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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
U.S. wealthtech player Betterment is building up its assets under management. That’s because the company acquired the U.S. investment advisory business of Canada-based Wealthsimple this week.
Terms of the deal– which notably does not include Wealthsimple’s technology, employees, or operations– were not disclosed.
“As we shift our focus to our Canadian business for the time being, finding a partner for our U.S. business that shared our commitment to putting clients first was our top priority,” said Wealthsimple Co-founder and CEO Michael Katchen. “It’s been a privilege to serve our U.S. clients, and we’re confident that their investments will continue to be in good hands with Betterment.”
To find a suitable home for its U.S. accounts, Wealthsimple selected Betterment in a competitive bidding process for its strong reputation and customer-first mentality. Wealthsimple’s U.S. clients will be moved over to Betterment in June of this year.
“This was an excellent opportunity for us to grow our customer base, and we’ll continue to be aggressive in opportunities that accelerate our business goals,” said Betterment’s newly-appointed CEO Sarah Levy.
Banking technology player PlaidannouncedPlaid Income this week, the company’s new income verification tool.
Income offers a secure and fast way to help consumers prove their salary in order to qualify for and secure loans, rent apartments, lease vehicles, and more. Lenders benefit from this data by being able to make better-informed risk decisions, issue pre-approvals or approvals faster, and allocate fewer resources to manually reviewing documents.
Plaid places consumers in control of their own data by offering them the option to choose whether to share their data. With Income, they can opt to share their salary information by connecting to their employer account, payroll provider account, or by verifying their salary using documents such as paystubs, W2s, and some 1099s.
To help users connect directly with their payroll provider, Plaid supports real-time payroll authentication for over 250,000 of the largest employers in the U.S. The company is also developing credential-less authentication capabilities with leading payroll providers, including ADP.
The new Income tool is part of the Plaid for Payroll suite, which also includes the company’s Deposit Switch offering launched earlier this year.
Plaid’s income verification tool is similar to an offering from its competitor Finicity, which launched its Verification of Income and Employment solution in 2019. Among Finicity’s clients are Freddie Mac, Quicken Loans, and Experian.
Interestingly, Finicity was acquired by Mastercard late last year, just days after the U.S. Department of Justice filed a civil antitrust lawsuit to block Visa’s ability to acquire innovative fintech.
Aon announced partnerships this week that are helping the insurance broker to pilot a decentralized insurance offering. The new product will cover risks associated with DeFi platforms. More specifically, it will cover clients who experience losses as a result of hacks or buggy software.
The firm formed partnerships with smart insurance contracts provider Nayms, decentralized lending platform Teller Finance, and Relm, an insurance company that embraces new and emerging business categories.
“The Nayms platform puts the tool of smart contracts in the hand of regulated underwriters (like Relm) and brokers (like Aon), to open up a new capital source when underwriting crypto risk,” Nayms CEO Dan Roberts told NASDAQ via email. “This could be in either crypto (ETH, BTC) or in fiat (via a stablecoin). Aon is assessing both options as part of longer term programs.”
Aon and Nayms are conducting the pilot through Teller Finance, while Relm is underwriting the insurance contract.
While other players have offered insurance protection for crypto wallets in the past, Aon aims to be different. That’s because not only is the firm staying above board with fully regulated players, it is also focused on keeping the underlying processes straightforward and intelligible. Both of these attributes are difficult to achieve in the crypto world.
FinovateEurope is taking place digitally on March 23 through 25, but we’re launching on-demand content a week before the event.
Starting on Monday, March 15, registered attendees will have access to hours of content, hosted on the new Totem platform.
Among these exclusive videos are our popular interview series where we ask our demo companies a series of 25 rapid-fire questions in under five minutes. Additionally, we’ll have content aimed specifically at young fintechs in our Startup Booster series. Some of these sessions include:
Ready to Raise Money? Here’s a Checklist. SixThirty Ventures Regional Manager EMEA Samarth Shekhar will present on how to find the right partner at the right price and how to avoid common pitfalls when meeting with investors.
Accelerating Growth This panel features accelerators from across the Europe. Each will give insights into how working with an accelerator can kick start your growth.
Brand Origin Story Time Marqeta CMO Vidya Peters offers tips on how to ensure your startup story and brand stand out from the crowd.
Know Your Customer NetGuardians CEO and Co-Founder Joël Winteregg explains how you can get to know your customer as you’re just starting out.
Tips & Tricks from a Sales Expert CurrencyCloud Sales Director Lauren Passey offers up a lesson in sales.
