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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Super app Grab is becoming a lot more super. That’s because the Southeast Asia-based company that specializes in transportation, food delivery, and payment solutions is expanding into direct-to-consumer services.
Three new consumer-focused services are launching under Grab’s Thrive with Grab strategy. The new initiative builds off of the company’s merchant services strategy, Grow with Grab, that launched last year. In contrast, Thrive with Grab “aims to empower individuals to grow their personal wealth, manage their finances and protect what they value.”
At launch, Grab’s three consumer-focused services include a loan marketplace that aggregates loan offers from third party providers, a buy-now-pay-later payment offering with partner merchants, and AutoInvest, a micro-investment solution that allows users to invest small sums of money while spending in Grab’s ecosystem.
“As a leading fintech company in Southeast Asia, our ‘Thrive with Grab’ strategy will enable users to build their wealth, manage their finances, and protect what they value during this uncertain period,” said Grab Senior Managing Director Reuben Lai. “By offering innovative micro-transaction-based financial services, convenient financial management tools, and access to products from leading global financial institutions, we hope to unlock the tremendous potential in financial services in the region in ways that serve all Southeast Asians.”
The launch of the three new services is Grab’s second foray into the direct-to-consumer space. The company launched an insurance offering in April of last year and has since issued more than 13 million insurance policies.
Reuben said that the goal of the new launch is to “empower individuals and small businesses across the region to meet their diverse needs through financial services by delivering products and solutions that are accessible, transparent, and convenient.”
Grab raised $856 million in February and yesterday announced a $200 million round, bringing its total raised to over $10 billion and boosting its valuation to over $14 billion. Anthony Tan co-founded the company in 2012 with Tan Hooi Ling and now serves as CEO.
This is a guest post written by Shannon Flynn, managing editor at ReHack.com.
People in the fintech industry have inevitably heard about smart contracts. Here’s how they’re shaping the sector and why some parties may ultimately decide not to adopt them yet.
How do smart contracts tie into the rise of decentralized finance?
Anyone who asks a search engine “What is a smart contract?” will quickly discover it’s a computer code on the decentralized digital ledger system called the blockchain.
Entities ranging from utility to health insurance companies are investigating how smart contracts could help them do business while keeping information safe. Their increasing popularity helped spark the creation of the decentralized finance sector — DeFi for short.
A person located anywhere in the world could access a DeFi account with an internet connection. They can then carry out transactions typically associated with banks without going through those entities or intermediary influences.
Estimates say there are about a billion dollars connected to the DeFi industry now. That’s a relatively small amount compared to centralized finance, but DeFi is worth people’s attention. It offers new opportunities to invest, borrow, and lend, appealing to parties unhappy with traditional investment options. Some DeFi companies using smart contracts let individuals earn cryptocurrency tokens redeemable for platform governance rights.
What’s happening with smart contracts so far?
You can think of smart contracts as business rules translated into software since they work on an if-then basis. One required action triggers a related event. The parties involved set the parameters, and the smart contract automatically upholds them.
In one trial, Spanish banks investigated using smart contracts to administer instant credit transfers. The company that assisted with the rollout clarified the system could work for sending money for any reason.
Similarly, in Singapore, financial authorities recently completed the fifth phase of an initiative called Project Ubin by examining blockchain-based options across a multicurrency payments network. Real-world tests validated smart contracts for various arrangements, including conditional payments and escrow for trade.
IBM announced an upgrade to its smart contracts offering, too. It allows multiple parties to propose and amend alterations to existing smart contracts instead of only accepting or denying others’ proposals.
How do smart contracts work when used with property purchases or loans?
People in the fintech industry often encounter individuals who need business loans or want to take out mortgages for their dream homes. Research indicates about 83% of people are slightly or not at all familiar with cryptocurrencies. Education could show them that smart contracts and related technologies ease the stress of milestone transactions.
Increased speed is one smart contract benefit. However, advantages span beyond the initial signing of paperwork. Once a person’s loan gets approved, they could use an encrypted key to sign the offer, and their signature becomes a unique blockchain entry. Funding and property title transfers also become entries on the ledger. Mortgage approvals and loan term agreements take days, not months.
