A New Wave of Insurtech

A New Wave of Insurtech

Often ignored as a boring fintech subsector, insurtech is in the midst of reinventing itself to fit into today’s digital-first era. Straits Research expects the global insurtech market to reach a valuation of more than $114 billion by 2030, growing at a CAGR of 46.10% from now until that time.

We’ve rounded up a handful of insurtechs whose new innovations in the space are contributing to this growth.

InShare

InShare was founded in 2019 by a group of Uber, Lyft, and Airbnb alums to deliver insurance solutions to meet the unique needs of sharing economy platforms such as rideshare, delivery, homeshare, and eMobility markets.

“We have an expert team of gig insiders across all facets of insurance that are working closely with brokers who specialize in the on-demand economy,” said InShare VP Gary Lovelace. “We’re making the buying experience straightforward, flexible and frictionless for brokers and customers. More fundamentally, we’re bringing occupational accident insurance into the digital age.”

GetSafe

Germany-based GetSafe aims to make insurance simple, fair, and accessible by leveraging smart bots and automation. The company recently launched liability, household, and dog owner liability insurance in Austria. GetSafe plans to launch in France and Italy in the coming months.

Federato

Federato provides an underwriting platform for insurance companies that unlocks existing data sources to intelligently determine risk across a range of insurance types. The company has spent more than 1,250 hours of research to redesign the underwriting workflow to be fast, efficient, and painless. Federato was founded in 2020 and is headquartered in California.

Hourly

Hourly offers a platform to help small business owners pay, manage, and protect their hourly workers. The company leverages real-time data to help business owners see their exact premiums and labor costs in real-time and to help insurers better predict premiums and risk. The company’s services are currently only available in California. However, Hourly received a $27 million Series A investment today that it will use to expand into more regions.


Photo by George Becker

Has Fintech Failed?

Has Fintech Failed?

If you measure the beginning of fintech as 1886, the industry has had a very long time to get things right. Even if you consider 2007 as the birth of fintech, we have still had 15 years to deliver on the promises of improving and automating banking and finance.

In a panel at FinovateEurope titled, “Power Panel: What Do We All Need To Go Away & Think About?” the Financial Data and Technology Association’s Head of Europe Ghela Boskovich (pictured on the right in the photo below) declared that fintech has failed, citing the millions of underbanked citizens across the globe.

There are, of course, two sides to the coin. Below, we take a look at how fintech has failed, along with the wins the industry has accomplished over the years.

Fail

  • Underbanked populations are still left in the dark
    There have been hundreds of solutions created specifically to help underbanked populations. Some are very specific, like the ones that help people build up their credit score by reporting on-time rent payments. Others, such as niche challenger banks, offer a host of tools under one solution.
    Despite these efforts, 22% of American adults are either unbanked or underbanked. The industry is either not creating effective solutions or not reaching the right people.
  • Integrations are broken
    Even though many U.S. consumers do not know what the term “open finance” means, they are well aware of its implications. With very few exceptions, banks and fintechs don’t share customer data effectively. Users either need to manually input their financial data or they are continuously asked to re-authenticate to make data aggregation possible.
  • Open banking regulation is non-existent in the U.S.
    While Europe has been enjoying the benefits of open banking since its mandates went into effect in September 2018, the U.S. is still behind. However, President Joe Biden signed the Executive Order on Promoting Competition in the American Economy last July. The order urges the CFPB to implement rules supporting open banking.
  • Fraud is rampant
    Consumers have been struggling to safeguard not only their digital identity but also their personally identifiable information and payment credentials since before the dawn of the internet. Fraud incidents have increased dramatically in the past few years, further proving that the industry has a lot to do to stay ahead in this subsector.
  • Digital identity is flawed
    Having users prove they are who they say they are has always been a headache in the fintech industry. Keeping track of login credentials has consistently irked users, and fraudulent account takeovers has proven that a username and a password aren’t enough. While many biometric authentication methods would have seemed futuristic to us two decades ago, many still cause too much friction in the user experience and aren’t enough to keep bad actors away.
  • Real-time is still a dream
    While the blockchain has helped bring some transactions, authentications, and approvals into near-real time, the concept of instant banking activity is still far from reality. Consumers are still waiting three days for bank payments to clear. The U.S. Federal Reserve’s FedNow service has been working on a fix for this for years and is now piloting the solution. However, the target launch date isn’t until 2023.

