Banking has evolved at a rapid pace over the course of the 21st Century so far. The days where you would find yourself queuing at your local bank in order to open an account, make a deposit, transfer money or cash a cheque are long gone. With digital banking’s continued rise leading to more industry disruption, is there a place in the future for brick and mortar banks?
The emergence of online banking has led to vastly improved levels of access to financial services while significantly reducing the need for account holders to physically visit their local banking branches. As new technology entered the industry, many banks have acted fairly quickly to accommodate new digital approaches and upgrade their services accordingly.
With more established names in finance investing big in terms of capital markets and wealth management among other forms of fintech, there’s little sign that the wave of innovation is going to be slowing down. With more digital approaches to banking being developed and rolled out, could major banks soon go entirely digital?
The potential that fintech holds for the future has been heavily showcased over the course of 2020, as the COVID-19 pandemic introduced citizens around the world to a financial landscape where physical access to banks was further limited.
Maxim Manturov, Head of Investment Research at Freedom Finance Europe, says: “To support the economy, most countries adopted stimulating policies, which brought both the loan and deposit interest rates to the historic lows. As an alternative to low-rate deposits, many started investing their savings into stock markets, which posted significant gains last year despite the lockdown and the production slump.”
Let’s take a deeper look into how fintech’s swift evolution may disrupt the brick and mortar banking landscape:
Fintech Driving Change
The term ‘fintech’ refers to technologies that have been developed to rationalize, digitalize and optimize traditional financial services filling the gap in traditional payment systems. Fintech has the power to facilitate services provided by payment systems as it enables more transparent and accurate transactions owing to vast technology opportunities.
It’s worth noting that due to being entirely digital, fintech services tend to be delivered at a lower price, which enables users to access cheaper, more affordable and unified services.
Oftentimes, banks have been considered as major players in payment transactions, but today traditional banking systems are increasingly giving way to fintech in terms of the high cost of conducting transactions and because of system inconsistencies.
Fintech companies aim to organise the payment process not only from the point of view of cheapness and profitability but also from the point of view of convenience and unification. Particularly taking into account that traditional banking services happen to have shortcomings in the new technology sphere, the notion of fintech integrating with banks helps to offer a solution where a bank provides fintech services through cooperation. This integration of banking services is vital for this – while banking services can offer real-time financial management on a regular basis, fintech brings innovation and disruptive technology to the table.
For instance, there are still unbanked areas where access to brick and mortar financial institutions is still challenging for individuals. Fintech can act as a door to banking services for areas of the world that are deprived of sufficient banking infrastructures and can connect users with services like digital wallets, cashless transaction and wealth management. One such example can be found in an initiative by the World Food Programme where Syrian refugees have been set up with a cashless payment network to help them buy the necessary food for their families.
Fintech can also help financial institutions to better embrace digital currencies like cryptocurrencies, and to facilitate more payments being made through non-fiat denominations of finance. With the recent listing of Coinbase on the New York Stock Exchange, the world of crypto has enjoyed a period of further validity and perceived acceptance within more traditional banking. With payment giants like PayPal and Stripe incorporating the likes of Bitcoin into its fintech functions, we can see further indications of how much more powerful fintech can be compared to brick and mortar banking – but is there still room for local banks on the high street?
Does Fintech Spell the End for Brick and Mortar Banking?
Industry insiders have long been concerned about the role fintech have been playing in the world of banking and whether or not they will ultimately replace traditional financial institutions. This fear was exacerbated by the recent introduction of the People’s Bank of China Fintech Development Plan which looked to accelerate the accommodation of digital financial services in the country. But could fintechs actually spell the end of traditional banking?
To address this properly, let’s address what finance actually is. The purpose of finance is to realize the optimal distribution of capital across time and space amid uncertainties and to serve the real economy and maximize social utility.
One big barrier to this can be found in adverse selection through a lack of information and the emergence of ethical issues. Finance should exist to identify and price risks. All technologies that are developed should be intent on helping to better understand customers and their willingness, and ability, to pay – while pricing them accurately.
