European challenger banks are facing a wave of new hurdles as their customers’ changing maturity raises new product complexities, and as overseas expansion – particularly to the US – becomes the next step in company growth, putting pressure on the technology infrastructure and licencing which underpins this sort of growth.
Neobanks have traditionally centred their products around current accounts, with innovation beyond this proving difficult. In the UK, Revolut, Monzo, and Starling Bank have all made efforts to reach beyond the basic current account offering.
Revolut offers a trading app with the ability to trade in gold and crypto. Monzo has offered short-term loans since last August, and Starling Bank has been lending millions to small and medium-sized enterprises (SMEs) during the coronavirus crisis.
But in many instances these players have reached limits which have forced them to temporarily scale back. Take Monzo as an example. Its plan upon launch was to lend up to £15,000 to its users, but now the bank only lends up to £3,000. Was the risk too high? Was the demand too low? Or was the technology too complicated?
Chief commercial officer (CCO) at Dutch core cloud-based banking provider Ohpen, Angelique Schouten, tells FinTech Futures that she sees “a little bit of a shakedown in companies” in which viable business models are being set against those “just burning cash”.
“It’s not just about a sexy front-end or onboarding – we’re seeing a real shift towards focus on the entire digital experience,” says Schouten.
Ohpen works with both incumbent and challenger banks. It started out eleven years ago focusing on savings solutions and working with more traditional players, but the likes of Netherlands-based challenger bank Knab run everything on Ohpen, and it’s pivoted to focus on current account offerings in line with the challenger demand.
Last month, the core banking provider appointed its chief technology officer (CTO) Joost Reijnen to its executive board, in a bid to further hone in on the technology-first approach financial players are taking.
Whilst the craze for current accounts has likely served Ohpen well in recent years financially, Schouten says that “more complex” offerings such as stocks and shares Individual Savings Accounts (ISAs) and Junior Individual Savings Accounts (JISAs) are still really lacking in good digital experiences, especially in the UK.
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“There’s a reason they just cannot handle the digital experience that comes with that customer,” says Schouten, pointing out that challenger bank’s technology needs to evolve and mature alongside its customers, otherwise these sorts of offerings simply aren’t possible on a mass scale.
“If you want to offer a complicated product like a stocks and shares JISA, be damn sure that it works with the kinds of volumes [challengers experience],” says Schouten. Robinhood is a good example of where challenger tech has fallen at the hurdle of high user volumes.
On 2, 9 and 12 March, the fintech’s in-house built tech stack crumbled, locking out 10 million traders the same day the Dow Jones experienced its biggest one-day points gain ever. The fintech blamed the “unprecedented load” which weighed on its infrastructure and is now facing three lawsuits in the US.
Schouten cites UK roboadviser app Nutmeg, which had a great front end, but for a time the backend was manual. Nutmeg, like Robinhood, has fixed its architecture issues now.
As well as building – or buying – technology which lays the foundation for more complicated products, Schouten also wants to see more cross-border initiatives by UK challenger banks in particular.
“If you look at it from a retail perspective, Revolut is doing a really good job to offer its propositions to multiple countries,” says the CCO. Currently, the UK challenger bank allows users to transfer money to bank accounts for free in more than 150 countries in 25 currencies.
“What I would love to see is for [other] UK challengers to take that international step. They’ve grown a lot within their [own] country. And I think compared to continental Europe, challengers in the UK are on a better path to acquiring volume.” This is partly down to the favorable regulatory conditions of the UK market, compared to markets like the Netherlands where getting a banking licence is a lot harder.
But how UK challenger banks go about this expansion raises a few questions. Schouten cites ING Direct as an example of how not to do it. The Dutch multinational bank had one proposition but rolled out seven different banks to deploy it.
“That meant the operation was so bloody expensive, they were just focusing on keeping the damn thing rolling. So that didn’t work.”
Which raises the question: does a challenger build a new tech stack and operations per country? Or, is it going to scale existing technology which can be used across multiple geographies at a lower cost base?
“It’s not a matter of copy pasting what you have, I think it’s a matter of adapting your proposition to the countries and keeping the operation and technology as simple as possible,” says Schouten, who estimates it takes roughly 50,000 development hours for a challenger bank to launch in each country.
That’s a huge chunk of funding which companies have to allocate, and in the US, it is even more complicated, as each state has different requirements and regulations. “It’s more than just speaking the same language – and that’s not sufficient, trust me, I know as a Dutch participant,” Schouten laughs.
Last month, following the announcement of its US banking licence application, Monzo’s co-founder Tom Blomfield shifted roles from CEO to president in a bid to escape the mires of regulatory paperwork which had loaded on top of him. Challengers are not only trying to solve the technology conundrums of expansion – which Blomfield says are his sweet spot and why he moved roles – but they are also trying to hack legislative processes they have little or no experience with.