Smart contracts and the blockchain can help mortgage servicers track borrowers’ payments, too. Plus, if a homeowner wants to refinance a mortgage or sell their property, the blockchain records for the duration of the smart contract to confirm ownership.
What other benefits exist?
Ironing out financial agreements with smart contracts could also make good cost sense. One company offering smart contract-based mortgages in California and New York plans to offer lower rates than banks, and customers may get loans packaged together and sold as securities.
Some analysts think smart contracts could help the economy stave off a recession, preventing prolonged challenges in the housing market. Each intermediary that finalizes a home-buying process adds 1% to 2% of the total property value to the transaction costs, statistics show. Smart contract automation can reduce third-party involvement, cutting costs and delays.
Efforts to use smart contracts could close the gap between investors and investment managers as well. An investment manager might initiate a smart contract that carries out a client’s wishes and avoids missed opportunities.
Several companies are investigating smart contracts to facilitate vacation rentals at lower-than-average rates. They believe the smart contracts would settle disputes faster and facilitate speedier cross-border payments.
What are the downsides of smart contracts?
Smart contracts aren’t without potential faults. One investigation showed that 25% of smart contracts studied contained critical bugs, with 60% having at least one security flaw.
Moreover, these contracts are only as “smart” as the programmers creating them. The code cannot recognize and bypass mistakes. Although errors could be less frequent than traditional contracts — especially with experienced, meticulous developers — the possibility remains.
A World Bank examination of smart contracts concluded they’re not always the best choice for every scenario. One example was that they could lower the cost of providing insurance and perhaps automate payouts. However, if used with short-term unsecured loans, smart contracts would not significantly improve a borrower’s creditworthiness.
Not all analysts agree that the benefits of smart contracts surpass those associated with conventional ones. They see them as an interesting idea that works best in the experimental realm instead of the real world. Smart contracts are still relatively rare, too. People in fintech and other industries may balk at using them since they’re newer and could introduce unforeseen issues. That could change if overall adoption rates rise, however.
Food for thought in fintech
This overview introduces how smart contracts work and proposes appealing ways to use them in the financial sector. Given the associated limitations, you may still have some unanswered questions, and that’s okay. The ideal approach is to view smart contracts as options that could positively change the industry but are not problem-free.
ShannonFlynn is a technology and culture writer with two plus years of experience writing about consumer trends and tech news.
Step aside, challenger banks. Google and a band of eight traditional FIs are coming for you.
News broke this morning that six financial institutions have joined Citi and Stanford Federal Credit Union in offering checking and savings accounts through Google Pay. The new banks include BankMobile, BBVA USA, BMO Harris, The Coastal Community Bank, First Independence Bank, and SEFCU.
These new accounts will leverage Google Pay’s existing infrastructure, which will serve as the front end of a fully digital banking experience.
BBVA announced today that its accounts will launch in 2021 as co-branded, FDIC-insured accounts. The bank will provide the account, while Google will provide the front-end, user experience, and financial insights. The collaboration will be facilitated by the BBVA Open Platform, the bank’s open banking initiative.
“BBVA has focused for decades on how it could use digital to advance the financial industry and, in so doing, create more and better opportunities for customers to manage their financial health,” BBVA USA President and CEO Javier Rodríguez Soler said. “Collaborations with companies like Google represent the future of banking. Consumers end up the true winners when finance and big tech work together for their benefit.”
Aside from the list of bank partners, there are not many details available about the new, hybrid accounts. Tech rumor site 9 to 5 Google speculates, however, that Google with leverage the partnerships to issue its own branded debit card.
Remember when the mobile payments game was first getting started? The industry was rallying around NFC as the technology of choice for mobile payments. Bluetooth low energy (BLE) was a close second, and QR codes were generally the last choice.
That was in 2012 and now it appears that 2020 is throwing us yet another curve ball– QR Codes are back in style in the U.S. That’s because PayPal has partnered with InComm to launch its PayPal and Venmo QR codes technology at pharmacy chain CVS.
