But it is the speed at which the technological advancements have reached that has forced traditionally slow-moving financial institutions to heavily invest to remain relevant to their consumers and remain competitive in the marketplace.
Banking is one of the oldest businesses in the world, going back centuries ago, in fact, the oldest bank in operation today is the Monte dei Paschi di Siena, founded in 1472. The first instance of a non-cash transaction came in the 20th century, when charga-plates were first invented. Considered a predecessor to the credit card, department stores brought these out to select customers and each time a purchase was made, the plates would be pressed and inked onto a sales slip.
At the end of the sales cycle, customers were expected to pay what they were owed to the store, however due to their singular location use, it made them rather limiting, thus paving way for the credit card, where customers that had access to one could apply the same transactional process to multiple stores and stations, all in one place.
The way in which we conduct our leisurely expenditure has changed that much that we can now pay for services on our watches, but it wasn’t always this easy. Just over a few decades ago, individuals were expected to physically travel to their nearest bank to pay their bills, and had no choice but to carry around loose change and cash on their person, a practice that is a dying art in today’s society, kept afloat by the reducing population born before technology.
Although the first instances of contactless cards came about in the mid-90’s, the very first contactless cards associated with banking were first brought into circulation by Barclaycard in 2008, with now more than £40 million being issued, despite there being an initial skepticism towards the unfamiliar use of this type of payment method.
Due to the changes in the financial industry leaning heavily towards a more virtual experience, traditional brick and mortar banks where the older generation still go to, to sort out their finances. Banks are closing at a rate of 60 per month nationwide, with some villages, such as Llandysul closing all four of its banks along with a post office leaving it a ghost town.
The elderly residents of the small town were then forced into a 30-mile round trip in order to access her nearest banking services. With technology not for everyone, those that weren’t taught technology at a younger age or at all are feeling the effects most, almost feeling shut out, despite many banks offering day-to-day banking services through more than 11,000 post office branches, offering yet a lifeline for those struggling with the new business model of financial firms.
As the bracket of people who have grown up around technology widens, the demand for a contemporary banking service continues to encourage the banking industries to stay on their toes as far as the newest innovations go.
Pierre Vannineuse, CEO and Founder of Alternative Investment firm Alpha Blue Ocean, gives his comments about the future of banking services, saying: “Artificial intelligence is continuing to brew in the background and will no doubt feature prominently in the years to come. With many automated chatbots and virtual assistants already taking most of the customer service roles, we are bound to see a more prominent role of AI in how transactions are processed from all levels.”
Technology may have taken its time to get to where it is now, but the way in which it adapts and updates in the modern era has allowed it to quicken its own pace so that new processes spring up thick and fast. Technology has given us a sense of instant gratification, either in business or in leisure, we want things done now not in day or a week down the line.
Sources: https://www.sysco-software.com/7-emerging-trends-that-are-changing-finance-1-evolving-cfo-role/ https://www.vox.com/ad/16554798/banking-technology-credit-debit-cards https://transferwise.com/gb/blog/5-ways-technology-has-changed-banking https://www.forbes.com/sites/forbesfinancecouncil/2016/08/30/five-major-changes-that-will-impact-the-finance-industry-in-the-next-two-years/#61cbe952ae3e
Digital banks raised over $1.1bn in fresh funding throughout 2018 in Britain, a figure that is set to be dwarfed if the current pace of growth continues to demand the attention of investors. Claudio Alvarez, Partner at GP Bullhound, explains for Finance Monthly.
Europe is truly leading the fintech charge, accounting for roughly a third of global fundraising deals in 2019, up from only 15% in the fourth quarter of 2018 according to our data. These are digital firms raising globally significant levels of capital. Adyen, the Dutch payment system, is now one of the frontrunners to become Europe’s first titan, valued at over $50bn. Europe has become a breeding ground for businesses that can go on to challenge US tech dominance, and it is fintech where we will find most success. Europe’s unique capacity for incubating disruptors is a phenomenal trend to have emerged over the past few years.
It’s true, European culture has always been more open to contactless and cashless, in contrast the US, where legislation and the existing banking infrastructure make adopting new technologies in banking slower and more convoluted. Europe has been able to take an early lead, while the US remains fixed on dollar bills.
As the ecosystem evolves, borders will become less relevant and markets more integrated, allowing the big players based in Europe to expand into further geographies with greater ease. European success garners the growth, momentum and trust needed to brave new regions and cultures. Monzo won’t be alone in the US for long.
As the ecosystem evolves, borders will become less relevant and markets more integrated, allowing the big players based in Europe to expand into further geographies with greater ease.
Whilst the Americans’ slow start has allowed European start-ups to become global players, it’s also true that the regulatory environment has distracted the European big banks and opened up the space for innovative and disruptive newcomers. While PSD2 has eaten up the resources of the incumbents, the likes of Monzo and Revolut have focused on consumer experience, product development and fundraising. The result? Newcomers are able to solve problems that older institutions simply don’t have the capacity to address.
However, a word of warning: traditional bricks and mortar banks aren’t dead yet. For one, digital banks will still need to justify the enormous valuations they’ve secured recently, and will have only proved their worth if, in 3 to 5 years’ time, they have managed to persuade consumers to transfer their primary accounts to them, which would allow digital banks to effectively execute on their financial marketplace strategies
Meanwhile, traditional banking institutions have a plethora of options to fend off the fintech threat and most are developing apps and systems that mimic those created by the digital counterparts. Innovation isn’t going to come from internal teams – it needs to be a priority for the old players and they need to invest in third party solutions to excel as truly functional digital platforms in a timely manner. In the first instance, the traditional banks will need to solve the issues that pushed consumers towards the fintechs and secondly, work on attracting consumers to stay by offering, and bettering, the services that make fintech’s most attractive.