Schouten says that solutions to these challenges – product and geographic expansion – will come with maturity and time. She says a big part of what allows more complex products to operate on a mass scale is down to software maturity, plus the knowledge and competence which can only be gathered over years, not days.
Despite many challenger banks still cropping up to this day with new, lookalike current accounts, consumers are getting older. “Clients will demand it,” says Schouten, “and the question is – will they build it themselves, or outsource?”
Tech firm unveils Australian first initiative to help charities access blockchain funding
In an Australian first, social enterprise Little Phil is partnering with a cryptocurrency provider to provide local charities access to alternative and sustainable fundraising streams.
To deliver this groundbreaking initiative it is working with Netherlands-headquartered firm Legends of Crypto (LOC) – a non-fungible token trading card game – to implement a trial that will see 10% of all sales go towards directly funding selected causes on the Little Phil platform.
Non-fungible tokens, or NFTs, are a special class of digital assets that cannot be exchanged with one another for equal value, or broken down into smaller bits, that often operate as a type of collectors’ item and cannot be duplicated. These represent the next phase in the application of cryptocurrency technology with LOC itself receiving significant support from leading industry heavyweights such as the CEO of bitcoin.com.
This initiative is designed to provide not-for-profits access to alternative streams of fundraising outside of traditional avenues and aid them in diversifying their revenue raising activities.
According to Little Phil Co-founder and CEO, Josh Murchie this trial is designed to test the efficacy of alternative funding streams as it seeks to empower charities to diversify how they raise revenue for their causes.
“This is a really exciting trial for Little Phil and Legends of Crypto as we seek to test this groundbreaking fundraising trial,” said Mr Murchie.
“Although awareness among the public about crypto currency is generally around Bitcoin and maybe Ethereum, the reality is that this is just the tip of the iceberg in terms of the technology explosion in this space. What we are seeking to do here is to trial the efficacy of utilising NFT’s to create a recurring revenue stream for charities and see if we can free them up from continually asking for donors to donate.”
Founded in 2017, Little Phil is a total giving ecosystem that connects donors, businesses, and brands more directly with charities and beneficiaries through its Blockchain inspired Fintech technology platform that allows users to select a cause that they care about and directly give to that specific initiative – allowing them to track their impact in real-time.
Its technology provides donors full transparency around where their donations go, while providing charities the ability to showcase the difference every dollar makes as it provides not-for-profits the ability to give updates on the impact each gift has – ensuring transparent giving.
Some of its clients and partners include Greenpeace, mental health charity LIVIN, and the Currumbin Wildlife Sanctuary located on the Gold Coast.
That is why it is trialing the partnership within LOC’s marketplace that sees users buy and sell uniquely designed NFTs only available via its marketplace – as it adheres to this philosophy of directly allowing donors to connect via the causes they care about.
In this instance the 10 per cent of the funds raised will go directly towards cancer survivors requiring funding for their treatment.
For Josh Murchie, this initiative is all about ensuring that Little Phil is providing the charity sector access to funding and technology that might otherwise not be available to them.
“Last year we ran a national survey – the State of COVID report into Australia’s not-for-profit sector – that unearthed some of the biggest issues facing the industry as a result not just of the pandemic but broader micro and macro trends,” Mr Murchie said.
“One of the critical elements we unearthed from the data is that the sector is beset by two key issues, the giving behavior of Gen Z’s and millennials, along with digital transformation and technology usage. This trial, allows us to test the ability of charities to raise funds using the latest digital currency technology to hopefully better engage these demographic cohorts by creating greater connectivity with causes they care about using these new financial assets.”
Wisr posts 19 consecutive quarters of growth
Wisr has posted a record 19 quarters of back-to-back growth, delivering an accelerated Q3FY21 of new loan originations for the three months ending 31 March 2021.
For the last 19 quarters, Wisr has delivered an unbroken track record of quarter-on-quarter growth. The Company posted Q3FY21 new loan originations of $97.8m, a 17% increase on Q2FY21 and a 151% increase on Q3FY20. An exceptionally strong result in the seasonally slower March quarter.
Wisr has now reached $488.3m in total loan originations since inception, the most recent $100m written in less than five months, as the Company scales towards the medium-term target of a $1B loan book.
The Q3FY21 average credit score of 771, is the highest average in the Company’s history (Q2FY21 average was 757). Wisr’s strong credit performance reinforces the prime nature of the Company’s loan book, customer credit quality and lending model. However, it also provides Wisr the ability to take more market share, deliver more organic growth, and optimise profitability through the review of the Company’s credit decisioning.
Anthony Nantes, Chief Executive Officer, Wisr said, “It’s a fantastic result which continues the incredible track record of 19 straight quarters that Wisr has delivered loan origination growth. Additionally, we’ve delivered yet another significant and material step-change in our new loan origination. As more prime borrowers leave the banks, Wisr’s purpose-led model is attracting Australia’s most creditworthy customers who are looking for a smarter, fairer deal, underpinned by an exceptional experience.”