It’s easy to identify these shortcomings, especially when there’s so much promising innovation to look forward to. However, let’s take a look at some of the ways the fintech industry has fulfilled its promises to make users’ financial lives easier, simplified, and more informed.

Win

  • Helped underbanked populations
    Though the number of unbanked consumers is still shockingly high, fintech has done a lot to help populations with no access to a bank account. The war on payday lending may be one of the brightest examples of this. Fintech has not only helped to highlight the hazards of payday lenders, the industry also has created tools such as earned wage access to help employees smooth out their cashflow and meet their financial obligations on time.
  • Supported digital-first customers
    The fintech industry has come a long way since the implementation of SMS banking in 2007. Even though it was such as simple innovation, only a handful of banks offered banking via text.
    Compare this to where the industry is today. Even the smallest financial institutions offer rich digital banking tools that can pack an entire bank branch’s worth of activity into a client’s smartphone.
  • Made banking available any time (even if transactions still don’t clear after hours)
    By supporting digital-first and digital-only customers, the fintech industry has also helped consumers who prefer to bank in-branch. That’s because users can still accomplish many banking activities, such as a loan application, even after branches have closed.
  • Provided plenty of employment opportunities for all of the recovering bankers out there
    This one is self-explanatory. How many times have you heard someone in the fintech space describe themselves as a “recovering banker”?

Photo by Brett Jordan on Unsplash

10 Earned Wage Access Providers Across the Globe

10 Earned Wage Access Providers Across the Globe

Earned wage access (EWA) has seen rising popularity in the past couple of years. These tools, which help businesses send their employees wages as they earn them, instead of on a bi-weekly basis, benefit both businesses and their employees.

In today’s era of the Great Resignation, businesses across all sectors are struggling with employee retention. Offering a tool that provides employees their cash faster can serve as a competitive advantage. And for workers, especially those with uneven cashflow or who are living paycheck-to-paycheck, receiving a few hundred dollars even a few days early can make a difference and help them avoid predatory payday lenders.

While some of the earliest versions of this technology came out in 2013, multiple players across the globe have launched in the past few years. While many of the EWA companies we found are in the U.S., new startups have been cropping up across the globe. Additionally, existing players are starting to broaden their international reach.

As far as business model goes, the majority of the EWA companies market to employers. Two companies, PayActiv and EarnedCard, offer direct-to-consumer products, while Fincluziv takes a different route by marketing its white-label EWA tool to banks.

Here is a world tour of both established and new players in the EWA sector.

France

  • Fincluziv offers banks a software-as-a-service tool that automates EWA and small dollar loans to employees of select employers.

India

  • Refyne‘s technology integrates with employers’ payroll to offer both full-time and contracted employees with real-time access to pay they earned.

Indonesia

  • Wagely helps businesses offer employees to access earned but unpaid wages.
  • Gaji Gesa offers businesses a way to provide their employees with instant access to their earned wages. The company also offers a range of other payroll services.

Malaysia

  • Hari Gaji grants businesses the opportunity to allow their employees to advance a portion of their pay ahead of payday.

South Africa

  • Paymenow integrates with employers’ payroll systems to give employees real-time access to a percentage of their previously-earned wages.
  • Level Finance offers businesses a way to pay their employees their earned but unpaid income.

Spain

  • Payflow lets businesses provide their employees with instant access to their earned salary.

U.K.

  • FlexEarn empowers employers to give their employees access to the money they’ve earned as they earn it.

U.S.

  • Instant Financial helps businesses give their employees daily access to their earned pay.
  • Grit Financial allows businesses to offer their employees the option to collect their payment at the end of each shift.
  • Immediate Financial gives businesses a way to offer their employees access to their earned wages on a daily basis. It is free for the business but charges the employee a small fee for each withdrawal.
  • EarnedCard is a direct-to-consumer play. The company bypasses the employer and provides users a credit card that offers them early access to funds.
  • PayActiv has both direct-to-employer and direct-to-consumer offerings. The company offers employers a way to pay their employees early, while offering individual users a Visa debit card that loads their earned wages up to two days early.