The seven-minute demos from each demo company will also be released early. This way you can watch, fast-forward, and rewind before the event even begins. And be sure to make note of your questions so that you can ask the demoers in person during the Q&A sessions that will take place during the live event.
And because we know you’re busy, we’ve made all of this content available on the event platform for two weeks after the event concludes.
There’s still time to book your ticket for FinovateEurope. Check out the main agenda to see the range of networking opportunities, keynote speakers, panel discussions, and more that we have planned.
Subscription management startup Subaio landed $5.9 million (€4 million) this week. The investment comes from newly established venture firm, Global PayTech Ventures, which ex-Mastercard President Javier Perez launched after stepping down from Mastercard at the start of this year.
Founded in 2016, Subaio has received two previous funding rounds. The first came from Nordea in 2018 and the second was from startup accelerator Plug and Play last year. Both rounds were undisclosed.
“There is a massive market demand within the payments ecosystem and the team has deep technical expertise and a great product that solves a problem for banks and consumers alike,” said Perez. “That is why they have a European market leading position within the subscription management space, and we will invest both capital, our payment expertise and network of global contacts to realize the company’s full potential.”
Subaio’s value proposition fits well into today’s economy, where the average consumer has between eight and 11 subscriptions. That’s because Subaio enables banks to help their consumers view, manage, and cancel their subscriptions with one easy-to-use interface.
Eight bank clients, including Nordea, ABN AMRO, and Lunar, are currently leveraging Subaio’s subscription management technology.
Subaio CEO and Co-founder, Thomas Laursen, sees today’s funding as a vote of confidence for the technology. “The fintech sector is flush with funding,” said Laursen. “Thus, raising capital is not about how much you raise, but who you raise it from. It was imperative for us to receive a smart money investment that can propel us to the next level. Partnering up with a capacity such as Javier Perez and his team at GPT with their unique insight into the paytech industry is about getting knowledge and network into our company.”
In an economy that is taking place increasingly online, the recent boost in fraud has left many banks, fintechs, and retailers underprepared in the fight against bad actors.
In a recent conversation, I spoke with Neustar Senior VP Robert McKay, who offered his perspective on the increase in fraud, the use of device reputation tracking, and steps firms can take to minimize their shortcomings.
Catch us up on the current security landscape in fintech and banking
Robert McKay: The pandemic has forced almost all customer interactions with institutions to digital channels. While it offers a new level of convenience for customers, it has exacerbated an existing problem in these types of interactions – increasing ambiguity for seeking secure, trusted connections across anonymous interactions. Institutions and fintechs that deal with highly sensitive customer information have long struggled to properly authenticate the identities of consumers across these digital channels, and fraudsters have developed savvy methods to skirt some of the most prominent forms of identity authentication.
Trust is at the center of successful fraud mitigation. If you can trust, with a high enough level of confidence, that the person on other end of the device is who they claim to be, then financial institutions and fintechs can reduce friction and improve the experience for legitimate customers while limiting additional verification and fraud-fighting resources to suspicious interactions.
2020 disrupted every subsector of fintech. Talk to us about how it changed the online security realm.
McKay: McKinsey cited that the pre-COVID consumer adoption rates for performing balance inquiries and transactions in the digital channels in the U.S. was at 50% while adoption for more complex activities like new account openings or credit card applications was around 36%. Many institutions and fintechs had to quickly address this as consumer activity shifts boomed across digital channels in a ‘survive-or-die’ approach. The combination of branch closures and an under-preparedness for these digital shifts resulted in spikes in call volumes and wait times, for example.
This disruption also shown a light on the robustness of institution’s authentication processes. Throughout 2020, a commonly used method for mitigating fraud was device behavior analysis using device reputation tracking, which determines whether a device has been linked to fraud in the past. Today, fraudsters can easily bypass this method by constantly rotating out devices they use to commit fraud.
Fintechs and their business customers need to take a more comprehensive approach to consumer authentication, exploring who is behind the device rather than focusing exclusively on the device itself.
Discuss what device reputation tracking is and why it is no longer an acceptable form of fraud prevention.
McKay: Device reputation tracking is a method of fraud mitigation that gathers device fingerprints — a series of device characteristics – and assembles a view of that device’s previous association with fraudulent activity. It’s a simple, yet effective, method to catch basic forms of fraud. However, sophisticated fraudsters know this approach relies on backward-looking data, and avoid it by using multiple ‘burner’ devices to commit fraud. Once they complete their interaction, they’ll abandon that device and use a new device to continue their scam. New devices present a big question mark to device reputation solutions since, without past user data, it cannot indicate whether the new device can be trusted.
