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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
Fintech is a broad industry, and with the breadth of its sub-sectors comes a large range of trends that change year after year. But with all of the new, hot trends to follow, it’s impossible for banks and fintechs to focus on everything at once.
That’s why our team set out at FinovateFall earlier this month to ask people from across the industry what trend we should be paying attention to. We received a large range of answers, but here were the top picks:
Fraud mitigation and security
Business intelligence
Money movement and payments
Consumer-permissioned data
Processing data using AI
Financial inclusion
Embedded payments and embedded banking
Detailed transparency in machine learning solutions
Customer obsession and customer experience
Check out the full video below, which includes explanations and reasonings behind each of these trends:
We have several people to thank for answering this very broad question, including Gregory Wright, Executive Vice President and Chief Product Officer at Experian; Derek Corcoran, SVP Financial Services Strategy at Woodridge Software; Estela Nagahashi, EVP and Chief Operating Officer at University Credit Union; Bill Harris, CEO of Nirvana Money; Craig McLaughlin, CEO of Finalytics; Rikard Bandebo, Executive Vice President and Chief Product Officer at VantageScore; Kathleen Pierce-Gilmore, Head of Global Payments at Silicon Valley Bank; Lora Kornhauser, Co-founder and CEO at Stratyfy; Vivek Bedi, Author of You, the Product; Steven Ramirez, CEO of Beyond the Arc; and Chad Rodgers, Executive Vice President and Chief Operating Officer of Connexus Credit Union.
We’re more than halfway through the year, and before you know it, we’ll be publishing trends predictions for 2023. However, a lot can happen over the course of five months, so we’ve decided to examine what to look for and what you can expect in fintech between now and the new year.
Beginning the era of “neo super apps”
Over the past year, there has been much debate on whether or not the U.S. and Europe will ever have a super app. Plaid CEO Zach Perret takes a different angle on this. He is expecting “neo super apps” to rise in popularity.
“Within lending, brokerage, and banking, super apps will emerge, adding every bit of functionality within financial services. Over time, they’ll actually be able to add in things that are above and beyond financial services,” said Perret in a Plaid report.
Accelerating M&A activity
It’s no secret that fintech funding is down, especially in later stage deals. Because of this, some fintechs have been driven to sell sooner than they had hoped. As for acquirers, many are looking to cash in on the “neo super app” trend by adding to their firm’s expertise, bundling multiple services into a single offering. In the first half of the year, we have seen an increase in M&A activity over 2019 levels, and we expect that to continue into the second half of the year.
Ramping up a focus on ESG
Fintech companies and traditional financial institutions alike have sharpened their focus on ESG initiatives in the past couple of years. And while climate change may be enough of a reason for firms to implement new ESG practices, the SEC is giving laggards an incentive to step up their game. The commission recently proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of ESG factors.
Increasing solutions surrounding consumer credit
After dipping in 2020, Americans’ credit usage is now on the rise. Inflation, and especially the increase in costs of everyday expenses such as housing and gas, is prompting higher credit usage while consumers iron out their budgets and adjust their lifestyles to fit the extra expenses.
Dwindling conversation around digital transformation
We have finally arrived at the moment when digital offerings have become the rule, not the exception. While we can still expect to hear the phrase “digital transformation,” it is becoming less and less common.
More discussion around Central Bank Digital Currencies (CBDCs)
The progress toward CBDCs has been slow, but steady. Currently, 10 countries have fully launched a digital currency and more than 105 countries are exploring them. Just two years ago, only 35 countries were considering a CBDC. This digital currency race will only become more heated as more countries seek to be among the first to offer a CBDC.
Growing competition in alternative business payments solutions
After launching just five years ago, Brex has quickly risen to become one of the most successful fintechs, boasting a valuation of $12.3 billion. The startup is a super app for businesses, offering companies credit cards and cash management solutions.
At three years old, Brex’s competitor Ramp isn’t too far behind. The company is valued at $8.1 billion. Clearly, these companies are filling a need for businesses that has not previously been met. We can expect others to follow their footsteps to cash in on the gold rush.
BNPL takes a backseat
It’s no secret that BNPL payment schemes are causing cash flow difficulties for younger, less financially savvy consumers. Many are finding it difficult to keep up with the repayment obligations. This, combined with a lack of regulatory oversight, is tarnishing BNPL’s reputation.
