Tag: Business

Challenger banks are on the rise

On By mehranmuslimiblogIn Banks, Business, Economy, GovernmentsLeave a comment

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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.

 

 

 

 

A decentralised business is better for you

On By mehranmuslimiblogIn Bitcoin, Blockchain, FintechLeave a comment

The background of a magnificent city

Let’s start by looking at Equifax. This is a U.S. company, and one of only three, that provides credit reporting on American citizens. Last year there was a massive security breach, which meant that the personal information of at least 143 million was in the wrong hands.

The problem here is that your personal data is centralised when these big credit-rating companies have it, and that means it can be manipulated; by them or by other parties through theft.

If Equifax stored consumer data on a blockchain-based system, the information would not only be better protected, the company itself wouldn’t be able to mess around with it in any way.

The blockchain uses cryptographic hash functions that both encrypt your data and track historical changes to it. Therefore, at any point in time, if any piece of your data is tampered with, you personally will be able to immediately see where and when the information was changed.

However, security isn’t the only advantage decentralised storage of data can bring. The communities using decentralised ledgers are incentivised to show more respect and this contributes to more efficient operations.

The incentive of having a stake in the business

Some platforms, especially those decentralised ones that have utility tokens, engender a sense of community, because every person involved has something to gain by making sure the platform runs for the benefit of all. It also means that they literally have a stake in the company just through token ownership. Also, all the community members can see how a platform uses their personal information and the steps taken to protect it.

There will always be bad actors in any company, and sharing economies are no different, although you’d think that in this particular sector, people are less likely to take advantage of other community members, but we’d be naïve to believe everyone really gets the idea of ‘sharing’. However, in decentralised communities, any bad actors are actively disincentivised, because if things go well, the stakeholders all benefit. If a bad actor contributes to making the company less successful, then they are shooting themselves in the foot.

If you take the example of Uber, which is s centralised company; none of the Uber drivers have a stake in it. They have no incentive to act in a way that makes the company more successful, because all the benefits of success go to the founders and shareholders. If Uber was a decentralised business, with drivers having some form of stake in it, it would be a very different story.

We may see an increasing demand for companies to adopt a decentralised approach, because ultimately it benefits the consumer, and they could be the driving force that increases the use of a new decentralised business model.

 

 

 

EU to combat fake news with blockchain

On By mehranmuslimiblogIn Blockchain, Business, GovernmentsLeave a comment

 

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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.

 

 

 

 

FinTech is Growing Up

On By mehranmuslimiblogIn Digital Innovation, Economy, Governments, ICO, Initial Coin OfferingsLeave a comment

Wharton, one of the world’s most respected business schools, has recently published an article following a recent conference at the Federal Reserve Bank of Philadelphia on the topic of “Fintech: The Impact on Consumers, Banking, and Regulatory Policy” and it presents some very interesting views on where Fintech is at right now. It’s no longer seen as a fledgling disruptor that is working against the interests of the banking community; now bankers are seeing it as a potential partner when it comes to fintech startups.

Robert Nicholls, president of the American Banking Association said: “We are actively seeking startups to partner with,” and they are busy inviting fintech firms to present to the annual ABA convention. Collaboration is the word on these bankers’ lips and they have even developed a ‘fintech playbook’ for smaller banks. The way they see it is this: banks have trusted relationships, but fintech can enhance the customer experience.

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Banks embrace Fintech startups

As a result of this willingness to embrace fintech, banks of all sizes are looking at ways to create innovations with these new partners. For example, Capital One has integrated its services with Amazon’s Alexa. Consumers can ask Alexa for their account balance, request that it track their spending or even make a payment. Bank of America is set to debut its chatbot Erica on the bank’s mobile app to help customers with personal finance decisions.

And, most importantly, numerous U.S. banks are using a fintech platform that allows customers to transfer money in minutes, rather than days. Zelle and Ripple are key players in this sector for the moment.

Another development to come out of a bank in North Carolina is cloud-based technology that streamlines the commercial lending process. And, Eastern Bank in Boston, has adopted Numerated, a startup that enables clients to apply for a small business loan in minutes and get funding within two days. The bank hired fintech entrepreneurs to work with traditional bankers and build an innovation lab that led to the launch of Numerated.

Governments look for cryptocurrency solutions

However, the banks are still quite nervous when you start talking about cryptocurrencies. It is a sector that is risk averse and the volatility in the digital coin market still makes them uneasy. Having said that, bankers at the conference believed that cryptocurrencies will become strong in economies where “people do not have confidence in their own currency or they are avoiding controls on their money,” as William Nelson at The Clearing House told the meeting. He thinks that developed economies with strong currencies will have less use for it, yet Singapore and England are looking at developing their own digital currencies, which means that world economic leaders have not written off Bitcoin and its peers; instead they are looking for solutions and want to be ready.

The blockchain must be trusted

But while there may be some doubts about cryptocurrencies, the blockchain is much more readily accepted. Gurwinder Ahluwalia  of Digital Twin Labs told Wharton attendees that he believed the flexibility and agility of the blockchain gave it more appeal than crypto coins. He said: “You could have warranty programs. You could have provenance of parts to the aircraft industry, provenance of luxury assets. You could have the tracking of transoceanic shipments. You could have the tracking of food for its various associated benefits.” He added that the last hurdle blockchain has to overcome in order to become widely accepted by the traditional financial world is “establishing trust in a decentralized platform and establishing governance.”

This is on the way as banks, governments and other businesses test blockchain technology. Ahluwahlia believes that blockchain will prove itself, because “It provides the trust. It provides the peer-to-peer. It provides the crytography. It provides the database.” It certainly looks like Fintech will show the ‘adults’ that it is grown-up enough to play a role in the world of global finance.