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Tracking fintech, banking & financial services innovations since 1994
What happens when third party fintechs try to access banking data on behalf of their consumers, but each way has a different way of doing so?
That’s exactly what’s happening in the U.S. right now, and it’s a major factor in preventing the country from adopting an open banking culture. In an era when consumers conduct their banking activities with multiple providers, open banking not only safeguards consumer data but also places them in control of how they want their data used and for how long.
Speaking different languages
The lack of a consistent approach is also the reason why customers of some U.S. banks have been locked out of third party applications such as Robinhood and Digit. While these customers were prevented from using their own banking data, banks had good reason to lock out the third party providers, citing security concerns. Our piece Are U.S. Banks Leaning Towards Closed Banking? covers the drama in more detail.
What’s needed is a standardized regulation for data sharing. Banks can’t trust third parties and what they may do with customer data. With new regulations such as CCPA and GDPR, banks are required to keep track of how their clients’ data is used. Once a third party possesses customer data, the bank can no longer guarantee it will be used and stored properly.
Aligning the approach
So how does the fintech industry get everyone on the same page when it comes to data sharing?
The Financial Data Exchange (FDX) was created to solve that very same problem. “FDX is member-driven and governed by majority vote and we’re united by a common mission and purpose: providing secure and convenient financial data sharing,” said FDX Managing Director Don Cardinal. “Our Working Groups are inclusive, transparent and benefit from our members’ decades of experience and professionalism.”
FDX is a non-profit organization that is creating what is essentially a playbook of data communications rules for banks and third party fintechs. FDX currently counts 102 organizations– only two thirds of which are banks– that vote on an agreed upon global standard for data sharing.
Keeping the end consumer in mind
Importantly, FDX not only helps its member organizations speak the same language, the alignment trickles down to benefit end consumers as well. That’s because FDX helps place consumers in control of their own data, allowing them to decide which organizations can use their data and for how long. Aiding in this transparency, some banks have created dashboards that allow customers to view and edit which apps have access to their data.
To promote more consumer awareness, FDX is working to create a certification stack that would indicate to consumers whether a bank, fintech, or organization is part of FDX. You can think of this similar to a bluetooth logo on a device that informs consumers that a product has undergone the Bluetooth Qualification Program.
So when can we expect mainstream adoption of FDX?
“While we cannot give an exact date, we know from similar innovations (online banking, billpay, mobile banking, EMV chip cards) that we are moving from the Innovator to the Early Adopter stage and that acceleration of adoption will accelerate once we pass the mid-market peak,” said Cardinal. “To date, our members have moved nearly 12 million U.S. consumers over to the FDX API.”
With many U.S. citizens out of work these days, some are struggling to put food on the table. Recognizing this need, the U.S. government has agreed to come to their aid by issuing $1,200 checks to every adult earning less than $75,000 per year and $500 per child. The actualization of this effort, however, has been slow. While some families haven’t been able to work in weeks, they will not receive their check for another two-to-three weeks.
Because of this lag time, U.S. challenger bank Chime is supporting its user base by helping select members access their stimulus money early. So far, the bank has provided a group of randomly selected 1,000 of its members that meet certain criteria to immediately receive an additional $1,200 in their account while they wait for the government’s funds to come through.
“…these randomly selected members will have access to spend an amount equaling their estimated government payment 2-3 weeks early and be able to use that money right away on everyday needs such as groceries and bill payments with their Chime card,” the company noted in its blog post announcement.
The California-based company is using SpotMe, Chime’s free overdraft protection service that allows eligible users to hold a negative balance of up to $100 while they wait for their next paycheck. Instead of charging interest on this microloan, however, Chime requests users to “pay it forward.” As stated on the company’s website, “When your SpotMe negative balance is repaid, we’ll give you the option to leave us an optional tip to pay it forward. Whether or not you tip won’t affect your SpotMe eligibility. SpotMe is a fee-free service, and friendly tips from our community help it stay that way!”
So who is funding all of this? Chime is leveraging its relationships with The Bancorp Bank and Stride Bank, as well as its investors (and specifically Mark Cuban), to forward the funds.
With a valuation of $5.8 billion as of December 2019, Chime has raised nearly $809 million. Last fall, rumors indicated that the company had 5 million customers and CNBC reported last December that Chime was adding 150,000 accounts each month.