Photo by Karolina Grabowska from Pexels

Here’s Why AI is No Longer a Fintech Trend

Here’s Why AI is No Longer a Fintech Trend

Can we stop naming AI as a trend in fintech? Probably not yet, but we should. That’s because trends ebb and flow, but AI isn’t going anywhere. Banks and fintechs aren’t going to let up on leveraging AI within the decade. In fact, the number of times we’ve seen the adjective “AI-powered” has only increased.

Depending on how you define it, fintech has been in existence for around 20 years. That’s a long time for themes to rise and fall. Below is a look at transitory trends, lasting trends, and AI’s place in the mix.

Fleeting trends

As regulation, technology, and consumer habits and tastes have changed throughout the years, so have fintech trends. However, many ideas in fintech never took off. While some were overhyped, others were simply a solution looking for a problem or were an idea before their time, offered to the market too soon.

A recent example of a transitory trend is card-linked offers (CLO) Also called merchant-funded rewards, these customer loyalty and rewards tools reached their peak in 2012. Similar to the buy now, pay later craze that is happening right now, there were multiple launches of new CLO companies each month. Even large banks were getting on board. In fact, in 2012 Bank of America debuted a CLO product, BankAmeriDeals, powered by Cardlytics.

It’s worth noting that card-linked offers are still around. It is only the growth rate and hype around CLOs that have decreased. In fact, Cardlytics, Cartera Commerce, Cachet Financial Solutions, and others still exist and serve customers today.

Lasting trends

The list of lasting trends in fintech is short. In fact, there are only a handful of trends that have been introduced over the last two decades that have become table stakes for every bank and fintech across all sub-sectors. Not surprisingly, because these lasting trends are now standard throughout the industry, they all seem quite obvious.

Three solid examples of these stronghold trends include having a digital presence, providing a mobile app, and offering digital payment/money transfer capabilities. The evolution began, at the dawn of fintech, with banks just starting to establish their online presence. The next adaptation of that was SMS banking, which evolved into to mobile apps and digital money movement.

Today, the application of AI is becoming so standard across the fintech industry that it can be added to the fintech trend hall of fame.

The current state of AI

In case you haven’t been paying attention, AI is being used across the entire fintech industry. Its applications are almost limitless, but here are a handful of current examples.

  • Lending– Underwriters can use AI to enhance the decisioning process to reduce risk, as well as to monitor for unseen biases in the lending process.
  • Payments– AI can enable biometrics-activated payments and can also create smooth payment processes by analyzing past transactions before approving or declining transactions on an issuer’s behalf.
  • Wealth management– Wealthtech companies can empower users with self-driving money, a concept that describes moving funds into and out of different accounts and investments based on fund performance, cash flow, and bill due dates.
  • Insurtech– AI can enhance predictive data modeling to create better pricing models around policies.
  • Security– Fraud detection in financial activity relies heavily on AI, as do both identity detection and verification.

Funding for AI fintechs has been on the rise since 2016. According to CB Insights, the total amount of funding in 2021 for AI startups in fintech is at the same level as last year’s year-end total, with $3.1 billion raised across 161 deals. This year, the average investment size clocked in at $25 million. There has also been an increase in M&A activity for fintech AI startups. So far this year there have been 12 mergers and acquisitions in the space, compared to eight last year and two in 2016.


Photo by Volodymyr Hryshchenko on Unsplash

Why PayPal Actually Should Acquire Pinterest

Why PayPal Actually Should Acquire Pinterest

Last week the rumor mill was turning rapidly with news that PayPal was in talks to purchase visual bookmarking tool Pinterest. The purchase would have been a big one, as PayPal was said to have offered $45 billion for Pinterest.

PayPal has been quick to quash the gossip, however. The company issued a release on Sunday stating, “In response to market rumors regarding a potential acquisition of Pinterest by PayPal, PayPal stated that it is not pursuing an acquisition of Pinterest at this time.”