Competition breeds innovation. For the fintech ecosystem as a whole, this new need for advancement is only good news – a rising tide lifts all ships. As traditional banks try to innovate and keep pace, we’ll see them investing in other verticals in the fintech market. Banks’ global total IT spend is forecast to reach $297bn by 2021, with cloud-based core banking platforms taking centre stage. Digital banking may have been the first firing pistol, but the knock-on effect of the fintech revolution is being felt across the board.
The fintech boom shows no sign of bust, market confidence is riding high and will continue supporting rapid growth. The aggressive advance of digital banks has opened doors for a whole host of fintech innovation - from cloud-based banking platforms to innovation in the payments sector. The number of verticals that sit within financial services creates a plethora of opportunity for ambitious and bullish fintechs to seize the day.
This month Finance Monthly had the privilege to connect with Harriet Rees, Head of Data Science at Starling Bank, to hear about her role within the challenger bank, her experiences as a woman in finance and FinTech, and the gender imbalance in the FinTech industry.
Can you tell us about your career before joining Starling Bank last year?
Following my Master’s degree in Mathematics at Oxford University, I made a natural move into the financial services industry in the City of London. Back then, I remember thinking that I really wanted a job that would actually enable me to use my Maths degree, so I chose to pursue an actuarial career in insurance, which is a typical route for a mathematician. I was very lucky that the company I chose, AXA, encouraged growth and was very supportive of women in the workplace. As part of my role there, I was able to move my life and career to Paris where I lived for four years - running predictive analytics projects mainly in Europe, but also in Asia. This is how I fell in love with the field of data science.
However, whilst I enjoyed my role at AXA very much, I also found that I was often frustrated by the lack of progress, the bureaucracy and committees that we had to attend to in order to get things to move at a faster pace which I perceived to be a lack of a burning desire for innovation at speed. At the time, I became very aware that industries like FinTech and InsurTech were moving quicker, innovating and flourishing and I found myself feeling a bit jealous, as I really wanted to get involved. I remember hearing Anne Boden, the Founder and CEO of Starling Bank, on the radio one day. It was International Women’s Day, so she was talking about women in technology and FinTech, how women are part of innovating at Starling and how she wanted more and more women to get involved in all the wonderful things they are working on. I remember feeling very inspired after hearing Anne, so I wrote a letter to her and the rest is history - I've been at Starling ever since.
I think from the outside, it can feel like FinTech is a space where men are more present, as men fit the notion of the pro tech culture.
Have you ever experienced any challenges in the workplace that have been connected to your gender?
I am very fortunate to say that I've never directly experienced anything that I assume to be adversely impacting me because of my gender. But of course, I shouldn't say that I'm grateful or that I feel lucky that it hasn't happened to me and I suppose the reason I say this is because I have spoken with colleagues from both Starling and AXA who have found that to be the case – whether it’s been connected to the way they've been treated or how much they’ve been paid, etc.
During my time at university though, I was often one of the few women in the room - certainly during my Master's degree studies. I was hardly ever taught by female lecturers or professors at any of the higher education institutions that I have studied at, which I think is indicative of the problem and the fact that women are less present in these sectors and that, of course, has its own impact on the whole ecosystem.
And in your opinion, is there gender diversity in FinTech?
I've read a few articles on this, even before joining the field and there's certainly work to be done here. I work in a purely engineering team at Starling which is certainly male-dominated, despite our best efforts for it not to be. Only 20% of the engineering workforce is female and at Starling, we are always actively on the lookout for women to bring into these roles. I think from the outside, it can feel like FinTech is a space where men are more present, as men fit the notion of the pro tech culture. However, if you look a little bit below the surface, you will see that there are actually a lot of powerful women movements within the industry and in fact, there are inspiring female leaders in the FinTech space - it's just that there are less of them. Our CEO is someone who speaks very vocally about this and it is Starling Bank’s mission to bring more women into the FinTech space.
I rarely speak to people who say that it's really difficult to be a woman in FinTech, the main issue, however, is getting here in the first place.
What do you think are the biggest issues for women in FinTech?
To be fully honest, I rarely speak to people who say that it's really difficult to be a woman in FinTech, the main issue, however, is getting here in the first place. I think that for me personally, I was so inspired to join Starling and the world of FinTech because I heard Anne on the radio. But would I have made that jump if I hadn't heard Anne calling out to all women? Perhaps not. Perhaps I needed that reassurance and push to get me to take the leap into FinTech.
There’s certainly more work to be done to really show the outside world that FinTech is a place where women could thrive. Although there are fewer women at the top of these companies, they are still inspiring and powerful and they are innovating in the same way that men are. Movements like Women in Data, Women in FinTech and Women in Finance are a great start, but I think that we need to encourage more of that in order to address gender imbalance in FinTech and show more women that the industry is changing.
Does the fact that Starling Bank was founded by a woman mean that the company has a focus on ensuring that there are women at the top within the organisation?