We can expect to see a slowdown in BNPL newcomers, though I do think we’ll still see more large firms add BNPL schemes to their existing offerings.
Subsiding talent acquisition
A year ago, the workforce shortage was taking its toll on the fintech industry and we were discussing strategies to acquire new employees. After the economic sedation started this spring, however, this discussion has slowed. Startups have started to worry about burn rate and corporations have shifted their focus to their bottomline, which has already resulted in layoffs. With VC funding down, we can expect to see a continuation of this decline in the next five months.
Providing everything-as-a-service
These days companies can fill holes in their offerings by purchasing just about anything as a service, including ESG-investing-as-a-service, credit-cards-as-a-service, accounting-data-as-a-service, and more. As banks, startups, financial services, and even non-financial players seek to build up their customer base and play into the “neo super apps” trend Perret discussed, we can expect to see even more companies take the “-as-a-service” model to increase their customer base.
Earlier this spring, the U.S. Consumer Financial Protection Bureau (CFPB) announced a new effort to promote competition and innovation in consumer finance. Backing this effort, the CFPB is opening a new office, The Office of Competition and Innovation.
The Office of Competition and Innovation will replace the Office of Innovation, which relied on an application-based process to grant companies special regulatory treatment. The new office takes a much broader approach, and will consider obstructions hindering open markets and learn how large players make it difficult for small companies to operate. Ultimately, The Office of Competition and Innovation aims to make it easier for end consumers to switch among financial providers.
In order to pursue its mission to increase competition, the Office of Competition and Innovation will pursue the following four goals:
Make it easy for consumers to switch providers When users can switch among financial services providers, there is more pressure on incumbents to offer better services, and new players have a better opportunity to acquire customers.
Research structural problems blocking successes The new office will have access to resources to examine what is creating obstacles to innovation. This could impact, for example, the payment networks market or the credit reporting system, both of which are considered oligopolies.
Understand the advantages big players have over smaller players Larger players have built-in advantages over small newcomers. As an example, big companies benefit from a large marketing reach, multi-faceted teams, and a built-in customer base. As the CFPB points out, this may threaten new competition.
Identify ways around obstacles Obstacles for smaller players include lack of access to talent, capital, or even to customer data. The CFPB is addressing the latter issue via a future open finance rule under Section 1033 of the Consumer Financial Protection Act that will give consumers access to their own data.
Host events to explore barriers to entry and other obstacles The new office will organize events such as open houses, sprints, hackathons, tabletop exercises, and war games to help entrepreneurs, small business owners, and technology professionals to collaborate, explore obstacles, and share frustrations with government regulators.
“Competition is one of the best forms of motivation. It can help companies innovate and make their products better, and their customers happier,” said CFPB Director Rohit Chopra. “We will be looking at ways to clear obstacles and pave the path to help people have more options and more easily make choices that are best for their needs.”
In financial services, open finance may be one of the best ways to promote competition. But because the U.S. does not have formal regulation around open banking or open finance, there isn’t enough incentive (yet) for financial services players and third party providers to cooperate when it comes to data sharing. In late 2020, however, the CFPB issued a notice of proposed rulemaking that solicited opinions from stakeholders on how customers’ data should be regulated. This was only a very early step in the process, and industry players still lack a standardized approach to open finance.
There is a Super App-shaped hole in the U.S., and earlier this year, F.T. Partners published a report titled The Race to the Super App that examines the most eligible companies to fill the gap.
The report details three major categories of potential Super App contenders in the U.S., including challenger banks, large fintechs, and big tech companies/ retailers. Here is a breakdown of U.S. players in each category:
Challenger banks
Upgrade
Dave
Avant
Varo
Chime
MoneyLion
Current
Mission Lane
Oportun
Large fintechs
PayPal
Square
Robinhood
Figure
Betterment
H&R Block
M1 Finance
TrueBill
American Express
Wealthfront
Affirm
SoFi
Big tech companies/ retail
Amazon
Apple
Facebook
Google
Uber
Walmart
The report takes an extensive look at the super app industry and details two Super App models. The first is the winner-take-all model. In this approach, the Super App provider begins by offering a banking service and then expands to provide a wider range of services, aiming to eventually become users’ primary financial services tool. The second model is an aggregator approach in which the Super App provider acts as a marketplace that connects users to existing financial services.
