk is being priced adequately (see NextCard in 2002), but the results from the earliest entrants — Zopa, Prosper and Lending Club — are promising.
3. For much more on crowdfunding (debt and equity), see our May 2013 report (subscription).