luis maldonado

IE Business School outlines global fintech trends

A recent fintech briefing organised by Frost and Sullivan, saw Spain-based IE Business School, presenting about the global fintech landscape so far, as well as the trends they see for 2018.

Professor at IE Business School, Luis Maldonado, listed fintech, or the use of financial technology, as having produced solutions in areas like payments, lending, wealth management, capital markets, personal finance, remittances, real estate, and more.

Besides that, he also listed some global trends that fintech will see for 2018.

Let’s take a look at a few.

Shift in strategy

Last we heard, banks were shifting from being confrontational to becoming more collaborative with fintech companies, or startups. According to Maldonado, this began in 2015, when win-win strategies were deployed by banks or financial services institutions (FSIs).

But, these big established banks are also starting to take on some fintech features themselves ie. trying to become more lean and agile, or focusing on one particular type of financial service or product, in the whole financial services value chain.

The professor named Citibank, Satander and Goldman Sachs, as a few popular examples of big financial institutions that are starting to do fintech (activities) themselves.

Citibank’s consumer banking group, for example. When Steven Bird took over that division, he had wanted to find a way to overcome the challenges that fintech companies presented to the group.

Not long after, Citi Group started a rapid apps prototyping team called Citi Fintech, which is made up of employees handpicked from various parts of the organisation, as well as headhunted from tech companies like Amazon and PayPal. As of March this year, Citi also has taken an equity position in about 30 fintech startups, with four innovation centres that focus on four key areas of client experience, scalability, operating model agility and innovation.

Goldman Sachs is another example of an FSI that is doing fintech, when they created a personal loan product, as well as a savings product with better-than-average rates, that are only available on the Internet.

Maldonado observed that these large FSIs; JP Morgan, Morgan Stanley, ICBC and so on; are also currently working on creating their own robo-advisories, among other things.

 Unbundling to rebundling

Maldonado who used to advise the Spanish finance minister, noted that fintech activity is usually around the non-licensed parts of the banking industry, and their products tend to be singular and standalone and very, very specific.

Banks on the other hand, have traditionally always tried to offer everything they can, under their roof. One of the threats they saw coming from fintechs, is consumers who are now empowered to cherry pick what they wanted from the thousands of solutions out there, as opposed to shopping only under the bank’s roof.

2018 may be the year when fintechs start to offer products and services in bundles, by purchasing or alliancing themselves with other service providers.

There is Revolut, a travel spending management tool, that now wants to offer more services by leveraging their partnerships.

There is also Zopa, a peer-to-peer lender which is applying for a full banking license, and also Transferwise which has launched cross-border bank accounts.

2018 will see more of these fintechs, expanding their offerings, or rebundling the functions that banks usually offer… and probably do it better.

Deloitte dubs this phase, as the second wave of Fintech activities.

Open Banking

Open Banking, a UK-version of Europe’s Second Payment Services Directive (PSD2), requires the nine largest banks in the United Kingdom, to share their data to certified third-parties, in a standard format via APIs. It came into force in mid-January this year but is still mostly under the news radar.

Basically, third parties being able to access bank data via APIs, means the creation of new and more convenient banking services. For example, better money management, because you can now see the different accounts from different banks, at the same time. This has spurred the creation of dashboards, so consumers can see their total incoming and outgoing funds.

Open Banking aims to break down the data siloes between banks and service providers so that financial transactions could be seamless and less clunky. Ie. Why can’t my bank identify that I have bought coffee from this shop, seven times already, and notify me of my eighth free cup of coffee?

To date, only current account data is being shared, with credit card and other payment accounts data, to be slowly added over the next two years. The account holder controls their data and must give explicit approval to any data sharing.

Another important part of Open Banking, is that pricing and banking products information has to be made publicly available, for anyone to access.

Maldonado sees the Open Banking standard which was introduced by UK’s Competition and Markets Authority, as starting an intense fight for banking customers now.

The extent to which Open Banking might impact the rest of the globe, remains to be seen.

RegTech is consolidating as a trend

In 2016, RegTech was the new concept that was revolutionising financial technology. RegTech was the use of technologies such as cloud computing or big data, with the ultimate aim of saving banks a lot of the time and resources they devote to ensure regulatory compliance.

Today, RegTech is rapidly rising in prominence.

According to the Institute of International Finance, compliance could amount to USD1 billion a year. This figure could likely increase, as the FSI industry comes under ever tougher regulatory scrutiny in today’s highly complex landscape, especially in Europe.

Three areas of opportunity for RegTech are speedier compliance processes, accelerated compliance to anti-money laundering regulations via improved Know-Your-Client mechanisms, and automatic interpretation of regulatory publications.

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