40% of senior managers at Starling are female, so yes, the company definitely has a focus on ensuring that there are women at the top. However, I would like to think that this isn't just because Anne is a woman – I would like to think that Starling would have this mentality regardless of our CEO’s gender. We are an inclusive workforce and we don't discriminate based on gender - both for our customers and our staff. As part of the RBS' Alternative Remedies Package which we were fortunate to be awarded earlier this year, we talked about the fact that we would actively work across the industry to increase the number of women working in technology roles in the UK and we also pledged to continue having 40% of our senior management occupied by women in 2021. So we really do seek to embrace fusion in all forms, but particularly on the gender front and I really do believe that this isn't just because Anne is a woman, but also because Starling as a whole is a company that is eager to reshape the FinTech space.
There’s certainly more work to be done to really show the outside world that FinTech is a place where women could thrive.
What's your piece of advice for other women wishing to work in FinTech and how can they make it to the top?
My piece of advice would be to take the leap. As I mentioned earlier, I moved from a large corporation into a tech start-up and back then, this felt like a very brave move. However, I've never looked back. I enjoyed my job before Starling but I’ve also always had the desire to innovate, code and make changes faster and in a more impactful way. Thanks to the wonderful world of FinTech and the ecosystem it’s created, I am now able to do exactly that. So, I feel that women and girls who are in the same position I was a while back and are looking at FinTech as a potential, need to give it a chance - take the leap and I think you’ll be as excited about it as I am today!
And as for making it to the top, we need to really leverage the networks that exist to encourage and support like-minded career-focused women. Perhaps we need to increase schemes like mentorship in order to encourage female innovators to speak more and discuss ways to elevate the position and prominence of women in FinTech.
How is AI implemented at Starling Bank?
Today Starling uses AI mainly for operational purposes across credit, lending, fraud and optimisation of customer service operation. It's very much an operational focus and this obviously has two main benefits - efficiency for the bank but also better customer experience.
We know that we're definitely at the beginning of the AI journey and what we really want to do is bring AI into the product so that the whole customer experience can be enhanced by utilising more intelligent decision-making. Ultimately, we want to be able to make experiences better before the customers feel the need for it to happen.
we need to really leverage the networks that exist to encourage and support like-minded career-focused women.
What projects are you currently working on with Starling and what's on the bank's agenda in regards to financial innovation for the rest of 2019?
A lot of this links to the RBS Capability and Innovation fund that we were so fortunate to be awarded. In February this year, we received £100 million that will help us build our SME proposition. In this area, there's a lot that relates to my world of data science and AI and as part of this, we pledge to integrate the intelligent tools around the product that would offer insights into automation around cash flow forecasting and recommendations for banking solutions to our SME customers. Obviously, within this, we also connect to the idea of technology for good, so we commit to tackling the wider issues around algorithmic bias to ensure that our customers can be equipped with AI recommendations or predictive based analytics, without any inference of bias.
Additionally, we've also recently launched our new Euro account, so we'll also be focussed on fully launching and developing that offering for our customers. We're very excited about where it can take us - watch this space on this one.
Are there any changing trends you foresee in the field of FinTech?
I think that FinTech will soon start moving away from this operational focus to a more personalised payments service, which is something that we're only just seeing in other fields, but we don't really have from banking products yet. I'm hoping that FinTech will soon lead that journey.
The financial crash of 2008 created a huge amount of mistrust toward big banks and FinTech entrepreneurs have taken advantage of that. The disintermediation of banks from areas such as travel money has given rise to a new kind of financial service firm, an area set to carry on this trend. There are some brilliant ideas in FinTech and the problems they solve are widely unrelated to Brexit, meaning that investment is likely to continue to grow.
In much the same way as FinTech came from the financial crash, existing sectors will be disrupted, and new ones created to tackle problems that arise. Many FinTech innovations were born from a lack of trust of banks and traditional sources of financial services. Since 2008, over 200 FinTech companies have been founded in the UK alone, with seven of these going on to reach a billion-dollar valuation or a ‘Unicorn’ status.
Unicorns refer to start-ups that have reached what many perceive to be the holy grail of a $1billion valuation. In terms of producing these companies, the UK is the third best place in the world behind only the US and China. In 2018, 13 companies reached this valuation in the UK, bringing the total number to 72. Many of these companies are FinTechs born of the financial crash. It seems likely that in a few years’ time we may be discussing an even greater number of companies reaching this milestone with a contribution from new and growing sectors.
With Brexit, there are going to be more problems to solve, and entrepreneurs are going to come along and innovate.
The first sector that looks set to benefit is regulation and regulation technology. With Brexit, there are going to be more problems to solve, and entrepreneurs are going to come along and innovate. Everything will get more complicated with import and export, say, and some smart man or woman will come along and solve it. RegTech has already been impacted – perhaps indirectly – by the financial crash, as an increased amount of regulation and legislation led to the birth of many innovative solutions to keep financial services at such a high pace.
Since this time, it is clear to see the rise of this sector within financial services, with over 300 companies working with Financial Services firms in a variety of sectors. Each of these dealing with a specific problem that is ever evolving and often becoming more complex.
Regulatory Reporting is one such example, it enables automated data distribution and regulatory reporting through big data analytics, real-time reporting and the cloud. Many financial organisations have expressed frustration with the high level of redundancy, dependence on manual processes, and opacity of their regulatory reporting processes. This is a critical activity for financial institutions and without tech solutions would require a concerted effort from a range of departments including, risk, finance, and IT.