Nordic challenger bank Lunar announced a new tranche of funding today, boosting its Series B round. The new $21.6 million (€20 million) installment adds to the $28 million (€26 million) the digital bank disclosed in August of last year.
Today’s investment brings the company’s Series B round to $49.6 million (€46 million) and raises its total funding to $74.7 million. Leading the extension round is Seed Capital, with participation from Greyhound, Socii, Augustinus, and Unity Technologies founder David Helgason.
Lunar’s free bank account includes transfers, payments, debit card, billpay, and access to in-app budgeting tools. The Premium accounts offer a fancier-looking card, three personal accounts, travel insurance, virtual cards, and more at a cost of just under $7 (69 krona) per month. The challenger bank also offers a business bank account for $194 per year that integrates with third-party software providers comes with commercial lending opportunities.
Lunar was founded in 2015 and received its banking license in August of last year from the Danish Financial Supervisory Authority. In all, the company touts 150,000 users. Ken Villum Klausen is founder and CEO.
Foreign exchange platform Azimoannounced today that it will facilitate payments on behalf of Thailand’s largest commercial bank, Siam Commercial Bank (SCB).
SCB clients will benefit from Azimo’s digital money transfer program that uses RippleNet, a blockchain-based money transfer service. Using RippleNet, Azimo will be able to instantly deliver payments from Europe to SCB client accounts.
The partnership leverages a program called PromptPay, which offers Thailand residents a PromptPay ID to serve as a proxy for their bank account number. PromptPay was launched in 2017 as part of the Bank of Thailand’s E-Payment initiative.
According to Azimo CEO Richard Ambrose, “Transfers can be set up in minutes from a smartphone. The fees are low and the rates are great, so our customers will be spared the extortionate charges levied by many competitors.”
Azimo counts more than one million customers of its digital money transfer platform, which allows users to send money from 25 countries to more than 200 countries and territories worldwide.
Last year, the company increased its transfer volume by 60% year-over-year. Today’s move with SCB should boost that growth even further; Thailand is one of the top destinations for remittances. The country receives $6.7 billion from around the globe each year.
Headquartered in London, U.K., Azimo was founded in 2012. The FinovateEurope alum brought in $21.7 million (€20 million) in debt financing last month, bringing its total combined debt and equity funding to $88 million.
In order to reflect the new timeline of the event, we have changed the name from FinovateSpring 2020 to FinovateWest 2020. The show will take place November 23 through 24 at the Hilton in San Francisco’s Union Square. Registration is now open (if you were already registered for the event our team has been in contact with you via email).
Over the past 12 years, many of you have come to feel like family to us, and we hope you are all doing what is needed to keep yourselves and your family safe.
As part of an effort to keep everyone safe, and to comply with current governmental recommendations surrounding COVID-19, we have rescheduled FinovateWest 2020 to take place November 23 through 24.
The venue will remain the same at the Hilton San Francisco Union Square. Attendees who have booked as part of Finovate’s room block will not incur any cancellation fees from the hotel. The hotel is in the process of moving attendees in our block to the new dates and attendees will receive a confirmation when the move has been completed. If you need to change your new reservation, please contact the hotel directly.
We will be in touch with respective parties – speakers, sponsors, and demo companies – with more detailed information about arrangements for the new dates. If you have any questions please contact us to discuss further.
We remain grateful for your continued support and understanding and very much look forward to welcoming you in November.
In the meantime, please let us know if there is anything we can do to foster innovation and community in the fintech sector. Our industry was created to fulfill unmet needs of society. We know that in these crucial months ahead, innovators in this space will continue to do so.
We’re all in this together, and we each have a role in continuing the heartbeat of fintech across the globe.
Digital identity company IdentityMind Global has agreed to be acquired by identity verification company Acuant five months after the two initially formed a partnership. Terms of the agreement were not disclosed.
The deal offers Acuant access to IdentityMind’s digital identity product, a SaaS platform that builds, maintains, and analyzes digital identities and helps companies perform risk-based authentication, regulatory identification, and detect and prevent synthetic and stolen identities.
While digital identity was a hot topic at the beginning of the year, it is even more so now that much of consumer interaction is being pushed from in-person to online channels.
“Never before has identity been so critical to building and maintaining a stable and productive economy,” said Acuant CEO Yossi Zekri. “Businesses must rely on trusted identities to successfully transact, fight fraud and stay compliant. Our Trusted Identity Platform, now with IdentityMind’s orchestration layer, creates a new standard in identity verification.”
