Challenger banks are on the rise

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Challenger banks, neobanks, whatever you want to call them, have been making significant in-roads in the banking sector and are attracting large chunks of venture capital investment says KPMG. There are some subtle differences between the two: challenger banks are often established firms that compete with larger financial institutions, while neobanks tend to be completely digital and favour operating via mobile devices, but the difference between them is somewhat blurred. What they do share in common is this: “these banks don’t carry the weight of legacy technology, so they can leapfrog over traditional infrastructure and disrupt the status quo.”

Two of the most prominent – Monzo and Atom Bank—raised $93 million and $140 million respectively last year. Starling Bank, which is ‘digital-only’ is raising a further $54 million in a new funding round. These are all British startups by the way.

Why are so many challenger banks British?

The chief reason for the fact that so many challenger banks are UK-based is this: Britain isn’t as saturated with big banks and their branches as the US, so there is more opportunity for non-traditional financial institutions. Furthermore, the UK was an early adopter of digital banking, dating back to the dotcom era of the late 1990s and early 2000s. Basically, the UK has had a head start in this financial area, although it would be a mistake to think that challenger banks are a UK-only phenomenon.

Challenger banks worldwide

There are currently about 100 challenger banks worldwide: Brazil has Banco Original and Nubank, while Germany is home to SolarisBank and N26 and in Asia there is MyBank, WeBank, Timo, Jibun, K Bank and Kakao.

What advantage do challenger banks have?

They don’t have a legacy system and because most of them don’t offer a full suite of banking services they don’t have to operate within such tough regulatory environments. This means they have more freedom and flexibility, which in turn allows them to develop their customer base faster, especially in developing countries where bank branches are more rare than in the west.

What services do challenger banks offer?

Their focus is usually on niche products rather than trying to provide all the services that the big banks provide. For example, customers can open a current account with a relatively high rate of return and get loans, but they may have to go elsewhere for services such as credit cards, mortgages and wealth management. Some of the challenger banks do have banking licences, although not all follow this model.

Although challenger banks are on the rise, the old guard hasn’t disappeared just yet, and the traditional banks are aware of the threat the challengers pose and are preparing for battle. The traditional banks have the advantage of a large and well-establish customer base and strong branding that promotes trust. The challenger banks will have to earn trust. That will most likely come from the millennial generation over the next decade, because they are the group that have lost trust in the banks their parents use, and this is the audience that challenger banks will need to court if they are to become an established sector in banking.

 

 

 

 

UK’s FCA opens up sandbox for more play

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In a week where the British government is losing Cabinet ministers on an almost daily basis as a result of party in fighting over the Brexit negotiations, making the pound sterling plunge in value, the UK’s financial regulator, the Financial Conduct Authority (FCA) has taken a bold step forward in recognising the potential of blockchain-based startups.

The FCA started a regulatory ‘sandbox’ some time ago in 2016 and it has just added its fourth cohort of startups to the process. The FCA received a total of 69 applications to participate in the exploration, and this week it has added 11 of the 29 successfully accepted applicants.

In its announcement regarding Cohort 4, the FCA revealed, “Applications came from a diverse range of firms operating across the financial services sector including in areas such as consumer credit, automated advice and insurance.”

The FCA also said, “We have accepted a number of firms that will be testing propositions relating to cryptoassets. We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.”

The startups in Cohort 4

One of the businesses in this cohort is 20/30. This London based financial firm is using the DLT to allow “companies to raise capital in a more efficient and streamlined way,” and it is partnering with the London Stock Exchange and Nivaura. According to the FCA’s press release, 20/30 will be issuing an equity token on the Ethereum blockchain. Capexmove, also in this new cohort is offering a similar service.

Another that stands out is called ‘Chasing Returns’. This startup is described as “Psychology-based risk platform that promotes good money management discipline and improves outcomes for customers that trade Contracts for Difference (CfDs). It acts like a digital coach, encouraging adherence to money management and risk exposure levels.”