This move will implement low-touch mobile payments at CVS’ 8,200 brick-and-mortar stores across the U.S., offering shoppers a secure payment experience without needing to touch a keypad or sign a receipt.
PayPal users can pay using stored debit or credit cards, bank accounts, their PayPal balance, or PayPal Credit. Venmo users can also pay using their stored debit or credit cards and bank account, but will additionally be able to tap into their Venmo balance or Venmo Rewards.
“In the midst of COVID-19, we have seen an incredible acceleration of digital payments and touch-free payments,” said PayPal EVP and CPO Mark Britto. “Companies of all types and sizes are looking for ways to maintain the safety of their customers and employees, especially through touch-free experiences like curbside pickup and enhanced online shopping. QR codes complement these and provide retailers an additional payment method that furthers this touch-free mission and continues the growth of digital payments for all partners in the ecosystem. The essential nature of pharmacies makes CVS Pharmacy the perfect initial partner for PayPal and Venmo QR Codes – and we’re proud to help their customers stay safe while purchasing what they need.”
This week’s deal also marks a multi-year agreement between PayPal and InComm. The partnership enables InComm to distribute PayPal QR Code technology to its network of retailers, allowing them to integrate the QR code payment technology into their POS terminals.
PayPal has been touting its touch-free payment technology amidst the COVID-19 pandemic (see below). And given the payment giant’s previous traction and existing user base, the company will certainly come out on top as a winner in the post-pandemic economy.
Elsewhere across the globe, QR code payments have already seen success. Ant Group’s Alipay uses QR codes for in-store payments and had over a 50% adoption rate at the end of 2018.
The new, low-touch economy has set me thinking about robots recently. The less society is able to interact with fellow humans, the more voids exist, especially in the services industry.
And I’m not just talking about restaurants and hair salons (though, are robot barbers in our future?). The banking industry is a prime candidate for the intervention of a physical robot in a world suffering from a highly transmissible disease.
Perhaps the most famous robot in fintech is HSBC’s Pepper, a humanoid robot created by Softbank. HSBC has deployed Pepper at branches around the world and has been praised for boosting ATM transactions, increasing credit card applications, and more.
At last year’s FinovateFall event I caught up with HSBC’s Head of Innovation Jeremy Balkin, who discussed the bank’s traction with Pepper the robot.
In a world still struggling to collectively fight the virus while remaining socially distant, HSBC is leveraging technologies such as AI, wearables, and robotics to bring people together. The bank is using these enabling technologies to help promote financial inclusion, spur wealth creation, and support equality through language translation.
These goals may require heavy-lifting but the technologies we have are more-than capable for the tasks at hand. At FinovateFall this September, be sure to catch Balkin’s keynote address as he discusses HSBC’s efforts amidst the global health crisis.
FinovateFall will take place in a digital format– complete with live, remote networking– on September 14 through 18. Discounts are available so be sure to book today.
Blockchain-based money transfer platform Circle is making double headlines today. The U.S.-based company not only landed $25 million in funding, it also partnered with Genesis, an institutional trading firm offering two-sided liquidity for digital currency, including bitcoin.
Genesis parent company Digital Currency Group is the investor behind the $25 million. The investment is Circle’s first since August of 2018 and brings the company’s total funding to $271 million.
“Circle has been a pioneer in the digital currency market, building innovative products and services, and has consistently provided our industry with leadership on technology, standards, and regulatory policy,” said Genesis CEO Michael Moro. “With the rapid rise of USDC, we are clearly seeing mainstream momentum for digital currencies, and through this partnership with Circle we believe we can materially advance our shared mission of building a new global financial system.”
Circle will use the new funding to accelerate the adoption of USDC, a digital dollar stablecoin issued by regulated FIs, backed by fully reserved assets, governed by membership-based consortium Centre, and redeemable on a 1:1 basis for U.S. dollars. USDC has been gaining traction this year; earlier this month the cryptocurrency’s market capitalization crossed the $1 billion mark.