Acuant has offered identity verification solutions for 20 years. Since then, the California-based company has completed more than one billion trusted transactions in over 196 countries. Today’s deal is Acuant’s second acquisition after purchasing AssureTec Technologies in 2016.
IdentityMind was founded in 2013 and has raised $21.5 million across three rounds of funding. The company most recently demoed at FinovateSpring 2018, showcasing its GDPR compliant KYC plug-in.
One of the brutal facts of the COVID-19 outbreak is that it will be difficult for small businesses to survive. The self-distancing and shelter-in-place orders, while temporary, are taxing for already cash-strapped merchants.
Adding to the hardship, small businesses may find it especially difficult to get a much-needed loan from their local bank or credit union since many have closed physical branches to encourage social distancing. And while banks offer many services online, only 1% are capable of extending a loan digitally.
This is where lending-as-a-service steps in. The technology works like a plug-and-play option that allows financial institutions to launch mobile and web financing applications, exchange documents digitally, and issue funds within a few days. While third party fintechs already offer digital lending services, many banks are years away from being able to develop and integrate their own online lending service.
When banks implement lending-as-a-service, they are in a better position to serve small businesses that need cash flow quickly. It means that instead of turning to unfamiliar third party financing solutions, businesses can maintain their relationship with their primary bank as they get back on their feet after the crisis.
Military veteran-focused small business lending platform StreetShares began selling a lending-as-a-service offering for banks last September after it launched the product at FinovateFall. Using the new service, banks can lend up to $250,000 in funding to small businesses via a process that takes place completely online using the applicant’s web or mobile device.
StreetShares’ lending-as-a-service program offers lenders a 100% digital loan application, instant underwriting, as well as loan servicing and tracking. The program doesn’t require software integration and can go live in under 30 days.
The company’s lending-as-a-service solution has already seen success, having amassed 30 clients, including banks, credit unions, and alternative lenders. Here’s the good news– StreetShares is waiving its software subscription fees through the end of the year for banks who fund small businesses impacted by the coronavirus.
The company is calling this initiative Main Street Heroes. Since banking has transformed to an almost completely digital industry, the new initiative enables lenders to add a completely digital lending tool and serve businesses they otherwise may have had to turn away.
“In the wake of the coronavirus, business owners and regulators are both asking lenders to do more to help Main Street,” said StreetShares CEO Mark Rockefeller. “But most banks and credit unions simply have no ability to make these loans digitally. StreetShares has the needed technology and can power lenders to be the heroes that Main Street needs right now.”
StreetShares was founded in 2013 and is headquartered in Reston, Virginia. Mark Rockefeller is CEO.
Further proving that every company is a fintech company, Plaid has formed a partnership with Microsoft.
Plaid will integrate with Microsoft Excel to help give the budget spreadsheet a major upgrade. Launching under the guise of Money in Excel, the new tool will use Plaid to import users’ financial information, bringing an automated approach to financial management.
With access to 11,000 financial institutions across the U.S., Canada, and Europe, Plaid is able to import the user’s entire financial picture in real time.
Money in Excel offers budgeting features typical of most PFM applications. Users can see a monthly overview of their spending habits, analyze recurring expenses, and understand their net worth.
Money in Excel is launching as part of the new Microsoft 365 subscription service that will go live on April 21. The subscriptions range from $6.99 per month to $9.99 per month and include real-time editing in Word, advanced PowerPoint layout and speech coaching, and access to creative content.
Plaid works with thousands of third-party fintech apps such as Transferwise, Betterment, and Venmo to connect with their users’ financial institutions. The company made headlines at the beginning of 2020 after it announced it had been acquired by Visa for $5.3 billion.
Credit management solutions provider CRIF has agreed to acquire PFM company Strands for an undisclosed amount. The deal will be finalized “in the coming weeks.”
The union will bring Strands’ personal financial management and business financial management solutions to CRIF’s client base that includes 6,300 banks, 55,000 businesses, and 310,000 consumers across 50 countries.
Strands’ technology will complement CRIF’s customer acquisition, portfolio management, and credit collection tools that help forecast market developments, improve business performance, reduce credit risks, and prevent fraud.
According to CRIF chairman Carlo Gherardi, the acquisition will “allow CRIF to create a worldwide digital solutions provider for open banking.” He added, “Through this deal, CRIF will combine its market knowledge and expertise with an innovative and well-positioned fintech player, creating synergies that will help our global clients to keep on growing and innovating through their digital transformation journey.”