But there are a few arguments why acquiring Pinterest would actually be good for PayPal. Let’s take a look.

Bolster online shopping

Integrating Pinterest into its own app would give PayPal the potential to be an online shopping powerhouse. The curated nature of the images on Pinterest makes the social media company, in effect, a staged showroom for potential ecommerce purchases.

This is thanks to Pinterest’s Product Pins, a tool that essentially helps users purchase items they see in a pin without leaving the Pinterest app, and Shoppable Pins, affiliate links that content creators can add to pins to receive a commission from purchases.

PayPal is already known for offering payments, loyalty programs, money transfer capabilities, and a high-yield savings account. If the company integrated Pinterest within its own app, it could serve as a shopping inspiration app. Pinterest users already spend hours browsing to get ideas for everything from clothing to gifts to vacations. If PayPal could insert these habits into its own app, it could become the app where consumers go before they even think about the transaction.

Compete with Amazon

Buying Pinterest would help PayPal compete even with the likes of Amazon and eBay, PayPal’s own former parent company. While the transaction volume wouldn’t come near that of Amazon’s, PayPal would have a small leg up on the online retail giant.

That’s because Pinterest would bring an addictive, continuous scroll interface with a built-in client base. What’s more, users can plan and purchase almost anything from Pinterest– even travel tickets and experiences. For example, users planning their trip to the Maldives can purchase their hotel stay from within the Pinterest app. In contrast, when an Amazon customer searches “Maldives,” they are directed to purchase a book or a t-shirt.

Bolster its reputation as a superapp

The new release inches PayPal closer toward becoming the first super app in the U.S. Last month, the company launched a new version of its mobile app.

However, the app lacks some elements of more traditional super apps. Even though PayPal has a wide variety of financial tools and capabilities– including a high-yield savings account, loyalty and rewards tools, billpay management tools, a direct deposit feature, gift card management, credit access, buy now, pay later services, and crypto transactions– the app lacks breadth.

As we reported earlier this year, there are 10 key elements to a super app. And even if PayPal successfully integrated Pinterest, it would be missing most of the elements, including food delivery, transportation services, travel services, health services, insurance, and government services.

What’s holding PayPal back?

Why might PayPal be hesitant to acquire Pinterest? A lot of it likely has to do with the price tag. Pinterest has a current market capitalization of around $32.7 billion. The rumored $45 billion acquisition represents about 15% of PayPal’s own market capitalization of $290 billion.

An acquisition of this size wouldn’t be out of the ordinary in the fintech industry. However, the deal would be sizable enough that PayPal would need a very clear value proposition with the integration of Pinterest.

Has the Pandemic Actually Benefited Women in Fintech?

Has the Pandemic Actually Benefited Women in Fintech?

The pandemic has not only shined a light on the inequalities of women in the workplace, it also created a larger gap, especially for working mothers. Between mandatory home schooling and a lack of childcare, the workload that women bear around the house is increasing.

There have been plenty of studies and articles stating that these demands are placed unfairly mothers, have made it difficult for them to advance in their career, and have caused many mothers to drop out of the workforce entirely.

I don’t want to minimize the headaches that moms (and truly everyone) have endured over the past 20 months. However, it’s worth pointing out a few ways that the pandemic economy has actually benefitted working mothers, specifically mothers working in fintech (myself included).

Flexible hours

The need for employees to balance work with home schooling and childcare motivated many workplaces to embrace more flexible working hours. As long as employees produce quality work, put in the necessary hours, and attend mandatory meetings, many are able to set their own schedule that works with their family.

Moms are always on call, whether to nurse a baby, help with homework, solve an argument, or change a diaper. So being able to step away from the computer to take care of pressing tasks is a huge benefit.

Remote working is the new norm

Prior to the pandemic, many workplaces were strictly against remote work, even when in-person collaboration wasn’t necessary. While commuting into an office five days a week has its benefits, it also comes with its share of difficulty. Not only does the extra time of the commute add up, but there is also more time and money spent on a professional wardrobe and makeup.

For breastfeeding mothers, long commutes are especially burdensome because the more time spent away from the baby means the more times mothers have to pump, store milk, and wash and sterilize bottles.