Risk Management detects compliance and regulatory risks, assesses risk exposure and anticipates future threats. There are over 45 companies specialising in this already and with so much uncharted territory around leaving the EU, this looks to be a potentially important field in the next few years. One of the most important things businesses can do is to properly understand and calculate risk, take too few and growth will stall, take too many and you may be overexposed.
Compliance is the largest RegTech sector with a large scope and responsibility.
Identity Management & Control facilitates counterparty due diligence and Know Your Customer (KYC) procedures. Alongside Anti Money Laundering (AML) and anti-fraud screening and detection. Identity management is the second biggest sector in terms of the number of firms and is hugely important in a wide range of ways especially when growing and taking on new customers and clients.
Compliance pertains to real-time monitoring and tracking of the current state of compliance and upcoming regulations. Compliance is the largest RegTech sector with a large scope and responsibility. Companies from this sector are charged with meeting key regulatory objectives to protect investors and ensure that markets are fair, efficient and transparent. They also seek to reduce system risk and financial crime. As regulations change when we do leave the EU, this will likely be one of the key sectors to face some of the challenges that arise.
Transaction Monitoring provides solutions for real-time transaction monitoring and auditing. It also includes leveraging the benefits of distributed ledger through Blockchain technology and cryptocurrency. Even apart from Brexit, cryptocurrency and Blockchain tech looks to be a sector of huge growth in the next few years, regulating that in the context of traditional financial service providers will be of significant importance.
For all of these sectors, it is likely that changes to legislation and procedures after Brexit will have a profound effect on what is required by firms in order to stay compliant, potentially creating a huge number of problems that will have to be dealt with in one way or another.
You just have to reverse engineer all the problems that are going to be thrown up by Brexit and then you’ve got investment opportunities. Here’s a problem, let’s find an opportunity.
Wherever’s there’s huge problems and disasters, there’s always going to be an entrepreneur who comes along and will find a solution. From my perspective, that’s exciting because these new crunch points provide opportunity and employment. I set up IW Capital in a recession after a stock market crash, and WeSwap was set up because the market was falling to pieces. What actually happened was the birth of the FinTech sector. Opportunity comes out of a crisis.
In the UK alone, it’s estimated that fraud costs the economy £110-billion a year, with the global economy suffering losses to the tune of £3.2-trillion annually.
If authorities are to seriously tackle this scourge and put an end to any future Madoffs they need to invest massively in technology, and blockchain, in particular, says Dave Elzas, CEO of Geneva Management Group.
Caught in the past
The trouble is, most authorities responsible for detecting and catching fraudsters are using yesterday’s technology.
In a 2016 op-ed published by The Guardian, former US congressional representative Randy Hultgren points out that the regulators investigating Madoff were stuck using the same pen and paper technology as their 1930s’ forebears. As a result, repeated fraudulent reporting slipped between the cracks, despite six complaints about his firm having been lodged between 1992 and 2008.
In the UK alone, it’s estimated that fraud costs the economy £110-billion a year, with the global economy suffering losses to the tune of £3.2-trillion annually.
Meanwhile, a recent article in Bloomberg points out that the US$9-trillion business of financing global trade is still largely paper-driven, making it susceptible to forgery at every point in the value chain.
By contrast, the criminals these regulators are supposed to investigate and catch have embraced digital technology and use it to take their illicit activities to new heights.
Whether it’s using up-to-the-minute designs to phish bank customers or sophisticated algorithms to skim minuscule amounts off billions of global transactions, today’s financial criminals are tech-savvy, increasingly difficult to detect and capable of more sophisticated crimes than at any other point in history.
Banking on blockchain
That does not, however, mean that the fight against financial crime is lost. Regulators, banks, and the financial transaction giants whose business depends on correct verifiable financial data and accountability can fight back.
Doing so means abandoning current practices that have so far proved ineffectual to the benefit of the Bernie Madoffs of the world.
Instead, regulators and financial industry players alike should focus their efforts on blockchain. Its system of cryptographically-linked, unmodifiable entries is ideal for the financial space.
Because records cannot be altered or deleted, hiding illicit financial movements becomes almost impossible.
There are several other factors which make blockchain ideal for fighting financial crime. These include:
These characteristics make blockchain useful for more than just tracking financial transactions. Blockchain-enabled smart contracts, for example, could go a long way to eliminating the forgery that bedevils the financing of global trade.
Banks are already embracing blockchain at a much faster rate than expected, with some (including major players such as UBS) implementing blockchain labs to explore potential new applications for the technology.
Embracing early adoption
Admittedly, some blockchain applications have had teething problems, as is to be expected with any new technology. However, as the global usage of blockchain will increase, so will its accessibility and reliability.
Certainly, none of the incidents which have impacted blockchain-enabled applications should deter regulators, banks and other players in the world of global finance from becoming enthusiastic early adopters of the technology.
Banks are already embracing blockchain at a much faster rate than expected, with some (including major players such as UBS) implementing blockchain labs to explore potential new applications for the technology.
It should not only be banks that embrace blockchain. Regulators, authorities and other secondary players also have a role to play. Landed registries, companies worldwide and any official registration agencies would benefit from the cost effectiveness, automation and accuracy of blockchain. More importantly, these various players all need to work together in standardising processes and protocols.
In some places, this kind of forward-thinking collaboration is already in place. The Canton of Geneva’s support of the Geneva FinTech Association (which plays a pivotal role in educating and advocating for blockchain) is a good example of what’s needed around the globe.
These kinds of initiatives need to become far more widespread. It’s time to stop patching up leaks and start putting in better pipes.