Ultimately, banks have a choice to leverage either the winner-take-all model, in which they will build their own Super App to compete with third party players, or to take a hybrid approach in which they both host their banking products on third party marketplaces and offer third party tools to their clients within their own ecosystem. In the former approach, banks will incur competition from major players. However, when taking the latter approach, banks risk relinquishing the primary banking relationship status with their customers.
You’ve likely heard by now that Apple has taken the veil off of its BNPL tool, Apple Pay Later. The tech giant announced Apple Pay Later at its World Wide Developer Conference on Monday.
If you haven’t read coverage of the announcement yet, here’s the gist– the new tool will enable Apple Pay users to split any purchase made where Apple Pay is accepted into four installments, paid out over the course of six weeks (check out the video announcement at the bottom of this post for more details).
Apple is coming in late to an already over-saturated BNPL market and faces a lot of competition from well-established players. However, the company is not showing up to compete empty handed. Apple Pay Later has a handful of advantages over other contenders.
Advantages
Acceptance at physical retailers As mentioned earlier, users can pay with Apple Pay Later anywhere Apple Pay is accepted. This includes many physical retailers. And because 90% of retail purchases are made in-store as opposed to online, Apple already covers a lot of territory that other players haven’t been able to access yet. BNPL giant Klarna currently offers in-store services at just over 60,000 retail locations. As a comparison, Apple Pay is accepted at more than 250,000 retail locations.
Underwriting The success of a BNPL tool not only hinges on retailer acceptance, but also on underwriting. After all, if your users aren’t paying you back, what’s the point?
While Apple is working with Goldman Sachs as the issuer for the Apple Card, the bank will only be involved in offering access to the Mastercard network and won’t facilitate underwriting. However, Apple’s advantage comes in the form of Credit Kudos, a U.K. startup the tech giant bought last year that enables businesses to leverage open banking to assess affordability and risk.
Physical and virtual card Some BNPL players already offer both physical and virtual payment cards. However, Apple having both will be a leg up for the company. Having both a physical and virtual presence takes up space consumers’ digital and physical wallets, making it more likely to be top-of-mind (and top-of-wallet).
Brand trust and recognition According to Statista, Apple has the second most valuable brand in the world at $612 billion. This value is driven by having a brand that consumers trust, recognize, and value. It is widely believed that when Apple releases a hardware product, it will be top-notch. Consumers will expect the same from Apple Pay Later, and will therefore be less hesitant to trust the new tool.
What’s missing?
Apple has thought of almost everything when it comes to Apple Pay Later. One thing I’d love to see is a retroactive payment-switching feature similar to Curve’s Go Back in Time. The tool allows users to free up cash by switching payments from one card to another up to 30 days after the purchase was made.
Apple could allow customers to choose to use Apple Pay Later even after a transaction has been completed in order to free up emergency cash flow. While I wouldn’t advise this as a personal finance strategy, it would offer Apple an even greater leg up on BNPL competitors (including Curve’s when it becomes more widely available in the U.S.).
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.
We’ve seen some bad news in the tech sector lately. YCombinator is asking its portfolio founders to “plan for the worst” and prepare for a downturn and Klarna is laying off 10% of its employees. Headlines such as, “Tech’s High-Flying Startup Scene Gets a Crushing Reality Check” aren’t helping consumer or investor sentiment, either. It can be tough to remain optimistic.
The good news is that the fintech industry is resilient. So amid the recent onslaught of disheartening news, here are four reasons you can be optimistic about fintech right now.
DeFi is promising
Fintech’s future is bright, and one shining light is decentralized finance (DeFi). It’s hard to know the exact implications DeFi will have on banks, fintechs, and other traditional financial (TradFi) organizations.
However, it’s clear that decentralizing traditional operations such as money transfers and loans will make a more efficient financial system. What’s more, DeFi is poised to help the 1.7 billion unbanked individuals across the globe benefit from financial services they’ve previously never had access to.
