Category: Fintech

A bank you never heard of has died

On By mehranmuslimiblogIn Banks, FintechLeave a comment

How many of you can hold your hands up and say that you have heard of Raphael’s Bank?

It is one owned by an archangel by the way. It is Britain’s second oldest bank and it has existed for 232 years.

What happened to cause its quiet demise? It wasn;t on the news, because few people have heard of it, therefore there was no rush to get the government to bail it out. The bank, which was a leader in lending, sold its motor finance division in 2018 and stopped lending completely in April this year, as reported in Forbes by Frances Coppola. It has also now just closed its retail savings division. Its press release said,

“All savings account holders have been given sixty days’ notice, in line with regulatory guidelines, of the bank’s intention to return their monies to them and close their accounts.”

In 2015, the bank was an active lender, though it had no high street presence and operated mainly through brokers and third parties. Its main strength was in motor finance, including mobility scooters and such like, and it was known for its range of retail and small business loans. It was also a significant provider of pre-paid credit cards in the UK, and had a string of ATMs. Coppola says, “It was, in short, a small full-service bank. Just the sort of bank the highly concentrated UK banking marketplace needs.”

However, story of its death goes back to who owns it, because it wasn’t really an independent bank, despite its independent sounding name. It is owned by Lenley Holdings, which also owns the International Currency Exchange (ICE). And Lenley didn’t want to support a small British bank, so it put it up for sale in 2016.

The expectation was that Russian and Chinese buyers would leap at the opportunity, but none emerged. Meanwhile Raphael’s kept expanding its services, including becoming the banking partner for Transferwise in the UK. And it partnered with Vodafone and PayPal in their mobile money initiative in Germany.

In fact the bank was doing very well in 2017 and reported a profit of over £22m ($28.57m), which was a significant increase on the paltry £25,000 ($32,470) of the year before.

Some onlookers say that the Brexit fiasco spooked overseas buyers, which is likely true, but then in 2018 the bank reported a massive loss of nearly £4.5m ($5.84m). The chances of finding a buyer now were rapidly disappearing, which is why it closed its motor finance and asset finance activities, and sold its motor loan book. Therefore in 2019 it was judged that it couldn’t be sold as a going concern, so Lenley decided to liquidate it.

It is not a catastrophic situation for the banking community, but it is an interesting story for startup neobanks. Just remember, even though this bank opened for business before the French Revolution, in the end it was defeated by a combination of geopolitical events and a low Euribor rate that decimated its evolving payments division.

A New Fashion In Fintech Investment

On By mehranmuslimiblogIn Blockchain, FintechLeave a comment

Investment follows fashion in a sense. In the last few years venture capitalists have been pouring money into neobank startups thus creating a trend for other VCs to follow. However, John Detrixhe says,

“Questions are being raised about whether this fintech craze is another quixotic quest for market share that burns cash but doesn’t generate much profit in return.”

The most ambitious neobanks, namely N26 and Revolut, want, he suggests, to be the Amazon of finance, and they are proving to be very successful at picking up new customers. According to Accenture, digital-only banks operating in the U.K. could amass a total of 35 million customers globally within the next 12 months — up from 13 million today — based on current growth rates. The report also says, “Digital-only banks are also reaping the rewards of improving the customer experience as they gain an average Net Promoter Score of 62 compared to just 19 for traditional banks.”

Naturally, they are having to face the incumbent banks, which can’t offer the same service. But, we should be wary. As Detrixhe says, if you look at Uber and WeWork, for example, “these have shown that rapid growth and high valuations are far from a sure sign of success.” Furthermore, it is impossible to say if customers will continue to use them as niche providers of peer-to-peer payments or travel spending or fully embrace them as a one-stop-shop for financial services.

Some investors are now looking beyond the neobank buzz and are moving onto another fintech sector. For example, on hedge fund founder, Steve Cohen, thinks traditional banks won’t be disrupted by the unicorns. But, he does think the banks will have to learn some new tricks. He suggests “Older lenders need things like cloud-hosted software and systems that make it easier to sign up for a new account.”

And that is where the new investment opportunity lies; in software for digital account openings and machine learning systems to make recommendations to customers. It’s not quite as sexy as investing in a startup neobank, but these software startups could help traditional banks leap into the 21st century, and in that respect they could serve as neobank killers.