Meetings and conferences come to you

I included this point because of personal experience. My son was nine months old when I attended my first conference after maternity leave. Because I was still nursing, I chose to bring him with me to FinovateFall 2019 in New York. Even though I was physically at the conference, I still missed out on much of the content because I had to step out to nurse him so frequently.

In comparison, at FinovateFall 2021 last week, I was able to attend the show digitally from my home office with my newborn daughter on my lap. I was so much more present during the demos and discussions since I wasn’t running back and forth from the venue to a hotel room.

In this post-pandemic way of work, many businesses have made a point to offer digital experiences either in place of or alongside physical meetings. Now that so many more meetings and conferences offer a digital option, women do not have to miss out in the event they need to care for a sick family member or if they have a gap in childcare.

Normalizing home life

Perhaps the biggest upside of the pandemic is that it has shed a light on the full breadth of women’s duties outside of the workplace. Not only this, but colleagues are more accepting of times when family life collides with work. I’ve worked from home for 11 years, and prior to the pandemic I would have been mortified if my two-year old was audible outside of my office door on a conference call.

In this new era, colleagues and clients are much more open to home life. In fact, I’ve videoconferenced with people who not only don’t mind seeing and hearing children in the background of calls*, but they also ask me to bring them to the computer so that they can say hello to their children on the other end of the screen.

*At least within reason. Yes, children can be quite annoying sometimes.


Photo by Brian Wangenheim on Unsplash

Fintech Trends Budding Up this Spring

Fintech Trends Budding Up this Spring

We’re four and a half months into 2021, and we’re already starting to see the fintech and banking industries shake off the 2020 mindset.

That’s not to say that companies have left behind their digital agendas that took precedence last year. In fact, it’s quite the opposite. Banks and fintechs have transitioned to apply the lessons they learned amid the massive growth period last year into new initiatives.

So what new frontiers does the industry have its eye on? I took an early look at some of the trends beginning to emerge at our upcoming FinovateSpring conference, taking place digitally May 10 through 13.

Here are the top three themes from the discussion sessions:

  • Embedded finance and banking-as-a-service
    These two intertwined trends have exploded in the past year. Embedded finance and the concept’s predecessor, banking-as-a-service, are helping non-banking companies leverage fintech to offer financial services to their clients. Food delivery, ridesharing, and big tech companies have all benefitted from offering their customers a form of banking services.

    Increased customer awareness and demand are tipping the scales on these tandem trends this spring, rising them to the top. Thanks to the pandemic driving much of our everyday lives into the online realm, customers have realized the convenience that comes from being able to combine banking tasks with everyday activities.
  • The ESG initiative
    Technologies and products that tackle environmental, social, and governance (or ESG) issues are nothing new. However, over the course of the first half of this year we’ve seen more fintech and banking players getting in on the action.

    Both new and incumbent players have heard consumers’ cries for a more sustainable approach to managing their financial lives. To meet this demand, companies are doing everything from making carbon neutral pledges, to offering wooden payment cards, to using customer deposits to fund sustainable initiatives and donating profits to reforestation efforts.
  • CBDCs and digital currencies
    While central bank digital currencies, or CBDCs, should have been on banks’ radars last year, the global pandemic took precedence. Today, while the industry is still working on reimagining the digital experience, there has been more space to think about operating in a future where CBDCs and other digital currencies are commonplace.

    There are currently six countries piloting CBDCs, while many others have made key developments in implementing a formal release of CBDCs. The U.S. has stated that it will not race other countries to the finish line of launching its own CBDC. The country has still signaled some progress toward its own digital currency, however, which has turned the attention of many in the fintech space.

In addition to these, experts will be discussing themes from previous years, including customer experience, AI, digital transformation, and faster payments – as well as fringe topics such as quantum computing.

Taking a look at content from the developer-focused track, FinDEVr, we’ll see an in-depth look at the technology behind open banking, customer onboarding, lending-as-a-service, and customer experience and design. FinDEVr will take place on May 13.

Check out more information on how you can save on tickets to both FinovateSpring and FinDEVr, held May 10 through 13 in Central Standard Time.