The investment will also provide a boost for Circle’s new Business Account and API products that the company launched earlier this year. These new services offer financial services companies a suite of APIs for USDC payments, facilitating the use of USDC in e-commerce, on-demand delivery marketplaces, digital gaming, internet services, P2P digital wallets, exchanges, B2B payments, challenger banks, trade finance, and digital asset lending and yield products.
“The partnership announced today between Circle and Genesis will bring to market solutions for businesses and developers who are seeking to generate strong positive yield from their own or customer USDC holdings, and access to USDC-based credit for businesses and merchants that are using USDC for treasury operations and business payments,” said Circle’s Josh Hawkins in a blog post announcement.
Digital Currency Group, which describes itself as the “epicenter of the bitcoin and blockchain industry,” has made 180 investments since it was founded in 2011. Digital Currency Asset Manager Grayscale and crypto news organization Coindesk are also Digital Currency Group’s subsidiaries.
Let’s face it, 2020 hasn’t been the year we were anticipating. We’re experiencing increased stress levels created by not only by fears of contracting a life-threatening virus, but also an economic downturn of unknown proportions.
And from a business perspective, stay-at-home orders and lack of childcare create a frustrating environment for co-worker communications. Not only that, but the lack of in-person meetings and a firm handshake makes it difficult to land partnerships.
Despite these (and many more) woes, here are a handful of silver linings:
Digital is working
Even for firms who have yet to implement it, the technology is available for them to create a fully-digital banking experience. While many of these capabilities have been around for awhile, we have now reached a point where consumers feel comfortable with interacting with tools such as remote onboarding, remote deposit check capture, and even chatbots.
Funding is on
At the onset of the public health crisis earlier this year, many prepared to say farewell to VC funding. And though funding has declined and valuations are stagnant, the fintech industry is still experiencing growth. So far this week alone, we’ve seen five fintechs raise $262 million in funding.
Fintechs are hiring
Layoffs and furloughs have taken place within the industry and there may be another round of layoffs in the future as the coronavirus drags on. However, we may ultimately see many of these employees shift to new positions. That’s because there are plenty of fintechs hiring. A search on Angel List reveals that more than 800 fintechs are currently seeking to fill roles. And the new remote working environment enables many companies to tap into global talent.
Partnerships are strong
Social distancing requirements may be preventing companies from gathering together in conference rooms and sealing a deal with a handshake. However, that doesn’t seem to be stopping fintechs from inking deals. Over the past month, we saw 10 major fintech-bank partnerships. Much of this collaboration was driven by the sudden need for traditional providers to digitize their offerings.
Transformation is mandatory
This point may seem like a strange silver lining. In fact, many may view mandatory transformation as more of a storm cloud, since fintech as an industry will not come through this crisis scot-free. Unfortunately, there will be cut backs and unplanned exits. Here’s the silver lining part– companies that fight to see the other side of the crisis will be better off for it. And so will their customers.
There’s no denying that challenger banks are one of the hottest things in fintech right now. The coronavirus has accelerated the need for a purely digital banking solution and this boost in demand has spurred an increase in the number of players in the space.
The newest challenger bank to enter the ring is Intuit-owned QuickBooks. The 28-year-old company is launching a business bank account called QuickBooks Cash. The new account will be promoted to QuickBooks’ existing user base of over seven million small businesses. The accounts boast a business bank account, debit card, an envelope budgeting tool, and cash flow management tools that work seamlessly with QuickBooks existing products, including payroll, payments, and accounting tools.
“QuickBooks Cash delivers what current business accounts don’t — a banking experience that enables small businesses to accept payments, pay teams and vendors — with automatic reconciliation for easy financial management,” said Rania Succar, Senior Vice President of QuickBooks Capital and Payments at Intuit. “Combining QuickBooks Cash with the powerful insights and financial management platform powered by QuickBooks, we are building a tool that accelerates the growth of small businesses. Companies that have more working capital can take advantage of more opportunities.”
QuickBooks Cash accounts will be backed by FDIC-insured Green Dot Bank and feature no balance requirements, a high-yield interest rate of 1%, billpay capability, cash flow planning tools, and more. Unlike most challenger banks which offer unlimited free ATM withdrawals, however, QuickBooks only allows four free withdrawals per month.