Additionally, knowing a device is connected to normal or safe behaviors is also not a failsafe solution. It only takes one time for a device to fall into the wrong hands to open the door to fraud.
What is the easiest way for a firm currently using device reputation tracking or fingerprinting to adapt to a more secure fraud prevention technique?
McKay: To adapt, firms should consider a device-based identity resolution technique that connects the device to what is known about a consumer with persistence, and then observe how this online/offline identity graph is honed through continued observations of digital interactions. These online/offline identity graphs should also draw upon historical behavioral data and device fingerprints as just one source element of a multilayered fraud-prevention approach.
Device-based identity resolution determines not only whether a device has been linked to unsafe behaviors in the past, but also whether the device is likely in the hands of the individual who owns it. Hundreds of signals in an array of combinations provide a clear direction to either proceed with the transaction or seek additional verification from the fraud team.
A robust, layered approach like this incorporates data that cannot be hacked and stops fraud in its tracks.
The digital identity conversation is hotter than ever. What are some new developments in this space that we should be paying attention to?
McKay: Consumers, especially digital natives, have developed high expectations for a frictionless customer experience. When considering fraud-mitigation tools, it is critical to remember that most consumers are not fraudsters. If businesses treat all customers as such, it will increase friction and drive good customers away. To provide a smooth customer experience while simultaneously reducing the risk of fraud, businesses need authoritative identity signals that enable them to accurately evaluate the degree of trust in digital interactions.
As fintechs look to accommodate an increasingly remote customer interaction model, it is even more essential to ensure the person on the other end of the interaction is who they claim to be.
What is the number one way you see financial firms fail in terms of security?
McKay: Firms often scrutinize and treat every interaction as possible fraud. This not only impedes the customer experience, but also spreads already thin fraud resources even thinner, leaving the business scrambling and that much more vulnerable to fraud.
Further impeding sound security and efficient fraud mitigation, many firms fail to make the connections across various customer touchpoints (e.g., digital, call center, in-person) and across different business units (e.g., credit card, retail, insurance) to gain the full view of a customer’s identity.
What is the best way for firms to fix this flaw?
McKay: Firms should seek out an identity resolution organization that can help form an identity graph with a singular view of a consumer against every touchpoint, and implement strong and silent authentication measures to automatically authenticate the great majority of interactions that are legitimate. This will allow firms to focus fraud-fighting resources and warranted consumer friction on the minority of interactions that truly represent potential fraud, instead of applying fraud fighting resources against every call center and digital interaction.
Banking technology innovator Backbase and customer service solutions provider Zafinannounced a partnership today.
The two Finovate alums teamed up to offer Backbase clients access to Zafin’s technology. Specifically, Backbase clients can use Zafin to send their end customers highly personalized products and offers with pricing models that are tailored to each recipient.
The personalization element is a key differentiator. In today’s digital-first banking economy, personalization is a crucial element to customer retention and loyalty.
“This new partnership with Zafin offers our clients yet another way to build hyper-personalized experiences for customers while helping to break away from the legacy systems that have historically slowed the pace of innovation, and we’re excited to see our customers benefit,” said Backbase CEO Jouk Pleiter.
Backbase was founded in 2003 and offers solutions for banks to better engage with their customers. Today’s move is a win-win; it not only enhances Backbase’s offerings, but also provides Zafin access to a host of new bank clients.
The Zafin partnership comes after a heavy month of news from Amsterdam-based Backbase. The company began February with an announcement that it was selected by TechCU to overhaul its members’ banking experience, followed by partnership announcements from Banesco Panamá, Basis Bank, an National Bank of Bahrain.
VersaBank is getting in on the digital currency game. The Canada-based bank announced plans to launch VCAD, its own cryptocurrency backed one-to-one by the bank’s Canadian dollar bank deposits.
Key to the launch is a partnership with Stablecorp, a joint venture between crypto asset manager 3iQ and blockchain development company Mavennet. Stablecorp will aid in the commercial launch of VCAD.
VersaBank plans to manage the digital issuance process using VersaVault. The issuance tool is a digital bank vault designed by Versabank subsidiary DRT Cyber to secure digital assets.
“VCAD provides consumers with not only the security afforded by an underlying deposit with a Canadian chartered bank but also the comfort of knowing that each VCAD issued or redeemed will always have one-to-one value with the Canadian dollar,” said Stablecorp CEO Jean Desgagne. “With such clear benefits, we are highly confident in the demand for VCAD as digital currencies increasingly become part of mainstream financial transactions.”