With this in mind, traditional banks have an advantage in terms of capital costs, while fintechs are competitive in terms of operating costs. While some may believe that the cost of customer acquisition online was low, there’s evidence that the process is actually regularly more expensive than offline acquisition.
Fintechs are naturally innovative and in tune with the development of the internet. They have regulatory arbitrage to leverage and enjoy first-mover advantages. Their ability to offer standardized financial products while utilizing long-tail marketing gives them something of competitive advantage. However, brick and mortar financial institutions can offer a more natural monopoly over in-person finance, as well as much greater levels of expertise and capital strength – they also boast stronger and more loyal customer bases.
With this in mind, their strengths lie in the creation and sale of bespoke financial products to a sprawling customer base. With this in mind, we may ultimately see a more adaptive relationship between the two approaches to finance in the future – with fintech innovations complementing brick and mortar banking.
The Road Ahead for Fintech
It’s difficult to gauge exactly what the future holds for technology-led banking. At the turn of the century, it would’ve been almost impossible to predict how internet banking would leverage contactless payments within the space of 20 years.
It’s clear to see that banking branches have a future, although they may become fewer and far between – and they’re likely to take on a different physical appearance than the branches of the past. Alongside other brick and mortar retail stores, it’s likely that customers will crave experience as much as functionality. When most financial transactions are carried out digitally, there needs to be fresh reasons to make visiting branches worthwhile.
Times are changing at a quick pace, and it’s difficult to confidently look into the future. While the road ahead for fintech may come with more twists and turns, it’s clear that this level of innovation will continue to make a positive impact on the world of finance, and this will help to complement the world of brick and mortar banking.
China: WeiyangX Fintech Review
National Internet Finance Association of China: Standardized Cosmetic Surgery-Related Financial Products and Services
The past few years have seen the rapid development of cosmetic surgery in China. In order to better serve their customers, some financial institutions have cooperated with third-party cosmetic surgery agencies to provide related financial services and products (e.g., cosmetic surgery installment plans). Yet, problems like excessive borrowing, lack of transparency, and high pricing have also brought damages to the interests of the consumers.
On June 9th, the National Internet Finance Association of China (NIFA) released an initiative on cosmetic surgery-related financial products and services. NIFA suggested the financial institutions should not collaborate with illegal cosmetic surgery agencies or provide financial products and services to these agencies.
When cooperating with cosmetic surgery agencies in compliance with administrative requirements, financial institutions should fully evaluate the repayment ability of consumers in accordance with the principle of appropriateness, independently determine customer credit and loan pricing standards, and take risk controls. For college student consumers, financial institutions should strictly abide by the relevant regulations of the financial regulatory authority on campus consumer loans. (Source: NIFA)
Red Date Technology Secures Series A Financing led by Prosperity7 Ventures
On June 10th, Beijing-based Red Date Technology announced the completion of a USD $30 million Series A equity financing. This round of investment was led by Prosperity7 Ventures and Hong Kong-based blockchain investment firm Kenetic.
Other participants included Swiss private bank Pictet and Bangkok Bank.
In 2019, led by the State Information Center, China Mobile, China UnionPay, and Red Date Technology jointly initiated the construction of the Blockchain-based Service Network (BSN), and officially put it into business on April 25th, 2020. BSN is a global public infrastructure network that is used to deploy and run blockchain applications across cloud services, portals, and underlying frameworks, reducing cost and improving flexibility, interoperability and efficiency. (Source: lieyun)
ByteDance Entering Cloud Computing Services Market
It is reported that ByteDance’s “Volcano Engine” division will officially release cloud computing IaaS (Infrastructure as a Service) services, which include computing, storage, and networking, in September or October this year.
In addition to the established data center in Zhangjiakou, Hebei, ByteDance is also planning to build large data centers in cities such as Shanghai and Shenzhen or surrounding areas to provide external IaaS services.
Volcano Engine aims to be the “fourth cloud in China” besides Alibaba Cloud, Tencent Cloud, and Huawei Cloud. (Source: LatePost)
The Hong Kong Monetary Authority Discusses CBDC in its “Fintech 2025” strategy
On June 8th, the Hong Kong Monetary Authority (HKMA) released the “Fintech 2025” strategy as an effort to promote the development of the Fintech industry in Hong Kong.