For its part, Strands brings to the table 700 bank clients serving 100 million end customers. Strands CEO Erik Brieva said that the deal will help fuel Strands’ mission “to enable banks to anticipate customer needs and proactively suggest next-best-actions.”
Strands was founded in 2004 and has since raised more than $55 million in two rounds of funding. The company has offices in Barcelona, Spain; Buenos Aires, Argentina; Kuala Lumpur, Malaysia; and at its headquarters location in Miami, Florida. Strands’ most recent appearance on the Finovate stage was last year, where it demonstrated a cash flow solution for small businesses alongside Mastercard.
With more than 5,000 employees, CRIF is headquartered in Italy and was founded in 1988. Today’s deal is the company’s seventh acquisition, following its purchase of Vision-Net in 2018. CRIF demonstrated its Credit Framework solution at FinovateEurope 2014.
Last fall, blockchain payments company Ripple, in conjunction with Celent, conducted a survey to better understand payment services providers’ adoption of blockchain-based payments. The findings of that study are published in a report issued by Ripple, and illustrates how far the payments industry has come with regards to blockchain adoption, and what’s needed to keep the momentum going.
The study surveyed 1,050+ payment services industry representatives across 21 countries. Overall, it found that:
35% of respondents are in production of a blockchain payments solution
27% are nearing implementation of a blockchain-based payments solution
31% say that the blockchain offers the opportunity to expand existing services into new regions
71% are “very to extremely” interested in digital assets
Ripple indicated that leveraging the blockchain for payments has gained a significant amount of momentum thanks to its fair pricing for end consumers, attractive revenue for payments providers, and the overall level of trust placed in the technology.
Now all that’s needed is to pick up the pace of adoption– but what is holding back mass adoption of the technology? Ripple’s study identifies three drivers responsible for faster blockchain adoption:
Payments companies are concerned about implementing a blockchain-based payments solution because they are worried it will be expensive and difficult to integrate into their existing platform. In fact, a third of respondents to the study cited implementation as a concern of using the blockchain for payments.
When integrating new technology into existing platforms, regulatory hurdles are almost always a concern. With blockchain technology, however, this seems to be even more true, especially with legacy financial institutions. As one would expect, regulatory concerns of digital banking providers are less acute, since they are accustomed to operating using non-traditional models.
One of the top perceived benefits of using the blockchain for payments is the time savings. In fact, three quarters of the survey respondents were interested in leveraging the blockchain for digital assets in cross-border money transfers. Fueling this interest is the speed at which these transactions can occur when compared to traditional payments. The study found that early adopters of blockchain technology are most interested in using digital assets.
The physical border between the U.S. and Canada may be closed, but that’s not stopping tech startup financing provider Lighter Capital. The Seattle-based company announced today it has launched its services in Canada.
Canadian businesses can now take advantage of Lighter Capital’s debt financing offerings, including term loans and lines of credit, as an alternative funding source from bank loans and VC funding. Both debt financing options offer companies up to $1 million in capital.
The company’s flagship offering, Revenue Financing, will not yet be available to Canadian businesses. Lighter Capital’s Revenue Loans help borrowers access up to $3 million in loans that they repay based on their monthly cash inflow.
“With the Canadian tech industry’s continued growth, we’re seeing a correspondingly greater need among startups for access to venture capital as well as to various forms of debt financing,” said Meredith Powell, Vancouver-based venture partner at Voyager Capital, an investor in Lighter Capital. “Lighter Capital is a trailblazer in the area of debt-based financing and I have little doubt that, given the increasing demand for their services, they’re positioned for success across the nation.”
Fueling its Canadian expansion, Lighter Capital will open an office in Vancouver, British Columbia. The company is also partnering with the Canadian branch of the Founder Institute, a startup accelerator.
Founded in 2012, Lighter Capital has offered more than $200 million to 350+ U.S. startups. Of those, 20% have had successful exits.
The following is a guest post written by Apoorv Gehlot, founder of Matellio LLC, a software engineering studio based in California.
Fintech has drastically improved the products and the services of the traditional financial services in the past few years. However, even after many financial institutions have readily adopted fintech services, there are still some hidden risks in the aforementioned industry. For instance, the integration of the fintech services in the existing banking solutions raised a severe concern for data security. Also, the rapid growth of digital platforms made the fintech industry and its customers uniquely vulnerable to various breaches in IT security networks.