According to CoinTelegraph, VCAD is not the only stablecoin pegged to the Canadian dollar. Other Canadian dollar stablecoins available include Coinsquare’s eCAD and TrustToken’s TrueCAD token.
VersaBank aims to make VCAD publicly available “in the coming months.” In the future, VersaBank and Stablecorp plan to launch VUS and VEuro, which will be U.S. dollar and Euro versions, respectively, of the VersaBank digital currency.
Multiple benefits arose from last year’s drive to digital, including the increase in user data and more control over the user experience. But making the leap to capturing that data and enhancing control over the user experience is easier said than done.
It is this gap that led Quantum Metric to launch its platform for continuous product design. The product uses realtime data from digital customer interactions to inform the decision-making process. As a result, firms can maximize opportunities, find errors, measure engagements, and more.
Quantum Metric offers tools for a range of industries, including retail banking. Some of the company’s retail banking clients include Western Union, Bank of Montreal, Silicon Valley Bank, and Aspiration.
In the video below, Aspiration Chief Product Officer Jody Mulkey explains how his bank uses Quantum Metric to understand sticking points in its application process and better interpret how clients are using the bank’s tools.
Founded in 2015, Quantum Metric became a unicorn company earlier this year after raising $200 million in a Series B funding round. Because the company aids in the transition to digital, Quantum Metric came close to doubling both its staff and revenue in 2020.
Though there is no official word on a public offering, Quantum Metric appointed a new Chief Revenue Officer, Chief Financial Officer, and Advisory Board Member late last month. The new hires indicate the company may be poising itself for an IPO in the foreseeable future.
Quantum Metric is one of the demoing companies at FinovateEurope 2021, which will take place digitally on March 23 through 25. Register to watch the demo and network with the company during the event. Or, check out a recording of the demo on Finovate.com later this year.
Apex Clearing Holdings, a digital clearing and custody engine, announced formal plans to publicly list on the New York Stock Exchange under the ticker “APX.”
The Texas-based company is eschewing the traditional IPO route to a public launch, and instead pursuing the listing via a merger with Northern Star Investment Corporation, a special purpose acquisition company (SPAC). The deal values Apex at $4.7 billion.
Apex is the sixth fintech to use a SPAC to go public in the past few months, joining SoFi, BankMobile, Payoneer, MoneyLion, and OppFi.
“We are in the first inning of the digital revolution in financial services, and our merger with Northern Star will provide Apex with the resources and flexibility to accelerate our growth, scale our platform, and expand our offerings and market share alongside our clients,” said Apex Clearing CEO William Capuzzi.
Capuzzi, along with Apex President Tricia Rothschild, will continue to serve the company in their current roles. Northern Star Chairwoman and CEO Joanna Coles will join the combined company’s Board of Directors.
Apex was founded in 2012 and helps online brokerages, traditional wealth managers, wealthtechs, professional traders, and consumer brands with account opening and funding, execution of trades, digital asset movements, trade settlement, and the safekeeping of customer assets.
Apex has provided custody for $14 billion in new assets year-to-date and currently serves 200+ clients representing more than 13 million customer accounts. The company has already recorded impressive growth so far this year, seeing 3.2 million customer accounts and more than one million new crypto accounts opened in the past two months.
After piloting the product last year, Citibank Hong Kong formally unveiledCiti Plus, its mobile-first bank designed for digital natives.
The new offering aims to help users “level up” their banking experience by providing financial education, personalized wealth management tips, and easy access to a range of investment products.
“Citibank Hong Kong has shown strong determination in the development of digital banking in recent years. Citi Plus is our latest initiative to bring digital natives a banking experience they admire,” said Citibank Hong Kong Consumer Business Manager Lawrence Lam. “Millennials were invited to participate in research and the co-creation process, through which we could better address target clients’ pain points, and help them grow their wealth via the new service.”
The platform’s gamified user experience encourages users to build their wealth by accomplishing fun tasks. The Citi Interest Booster, for example, enables users to earn higher interest rate of up to 1.8% on their savings by completing what Citi calls “missions.” These missions include tasks such as maintaining a certain balance, funding accounts, investing, exchanging currency, and spending with their Citi Plus card.
In addition to the gamification element, Citi Plus will offer savings goals, debit and credit cards with built-in rewards, easy money transfer capabilities, and a low threshold investment platform. The investment opportunities include access to stocks, money market funds, and mutual funds from Aberdeen Standard Investments, Allianz Global Investors and Franklin Templeton.