According to the document, HKMA will conduct in-depth studies to strengthen preparations for the issuance of CBDCs at the wholesale and retail levels in Hong Kong.
In addition to the continued effort on wholesale CBDCs, HKMA is cooperating with the Hong Kong Center under the BIS Innovation Hub to study CBDCs at the retail level. It will also begin to study e-HKD on its use cases, benefits, and related risks.
HKMA will continue to collaborate with the People’s Bank of China on the technical tests of digital renminbi in Hong Kong, providing a convenient option of cross-boundary payments for both residents in Hong Kong and mainland China. (Source: HKMA)
The above is a weekly synopsis of the biggest stories on Fintech in China provided by WeiyangX, part of Tsinghua University, in partnership with Crowdfund Insider.
WeiyangX is the most influential website focusing on Fintech in China. The site covers the latest news, industry data analysis, business practices, and in-depth cases in Fintech. WeiyangX is incubated by Fintech Lab. Founded by Tsinghua University’s People’s Bank of China (PBC) School of Finance in 2012, the Fintech Lab is the first and leading research entity dedicated to leading best practices, promoting interdisciplinary innovation, and encouraging entrepreneurship in the field of fintech through scientific research and innovative project incubation. Coinsmart. Beste Bitcoin-Börse in Europa
Bank of England and Bank for International Settlements Establish Innovation Hub in London
The Bank for International Settlements (BIS) and the Bank of England (BoE) revealed on June 11, 2021, that they’ve introduced the BIS Innovation Hub London Centre, which is notably the fourth Innovation Hub Centre to have been launched in the last couple years.
The BIS and its partners are taking a “leading role” in coordinating the work of reserve banks on tech innovation in the financial industry to pave the way forward for the “future of central banking,” Agustin Carstens, GM at BIS, noted.
This new Centre in London “reflects the Bank of England’s critical role as an innovator in responding to the challenges and opportunities of the digital world while safeguarding financial stability,” Carstens added.
Andrew Bailey, Governor of the Bank of England, stated:
“As a central bank, we recognize the importance of innovation for the global financial system and look to support its safe deployment wherever possible. This requires collaboration between public authorities in all jurisdictions, and the BIS Innovation Hub is an important global initiative for achieving this.”
This launch is part of a plan “to expand the global reach of the BIS Innovation Hub, which also includes the opening of Centres with the Bank of Canada (Toronto), the European Central Bank/Eurosystem (Frankfurt and Paris) and the four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank) in Stockholm.”
In January 2021, the BIS “signed a memorandum of understanding for a strategic collaboration with the Federal Reserve System (New York).”
Benoît Cœuré, Head of the BIS Innovation Hub, noted that he’s pleased to welcome the next phase of the BIS Innovation Hub’s expansion with “the establishment of the new Centre with the Bank of England in London, where there is such a strong nexus of technology and finance.”
Through this collaboration, the BIS Innovation Hub will “continue to develop key public goods that address financial sector issues of importance to central banks,” Cœuré said.
The BIS Innovation Hub’s work program is focused on the use of tech innovation in supervision and regulation (suptech and regtech); updated financial market infrastructures; central bank digital currencies or CBDCs; open finance; cybersecurity; and “green finance.”
Work related to these themes is “distributed across the various Hub Centres,” the release noted.
The United Kingdom is well-known for continuously pushing the boundaries of digital finance so it’s “great to have the new Innovation Hub opening here,” Rishi Sunak, UK Chancellor of the Exchequer said while noting that its work will “help central banks to support safe innovation, and boost our efforts to capture the extraordinary potential of technology.”
A virtual or online seminar on the launch was “held today at 09:30 BST/10:30 CEST.” Further details can be accessed here.
Bank of England: Andrew Bailey, Victoria Cleland, Jon Cunliffe and Dave Ramsden
Bank for International Settlements: Agustín Carstens and Benoît Cœuré
Chancellor of the Exchequer Rishi Sunak
External panel members:
Katharine Braddick – HM Treasury, Sujata Bhatia – Monzo, Ann Cairns – MasterCard
The BIS Innovation Hub was formed in 2019 by the BIS “to identify and develop in-depth insights into critical trends in financial technology of relevance to central banks, to explore the development of public goods to enhance the functioning of the global financial system, and to serve as a focal point for a network of central bank experts on innovation.”