The best innovations are born when times get tough
It’s true that necessity is the mother of invention. Whether it’s an economic downturn, a pandemic, or a crisis in a different form, difficult times have proven to motivate people to develop creative solutions. This can be seen in countless examples from the COVID Recession of 2020. After the COVID pandemic hit, businesses were forced to figure out a way to convert their offering or service into the digital channel. In fact, many fintech companies grew while firms in other sectors were forced to make major cuts.
With new crises come new issues, and new problems that businesses and consumers need help solving. A bear market or an economic downturn would be no different; the best innovations are yet to come.
Still room for improvement
Because the fintech industry is relatively nascent, many of the problems the industry set out to solve still exist. In a piece we published earlier this month titled, “Has Fintech Failed?” we took a look at all of the ways fintech is failing to help consumers and businesses. As a few examples, underbanked populations are still lacking quality financial solutions, there are no open banking mandates in the U.S., fraud is rampant, and digital identity is flawed. The good news is that this leaves a lot of room for improvement, and therefore a lot of room for new competitors.
Fintech is here for a reason
When all is said and done, fintech is made to help individuals and businesses better manage their finances and more easily access financial services. Because money is not an optional tool for survival in the modern economy, financial services companies have a unique ability to help others through a recession or slowdown in their own industry. This pervasiveness makes for endless opportunities for banks, fintechs, and DeFi alike.
The fintech industry is not just here to serve financial services organizations, but rather to help people in this world that need financial services the most. That’s why we’re here, and it’s certainly something to be optimistic about.
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”?
You’ve no doubt heard of the three largest buy now, pay later (BNPL) players, Klarna, Afterpay, and Affirm. The oldest of these, Klarna, has been around since 2005. But after the BNPL boom exploded in 2020, dozens of new players (and even some consolidation) emerged in the BNPL arena.
With so much competition– especially competition from large incumbents such as Chase–it can be difficult for BNPL companies to stand out and attract frequent customer spend. That is why some firms have found it advantageous to tailor their offering to a more specific audience. By targeting niche consumer groups, companies can provide a better user experience by tailoring each aspect of their offering to the specific group.
We’ve identified four niche players, each of which uses specificity to its advantage.
Study now, pay later
Australia-based ZeeFi recently launched its platform that helps education providers maintain cashflow and offers students a flexible, interest-free payment solution. The education provider receives payment upfront, while students can spread out the cost of their course for up to 36 months. ZeeFi was founded in 2016 under the name Study Loans. The company has raised $88.5 million.
Travel now, pay later
Uplift was founded in 2014 to allow users to pay for their travel experiences over time. The San Francisco-based company partners with travel brands, including hotel, airline, cruise, travel agencies, and more, and offers a point-of-sale financing option that lets customers spread their purchase out over time. Depending on factors such as purchase details and the traveler’s credit history, Uplift offers no-interest and simple interest loans that users can pay back over time, even after their trip.
Healthcare now, pay later
medZero‘s tool allows businesses to offer their employees a way to spread out the cost of their out-of-pocket healthcare expenses. The company provides users on-demand access to funds to pay up-front for the fraction of their healthcare bill that their insurance doesn’t cover, and pay the balance back over time. medZero doesn’t run credit checks, is fee-free, and charges no interest. The Missouri-based company has raised $5.7 million since it was founded in 2015.
Housing now, pay later
New York-based Flex helps renters pay their landlord on a schedule that works with their cashflow. Flex automatically connects to major rent payment companies and sends rent money on the user’s behalf to their landlord on the first of the month. As an added bonus, the company can help users build their credit scores, too. Flex, not to be confused with challenger bank Chime’s in-house BNPL tool with the same name, was founded in 2019 and has raised $5.8 million.
When your day job keeps you busy for 40+ hours per week, it’s hard to take on new tasks or pay attention to new initiatives. But one thing 2020 taught us is that the digital initiative doesn’t take vacation days. So when enabling technologies and platforms like the metaverse come around, banks and fintechs need to pay attention.
First, let’s look at what the metaverse is and what it is not. You can think of the metaverse as immersive, collaborative internet. In some respects, the metaverse is already here. Users are already collaborating with each other on multiple platforms, and alternate realities– whether in 2D or 3D– have been around for decades. However, though the metaverse will be accessible via virtual reality, it is not the same as virtual reality.
