Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in Europe and around the world, produced by BI Intelligence.
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REGULATION IS THE BIGGEST THREAT TO BANKS IN EUROPE:The Payments Services Directive 2 (PSD2) may be the biggest threat to European legacy banks, according to the BBC. More specifically, a particular article of the regulatory framework forces banks to give fintechs access to their systems in order to pull customer data and to initiate payments. PSD2 will come into force in January 2018 and applies to all countries in the EU.
Fintechs can provide a better user experience only if they have access to account data. The value of many fintechs is their customer-centric products. They have leveraged digital technology to create a better front-end user experience than their legacy competitors. At the same time, they still need legacy banks because most do not have a banking licence and which prevents them from collecting meaningful customer data. Banks’ ability to control who can access their data, how it’s accessed, and how it is formatted provides significant leverage for determining what the relationship between fintechs and banks will look like. But PSD2 forces banks to provide access which is going to leave them scrambling to differentiate their products and services as fintechs become intermediaries.
What might save banks is time. Banks have two years before they will be forced to open up access to their data. That means that they have time to imitate the products of fintechs or form partnerships on favourable terms. Many fintechs, for example, don’t have access to two-years worth of funding and need to scale — something banks can help with given their relatively large customer portfolios.
MARKETPLACE LENDERS FORM US TRADE ASSOCIATION:Funding Circle, Lending Club, and Prosper, three of the largest US marketplace lenders, announced the launch of a trade association called the Marketplace Lending Association (MLA) last week.It has already established a code of conduct for members which promotes transparency, responsible lending, governance and controls, and risk management. The MLA is open to other marketplaces provided they meet the membership criteria and agree to the code of conduct.
The formation of the MLA is an attempt to get ahead of impending regulation, according to the Financial Times. In the UK, which had the largest P2P lending industry per capita as of 2014, alternative lenders have been regulated since 2014 — and now it looks like the US is headed the same way. Last month the Office of the Comptroller of the Currency (OCC) issued a white paper related to responsible innovation in fintech, including alternative lending, and the Consumer Financial Protection Bureau (CFPB) set up a marketplace lending complaints service.
Preparation is key if the lenders want a well-regulated industry. Recent regulator interest in alternative lending is partly due to banks calling for increased scrutiny of the industry. The banks claim alt lending threatens wider financial stability. P2P lenders’ biggest fear is that banks will be the ones who dictate what alternative lending regulation looks like. This is because the banks would likely make the regulation as restrictive as possible, in order to protect their own loans businesses. By forming a members association, the lenders can agree on key concerns and present a unified front.
CITI EXPLORES VIRTUAL REALITY: The bank’s traders have been using Microsoft’s HoloLens augmented reality headset as a virtual workstation. The Holographic Workstation was designed by virtual reality (VR) startup 8Ninths and lets users see data as 3D images. Traders then use hand and voice commands to interact with the data. The virtual workstation is not designed to replace the physical trading desk, but to complement it, making it quicker and easier for traders to access the data they need. VR is also being used in other areas of finance, including wealth management, where Fidelity Investments has been experimenting with turning stock portfolios into “virtual cities.” It believes providing customers with a more intuitive way to view their portfolio will drive engagement and encourage more people to invest. Financial services firms are hoping that virtual and augmented reality can help with their problems across the board, from driving efficiency, to increasing customer loyalty and revenue.
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