Photo by Alexandru Dinca from Pexels

Banks Battle with New Competitive Advantages

Banks Battle with New Competitive Advantages

What happens after the newest cutting-edge banking technologies become table stakes? Banks move on to tackle another new technology.

In fact, in the past decade or so, banks have been constantly moving from one new technology to the next– from remote deposit capture to merchant-funded rewards, roboadvisory services, AI-informed marketing strategies, and finally on to complete digital transformation.

So now that 2020 served as the year of digital transformation, what’s next? How will banks use their limited resources to get ahead of the curve? Below are a few areas in which banks are focusing their attention to gain competitive advantage:

Communication

Last year we saw multiple financial services organizations update their communication technologies in tandem with digital transformation. But the game of facilitating customer communication is far from over. As Ron Shevlin pointed out in his piece, Every Bank Needs A Chatbot (Or Two) For Its Digital Transformation, chatbots are no longer simply a novelty. Instead, these tools offer fast turnaround for customer inquiries, provide additional data about consumers, and help firms hold personalized conversations with clients.

Another communication enhancement comes in the form of leveraging popular third party apps to communicate with customers. Axis Bank, for example, India’s third-largest private sector bank, recently announced a partnership with WhatsApp. Customers can now use WhatsApp to inquire about their account balance, recent transactions, credit card payments, deposit details, and block their credit or debit card.

Cryptocurrencies

Ready or not, crypto is here! In January, the U.S. Office of the Comptroller of the Currency (OCC) published an interpretive letter detailing that banks can transfer stablecoins to other banks. While banks haven’t been rushing to leverage this functionality, there have been a few moves that indicate financial services are slowly entering the cryptocurrency game.

First off, marketing services company Kasasa unveiled plans to help its bank and credit union clients provide bitcoin wallets to their consumers. Additionally,  Mastercard recently announced it will allow merchants to accept payments in cryptocurrencies, and BNY Mellon agreed to begin custody of cryptocurrencies.

Payment tools

With so many payments moving online in the past year, banks need to be even more aware of their role in the online payments flow. In fact, the recent rise in embedded payments poses a risk to banks as third party apps such as Uber and DoorDash make the payment element of a transaction almost disappear.

There’s also been a lot of competition in the booming buy now, pay later (BNPL) space, and not just from third party fintechs like Klarna and Afterpay. Last year, Citi announced Citi Flex Pay, a product that enables cardholders to pay for select purchases over time at a lower interest rate than their card’s purchase rate. And in 2019, JPMorgan Chase launched My Chase Plan, an offering that allows cardholders to make equal monthly payments on purchases of $100 or more with no interest, just a fixed monthly fee.

Offering another tool to make payments more flexible, is U.K.-based fintech Curve. The fintech connects with consumers’ existing payment cards to offer rewards as well as a Go Back in Time feature that lets users switch payments from one card to another for up to 14 days after the purchase was made.

Sustainability

If you’re not green, you’re gone! O.K., maybe not quite, but in the past few months we’ve seen an increase in fintechs working toward a more sustainable future. In fact, just this month there have been multiple headlines that highlight fintech’s green future. First, U.K.-based digital bank Starling Bank launched recycled plastic debit cards. Second, Citi began restricting financing for companies expanding coal power. And finally, Meniga partnered with Iceland’s Íslandsbanki to integrate Meniga’s Carbon Insight into its digital banking solution.

Fintechs are also helping consumers do their part to minimize their impact on the environment. Aspiration, for example, ensures accountholders that their deposits won’t fund fossil fuel projects like pipelines, oil drilling and coal mines. The startup also works with reforestation partners to plant a tree when users roundup their purchase to the nearest dollar. And speaking of trees, Treecard offers a wooden Mastercard and donates 80% of its profits to reforestation efforts.


Why I Have a Close Eye on DeFi

Why I Have a Close Eye on DeFi

The decentralized finance (DeFi) conversation started to pick up about a year ago. Today, we’re starting to see this once-fringe topic emerge as a mainstream conversation in fintech.

In fact, now that DeFi has become a reality, it’s not something that’s going away any time soon. The advent of cryptocurrencies enabled consumers to transfer money between parties without relying on a traditional bank. DeFi takes this power the next level.

