Banks beware, outsiders are cracking the code for finance

Banks beware, outsiders are cracking the code for finance

17/9/2021 3:10:00 AM

Banks beware, outsiders are cracking the code for finance

LONDON : Anyone can be a banker these days, you just need the right code.Global brands from Mercedes and Amazon to IKEA and Walmart are cutting out the traditional financial middleman and plugging in software from tech startups to offer customers everything from banking and credit to insurance.For

LONDON : Anyone can be a banker these days, you just need the right code.Global brands from Mercedes and Amazon to IKEA and Walmart are cutting out the traditional financial middleman and plugging in software from tech startups to offer customers everything from banking and credit to insurance.

16 more COVID deaths, 3,439 new cases in Singapore Singapore reports 3,439 new COVID-19 cases and 16 more deaths Australian rock lobsters a national security threat, says Hong Kong customs chief

For established financial institutions, the warning signs are flashing.So-called embedded finance - a fancy term for companies integrating software to offer financial services - means Amazon can let customers"buy now pay later" when they check out and Mercedes drivers can get their cars to pay for their fuel.

To be sure, banks are still behind most of the transactions but investors and analysts say the risk for traditional lenders is that they will get pushed further away from the front end of the finance chain.And that means they'll be further away from the mountains of data others are hoovering up about the preferences and behaviours of their customers - data that could be crucial in giving them an edge over banks in financial services. headtopics.com

"Embedded financial services takes the cross-sell concept to new heights. It's predicated on a deep software-based ongoing data relationship with the consumer and business," said Matt Harris, a partner at investor Bain Capital Ventures."That is why this revolution is so important," he said."It means that all the good risk is going to go to these embedded companies that know so much about their customers and what is left over will go to banks and insurance companies."

WHERE DO YOU WANT TO PLAY?For now, many areas of embedded finance are barely denting the dominance of banks and even though some upstarts have licences to offer regulated services such as lending, they lack the scale and deep funding pools of the biggest banks.

But if financial technology firms, or fintechs, can match their success in grabbing a chunk of digital payments from banks - and boosting their valuations in the process - lenders may have to respond, analysts say.Stripe, for example, the payments platform behind many sites with clients including Amazon and Alphabet's Google, was valued at US$95 billion in March.

Accenture estimated in 2019 that new entrants to the payments market had amassed 8per cent of revenues globally - and that share has risen over the past year as the pandemic boosted digital payments and hit traditional payments, Alan McIntyre, senior banking industry director at Accenture, said. headtopics.com

Police officer fined for calling police to report 'stolen bicycle' after losing key to lock Heavy rains and flash floods force over 1,000 people to be evacuated in Malaysia 'Big John', the largest known triceratops, sells for 5.5 million euros

Now the focus is turning to lending, as well as complete off-the-shelf digital lenders with a variety of products businesses can pick and choose to embed in their processes."The vast majority of consumer centric companies will be able to launch financial products that will allow them to significantly improve their customer experience," said Luca Bocchio, partner at venture capital firm Accel.

"That is why we feel excited about this space."So far this year, investors have poured US$4.25 billion into embedded finance startups, almost three times the amount in 2020, data provided to Reuters by PitchBook shows.Leading the way is Swedish buy now pay later (BNPL) firm Klarna which raised US$1.9 billion.

DriveWealth, which sells technology allowing companies to offer fractional share trading, attracted US$459 million while investors put US$229 million into Solarisbank, a licensed German digital bank which offers an array of banking services software.Shares in Affirm, meanwhile, surged last month when it teamed up with Amazon to offer BNPL products while rival U.S. fintech Square said last month it was buying Australian BNPL firm Afterpay for US$29 billion.

Square is now worth US$113 billion, more than Europe's most valuable bank, HSBC, on US$105 billion."Big banks and insurers will lose out if they don't act quickly and work out where to play in this market," said Simon Torrance, founder of Embedded Finance & Super App Strategies. headtopics.com

Graphic: Venture capital investment in embedded finance leaps - https://graphics.reuters.com/FINTECH-EMBEDDEDFINANCE/jnvweemkgvw/chart.pngYOU NEED A LOAN!Several other retailers have announced plans this year to expand in financial services.Walmart launched a fintech startup with investment firm Ribbit Capital in January to develop financial products for its employees and customers while IKEA took a minority stake in BNPL firm Jifiti last month.