Philip Hammond says that the UK fintech industry is currently worth £7 billion, employing more than 60,000 people. These massive, tech-driven disruptions are proof that fintech has finally emerged as a mainstream industry. Not only that, but these changes have also created numerous new trends that will benefit both businesses and consumers. Here are some to watch out for this year that will affect the financial industry:
Consumers can already operate a handful of things by voice, including music, TV, GPS, and even home security. Currently, banking is slowly catching up in order to improve customer service and prevent fraud. HSBC have reportedly saved £300 million in fraud through voice biometrics. Customers repeat a phrase after giving the bank their details over the phone in order to provide an extra level of security. Expect more banks to follow suit this year and for voice biometrics to become even more widely used.
Bloomberg reports that customers can expect banks to speed up checkout lines through a wider adoption of contactless cards. Payment Relationship Management CEO Peter Gordon said large banks do not want to be displaced so they’ll do what they can to be more efficient. In Singapore, they opened their first real-time and round-the-clock payment system called FAST. Singapore Minister for Education Ong Ye Kung talked about it at the launch of SGQR, Singapore’s single and standardised QR code for e-payment. "We will allow non-bank players to have direct access to FAST. This is to enable their e-wallets to bring greater convenience to consumers," he said. Expect e-wallets to become more widely used this year.
The global recession along with the advancements in technology has led businesses to embrace alternative work arrangements particularly for freelancing, which is becoming increasing popular in the finance industry. In fact, the world’s first blockchain-powered freelance market has already been launched in the UK. The Fintech Times highlights how the marketplace gives employers instant access to a talent pool of freelancers. Work and skills are continuously validated and recorded, and the platform allows freelancers to create smart contracts, which ensures they get paid on time. This brings transparency and fairness to the gig economy. And Yoss explains how the current state of freelance recruitment now includes “highly rigorous skills validation and qualification tests,” as the demand for specialists in areas such as AI increases. The blockchain platform will allow companies to find freelancers based on the quality of their work rather than the quantity, which will benefit both businesses and those looking for jobs.
Resesarch by American Express found that 30% of SMEs find it difficult to access the finance they need, despite the fact that 68% think cash flow is important to their business. In the UK an increasing number of SMEs are moving away from traditional financial avenues like bank loans. This has led to a 13% increase in the use of peer-to-peer lending in the past 12-months. Peer-to-peer collaboration is a much more streamlined way for SMEs to access financial support. For instance, micro-lenders mainly operate online, which helps reduce overhead costs and takes out the middleman.
Apart from speeding up transaction times, fintech is also revolutionising customer service through chatbots and AI. Today’s chatbots are already able to not only understand what the customer needs but also the entire context of the conversation. This will help reduce the amount of time customers spend waiting for answers or on being hold. The technology will also mean that banking apps will become the primary form of communication between customers and their banks in the future. This will reduce costs and allow for a more streamlined service.
The finance industry is not only opening doors to faster transactions and better customer service, but it’s also creating more opportunities to work in a fast-evolving and lucrative industry. Chris Renardson points out that if anyone wants to make it in the industry, it takes more than technical and numerical know-how. So follow the above trends to stay ahead of the competition.
Below Finance Monthly hears commentary from interactive investor cryptocurrency analyst Gary McFarlane on bitcoin passing $11,000 over the weekend.
The recommendations, as expected, from the global G7-instituted Financial Action Task Force, which will see crypto exchanges and others required to provide full know-your-customer (KYC) details on clients and all parties to crypto transactions, has done little to dampen bitcoin buying.
Other top altcoins – all other coins barring bitcoin – are struggling today.
Two notable exceptions are decentralised application platforms Ethereum (its Ether token is the second-most valuable crypto), and one of its many rivals, Tron, whose founder and chief executive Justin Sun recently won the auction for lunch with legendary investor and crypto sceptic Warren Buffett at a cost of $4.57 million.
Geopolitical tensions, notably in the Middle East; the realisation that historically unprecedented loose monetary policy by central banks is not being reversed any time soon, the China-US trade war encouraging bitcoin’s use as a conduit to effect capital flight by some Chinese investors; record high trading in distressed economies such as Turkey and to a greater extent Venezuela and some other countries in Latin American; and talk of an outright ban on crypto by the authorities in India. These are all helping to propel the bitcoin price higher, providing, as they do, a range of examples of its use case as a store of value, no matter how peculiar that may sound for such a crash-prone asset.
Talk is now turning to the possibility of “the fourth parabolic”, which postulates a rise in the bitcoin price beyond the previous all-time high at $20,000 in December 2017.
With end of year targets of $40,000 from Wall Street analyst Thomas Lee of Fundstrat Global Advisors and commodity trader Peter Brandt saying $100,000 for next year is a possibility, which would align to the run up to block rewards halving from 12.5 to 6.25 in May 2020 for bitcoin miners, it is starting to feel like 2017 all over again.
That might sound fanciful in the extreme but on past form it is a possibility – and so is a crash from wherever any potential new all-time high might form.
When bitcoin first surpassed $10,000 on 29 November 2017 it only took 17 days to reach its all-time high near $20,000, but past performance is of course not a reliable guide to future performance, especially where crypto is concerned.
Judging by Google Trends, searches for ‘bitcoin’ haven’t surged yet in the way they did last time round: December 2017 scores is 100 and we are currently registering 16.