While for those people with ID problems, ‘Community First Credit Union’ offers an “Initiative to facilitate creation of an identity token that supports customers who lack traditional forms of ID, in order to assist them in accessing bank account services in the UK.”

The latter perhaps answers the issues that many British immigrants have faced recently, most notably those who arrived from the Caribbean on the ‘Windrush’ and in recent months have found themselves at risk of deportation, because of lack of documentation establishing their British citizenship and right to stay.

The FCA has chosen a fascinating selection of startups for Cohort 4 and indicates its willingness to be open-minded and inclusive when it comes to envisioning a future for blackchain-based businesses. It certainly seems to be making better progress with blockchain than the government is with Brexit.

What decision will the SEC make about Ethereum?

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This week, Monday May 7th to be exact, the Security & Exchange Commission (SEC) started a series of meetings to decide whether Ethereum 9ETH) is a security. At the moment we’re not sure how the decision will turn out, but let’s think about what the SEC will be considering and how it might affect ETH owners.

If you’re an ETH owner, you might expect to see two extremes as a result of any decision: an unexpected high, or a devastating low. For example, if ETH is considered a security by the U.S. government, then there may be a negative, short-term price reaction. However, because Ethereum’s underlying technology, is borderless and does not depend on the opinion one country’s regulatory committee, its long-term prospects should be unaffected. And, if it is decided that it is not a security, then it is very likely that the long-term prospects of the technology and its financial standing within the community will prosper.

If no decision is made about the status of ETH we might see a major upsurge in the market, especially as Buterin and his developers have been talking up new solutions for scaling in recent days and while this might be a short-term uplift in the market, there is also reason to think it might become a long-term trend.

What is Ethereum saying?

For it’s part, ETH founders are sure that it is not a security. Joseph Lubin, one of the co-founders said prior to the SEC meeting this week: “We spent a tremendous amount of time with lawyers in the US and in other countries, and are extremely comfortable that it is not a security; it never was a security… many regulators that matter understand what Ethereum is.”

Will the SEC agree with Lubin’s assessment, and with the way other regulators claim to see it – that I what we’re waiting to find out.

 

 

EU to combat fake news with blockchain

 

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The election of Donald Trump as President of the United States brought with it, amongst other things, the whole idea of ‘fake news’. POTUS is always talking about it and has done a lot to create an environment where the public now doubt whatever they read.

In the past we generally accepted that what we read in newspapers or heard on news bulletins was reasonably close to the truth, although the smart people have always been aware that every paper has a specific political agenda and that any story needs to be read with that bias in mind. But, now we have reached a stage where completely false stories are pumped out, with social media channels being the chief way of ensuring they spread like wildfire.

The European Commission (EC), according to an article published in Techcrunch, has announced that it is going to use blockchain technology in a bid to combat the spread of ‘fake news’ and its press release said it has “identified blockchain as a critical part of what it will call the Code of Practice on Disinformation, which it intends to introduce by summer 2018.”

The announcement also stated that blockchain is, “one of emerging technologies which are changing the way information is produced and disseminated, and have the potential to play a central role in tackling disinformation over the longer term.”

The EC points to the fact that DLT can aid the transparency, reliability and traceability of news on the Internet. It said:

“Innovative technologies, such as blockchain, can help preserve the integrity of content, validate the reliability of information and/or its sources, enable transparency and traceability, and promote trust in news displayed on the Internet. This could be combined with the use of trustworthy electronic identification, authentication and verified pseudonyms…”

The commission’s next step is to develop the EU-wide Code of Practice on Disinformation that will be published by July 2018.

This represents a new application of blockchain technology in a very important arena – that of the news media. We cannot underestimate the value of once again being able to know that information has been verified and sources checked. And those who claim that certain stories are ‘fake news’, as POTUS frequently does, will find it harder to do so. This could change voters’ views in elections, as well as of government policies, in the coming years. We will be able to trace the trail of truth and lies, and that will be a good thing.