The gig economy plays on

On By mehranmuslimiblogIn FintechLeave a comment

Once upon a time, musicians were the only people who worked at what is still called a ‘gig’. It was the industry world for a concert. Now the word ‘gig’ has become an integral part of the way many people work at present, particularly younger people, but not exclusively. For those generations who were used to stable employment, the gig economy must seem very puzzling, but it is not necessarily what employees would choose; it is simply all that is available, and it is growing in its influence on the way we will work in the future.

The gig economy is made up of three main components: the independent workers paid by the gig (i.e., a task or a project) as opposed to those workers who receive a salary or hourly wage. Companies such as Uber, Airbnb, Lyft, Etsy or Deliveroo act as the medium through which the worker is connected to — and ultimately paid by — the consumer. One of the main differences between a gig and traditional work arrangements, however, is that a gig is a temporary work engagement, and the worker is paid only for that specific job.

Forecasts by PwC (reported by the BBC) show that global online marketplaces that fuel the gig economy could be worth around £43 billion by 2020. Furthermore, one of the largest freelancer marketplaces in the UK, People Per Hour, reported an increase of 64 per cent in the number of UK freelancers using their platform between 2012 and 2015, reports The Gazette

Independent workers in the gig economy can be divided into four broad categories:

· Those who actively choose to freelance full-time and it’s their primary source of income.

· People in full- or part-time employment who supplement their earnings by taking on freelance work.

· The self-employed who reluctantly earn money within the gig economy, but would prefer to work under a contract of employment.

· Those who feel they have no alternative but to take on freelance work.

Compared to freelance work in the past, and there are many arguments ongoing about whether workers in the gig economy are freelance or employed. This was highlighted by Uber and Deliveroo workers in London last year. But one of the key differences between the gig economy and old-school freelancing is the use of technology. Freelancing was once associated with creative work such as editing or graphic design, with computer programming and other similar IT work generally being carried out by contractors, but a subtle change has taken place. Now, the gig economy embraces a much wider work base, including drivers and couriers.

The gig economy relies to a great extent on technology for its success. For example, artificial intelligence software and apps have replaced some administrative and customer-facing roles, such as data entry and the customer helpline representative, known as a chatbot.

Basically, the gig economy has been fuelled by demands for flexibility, reduced employment costs and access to specific expertise. As a result, its growth is unlikely to slow down, given the benefits it brings to both workers and employers.

What do banking innovators have in common?

On By mehranmuslimiblogIn Banks, FintechLeave a comment

There have been many studies, blogs, book,s newspaper articles, etc on the qualities entrepreneurs have in common. Now the Digital Banking Report’s “Innovation in Retail Banking” gives us a view of how innovative leaders in banking perform.

According to The Financial Brand, these banking leaders share three important characteristics: they generate greater profits, they leverage new technologies, and those of advanced analytics. As a result they achieve higher satisfaction scores.

Why is this important? The simple answer is, because the financial institutions need to embrace innovation and join the digital revolution. That requires strong leadership and a certain amount of fearlessness. Those leaders will need to challenge the current system, as well as push the limits of the available technology. But, perhaps most importantly, the banks need to put the spotlight on the customer, and they need innovators who understand this.

Complacency is the banks’ biggest enemy, and it is something they are finding it tricky to get around. After all, they have been around for hundreds of years in some cases, and have a sense of entitlement. If their shareholders seem content, and the majority of their customers happy, then why do anything to move with the times? This attitude is what is helping the digital challengers.

The neobanks have discovered ways to deliver a more keenly price service and a better customer experience. As the Financial Brand says, “Unlike the iterative innovations from the past, a premium is now being placed on “big ideas,” agility, and real-time application of data for personalized contextual experiences.”

What the banks need to do

For the banks to embrace innovation, they need to think in terms of interdepartmental co-operation, as well as being prepared to break up their legacy systems and rethink them. They also need to look outside their own world and find more opportunities to collaborate with fintechs and look at a range of more up-to-date solutions. They should be incorporating AI, robotic process automation, blockchain and the Internet of Things amongst others into their thinking.

There is also a pressing need to retrain employees. The Financial Brand points out that we are facing a skills shortage, so the banks not only need to embrace retraining of existing workers, they also need to rethink their hiring strategy and bring in more of those people who have been immersed in digital technology since their early years.

The leaders in banking who will win this game are those who are able to embrace these challenges and take their organisations into a new future. The banks without leaders having these qualities will surely get left behind.