It suggests current buyers are those who have previously been in the market and were waiting on the sidelines for a new entry point. That could mean there is plenty of near-term oxygen to drive this market higher, but as always with crypto, it will be a high-risk rollercoaster ride. The fear-of-missing-out (FOMO) impulse for now is more in evidence among institutional buyers.
Even though those at the top stand to reap untold rewards with the right products, the 2008 financial crash has seen big businesses and regulators avoid the light-touch approach to innovation. Today, with 39 fintech firms valued at a combined $147 billion/£115 billion, safety and financial security are paramount. Indeed, with such much on the line, companies are now taking every precaution possible before launching a new product.
With that in mind, the sandbox strategy has become a standard across the industry. A term taken from computer security, sandboxes provide a partition between a live network and a test net. By using a sandbox, developers can test new commands and isolate faults without compromising an existing system. Using this dynamic, fintech companies are now using sandboxes to ensure financial products are not only secure but performing in the way they’re intended.
Expanding on the use of partitions within fintech, consumers are being offered an ever-increasing number of sandbox options. From financial simulators to demo games, individuals can explore potential investments without putting their money on the line.
This idea of turning simulations into games is one that’s also been adopted by the gaming industry. With online casino gaming now worth in excess of $45 billion/£35 billion, more novices are now eager to explore the financial potential of the industry. However, with real money on the line, playing slots and the like is always a risk. Therefore, to mitigate any financial burden, free demo slots have become popular, as you can see here. Providing full functionality without the cost, these free-play games provide that same safe environment as virtual trading platforms.
Perhaps the most interesting sandbox innovation for consumers is the growth of free investment platforms. Running parallel with their real money counterparts, these platforms allow novices to invest in stocks, shares and contracts for difference (CFDs) using a virtual bankroll.
Perhaps the most interesting sandbox innovation for consumers is the growth of free investment platforms. Running parallel with their real money counterparts, these platforms allow novices to invest in stocks, shares and contracts for difference (CFDs) using a virtual bankroll.
In tandem with a virtual bankroll, financial simulators can be used to test the potential profitability of an investment. On a basic level, Monte Carlo simulations can be created inside Microsoft Excel. By entering certain values, the Monte Carlo method assigns probabilities to potential outcomes. Or, as described by Investopedia, Monet Carlo Excel spreadsheets can compute “the probabilities for integrals” and solve “partial differential equations, thereby introducing a statistical approach to risk.”
Similarly, by using products such as Countdown to Retirement, individuals can get an idea of their future financial status without crunching the numbers.
As a consumer, the benefits of these so-called sandbox options are obvious. By giving you ways to explore the financial sector without the cost, companies are not only reducing individual risk but their own risk. What’s more, they’re providing new opportunities for the uninitiated. By removing financial barriers and giving novices a safe way to learn, fintech has become a more responsible industry for all involved.
Matt Robinson, Commercial Director at Ping Finance, believes that now is the right time for SMEs to borrow, and here takes Finance Monthly through the reason why.
In the UK, interest rates are still incredibly low. Despite a 0.25% increase back in August 2018, bringing the interest rate up to 0.75%, the UK interest rate is still way below the average that it has been in the past, and this is only a good thing for those borrowing.
At one time, during the Thatcher leadership, interest rates rose to a staggering 17% to combat inflation. Interest rates continued to rise into the late 1980s due to the pressure of increasing house prices. The election of Tony Blair in 1997 gave the control of setting the base interest rate to an independent Bank of England. Interest rates then began to steadily decline, hitting 3.75% in 2003, before increasing again up to 5.5% in 2007. Since then, interest rates have dropped drastically due to the impact of the global financial crisis, falling all the way to 0.5% in March 2009, and then a further drop to 0.25% in 2016.
After the recent rise to 0.75% in August, Mark Carney, governor of the Bank of England, said there would be ‘gradual and limited’ interest rate rises in the future. With Brexit uncertainty on the horizon, predictions for the next couple of years are speculative at best. Therefore, there has never been a better time for the likes of SMEs to borrow. Even with the slight increase, we are currently experiencing one of the lowest interest rates in the UK’s history, and with the likelihood of increases on the way in the next couple of years, borrowing right now is a smart move.
Nowadays, SMEs have the luxury of being able to be as picky as ever when it comes to their financing options. The alternative finance market has exploded since banks began to withdraw following the recession; traditional loans are no longer the only option for small businesses looking to borrow.
Crowdfunding, for example, can be an effective way to raise capital by allowing people to make small investments in a project or business. Online lenders can be contacted via online applications, and funds can be transferred into accounts in as little at 24 hours.
Peer-to-peer lending creates a form of borrowing and lending between individuals without a traditional financial institution being involved and can turn out to be a cheaper alternative to borrowing from a bank or building society.
Financial technology, asset-based lending, invoice finance and challenger banks are some other alternatives to traditional high street bank lending. These alternative lenders use algorithms and data manipulation to streamline the loan approval process from weeks down to days at most. With so many viable financial services available, there has never been a better time for SMEs to take advantage of all these different options.
In a similar vain to there being so many different financial options, there is also heavy competition between lenders. With so many lenders vying for your business, they are doing everything possible to make their services seem more appealing to potential clients. Lower interest rates in conjunction with reduced fees or no fees are just some of what’s being offered by many lenders in a bid to secure your business.
From the perspective of an SME, you have the power to shop around and discover the best deal for you. With so many lenders competing to provide the most enticing offers, SMEs can take advantage of this and get a better deal than they would if they had to go with the first offer they were quoted.
