Who is controlling your financial data?

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A decade ago, and even further back, none of us were aware that our personal data was so valuable. Now, we’ve certainly been made aware that companies are busy collecting as much data about each of us as they can, because the more they know about us, the more power they have over our decision making.

We know that social media channels like Facebook re focused on collecting data about our shopping habits and our political views amongst other things, and that has frightened not a few people, and angered them when they discovered the data was being sold to dark actors behind political lobbying. And while the majority of the public may be being guided by the media towards focusing on social media giants, the banks are busy collecting data about each of us as well.

And, like the social media guys, the banks want to hold on to our data; they don’t want to share it with fintech startups. Because these startups are better positioned to use the data and respond to consumer wants in a faster more flexible way. To that end, there is a battle going on by some of the biggest banks, such as JP Morgan Chase and the Silicon Valley fintechs for possession of data.

Big banks plan to stifle fintech access to data

Nizan Geslevich Packin at Forbes suggests that JP Morgan and Capital One actually have a campaign strategy to control, Silicon Valley fintech startups’ access to consumer financial data. She claims that there is a rising behind-the-scenes tension and “some banks have threatened to block fintech companies’ servers from accessing customer data, in order to improve their customer accounts’ safety and increase consumer protection.” The banks claim that this is in the consumer’s best interests because fintechs “often collect more data than they need, store it insecurely, sell it to third parties, and sometimes also get hacked, exposing account numbers and passwords.” It sounds a lot like political arguments these days, especially in countries with a two-party system, like the USA and UK.

Of course regulation and consumer protection are important; they are two of the cornerstone elements of the financial industry. And yes, cybersecurity is an issue these days, and we should be wary of sharing data with third-parties, but if anyone thinks the banks are occupying the higher moral ground and acting entirely for the benefit of the consumer, then they don’t know banks and bankers that well.

Banks claim to act for the consumer

Banks are acting in their own interest: they are afraid of the fintech newcomers who are currently taking a trickle of their customers, but that could become a major flow.

Not if the banks have their way and find a way to stop the sharing of data. As Nizan says, there are companies like Mint that provide consumers with an aggregated snapshot of their accounts from multiple financial institutions. Without access to the bank data, Mint’s business would collapse. Indeed, most fintechs are reliant on gathering traditional bank data; without it they will not be able to innovate.

The fintechs are not leaving things to chance. They are not waiting for the banks to reduces their access to APIs or stop access altogether. They are looking at technological ways to combat the banks’ blocking technology. And they are lobbying for open banking. This works by allowing fintech companies’ apps to ask consumers for permission to access their accounts, and then requiring that banks abide by that consent.

The battle between the banks and the fintechs is not confined to the USA. In Europe Payment Services Directive II encourages technological developments that disrupt existing businesses by collecting data on savings, spending, wealth management and more.

The struggle continues for control of our data, but has anyone ever asked you what you’d like to do with your financial information and who you are prepared to share it with?

Brexit brings FUD to finance

Brexit is like a long-running soap opera, or a comedy. At times it has come close to being a ‘real life’ version of ‘Fawlty Towers’, the comedy series starring Monty Python’s John Cleese as the ‘Little Englander’ manager of a seaside hotel. It has also resembled a Monty Python sketch, as the Dutch prime minister Mark Rutte, suggested.

But, while we may look on with our mouths wide open in shock at the shambolic mess at the Mother of Parliaments, there are of course serious concerns about the effects of the endless delays. Just yesterday the leaders of the EU 27 granted the UK a further extension until 31st October to sort it out. Is it going to be enough, UK businesses are asking, and they are more fed up with the uncertainty about the future of the UK and its future trading relationship with the EU than many others. And, understandably so. Over the past few months we have heard any number of stories about how the loss of the Single Market and a Customs Union will impact on British businesses in the manufacturing sector, and the automobile industry has already taken a hit, albeit for other reasons as well as Brexit. However, the UK economy relies much more heavily on service industries, especially financial services.

Money is flowing back to the EU

Since the UK voted to leave the EU in June 2016, the passporting rights of the City’s institutions has been of concern. There have been many warnings that the biggest players would decamp to Paris, Frankfurt or Dublin, but so far this hasn’t happened in a major way. However, we have seen money flow out of the UK to the EU. For example, Frankfurt Main Finance noted that it would be moving $800 billion back to Germany this year. And it is estimated that a trillion dollars worth of assets have been relocated from the City to other EU countries.

