posted by Collin Canright on July 12, 2018 - 12:00am

This newsletter marks the end of the longest hiatus I’ve taken from FinTech Rising since I started it in October 2014. In the midst of a large client acquisition, I’ve taken the time to review the newsletter, plan some forthcoming content, and complete our initial product, FinTech Rising 2018: Toward a Golden Age of FinTech (use code FTR-SUB).

By the large, payments topics remain the most popular in terms of the most-often clicked on links. It will be no surprise to learn that all things crypto come in second.

What's apparent as I have talked to readers over the last few months is that they like the focus on all FinFech sectors, with an emphasis on pragmatic content for finance professionals in general. A bias toward Chicago topics goes over well, too, at least among my Chicago-based readers. (Note: The MailChimp email analytics tells me that most readers are in Silicon Valley and then New York.)

We're back to work after the Independence Day holiday here in the United States. Here’s a batch of FinTech reports and news items to get you back into the swing of things.

Yeah, there’s a lot of crypto here, but I managed to find some good items in other sectors, too.

Bankers expect payments to move to nonbank competitors

The annual report by the Economist Intelligence Unit on behalf of bank software provider Temenos shows that bankers believe their top priority is improving product agility (PDF). Perhaps that's because they see a need to replace traditional products like payments. The study also shows that more than 75% of bankers believe that "the majority of payments will flow outside traditional banking networks" by 2020. More than half (53%) believe that the biggest nonbank competitors they will face in the next couple years will be payments firms, followed by large technology firms (28%) and neobanks (28%).

What does offering top-notch customer experience mean in the digital age?

Financial institutions are expected to enhance customer engagement efforts, according to a new innovation report from PYMNTS (registration required). The effort is overdue. "In fact, just 35% of them reported having focused on CE during the past three years, while 43% said they intended to focus on CE in the (next) three." Mobile and digital payments have received the most attention so far. Of financial institutions that have already focused on CE, more than half (53%) say they plan to focus next on loyalty and rewards.

EBA assesses risks and opportunities from FinTech and its impact on incumbents’ business models

The European Banking Authority (EBA) published the first products of its FinTech Roadmap:

Report on prudential risks and opportunities arising for institutions from FinTech.pdf This report covers biometric authentication, investment roboadvisors, big data and machine learning for credit scoring, cloud computing, and, yes, distributed ledger technologies.

Report on the impact of Fintech on incumbent credit institutions' business models.pdf This one focuses on issues for financial institutions that want to partner, invest in, or otherwise collaborate with FinTech firms and includes a discussion of financial innovation from the point of view of a regulatory agency.

Personal loans surge to a record high

Hannah Levitt reports for Bloomberg that consumers increasingly are turning to FinTech lenders like LendingClub, Social Finance, and Marcus to borrow. They are now the fastest-growing consumer-lending category. "Outstanding balances rose about 18% in the first quarter to $120 billion. FinTech companies originated 36% of total personal loans in 2017 compared with less than 1% in 2010, Chicago-based TransUnion said." To put it in perspective, total consumer credit-card debt fell by $19 billion to $815 billion in the first quarter of 2018 while total household debt topped $13 trillion, according to the Federal Reserve Bank of New York.

FinTank WealthTech Chicago event

Chuck Mackie, covering Chicago-based FinTech accelerator’s recent panel for John Lothian News, concludes, "In the end, FinTank’s WealthTech conference highlighted just how much is going on in technology, and exactly how little of it has become clear. While the public may be growing weary of AI, roboadvising, and cryptoassets, the truth is that these areas are still barely out of their infancy."

Personal loans surge to a record high

I have written and run all manner of items and posts on legacy systems and how incumbent financial institutions in all sectors of finance are tied to them. I've even written marketing pieces for companies that keep these systems running. I was particularly entranced by this item in Quartz that "breaks down Common Business-Oriented Language, the ancient computer code from 1959 responsible for powering $3 trillion a day of US commerce."


Blockchain isn’t a revolution: it’s two big innovations and one promising idea
Kevin Werbach provides a tutorial on the three key concepts that tend to be grouped under the word that increases stock prices: blockchain. It isn’t a revolution, he writes, but "two big innovations and one promising idea."

The truth is that there isn’t a blockchain phenomenon to be for or against. There are three.

1. There is cryptocurrency: the idea that networks can securely transfer value without central points of control.
2. There is blockchain: the idea that networks can collectively reach consensus about information across trust boundaries.
3. And there are cryptoassets: the idea that virtual currencies can be "financialized" into tradable assets.

Demystifying blockchain.
The New York Times Deal Book put its best and brightest business writers to the task in a recent special section giving you hours of by-the-pool blockchain reading. "Slowly and unsteadily, the mysterious blockchain is emerging from the shadows and making its way into a still murky future. Don’t count it out," writes Andrew Ross Sorkin.

Crypto reference.
If that isn’t enough blockchain and crypto reading for you, John Lothian launched You won’t find a better resource on all things crypto.

But wait, there’s more. It was just a matter of time before the University of Chicago economics researchers studied the bitcoin ecosystem. At this point, it just doesn’t add up, as explained by Eric Budish in his study "The Economic Limits of Bitcoin and the Blockchain (PDF):"

The amount of computational power devoted to anonymous, decentralized blockchains such as Bitcoin’s must simultaneously satisfy two conditions in equilibrium: (1) a zero-profit condition among miners, who engage in a rent-seeking competition for the prize associated with adding the next block to the chain; and (2) an incentive compatibility condition on the system’s vulnerability to a "majority attack", namely that the computational costs of such an attack must exceed the benefits.

What meeting those two conditions means, in the end, he writes, is this: "The anonymous, decentralized trust enabled by the Nakamoto (2008) blockchain, while ingenious, is expensive."