The metaverse is at an early stage and is still not well defined. Despite this, banks and fintechs still need to be paying attention. Here’s why.
It’s not the first time fintech has tried to embrace a different reality
In 2014, many fintechs and even some established financial services companies launched mixed reality experiences in the form of Google Glass, which was released to the public in May of 2014. Top Image Systems (now Kofax), Fiserv, eBankIT, and Wallaby Financial (now Bankrate) all released tools for Google Glass in 2014.
Most are familiar with the fate of Google’s mixed reality glasses– they were discontinued in 2015. The failure of Google Glass is not the point, however. What matters is the speed at which this group developed around the new technology. We can expect the same for the metaverse.
You’re already behind
It’s easy to sleep on trends that seem like they are nothing but hype. Despite that, if you’ve been sleeping on this trend, you’re already behind. JP Morgan announced yesterday that it has joined the metaverse by opening a virtual lounge. Located in Decentraland, JP Morgan’s Onyx Lounge shows a timeline of the bank’s blockchain innovations, has three videos to watch, and has a tiger walking around.
The bank also released a white paper on opportunities in the metaverse. “There is a lot of client interest to learn more about the metaverse,” JPMorgan’s Head of Crypto and the Metaverse Christine Moy told Coindesk. “We put together our white paper to help clients cut through the noise and highlight what the current reality is, and what needs to be built next in technology, commercial infrastructure, privacy/identity and workforce, in order to maximize the full potential of our lives in the metaverse.”
In five years, you’ll wish you had paid attention
If there’s nothing to the metaverse right now, why bother paying attention? Because five years from now you’ll wish you had been paying attention.
While it’s easy to say that about any risk-laden investment such as real estate or tech stocks, you can consider the example of cryptocurrency. What if your organization had been investing in crypto research five years ago? You may have already been leveraging the benefits of stablecoins or smart contracts. The metaverse is just one more way to invest in the future of your organization.
Metaconomy
One very attractive aspect of the metaverse is that it is intertwined with the blockchain. In the metaverse, digital assets will be exchanged for digital currencies in a new economy. There is even speculation that work will take place in the metaverse. According to JP Morgan, $54 billion is spent on virtual goods each year and NFTs have a current market capitalization of $41 billion. Banks won’t want to be left out of this new metaconomy.
It’s where you’ll find your next clients
Generation Z* and Generation Alpha** are not only digital natives, many of them are mixed reality natives. They’ve grown up with virtual reality headsets and spend hours a day in parallel universes such as Fortnite. To capture the attention of this group, there is no doubt that financial services companies will need to meet these young clients where they are.
If JP Morgan’s bet on Decentraland is any indication, banks and fintechs should start planning their first move in the metaverse. However, as Cornerstone Advisors’ Alex Johnson recently pointed out, they may want to hold off on building their first bank branch in the metaverse.
The U.S. Federal Reserve has issued a discussion paper today on central bank digital currencies (CBDCs). The paper is meant to serve as the first step in a public discussion about CBDCs between the Federal Reserve and stakeholders.
The documentation offers a basic background on what CBDCs are and how they may impact citizens. As a part of the discussion, the paper depicts potential benefits and risks of implementing a CBDC. Specifically, the Fed cites the following:
Benefits
Safely Meet Future Needs and Demands for Payment Services
Improvements to Cross-Border Payments
Support the Dollar’s International Role
Financial Inclusion
Extend Public Access to Safe Central Bank Money
Risks
Changes to Financial-Sector Market Structure
Safety and Stability of the Financial System
Efficacy of Monetary Policy Implementation
Privacy and Data Protection and the Prevention of Financial Crimes
Operational Resilience and Cybersecurity
Ultimately, the 35 page document leaves out a key issue when it comes to CBDCs: governmental control. A government-issued CBDC would allow the government to dictate how, where, and when currency holders spend their funds. As an example, consider unemployment money issued in the form of a CBDC. The government could restrict the funds to not work at businesses categorized as liquor stores or bars.
Restrictions such as these aren’t necessarily a bad thing. In some cases, giving the government control over government-issued funds makes a lot of sense. In fact, it is even common practice in programs such as WIC, which offers low income mothers access to healthy foods.