As Roger Aitken writes for Forbes, the chaos has had a “chilling effect” on financial institutions. How can they plan for the future, or introduce new strategies, when they have no idea what is looming around the corner? As he says: “With no clear framework for how cross-border transactions and interactions will be coordinated in the aftermath of any exit, the desire to take any risks is entirely absent.”

It’s an opportunity for some

Yet there are those who see Brexit as an opportunity. Asaf Elimelech, CEO of trading platform Plus500, which provides online trading services with contracts for difference (CFDs) has noted: “Brexit may be an unwelcome distraction in political terms, but it has been a fertile source of CFD trading opportunities for customers.” However, his seems to be a lone voice in the wilderness.

By contrast, EverFX, the official sponsor of Sevilla FC, has put a halt to its application for a Financial Conduct Authority (FCA) licence that would allow it to operate in the UK. Its CEO George Karoullas

said: ““The whole Brexit debacle has spread a feeling of uncertainty across all industries and economies in Europe, and the trading vertical is not an exception. We consider the U.K. one of the most lucrative, interesting, and challenging markets in the world, and were thrilled at exploring what it has to offer.”,

For now the uncertainty potentially continues until the end of October. The City’s financial institutions have no clearer view of whether they will be able to maintain passporting rights that allow EU firms to have a single license in an EU country and apply it across the region’s Single Market without further approval hurdles, and until that is resolved, we can expect to see hope fade and fear increase amongst the financiers and bankers. The drastic effect that Brexit is having, and will continue to have for some time, on the British economy cannot be underestimated, yet the Leave Voters still think it will all be just fine. Perhaps they should reflect on the fact that the rest of the world sees it very differently, and so does business, which is living with fear, uncertainty and doubt (FUD).

3 predictions for the digital financial future

The financial industry is going through a sea change. So many aspects of it are under scrutiny: from debates over cashless societies, to universal basic income, and the implications of digital currencies. Money has always been a hot topic, but it has become even hotter.

Blockchain changed the conversation

The advent of blockchain technology is in part a reason for this sudden increase in interest. As Lauren deLisa Coleman writes for Forbes, we are seeing financial giants like JP Morgan enter the digital currency space, alongside Facebook and IBM. And she points out, “But amidst such vast activity around digital currency overall, there is a specific and growing interest toward trend shifts pertaining particularly to token exchanges.

Talking about Token Exchanges

Coleman reports on the discussions at a New York event: Token Exchanges: The promise of liquidity, compliance and stability, where lawyers comprised the majority of the audience. Joel Telpner, partner and Chair Fintech & Blockchain Practice at Sullivan & Worcester LLP, addressed the issue of turbulence in the digital currency space: “We’re all collectively paying the price at the moment, but it’s important to keep in mind that this is not a bad thing. Most all new forms of technology have experienced a high level of unreasonable exuberance in the early days and after that period, business becomes much more stable.”

A more mature environment

Interestingly, he also suggested that now is the time to create a new ecosystem with new players: “”We’re at the end of the beginning,” he remarked. “This is about moving from the wild, wild, west to a more mature level of the digital currency space and tokens. Those that remain have to work hard and understand that success will come from fundamental principles in business and governance, and it will certainly pay off.”

3 key things to watch out for

He then identified what he believed are the three key regulatory areas to watch this year that could be game changers:

1. He believes the US Securities and Exchange Commission (SEC) will make a statement about the status of digital currencies and tokens — which are tokens and which are not.

2. The CFTC (Commodity Future Trading Commission) will become more involved in the token space given that this collective regulates commodities.

3. Stablecoins will come under a regulatory spotlight and decisions will be made about how to regulate this particular type of digital currency.

The event also revealed that a consensus of opinion indicates the issue of custodianship will come under focus this year as well. In addition, there will also be an eye to how trade is conducted in this space and how securities are managed securities once they are issued.

But, one of the most hotly debated topics in the industry is which jurisdiction will establish itself as a leader in the space: Telpner’s response to this was: “”But this approach was wrong in 2017, 2018 and still wrong to think like this in 2019, because all countries are working hard to regulate this space. Stop chasing jurisdiction.”

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.