BIS Innovation Hub Centres are now in place in Hong Kong SAR with the Hong Kong Monetary Authority, Singapore with the Monetary Authority of Singapore, and Switzerland with the Swiss National Bank.
Top 10 Fintech News Stories for the Week Ending June 12, 2021
This week was all about new funding rounds and fintechs hitting the public markets as the flood of money into fintech continues unabated. Here are what I consider to be the top 10 most important fintech news stories of the past week.
Marqeta stock jumps out of the IPO gate, finishes with valuation just over $16 billion from MarketWatch – Marqeta went public on Wednesday, pricing at $27, above the $20-$24 range, and closed the day with a solid bump to $30.52. It ended the week up even higher at $31.50.
Fintech giant Klarna raises $639M at a $45.6B valuation amid ‘massive momentum’ in the US from TechCrunch – The BNPL sector shows no signs of slowing down as Klarna closes another mega-round with a valuation up 47% from just three months ago.
Fintech all-star Nubank raises a $750M mega round from TechCrunch – To win the largest fintech round of the week competition you needed to raise $750m which is what Brazilian digital bank Nubank did.
SoftBank, Viking Invest $250 Million in Latam Fintech Unicorn from Bloomberg – Another Latin American fintech has raised a big round with Clip, the “Square of Mexico”, closing on $250 million at a $2 billion valuation.
Mark Cuban-backed banking app Dave to go public in $4 bln SPAC merger from Reuters – Don’t forget about SPACs. Digital neobank Dave is merging with a Victory Park SPAC valuing the company at $4 billion.
Basel suggests strictest risk weighting for crypto from Banking Dive – The Basel Committee on Banking Supervision recommended that a 1,250% risk weight, the highest risk rating, be applied to a bank’s exposure to bitcoin.
It’s Time To End Overdraft Fees (And Chase Bank Is Just The Bank To Do It) from Forbes – Ron Shevlin took on overdraft fees this week calling on Chase to end the practice. Until the big money center banks eradicate the practice, he argues, overdrafts are here to stay.
Robinhood Markets Is Said to Now Target July for IPO from Bloomberg – After initially saying it would go out in late June Robinhood is now saying it will push their public markets debut to after July 4.
Remitly files initial IPO paperwork as Seattle fintech company prepares to go public from Geekwire – Mobile remittance company, Remitly, has filed confidentially with the SEC to go public at a reported $5 billion valuation.
Walmart partners with PayNearMe, Green Dot to launch faster cash bill-pay in August from Banking Dive – Walmart customers will soon to be able to pay their bills in cash at its stores with a simple scan of a biller code.
QED Leads $21 Million Series B for Hello Alice
Hello Alice, a platform for helping small businesses grow their businesses, has raised $21 million in a Series B funding round led by QED Investors.
Founded by Elizabeth Gore and Carolyn Rodz, the company has now raised $30 million in funding. Speaking with Crunchbase, Rodz said:
“As a Latina founder and fellow small business owner, Elizabeth and I wanted to get specific with industries and who is leading the business so that unique paths are supported to help them make better decisions. As we have raised capital for Hello Alice, we are raising capital for our companies.”
The report stated that Hello Alice has grown rapidly in the past two years – by over 1000%.
QED co-fonder Frank Rotman added:
“They are on a mission to help young businesses succeed through education and curated access to tools and resources. Small business success depends on so many factors, and they are helping founders gain access to the same resources that others have.”
Gore and Rodz met in 2008 and “had an immediate bond over the massive opportunity to become the go-to platform for small business owners.” Founded in 2017, Hello Alice is said to have over 500,000 small business owners in the Hello Alice community.
Hello Alice provides a series of tools to support small businesses including access to growth capital such as venture funding, grants, and more. Hello Alice is on a mission to build the largest network of business owners in the US while tracking data and trends to improve the success rate for entrepreneurs.
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