posted by Collin Canright on February 21, 2017 - 9:59am
The article that most caught my attention this week came from Ron Shevlin, director of research at bank advisory Cornerstone Advisors. "FinTech—as a set of startups or a class of technology—is hardly failing," the bank snarketer (look it up) writes in debunking a startup founder's reasons that FinTech is failing.
Instead, FinTech isn't living up to its hype and now faces a regulatory and business environment more advantageous to incumbents. If FinTech were to fail, it would be because of scaling obstacles, regulatory easing, and an improving economy.
As with many LinkedIn posts, the comments contained a bit of golden insight. In discussing bank-FinTech partnerships, which many, myself included, see as the way forward for both FinTechs and smaller banks, Shevlin notes that, "Most of what is being presented as partnerships are more like vendor/client relationships, FinTech as a distribution channel, or big banks taking ownership stakes in startups."
Indeed they are. I checked the results of our recent FinTech Rising survey and see that two of the three types of partnership models considered by more than 50% of respondents are service partnerships (you use their services) and vendor partnerships (you provide services to their customers). Not the shared risk and reward, as Shevlin characterizes a true partnership.
This week's links provide perspectives skirt the range of approaches, from going it alone as an incumbent, as a startup, and with various overlaps in between.
What it takes to build a digital bank
"The most forward-looking bankers are shedding the limitations of traditional banking and looking to build digital banks from the ground up," writes Bryan Yurcan for American Banker. "For many institutions, building standalone digital-only banks might be their solution to putting existing customers through a painful core conversion."
Betterment’s got big plans
According to The Financial Revolutionist’s weekly briefing, robo investment firm Betterment is one of the "few independent start-ups that have built the scale, brand and technology necessary to go toe-to-toe with incumbents [Vanguard, Schwab, Merrill Lynch] yet still appeal to digitally-savvy investors." The Revolutionist makes the case in a wide-ranging interview with outspoken Betterment CEO Jon Stein.
Banks look to cell phones to replace ATM cards
The adoption of EMV chip cards has reduced ATM thefts, but banks are concerned about the problems with shift to mobile payment access, writes Stacy Cowley for The New York Times. “Even if mobile wallets finally take off and phones replace debit and credit cards, there are still times — even for millennials — when only old-fashioned cash will do.” Banks are developing systems that provide ATM access through mobile phones. The Times rounds up what the banks are working on.
No silver bullet
Innovation is much like weight loss, JP Nicols asserts in a new blog post. There’s no single solution, though entrepreneurs often approach it like there’s one magical solution. “Your competitors that are sticking to their program are starting to create their own competitive advantages. Partly through the accumulation of a lot of small wins, and partly by getting better at successive experiments because they’re learning more quickly what works and what doesn’t. Try the "test and learn" approach to innovation, Nicols advises, where you "run many small experiments to maximize the learning and increase the probability and speed of success."
An Ivy League professor who spent four months working in a check-cashing store says we’re getting it all wrong
During her research, University of Pennsylvania professor Lisa Servon “discovered there were three main reasons people used these services instead of banks: cost, transparency, and service,” writes Alex Morrell for Business Insider. "Contrary to the views of the financial elite, customers' use of check cashers typically didn't seem naive or poorly thought out, but rather the smartest decision they could make given their circumstances." Servon recounts her journey in her new book, The Unbanking of America: How the New Middle Class Survives.
Mobile commerce making inroads vs. desktop
More than 75 percent of respondents of the Mobile Ecosystem Forum’s Mobile Money survey said they made a purchase on their device in 2016. Overall, mobile payments banking activities have had modest growth during the past two years. "The message to all businesses around, especially financial services, is that if you neglect to offer services and products through the mobile channel, you will lose – not only your customers but also your business, writes Jim Marous for The Financial Brand.
Alternative payments strike paydirt
Payment mechanisms like Apple Pay, Affirm, bitcoin, and Samsung Pay are becoming competition for banks, as are payment firms that provide financing right in the electronic shopping cart. The services are all new. "Yet many payments experts believe 2017 could be the year, writes Lauri Giesen for BAI Banking Strategies. Banks could make smart investments in tech startups in order to get their payments options in the hands of more customers. They could also tiptoe into emerging programs, if they like. In any case, know the risks.
THE BLOCKCHAIN WATCH
NPR’s Planet Money team looks at the connection between packets of mackerel used as a prison currency and blockchain’s takeover by banks and stock traders. It's the story of how Charlie Shem, who went to jail in a bitcoin-related case (aiding and abetting an unlicensed money transmission business), helped prision trade payments go digital.