Automakers such as Volkswagen's Audi and Tata's Jaguar Land Rover have experimented with embedding payment technology in their vehicles to take the hassle out of paying, besides Daimler's Mercedes."Customers expect services, including financial services, to be directly integrated at the point of consumption, and to be convenient, digital, and immediately accessible," said Roland Folz, chief executive of Solarisbank which provides banking services to more than 50 companies including Samsung.

Your Say: The authorities should look at ways to dispose of used antigen rapid test kits more safely Tesla looks to pave the way for Chinese battery makers to come to US Philippines' Duterte says he takes full responsibility for drugs war

It's not just end consumers being targeted by embedded finance startups. Businesses themselves are being tapped on the shoulder as their digital data is crunched by fintechs such as Canada's Shopify.It provides software for merchants and its Shopify Capital division also offers cash advances, based on an analysis of more than 70 million data points across its platform.

"No merchant comes to us and says, I would like a loan. We go to merchants and say, we think it's time for funding for you," said Kaz Nejatian, vice president, product, merchant services at Shopify."We don't ask for business plans, we don't ask for tax statements, we don't ask for income statements, and we don't ask for personal guarantees. Not because we are benevolent but because we think those are bad signals into the odds of success on the internet," he said.

A Shopify spokesperson said funding goes from US$200 to US$2 million. It has provided US$2.3 billion in cumulative capital advances and is valued at US$184 billion, well above Royal Bank of Canada, the country's biggest traditional lender.CONNECTED FUTURE?

Shopify's lending business is, however, still dwarfed by the big banks. JPMorgan Chase & Co, for example, had a consumer and community loan book worth US$435 billion at the end of June.Major advances into finance by companies from other sectors could also be limited by regulators.

Officials from the Bank for International Settlements, a consortium of central banks and financial regulators, warned watchdogs last month to get to grips with the growing influence of technology firms in finance.Bain's Harris said financial regulators were taking the approach that because they don't know how to regulate tech firms they are insisting there's a bank behind every transaction - but that did not mean banks would prevent fintechs encroaching.

"They are right that the banks will always have a role but it's not a very remunerative role and it involves very little ownership of the customer," he said.Forrester analyst Jacob Morgan said banks had to decide where they want to be in the finance chain.

"Can they afford to fight for customer primacy, or do they actually see a more profitable route to market to become the rails that other people run on top of?" he said."Some banks will choose to do both."And some are already fighting back.

Citigroup has teamed up with Google on bank accounts, Goldman Sachs is providing credit cards for Apple and JPMorgan is buying 75per cent of Volkswagen's payments business and plans to expand to other industries. 06:00:00"Connectivity between different systems is the future," said Shahrokh Moinian, head of wholesale payments, EMEA, at JPMorgan."We want to be the leader."

(Reporting by Anna Irrera and Iain Withers; Editing by Rachel Armstrong and David Clarke) Read more: CNA »

Covid-19: Healthcare system still under pressure as hospitalised patients, ICU cases continue to rise, says MOH

Making queer stories universal: 'Everybody's Talking About Jamie' premieres in LondonLONDON : Stars and cast members walked the pink carpet in London on Monday for the premiere of the film adaptation of the musical 'Everybody's Talking About Jamie.' The musical is based on the true story of Jamie Campbell, a 16-year-old boy from the small British town of Sheffield who dreams of beco

China forms cross-agency team to crack down on securities misbehaviourSHANGHAI : China has set up a cross-agency team, led by the country's securities watchdog, to coordinate crackdown efforts against illegal activities in capital markets.The China Securities Regulatory Commission (CSRC) said on Thursday it recently held the first meeting with other team members, including

Anti-laundering unit goes off-grid, fraying Afghan ties to global financeLONDON: A unit in Afghanistan\u0027s central bank leading a 15-year effort to counter illicit funding flows has halted operations, four staff members said, threatening to hasten the country\u0027s slide out of the global financial system. Since 2006, the Financial Transactions and Reports Analysis Center of Afg

StanChart to add bankers in sustainable finance, capital markets in Saudi ArabiaDUBAI : Standard Chartered is looking to add bankers to focus on sustainable finance, project finance and capital markets in Saudi Arabia, a market it sees will become a 'front-runner' for its regional business in coming years, a senior executive said.Standard Chartered this year began offering banking se

15 people to be charged over fraudulent applications that secured S$220,000 in bank loansSINGAPORE — Fifteen people will be charged on Friday (Sept 17) over their alleged involvement in fraudulent bank loan applications that caused a local bank to disburse more than S$220,000 to the group.