“Our new-to-market secured vehicle product has also significantly increased the total addressable market for Wisr and is delivering ahead of expectations. There is still a long runway of growth ahead for us in that market, and we’re excited about the business we can build in that space. Combined with our differentiated business model, consumer proposition, technology platforms and funding capability, we’re in prime position to aggressively grow our new loan originations, with significant room to scale towards our medium-term target of a $1B loan book,” finished Mr. Nantes.
Following the Company’s Q1FY21 step-change growth in loan originations and continued strong loan book performance, the Wisr Warehouse loan funding facility was upsized to $350m in Q3FY21. Further Wisr Warehouse expansion to meet loan funding requirements will be announced in Q4FY21.
Software-based facial recognition in payments industry to dominate by 2025
A new report from Juniper Research predicts that software-based facial recognition to secure payments will be almost ubiquitous by 2025, thanks in part to Apple’s FaceID implementation.
According to the firm, there will be more than 1.4 billion users of facial recognition software used for payments alone in 2025, up from 671 million in 2020.
Apple’s FaceID is driving growth in the wider facial recognition market, even though masks and other facial coverings have become more common since COVID-19.
Beyond facial recognition technologies, fingerprint sensors and voice recognition are also picking up significant momentum.
“Hardware-based facial recognition is growing, but the ability to carry out facial recognition via software is limiting its adoption rate,” explains Juniper Research and author of the research report, Susan Morrow, says.
“As the need for a secure mobile authentication environment grows, smartphone vendors will need to increasingly turn to more robust hardware-based systems to keep pace with fraudsters’ evolving tactics.”
According to the Mobile Payment Authentication: Biometrics, Regulation & Market Forecasts 2021-2025 report, fingerprint sensors will be on 93% of smartphones with biometric hardware by 2025, while hardware-based facial recognition will only be on 17% of phones.
Voice recognition for payments is gaining popularity: In 2020 voice recognition had 111 million users – this is expected to rise dramatically to more than 704 million users by 2025.
Juniper Research states that voice recognition is primarily used in banking, and there are few other ways in which it can expand. The reason for this lack of growth could be due to robustness concerns.
“Juniper Research recommends that vendors adopt a multi-method biometric strategy, which encompasses facial recognition, fingerprints, voice and behavioural indicators to ensure a secure payment environment.”
To read more, please click on the link below…
Square extends lending arm to Australian businesses with Square Loans
Today, Square announced it will be rolling out Square Loans in Australia, a program that helps small businesses grow by giving them quick and simple access to funds. Australia will be the first global market, outside of the US, where the payments company will launch its lending product.
“It’s no secret that small businesses in Australia have historically faced huge hurdles when it comes to accessing formal forms of funding,” said Samina Hussain-Letch, Head of Industry & Payments at Square Australia (pictured). “They’re often forced to pour over piles of paperwork, provide years of financial information, and put up personal guarantees that can be riddled with red tape.”
“As the Australian economy recovers from the effects of the pandemic, and government stimulus payments begin to dry up, small businesses need our help now more than ever to continue to run and grow their businesses, while creating jobs,” she said.
Research commissioned by Square has found that more than half of small businesses in Australia have been negatively impacted by the COVID-19 pandemic, with more than a quarter seeing revenue losses of more than 50%.
“There’s never been a more important time for more choice in the lending market, and so we’re delighted that we can offer our Australian sellers simple and quick access to funding through Square Loans,” Hussain-Letch said.
By using historical transaction data, Square Loans has a straightforward application process, where no paperwork is needed, and sellers get their money as soon as the next business day. Businesses will have one clear upfront loan fee which will automatically be paid back as a set percentage of daily card sales on Square — so they pay more back when sales are strong and less if things slow down. Unlike the structure of traditional loans, the cost to the seller never changes, regardless of how long it takes them to repay Square.
Research from Square highlighted that only one in four Australian small businesses have ever accessed any form of formal funding, such as a business bank loan, but two thirds of business owners have relied on private sources of funding, such as personal credit cards or borrowing from friends and family. The research also found that business owners were even less likely to have accessed formal funding, and more likely to have used personal finances, if they were women or aged under 40 years. As the country recovers from the COVID-19 pandemic, one in five businesses intend to apply for a formal loan.
“Many small business advocates have acknowledged that traditional lending processes in Australia aren’t flexible enough for small businesses,” said Hussain-Letch. “Overly onerous and lengthy processes from big banks will act as a deterrent to small businesses and will force many to borrow from less secure means. What we’re bringing to market solves that issue.”
Since the initial launch of Square’s loan product in the US, Square has facilitated more than USD$8 billion in financing to more than 435,000 small businesses.
Square expects to see similar momentum in Australia as local businesses continue turning to the platform as the engine to run their operations. Square recently added a number of products and services to its Australian portfolio, including an all-in-one payments processing device, dedicated point-of-sale software for retailers and restaurants, and deeper functionality for its Online Store to adapt to the changing business environment.
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