Hence, it is vital to know about various hidden risks involved in the fintech services. Let’s discuss some of them here.
Trending challenges in fintech
Third-party security risks
Internal security is not always enough, especially when it comes to banks. Hence, much of the time, when banks or other financial institutions leverage a fintech service from a not-so-trusted service provider, they end up losing their data, experiencing service failures, and may even suffer a loss of reputation because of inefficient data. These types of damages occur due to third-party security risks. To eliminate third-party risks involved with fintech services, banks and financial institutions should consider the fintech relationship-related risks in their risk management assessment.
Malware attacks and hacking are the most prominent types of security issues that are prevalent in the global market. The hackers are now targeting the Society for Worldwide Interbank Financial Telecommunication (SWIFT) more easily. SWIFT systems are used by almost all the banks and top financial institutions to exchange vital financial information.
However, the recent cyberattack on the SWIFT infrastructure indicated the level sophistication of the hackers and malware attackers. The banks and financial institutions have vulnerabilities in their processes, and the hackers take advantage of these vulnerabilities to launch malware attacks.
We all know that data plays a crucial role in every industry irrespective of their domain. And when it comes to banks and other financial institutions, data automatically becomes a matter of utmost importance. However, with the introduction of inefficient fintech systems in the finance industry, the problems of data breaches rose to a great extent.
Payment card details and user information are readily available to hackers making online transactions prone to cyber thefts. The financial institution partners with third parties, and then data losses may occur due to their inefficient fintech services.
Application Security Risk
Fintech applications are used by many banks to access the real-time financial information of their customers. They leverage this real-time information to carry out transactions and for performing other banking operations.
However, if a software application does not have foolproof security modules and efficient codes, then it automatically becomes more prone to cyber thefts. The attackers leverage the weak security of the applications to steal the customer data and other vital information. So if a person is planning to develop a fintech software solution they need to be very sure that the application has all the vital security features included in it.
Money Laundering Risk
Fintech-driven banks often use cryptocurrency for carrying out financial transactions. These cryptocurrencies are an integral part of the fintech ecosystem, and they are not formally regulated by any set of standards and global regulations.
Hence, the frequent use of non-regulated currencies results in illegal money laundering and even in terrorist funding. Since identifying the beneficiary in any fintech-enabled transactions is not possible due to fintech’s pseudonymous nature, the money laundering operations get enough support from the fintech services.
Digital Identity Risks
With the introduction of digital tools in the banking and finance industry, the use of mobile-based services that used one-time passwords and security codes increased drastically. These security codes and passwords are not as safe and can be easily accessed by a hacker.
The vital data of the banking customers could be easily accessed due to the faulty fintech system provided by some of the fintech service providers. Hence, financial institutions need to revisit their online security architecture to address these risk factors before planning for fintech implementation.
Legacy Banking Systems
Banks are struggling hard to develop and introduce advanced fintech services in their non-patched core banking systems. These traditional banking systems are very much vulnerable to all sorts of cyber thefts. And the main concern is way more than that.
When the tech-friendly fintech services integrate with the existing non-secured banking systems, there are chances that they will be at the target of attackers too. So, the first duty for any financial institution before implementing fintech in their organization is to refresh their core banking systems. That will help the company eliminate losses due to cyber thefts.
Cloud-based Security Risks
Cloud-based solutions are one of the significant aspects of the fintech industry. From payment gateways and digital wallets to secure online payments, cloud computing services offer everything in the fintech ecosystem. Maintaining the confidentiality and security of financial data is critical to banks and financial institutions.
Even though the cloud-based services are considered a secure means of storing the data, lack of adequate security measures can result in the corruption of your sensitive financial information. There are instances when the company partners with an inefficient, cloud-based solution provider and then deals with significant data losses. Therefore, stay updated and be wise while selecting your cloud-based service partner.
To conclude, we can say that, if hackers are unbeaten in their efforts to access the fintech platform with ease and efficiency, the faith of banking customers in the technology-driven fintech platform will be significantly reduced. All this will result in the slow growth of the fintech industry. Hence, balanced innovation is needed to promote the growth of the fintech industry and mitigate the hidden risks of fintech services.
ApoorvGehlot takes a keen interest in exploring various aspects of the digital realm, and ideate solutions with his team of innovators.He believes in sharing his experience and knowledge with readers across the world to enlighten the audience through concise and meaningful write-ups.