It has never been easier to start a business than right now. There is a lot more guidance and knowledge out there to help people bring their ideas and ambitions to life, and most of it can be accessed for free online.
One of the biggest barriers to starting a business has always been start-up cash, and whilst that is still the case, it’s not as much of a problem as it used to be. Online platforms not only create a global marketplace for SMEs, but it’s easier than ever to contact investors and lenders and start generating cash flow to get your business off the ground.
Obtaining funding is not the only barrier to starting a business; general business support is crucial for SMEs to become successful and be able to pay back their loans. Networking, paid mentorship, free courses, government led schemes, books and the wealth of information on the internet can all be utilised by SMEs to help grow a successful business.
Since the market crash in 2008, there has been a shift in attitudes when it comes to lending. There is a greater focus on lenders to look after borrowers, stamping out shady practices and creating a better environment for those who want to borrow. As 2008 becomes a distant memory, lenders’ appetites for risk has increased, and SMEs can take advantage of this current culture of encouraged lending.
The comments come ahead of the recent TV debate between Boris Johnson and his rivals to be the next leader of the Conservative party and British Prime Minister.
Mr Johnson has been publicly open about a no-deal Brexit, which has weighed heavily on the pound.
The deVere CEO’s observation also comes at a time as Bitcoin, the world’s largest cryptocurrency, hit a 13-month price high on Sunday above $9,300, with predictions of the next crypto bull run making headlines. Bitcoin prices have soared more than 200 per cent over the last several months.
Mr Green comments: “It looks almost certain that Boris Johnson will be Britain’s next Prime Minister. His vow to leave the EU in October — deal or no-deal — has prompted a decline in the value of the pound.
“Sterling has lost almost 5% of its value against the US dollar since the start of May. Similarly, it continues six straight weeks of falls against the euro.
“As Mr Johnson’s campaign moves up a gear – as it moves into the next phase to win over the party’s grassroots – we can expect him to also up his hard Brexit rhetoric and this will likely drive sterling even lower.”
He continues: “We are already seeing that UK and international investors in UK assets are responding to the Brexit-fuelled uncertainties by considering removing their wealth from the UK.
“One such way that many are looking to diversify their portfolios and hedge against legitimate risks posed by Brexit is by investing in crypto assets, such as Bitcoin.
“Crypto assets are often used around the world as alternatives to mitigate geopolitical threats to investment portfolios.”
He goes on to add: “The no-deal Brexit issue might be the catalyst for new investors in this way, but they are likely, too, to be aware that many established indicators and analysts are pointing towards a currently new crypto bull run.
“As such, they might think this is now the time to jump into cryptocurrencies - which are almost universally regarded as the future of money.”
In May this year, deVere carried out a global survey that found that more than two-thirds of HNWs - classified in this context as having more than £1m (or equivalent) in investable assets - will be invested in cryptocurrencies in the next three years.
The poll found that 68% of participants are now already invested in or will make investments in cryptocurrencies before the end of 2022.
Of the survey’s findings, Nigel Green commented at the time: “Crypto is to money what Amazon was to retail. Those surveyed clearly will not want to be the last one on the boat.”
The deVere CEO concludes: “As Boris and Brexit continue to dominate the agenda, Bitcoin and the wider cryptocurrency sector could experience a boost as investors seek to protect – and build – their wealth by hedging against the geopolitical risks they pose.”
(Source: deVere Group)
On one hand there are the established, incumbent banks, including the UK’s four financial heavyweights – Lloyds, Barclays, HSBC, and RBS. On the other hand, there are the younger, more agile challenger banks: Monzo, Starling, Revolut and others. Needless to say, competition is fierce. Below Barney Taylor, Europe MD at Ensono, digs deeper.
Challengers have arrived quickly on the scene, specialising in areas not well-served by bigger banks at the time. Boasting speed, convenience, and excellent levels of customer satisfaction, challengers have seen particular success in the mobile banking market, with data from Fintech company Crealogix showing that 14% of UK bank customers now use at least one mobile-only challenger app.
IT has been the linchpin of the challenger bank success story. Customers increasingly expect a seamless and ‘always on’ relationship with their banks, and challengers, built almost exclusively on digital foundations, have been able to deliver. Unsurprisingly, it is these digital foundations which traditional banks need to improve if they are to keep up with the shifting market.
Retail banks are generally attempting this by putting greater investment and development into mobile and online banking capabilities. HSBC, for example, recently launched its Connected Money app, allowing customers to easily access their account information from multiple providers within one central hub. RBS is even set to release its own digital lender called Bo in the near future.
This is a strategy that’s likely to pay off for many. However, retail banks have a larger asset right under their noses that’s typically overlooked and underestimated. It’s an asset that banks have been sitting on for decades: mainframe computers.
Mainframe has been around since the late 1950s, when systems only had rudimentary interactive interfaces, punch cards, and paper to transfer data. Usage in the financial sector rapidly picked up in the 1960s, with Barclays among the first banks in the UK to adopt it, initially for account and card processing. In a world in which, arguably, the only constant is change, 50 years on the mainframe has adapted and thrived to become the most powerful computing power on the market, handling over 30 billion transactions per day (even more than Google).
In fact, IDC reports spending on mainframes reached $3.57 billion in 2017, with expectations that the market will still command $2.8 billion in spending annually by 2022. In particular, financial sector businesses have been noteworthy champions of the technology, with 92 of the world’s top 100 banks relying on mainframes today. And for good reason.