However, if there’s one thing Americans love, it’s freedom. And if citizens receive their paycheck in the form of a CBDC, it’s likely they won’t want the government to control their spending. When it comes to monitoring citizens’ spending of CBDCs, however, the Fed did note the risk of balancing privacy with the need to prevent financial crimes. Under the Potentialrisks section, the paper states, “Any CBDC would need to strike an appropriate balance between safeguarding consumer privacy rights and affording the transparency necessary to deter criminal activity.”
The purpose of the paper is to essentially open up the discussion of CBDCs with the American people. While the Fed makes it clear it may not necessarily proceed with issuing a CBDC, it proposes 22 questions to readers in an effort to gather comments from all stakeholders. If you’re interested, you have until May 20, 2022 to submit your thoughts.
While the concept of CBDCs is fairly new in the financial services world, the conversation around the new form of cryptocurrencies is being taken quite seriously. At the moment, 90 countries are currently exploring or launching their own CBDC. In fact, TechCrunch reported earlier this week that China’s digital Yuan wallet now has 260 million users.
Apple’s iPhone celebrated its 15th birthday this week (if that doesn’t make you feel old, I don’t know what will). Since its launch, the iPhone has been through 33 different models and Apple’s market capitalization has risen from $174 billion to $3 trillion.
In addition to making Apple shareholders much better off, the iPhone is also responsible for reinventing an entire industry– fintech. While fintech did indeed exist before smartphones and app stores, it was quite basic. As an example, check out Jim Bruene’s 2006 post titled, SMS Banking: Will it Work in the United States?.
Without the invention of the iPhone, smartphones would likely be around today– Blackberry and Palm Pilot would have gotten us here eventually. However, they probably wouldn’t have advanced as quickly as Apple did, and therefore wouldn’t have upended so many industries so quickly. So in celebration of the iPhone’s 15th birthday, here’s a look at how the big idea behind the small, rectangular device reinvented fintech to become what we know today.
Always on
Most people carry their phone on their person (or at least within arm’s reach) at all times. According to a 2021 study of smartphone usage statistics, 79% of users have their phone with them at least 22 hours each day, 22% of users check their phone every few minutes, and 51% of users look at it a few times per hour. These devices (and the information that they carry) have essentially become an extension of ourselves.
When your customers have their device nearby for all but two hours of each day, it not only gives them access to interact with your company and brand, it also offers you access to interact with them. Compare this to pre-iPhone era. Customers were only interacting with you when they were physically in a branch location, opening a piece of direct mail, or using their PC. Today, when a nagging thought comes up about their budget or investment information, they no longer have to jot it down to remember to look it up later. Instead, they can simply open an app on their phone to get their answer.
Push notifications
According to the study referenced above, the average smartphone user has 63 interactions with their phone each day. Some of those interactions are thanks to the user receiving alerts or push notifications, which Apple launched in 2009.
When used properly, push notifications can be a powerful tool to prompt users to take important action. Others are useful for simply promoting brand awareness. With the advent of the iPhone and push notifications, reminding customers that you still exist became much easier.
From SMS to GUI
Simply put, the iPhone helped take banks’ and fintechs’ digital customer interactions outside of strictly texting and email. The graphical user interface behind phone’s screen brought a new world to the user’s fingertips. Users were no longer limited to checking their balance or making simple transfers. Mobile apps opened up capabilities to do anything they could do online and (in many cases) in person in a bank branch.
Independent developers increasing competition
When you think of the expertise and capital required to start a bank vs. the requirements to launch a fintech, there are gaping differences. Thanks to an increasingly large talent pool of developers, anyone with a viable fintech product or service has the ability to compete with traditional banks by launching their own app in the app store.
Increased competition from fintechs has been overall healthy for the financial services industry and has made end consumers better off. When customers are unable to find a product they like or even when they have been rejected by a traditional bank, fintechs have consistently proven to meet their needs.
Authentication
Apple launched Touch ID in 2013 and in 2014 it was made available for third party apps to authenticate users. More recently, the company launched Face ID in 2017 to facilitate authentication. While fingerprint and facial recognition technology pre-dates the iPhone, it didn’t come on a pocket-sized device that consumers carry around with them.
Having biometric authentication technology available to verify the identity of users each of the 63 times they open their phone each day has made every day tasks safer for banks, fintechs, and users.