These added capabilities are what have the potential to take cryptocurrencies from a speculative device to a useful tool. But while this is a reality for some, it is still a concept on paper for most. So why am I paying attention to DeFi now, while it’s still in its infancy?

It’s more than an idea

As mentioned above, DeFi has moved from the concept of “an interesting idea” into a concrete, value-added financial tool. Leveraging the power of smart contracts, DeFi allows users to lend, earn interest, and claim insurance. It can also be used to prove identity, assist with underwriting, AML and KYC compliance, and more.

Because of these capabilities, the use of DeFi is becoming more popular. The following graphic from DeFi Pulse shows the total U.S. dollar value locked in DeFi. The graph shows DeFi starting to take off in July of last year and rise exponentially. Today, the total locked value is more than $35.9 billion.

With this growth, we can expect to see more projects and use cases launch as DeFi emerges from an idea to a new reality.

DeFi will change banking as we know it

Today’s traditional banking system relies on centralized control. But one of the key aspects of DeFi is that it operates without an intermediary. That is, users can complete banking activities without a central governmental authority, a bank, or even a company setting rules, governing, and regulating activity.

Instead of this central control, DeFi leverages smart contracts that use “oracles,” or services that inform smart contracts of external data so that it can execute its purpose based on that data. As an example, a smart contract for flood insurance might rely on rain gauges to determine whether or not to pay out insurance claims to homeowners living in a certain area.

This key difference will change how consumers shop for financial services. Instead of hinging on trusting an institution, the consumer’s decision will rely on how smart they think the smart contract is, and whether or not they trust the oracles the smart contract uses.

It will transform the industry for the better

While DeFi is a little bit intimidating, it has the ability to change the financial world for the better. It is scalable and programmable, and is therefore well-suited for growth. In addition, it is immutable. That is, it is tamper-proof and cannot be changed or hacked. And transaction details are transparent; DeFi protocols are built with open source code and can be viewed by anyone.

The final, and perhaps most notable, aspect of DeFi is that it is permissionless. This means that anyone with a crypto wallet and an internet connection can participate in the DeFi economy. There is no minimum balance requirement and, because it doesn’t revolve around a central government, there are no geographic limitations.


Photo by Vladislav Reshetnyak from Pexels

The OCC OKs Stablecoins: What Does that Mean for Banks?

The OCC OKs Stablecoins: What Does that Mean for Banks?

You’ve finally perfected your digital transformation strategy that was accelerated because of 2020’s global pandemic. What should you focus on now? Here’s an idea: stablecoin transactions.

The U.S. Office of the Comptroller of the Currency (OCC) last week published Interpretive Letter 1174 detailing that banks may use stablecoins and independent node verification networks (INVNs) to facilitate payments for customers. That is to say, banks can transfer stablecoins to other banks.

To catch you up to speed, INVS are distributed ledgers. And stablecoins are a type of cryptocurrency that minimize volatility by pegging their value to an external factor.

There are a few key things this means for traditional financial institutions.

Transactions become decentralized

Stablecoin transactions are essentially decentralized cryptocurrency transactions. Because of this, they enable banks to send and receive money without a government intermediary.

Faster payments

Stablecoin transactions do not rely on traditional payments rails, rather, they utilize public blockchains. Because of this, stablecoins, just like other cryptocurrencies can be transferred in near-real time from one party to the next.

On 24/7

Once again citing freedom from traditional payment rails, because stablecoin transactions occur outside of the traditional payments infrastructure– and because they occur instantly– they can essentially be made at any time, including on the weekends and holidays.

Compliance is still on the table

According to the letter, stablecoin transactions, “should have the capability to obtain and verify the identity of all transacting parties, including those using unhosted wallets.” So banks are still responsible to adhere to KYC guidelines.

Additionally, banks using stablecoin transactions are responsible for managing the multiple risks associated with cryptocurrency transactions. Per the letter, “The stablecoin arrangement should have appropriate systems, controls, and practices in place to manage these risks, including to safeguard reserve assets. Strong reserve management practices include ensuring a 1:1 reserve ratio and adequate financial resources to absorb losses and meet liquidity needs.”