The new account, along with the corresponding tools, will roll out over the course of the next several weeks.
It seems as if cryptocurrencies are starting to capture the attention of mainstream financial services providers. This week, Visa has shown to be no exception. The payments giant recently revealed plans to use cryptocurrencies into its traditional payments network.
In a blog post announcement, Visa said it has been working with Coinbase and Fold to “provide a bridge between digital currencies and [its] existing global network of 61 million merchants.” As a result of this collaboration, more than 25 digital currency wallets across the globe have linked up with Visa to enable consumers to spend their digital currency using a Visa debit or prepaid card.
“We believe that digital currencies have the potential to extend the value of digital payments to a greater number of people and places,” Visa said in a statement. “As such, we want to help shape and support the role they play in the future of money. We look forward to sharing more with you on this work in the months that follow.”
Visa is using its crypto partnerships to position itself as the preferred network for digital currency wallets. Not only this, but the company also launched a FastTrack Program that helps fintechs integrate quickly with Visa’s network. One initiative that has resulted from the program is Visa Direct, which helps consumers convert digital currency and push the funds to their Visa credentials in real-time.
This week’s announcement builds on Visa’s long-term plans for leveraging the blockchain and alternative currencies. The company has a dedicated team that has been researching uses for the blockchain for years. Currently, the team is working on facilitating offline digital currency transactions.
Global payments platform Paysafe announced its acquisition of online payments innovator Openbucks. Financial terms of the deal were not disclosed and the companies expect the acquisition to be finalized by the end of July.
Paysafe aims to leverage Openbucks to expand its cash alternative payment offering in the U.S. by tapping into Openbucks’ technology that allows consumers to pay online without a credit card.
“The cash alternative payment market is a thriving one and we are seeing increased demand from online merchants who want to enable gift cards as a payments solution in order to reach new consumers, particularly in sectors such as gaming, eSports and entertainment which are very much on the rise,” said CEO of Paysafe’s eCash division, Udo Mueller.
Openbucks maintains a network of partnerships with major retailers that enable consumers to purchase gift cards that can be redeemed at the company’s 500+ ecommerce merchant partners. Openbucks founder Marc Rochman expects the acquisition to offer a greater level of exposure to his company. “Now, with the full backing of a global payments provider,” he said, “we will be able to provide a world class alternative payment solution to thousands of additional online merchants.”
Openbucks was founded in 2011 and caters to underbanked shoppers, guaranteeing no fees to consumers. Since then, the company has raised $5.3 million.
Founded in 1996, Paysafe is a global payments innovator that offers both online and in-store payment solutions. Philip McHugh is CEO.
Intelligent virtual assistance company Interactions launched a new product this week that aims to help accounts receivable management companies in their collections efforts.
The new product, Virtual Collection Agent (VCA), helps organizations with their collection efforts by– as the name suggests– providing a virtual agent to interact with the customer. The virtual agent creates efficiency for organizations by replacing human agents, creating scale, and automating negotiation.
Not only this, VCA is also beneficial to consumers. One in four consumers prefer interacting with a virtual agent when it comes to discussing uncomfortable financial information.
Piloting the new launch is ERC, a business process outsourcing service provider. “Over the past few years—and particularly in this pandemic—we recognized that automation was no longer a ‘nice to have’ in our industry, it was a requirement for addressing demand,” said ERC CEO Marty Sarim. “The response we’ve seen from both our customers and live agents has been encouraging, and the efficiencies we’ve been able to build into our business has put us in an extremely competitive position.”
Interactions’ other products include an intelligent virtual agent for customer engagement and a social listening and engagement tool that taps AI to to find and prioritize meaningful social posts, suggest responses, and gather insights.
Founded in 2004, Interactions facilitates one billion customer interactions per year across six different channels for large brands including Hyatt, Humana, LifeLock, and Mountain America Credit Union.
The following is a guest post by Wilson Pang, Chief Technology Officer of Appen.