Firstly, mainframes, if properly modernised and maintained, provide the same fast and reliable banking experiences that have made challenger banks so successful.
Unlike server farms, mainframes can process thousands of transactions per second, and can support thousands of users and application programs concurrently accessing numerous resources. Today’s mainframes process a colossal 90% of the world’s credit card payments, with credit card giant Visa running 145,000 transactions every second on its mainframe infrastructure.
In the financial industry, where trust is everything, mainframe technology also reigns supreme with its air-tight data security. Mainframes have always been considered a secure form of storage, but new models of mainframe have gone one step further, introducing something call ‘pervasive encryption’. This allow users to encrypt data at the database, data set or disk level. If they so choose, users can encrypt all of their data.
While challenger banks have benefited from an inherently component-based technology infrastructure, which makes them agile, flexible, and fundamentally able to connect to mobile apps and other external ecosystems – new open source frameworks mean that the mainframe can achieve much the same, and can easily interact with cloud, mobile apps, and Internet of Things (IoT) devices.
Challenger banks have benefited from simple, cloud-first infrastructures that provide speed and convenience, which has won them millions of customers as a result. However, traditional banks shouldn’t fall into the trap of simply mimicking the industry newcomers. Cloud has a lot to offer, but traditional banks shouldn’t disregard the mainframe computing power that they have at their disposal.
A modernised mainframe is a cost-effective workhorse and, far from dying out, it allows incumbent banks to compete toe to toe in areas that have thus far made challenger banks so successful. Modernisation allows workloads to be centralised and and streamlined, enabling even more agility.
The mainframe has a long history, but for enterprise, and for retail banks most of all, it’s still a technology of the here and now.
In this light, following increased pressure from digital banks, legacy banks have yet to follow Muhammad Ali, Joe Frazier III and Danny O’Sullivan’s example. Here David Murphy, EMEA & APAC Banking & Insurance Lead at Publicis Sapient, explains that while newly created fintech companies have stepped into the ring and landed a few punches on traditional banks by being quick and nimble, they are by no means facing a knock-out.
Legacy banks shouldn’t underestimate the challenge of newly created digital banks. By relying on their tech, rather than reputation, digital banks have shaken up the financial sector in the last five years. Exploiting poor customer service and lack of innovation in many parts of the industry, tech-driven fintech startups such as Monzo and Starling Bank have won over customers with simple, low-fee, mobile-first products and services.
The market share for current accounts of the big four legacy banks (Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds) has lost ground, from 92% of all bank customers a decade ago to around 70% today.
Challenger banks have proven themselves to be more flexible, quicker to adapt to user needs and more friendly and personal than traditional banks. In fact, according to a recent survey from Which?, challenger bank Monzo was ranked as the best bank in the UK with a customer rating of 86% (banks were rated out of a series of categories by real customers out of 10). Their ability to match up to some of the biggest and most established names in the business is a concern for many in the traditional banking sector.
With digital banks winning over consumers and raising a significant amount of funding in order to grow their services - Monzo raised £20m in two days last year and Tandem is expected to raise over £80m in its funding round this month this concern is being amplified – the fightback from legacy banks, which began long ago, is gearing up.
However, this is no easy fight. Compared to younger, more agile fintech companies building new services and platforms from scratch, banks have to work around their legacy systems to make any technological leap. They also have to deal with the issues of siloed workplaces and cultural backlashes in order to improve their services and products.
For example, the boards of major banks today are dominated by people with experience in finance, accounting, law and regulation. Given the enormous changes in regulation since the financial crisis, it is not surprising banks have sought out board members with skills relevant to the sector’s strategic agenda for the post-crisis years: regulation, risk management and compliance.
But the post-crisis environment is shaped by another set of strategic issues that grow steadily more pressing: digitalisation, mobile, automation and the emergence of big data analytics.
To overcome structural issues, legacy banks need to fight smarter against digital banks. While older boxers have to learn how to be strategic and take a punch when competing against younger more nimble fighters, banks need to also adapt their tactics against younger, digitally-enabled competitors.
The contrast between banks and leading technology businesses is clear: tech companies’ boards have large contingents of people from technology, customer insight and digital media backgrounds. As a result, they demonstrate a sharper focus at the top level on the strategic issues of the coming decade, the digital transformation of all businesses, including financial service. Legacy banks need to create a multi-pronged approach to the rise of fintechs from innovating internally to capitalising on their experience in the market.
As we have seen over the past few months with Revolut - the bank has been linked to multiple scandals and failed to block thousands of potentially suspicious transactions on its platform for three months last year - challenger banks come with risks. Legacy banks can therefore, capitalise on their stability by reflecting this in their advertising and marketing campaigns.
Most importantly though, banks need to innovate and adapt to new technology. Many legacy banks are recreating the dynamism of fintech startups within their organisations through innovation labs, as well as partnerships with external technology providers. Initiatives such as innovation labs allocate space to incubate ideas internally with considerable time and investment. They also overcome the cultural issues that big organisations create by building small teams in the company to develop new competing platforms.
Fundamentally, banks need to put customers at the center of the picture. In order to deliver a knockout blow to digital competitors, banks need to ensure that they have the time, investment and willingness to develop and improve their digital banking platforms, enacting digital transformation holistically throughout the organisation and embedding a culture of innovation in their business, underpinned by experience and knowledge built over years.
