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Essential Fintech Reading: Jan 30-Feb 5

Personal Financial Management Primed For Takeoff In The EU?

Michael Davison, Industry Principal for Financial Services at ATOS, argues that the convergence of secure aggregation services, omni-channel digital platforms and conversational commerce technologies — enabling intelligent chat between customer and Personal Financial Management (PFM) assistant — will take PFM to the next level. "All these now make it possible to offer customers holistic, in-context information in response to an expressed need," writes Davison. "Or to 'nudge' them into awareness of a need to act to better manage their financial position." Davison elaborates on the forces in the EU that will drive an acceleration in consumer uptake, including "the competitive and consumer benefits of forcing banks to share their customer data with third party providers (PSD2/XS2A)" and citizens waking up to the fact "that their data belongs to them, not the bank, insurer, mortgage lender or wealth manager (Midata)." Celent's Gareth Lodge previously noted that XS2A "allows true PFM for the first time in some countries," as it enables any third party to access account level information from any FI in Europe and initiate a payment from that account.

Fiserv Positioned To Better Serve Credit Unions?

Fiserv's pending acquisition of ACI's community financial services business for $200 million will allow the firm to add new credit union clients and gain a promising Internet banking product (Architect Banking), writes Roy Urrico of Credit Union Times. Brad Smith, managing director for technology solutions for Cornerstone Advisors, states that acquisition could "help combat the non-DNA Fiserv core customers going to third-party, best-of-breed Internet banking competitors." Beyond Architect, Fiserv is acquiring SSB Internet Banking, WebFederal Internet Banking, Advantage Internet Banking, Advantage Consolidated Bank Bill Pay and ACI Defense Services, a security solution. Bryan Yurcan of American Banker notes that many of these products arrived at ACI through the S1 and Online Resources Corporation acquisitions in 2012 and 2013 respectively. Smith said ACI "cherry picked" the solutions targeted towards bigger banks and sold off the pieces serving smaller FIs.

New Fintech Funding Records Set

Jim Bruene reports that a new record for fintech companies funded in a week — 29 — has been set. This comes on the heels of a weekly funding record of $2.7 billion. In January 104 companies raised $4 billion in equity and debt worldwide, up from 61 raising $780 million a year earlier. Notables included Nexara Holdings, a mortgage startup raising $100 million, and Pindrop Security, an anti-fraud technology securing $75 million in Series C funding. Google Capital led the latest round for Pindrop with returning investors including Andreessen Horowitz and Institutional Venture Partners. Robert Hackett of Fortune explains that Pindrop combats fraud by analyzing and assigning risk to phone calls and examining whether the caller's acoustic fingerprint checks out. "If, say, a U.S. consumer is connecting from Nigeria via Skype, using a suspicious phone number and speaking in an uncharacteristically adenoidal falsetto, Pindrop should raise a flag," writes Hackett.

Common Reasons Why Fintechs Fail

Writing for American Banker, Pascal Bouvier identifies 10 common reasons why fintechs fail. These include:

  • Ignoring the licensing process
  • Weighing the drawbacks of taking bank capital: "If you are raising money from a financial services incumbent, do your homework and ask if regulatory approval is needed and plan accordingly," writes Bouvier. "Prior to closing an investment from an incumbent, ask what type of reporting they will need, what type of governance and what type of ongoing information they will require. They work under different rules."
  • Disregarding compliance as a pesky annoyance
  • Not choosing a venture capitalist with fintech experience
  • Assuming that fintech disruptors are like other startups
  • Putting too much faith in your low prices: "Many startups come up with business plans that provide financial services or products at a cheaper price thanks to modern technology. Payments startups and robo-advisers are prime examples of this. But if you focus too heavily on cost, you may fail to understand that incumbents have massive scale advantages and will wipe you out when they finally move into action," writes Bouvier. "Find a real differentiator other than just lower cost enabled by "better" technology."
  • Thinking that intellectual property can be easily protected
  • Thinking that payments are easy
  • Overlooking legal issues
  • Ignoring business cycles

Digital-Only Bank Launches In Canada

Writing for American Banker, Mary Wisniewski covers the launch of a digital-only brand, EQ Bank, by Equitable Bank. "Rather than partner with a neobank, (Equitable) chose to build a digital-only brand to acquire retail customers and to control the user experience," writes Wisniewski. "The rare move points to a growing belief among banks and fintech companies alike worldwide: Consumers are ready for digital-only, and in some cases mobile-first, banking." Given that an estimated 55 percent of Canadians are banking online, EQ bank's digital offering could find a warm reception. Wisniewski notes that contrary to the approach of neobanks like Qapital and Digit, EQ is using high rates to draw customers — including 3 percent interest on savings accounts. The Financial Post notes that Canada's big banks only offer accounts up to 0.6 percent, while online lenders like Tangerine and President’s Choice Financial have savings accounts that pay 0.8 percent