This is positive news not only because it offers banks more options, but also because it serves as a signal that the OCC and the Acting Comptroller of the Currency Brian Brooks are bullish on cryptocurrencies.

Pay attention to the cryptocurrency/stablecoin sector this year. We’re expecting to see significant developments in the decentralized finance area, and banks’ involvement in initial cryptocurrency efforts will be crucial. There will be little-to-no room for laggards in this space.


Photo by pixabay.com from Pexels

What Ant Group Tells Us about Being Too Big to Fail

What Ant Group Tells Us about Being Too Big to Fail

When is BigTech too Big? Ant Group may have the answer to that.

After anticipating its IPO and setting share prices in late October, the China-based tech giant’s plans were put on hold when Chinese regulators suspended the IPO.

At $34.5 billion, Ant’s IPO would have been the largest public offering to-date, surpassing the previous highest IPO set when oil company Saudi Aramco went public at $29.4 billion earlier this year.

So what is China’s qualm with a successful tech giant going public? The answer may lie in fintech’s favorite four-letter word: data. That’s because big fintechs such as Ant rely on data traditionally held by the Chinese government such as salary and debt levels to provide lending or credit services. Overall, the communist party is worried about losing centralized control by giving a large tech company control over valuable data.

Some also speculate that the suspended IPO was directed at Jack Ma, Ant Group’s controlling shareholder and founder of tech giant Alibaba, as a way to humble him. Just before the IPO was suspended, Ma had given a speech at a conference in which he criticized regulators and Chinese banks.

“What happened to Ant reinforces that sense that it’s really essential to show respect for party-state authority,” said Kellee S. Tsai, the dean of the School of Humanities and Social Science at the Hong Kong University of Science and Technology told the New York Times. “Capitalists have to play by the political rules of the game.”

It’s a stark contrast to the scene in the U.S., where the economy relies so heavily on large companies in key industries that the government is willing to shell out millions to bail them out. In either situation, however, Ant Group’s recent predicament has taught us that it’s important to remember who’s boss.


Photo by Kai Pilger on Unsplash

Has the U.S. Reached a Tipping Point with Open Banking?

Has the U.S. Reached a Tipping Point with Open Banking?

This year has brought on a lot of changes for U.S. businesses and individuals alike– some for the worse, and others for the better.

One change that fits into the latter category– open banking– has heated up in 2020. There are four indications that the U.S. may be at a tipping point when it comes to open banking:

  • More consumers than ever are using digital financial services. Not only has the coronavirus has halted in-person activities, it has also prompted users to focus on their finances.
  • We’ve finally agreed that screen scraping is a bad way to aggregate accounts. Last week, even Wells Fargo announced it has stopped using screen scraping as a data aggregation technique.
  • Consumers have become aware of their data usage. Big tech companies like Facebook were put on trial in the U.S. in 2018 for questionable usage of consumer data. Now, in an election year, and with films like Netflix’s The Social Dilemma, users are more aware than ever of how tech platforms use their data to sway their opinions.
  • There’s more competition than ever in the B2C fintech space. New competitors are laser-focused on perfecting the user experience, and have started making data management as easy as possible for consumers. Many, for example, provide users a dashboard that allows them to manage third party data sharing, toggling certain platforms on and off.

All of these elements have aligned to bring the U.S. to a tipping point in open banking. There is still one thing missing, however, and that is a unified approach for data sharing.

Whereas Europe enjoys standardization through common API specifications thanks to PSD2, the U.S. is lacking direction. Instead of a government-mandated approach, the market is currently being driven by private players such as Plaid, MX, Envestnet|Yodlee, and others.

Despite challenges, 2021 may the year for open banking in the U.S. As the global pandemic continues next year, so will consumers’ online presence, and ultimately their awareness of their digital rights. Earlier this week, the U.K. surpassed 2 million consumers using open banking, more than double the number recorded in January of this year. And even though the U.S. still has a long road ahead to fully realize open banking, take hope– we’re closer than we’ve ever been.


Photo by Michał Parzuchowski on Unsplash