In the first three weeks after the pilot launched, Citi received 5,000 registrants interested in Citi Plus, which is open to Hong Kong residents only.
The millennial-friendly user interface and marketing, combined with features such as low-threshold investing, financial education tools, and high interest savings accounts, help Citi compete with the increasing number of challenger banks and neobanks that are enticing young users. Unlike this group of digital banks, Citi has a slight upper hand. That’s because the bank not only has a robust existing user base from which to draw new clients, it also has an established reputation and inherent consumer trust.
This is a guest post written by Shannon Flynn, managing editor at ReHack.com.
Embedded finance has taken the financial industry by storm. What started from banking-as-a-service (BaaS) has now developed into a full-blown feature that enterprises of all kinds are integrating.
The term embedded finance refers to companies that have historically been separate from financial services that now integrate them within a platform or app. During this integration, the company still retains control over the customer experience. It could be something as simple as paying a bill or something more complex, like full-fledged credit cards.
These trends are coming on strong. While they originated with banking services, embedded finance could end up becoming a bigger industry on its own. The reason for this growth can be seen in the following sectors.
Retail
The retail world has evolved and adapted to many historic changes, from e-commerce to new payment methods. Most recently, the COVID-19 pandemic has put the spotlight on online shopping. Apps are now using embedded finance.
Delivery apps adapted as food takeout skyrocketed into popularity throughout the pandemic. Users can now save their credit or debit card information to apps like Doordash and Grubhub. Specific apps for restaurants also offer embedded finance options.
Similar things are happening elsewhere in the retail world. Shopify has connected businesses and customers quickly and efficiently with new embedded tech channels. Financial information is saved for customers so payments are a breeze. On the other side of the transaction, the embedded financial tech includes a dashboard for retailers to view and manage profits and individual orders.
These kinds of integrations cut out the need for a bank or other financial institution. Instead, consumers can do it all themselves.
Automotive
The automotive industry has always done business through banks. When someone buys or leases a vehicle, dealers will contact a financial institution to better understand someone’s standing and credit. The industry is shifting, though.
Tesla is a key example of how embedded tech trends are impacting the automotive field. Shoppers can already use car sites and apps to pay their leases, but Tesla goes a step further and offers car insurance. It monopolizes on the opportunity to provide discounts.
Ridesharing has become a massive field. Through apps like Uber and Lyft, customers can call a car in minutes. These apps have evolved over time and now offer embedded financial services where customers can pay right from the app immediately after the driver drops them off.
This form of payment adds an extra layer of convenience that other services like taxis don’t offer.
Tech
In the past several years, big tech companies have gone from prominent to all-encompassing. Notably, Google and Apple have stepped up their financial services in a short period, offering things like Apple Pay and Google Pay. Customers can also use their Apple or Google wallets to store credit and debit cards. Moreover, Apple rolled out its first credit card in 2019.
These advancements mark a shift in the big tech world. Big companies are slowly separating from financial institutions and taking on those roles themselves. For instance, if you use your Apple Card from your Apple Wallet to pay for items, none of that interaction ever leaves the company’s control.
Embedded finance changes are happening on smaller scales in the tech world, too. Data and analytics companies may use tools like machine learning to adapt to consumer behavior when making purchases. They can then better enable companies in all industries to provide more embedded tech.
What the Embedded Finance Trends Mean
These three industries are pillars of innovation around the world. Banking-as-a-service has catapulted financial technology to the forefront of these fields, and embedded finance trends have become the norm. It may even outshine BaaS soon.
Physical branch locations decreased by 7% from 2015 through 2020 due to the rise in online banking. The turn to virtual resources is slowly taking over, which seems to be the natural progression of these industries — especially as the pandemic enforces the use of remote tech.
Embedded finance allows companies and consumers to operate independently from banks and financial institutions. This dynamic gives more agency to the industries themselves, helping to boost engagement and profits.
From here, more mobile apps and websites will directly incorporate financial resources into their dynamics. Big tech companies like Apple and Google are already pushing the boundaries of what embedded tech can do. Others are likely to follow suit.
The Convenience Factor
Embedding financial resources into industries that haven’t historically worked in finance is more than just a way for companies to engage consumers. They’re also a win for customers. After all, people tend to look for the most convenient ways to do things. Having everything in one place is a financial tech trend that is only going to grow from here.
ShannonFlynn is a technology and culture writer with two plus years of experience writing about consumer trends and tech news.