Becoming an AI-first Organization in Finance
Many global organizations are recognizing artificial intelligence (AI) as a core component of their business. In fact, three out of every four companies surveyed in The 2020 State of AI and Machine Learning Report consider AI critical to their success. This is no surprise: there has never been a more opportunistic time to invest in AI given the breadth of people, budget, and other resources available to devote to these efforts.
Financial services firms are likewise integrating AI into their businesses to enhance operational efficiencies, bolster customer experience, and obtain competitive advantages. With several AI projects already under their belt, many financial services providers have started asking, now what?
Invest in an AI Center of Excellence
Becoming an AI-first organization will be crucial to long-term success. Organizations with this goal should invest in an AI Center of Excellence (CoE)– and in truth, more than a third of large firms already have. A CoE is a team of experts in a given discipline that manage resources and provide counsel within that field. With an AI CoE, firms benefit from a growing body of knowledge and set of best practices that enable scalable AI initiatives to launch with proven success.
Think of an AI CoE as a core machine in your organization. This machine contains the accumulative learnings from past AI initiatives and a clear vision for use of AI in your business strategy. It enables teams to continuously deliver solutions consistent with your business needs. It can drive revenue, create cost efficiencies, enhance customer experience, and give you a competitive edge.
In financial services, an AI CoE can help establish data infrastructure to ensure projects launch successfully at scale and are leveraging high-quality training data to do so. An AI CoE will support the structuring of the right engineering team to deliver on the increasing volume, quality, and speed requirements for training data. Few financial services firms have developed an AI CoE, and as a result aren’t fully leveraging the latest best practices, putting at risk the success of their AI ventures.
How to Build an AI Center of Excellence
Building an AI CoE involves several key steps:
Make the case for AI
Identify the business use cases for AI and how your organization will benefit from an AI initiative. Determine what kind of data you have, and what kind of data you’ll need. Establish the scope of your CoE.
Obtain stakeholder buy-in
Building a CoE requires a team effort. Share your case for AI with relevant stakeholders across your organization, particularly your executive team. Survey results indicated that 80% of AI projects are being managed by VP level or higher.
Many organizations struggle with alignment between business leaders and technologists, particularly on data challenges, core problems, and budget allocation. Keep in mind that an alignment is instrumental in creating strong AI infrastructure.
Build your CoE team and architecture
Consider which teams are critical to success and have domain expertise. You’ll likely require teams across product, product management, machine learning, data analytics, and DevOps (or its next evolution, AIOps).
DevOps deserves particular mention—these teams ensure everything runs smoothly within the company infrastructure and their support is required to launch a model and manage post-production delivery pipelines. Like DevOps, AIOps monitors whether the model is working as intended, but with the added leveraging of AI through machine learning and advanced analytics technologies.
Build a flywheel to launch your AI initiatives
A flywheel is a self-reinforcing loop made up of best practices. Your CoE should act as a flywheel, a core machine that drives revenue. To build scalable practices and create initial momentum, start small with quick wins.
Identify success metrics for each initiative, which could include saving money and time, generating revenue, or improving efficiencies. These metrics will guide your launch process and determine the data you need.
Gather high-quality data—data that is clean, complete, and reliable—and have the ability to collect, store, and annotate it before developing your algorithm(s) that address a use case. Don’t overlook the importance of this step; training data is the foundation of AI, and a key indicator of a model’s success or failure.
Depending on your in-house resources, you’ll choose to build your AI model using one of the following options:
Pay for a vendor-produced model – cheap and fast, but limited use cases
Build a model in-house – more control and alignment with use cases, but most expensive and resource-intensive
Outsource model build – customizable and requires few in-house resources, but expensive
An AI CoE will serve as a well-oiled machine for repeatedly launching scalable AI initiatives that support your core business strategies. Most importantly, building an AI CoE will take you further down the path of becoming an AI-first company, a critical next step in developing a competitive edge in financial services.
Wilson Pang has been with Appen since November of 2018 and has more than nineteen years’ experience in software engineering and data science. Prior to joining Appen, Wilson held positions at CTrip, eBay, and IBM.
