Digital Disruption – Page 59 – Digital Finance Analytics (DFA) Blog

Another Bank Wants To Outplay Apple Pay

According to Computerworld, Heritage Bank has endorsed an application by some of the nation’s biggest banks lodged with the Australian Competition and Consumer Commission that seeks the right to form a cartel to collectively negotiate with, and engage in a boycott of, mobile wallet providers including Apple, Google and Samsung.

The Toowoomba-headquartered mutual bank is the biggest issuer of prepaid cards in Australia.

Last month the Commonwealth Bank of Australia, National Australia Bank, Westpac, and Bendigo and Adelaide Bank submitted the application to Australia’s competition watchdog.

In its submission to the ACCC Heritage argued that the restrictions imposed by Apple on third-party mobile payment apps for the iPhone reduce competition. Apple does not allow services other than its own Apple Pay offering to use the iPhone’s Near Field Communication antenna for contactless transactions.

In the ACCC application the banks indicate that one of the issues they would seek to collectively bargain over is access to the iPhone’s NFC capabilities. For its part, Apple has argued opening up access to NFC would undermine the security of mobile payments on the iPhone.

So far, in Australia only American Express and ANZ customers are able to use Apple Pay after the two companies struck agreements with the iPhone maker, Heritage Bank’s submission notes.

“Those with NFC enabled Android phones can choose from a broad range of issuers who support mobile payments,” Heritage argues. “iPhone users are consequently disadvantaged by the lack of access provided by Apple to issuers who offer their customers the option of a mobile payment wallet other than Apple Pay.”

Heritage adds that currently the industry “is not able to develop and enact agreed Australian standards relating to the safety, security and stability of mobile payments systems for which issuers, not Third Party Wallet Providers, primarily hold the risk.”

Finally, the submission adds, “Fees and other charges levied by Third Party Wallet Providers on issuers may not be able to be passed through to users of the service. This reduces competition since the decision to pass fees to customers of issuers (or not) and the level of those fees may not be negotiable when contracting with Third Party Wallet Providers who control mobile devices.”

EFTPOS provider Tyro has also indicated it backs the banks’ application.

“It is in the Australian public interest to maintain choice for consumers, merchants and banks as to mobile wallet solutions and the applications that they enable,” a submission from the company argues.

“While Apple allows third parties to connect free of charge via Wi-Fi, 3G, Bluetooth and other network protocols to its phone product range, it does not do so for NFC.

“Eliminating third party access to the Apple NFC function is particularly effective in stifling innovation and competition, because it is the only available and highly secure connectivity option that is ubiquitously available across the entire card payment infrastructure and terminal fleet.”

ANZ and Amex the winners in Australia’s banks’ fight with Apple over payment apps

However, South Australia’s Small Business Commissioner, John Chapman, expressed a different opinion: “In my view, this is simply a case whereby powerful banks are simply not used to having to accede to another, more powerful organisation — Apple — a global company that has the smarts and the resources to be able to simply ignore the banks’ demands.”

Mobile Wallet Users Trend Younger, Wealthier

According to eMarkerter, many internet users would like to use their mobile wallets as boarding passes, concert tickets—even ID cards.

Millennial internet users in the UK and the US are more likely to have used a mobile wallet in the past 3 months than Gen Xers or baby boomers, a June 2016 survey by Urban Airship found. Nearly 70% of internet users ages 18 to 34 had used a mobile wallet in the three months leading up to polling.

About half of Gen Xers (ages 35 to 54) said they had used a mobile wallet, while close to 30% of baby boomers and seniors (ages 55 and older) said the same.

Household income also factored in greatly to whether or not internet users had used a mobile wallet recently. For households where income was less than $60,000, usage was just under 40%. But households making $60,000 or more used it far more frequently—over 60% of users had done so in the past 3 months.

And internet users overwhelmingly use mobile wallets for two features: loyalty rewards and coupons.

Sixty percent of those surveyed had used loyalty features, and another 53% had used coupons. No other feature comes close to those figures. However, there are other features users would like to employ.

More than half (55%), for example, would like to use a boarding pass feature of a mobile wallet. About half of respondents would like to use their mobile wallet as an event ticket. Users truly want a mobile wallet: Almost 55% want to use theirs as an ID card. So while mobile wallets are right now most often used for good economic deals, many internet users in the UK and the US are looking to swap out their physical wallets altogether.

An April 2016 survey by Citi Cards, however, reported that only 21% of internet users in the US were at least somewhat likely to start using a mobile payment app, so the mobile wallet revolution may not be here just yet.

Apple rejects banks’ ploy for access to iPhone NFC capabilities

From Computerworld.

Apple says it “strongly urges” the Australian Competition and Consumer Commission (ACCC) to reject an application from three of the four major banks that would see them able to band together in order to negotiate access to the company’s digital wallet system.

Last month the Commonwealth Bank of Australia, National Australia Bank and Westpac, as well as Bendigo and Adelaide Bank, applied to the ACCC for the right to engage in collective negotiations over, and potentially boycott, third-party digital wallets including Apple Pay, Google Pay and Samsung Pay.

One bugbear of the banks outlined in their application is the refusal of Apple to open up access to the iPhone’s NFC antenna in order for third party iOS applications to be used for contactless payments.

So far ANZ is the only one of Australia’s big four banks to strike a deal to offer Apple Pay to its customers. “Apple has struggled to negotiate agreements with the Australian Banks and only recently signed an agreement with ANZ,” Apple said in a response lodged with the ACCC that was first noted by the AFR.

The other banks “based on their limited understanding of the offering… perceive Apple Pay as a competitive threat”, Apple argued.

The goal of the banks banding together “is to force Apple and other third party providers to accept their terms, allow them to charge consumers that choose to use Apple Pay, and force Apple to undermine the security of its mobile payment service by opening access to the NFC antenna, placing at risk the consumer experience of a simple, secure, and private way to make payments in store, within applications or on the web.”

Apple said it could not identify any public benefits that could arise from the banks being authorised to engage in a collective boycott.

The banks’ application to the ACCC notes: “Some issuers in other countries have expressed concern that Apple has not allowed other mobile payment apps to use the iPhone’s NFC payment functionality…”

“Providing simple access to the NFC antenna by banking applications would fundamentally diminish the high level of security Apple aims to have on our devices,” Apple argued in response.

CMA paves the way for Open Banking revolution

The final report of the UK Competition and Markets Authority’s (CMA) retail banking market investigation, published today, concludes that older and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow. This means that many people are paying more than they should and are not benefiting from new services.

To tackle these problems, the CMA is implementing a wide-reaching package of reforms. Central to the CMA’s remedies are measures to ensure that customers benefit from technological advances and that new entrants and smaller providers are able to compete more fairly. The key measures, which will benefit personal and small business customers, include:

Requiring banks to implement Open Banking by early 2018, to accelerate technological change in the UK retail banking sector. Open Banking will enable personal customers and small businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.

Requiring banks to publish trustworthy and objective information on quality of service on their websites and in branches, so that customers can see how their own bank shapes up. Whether a personal customer or small business is willing to recommend their bank to friends, family and colleagues will be a core measure but we will also be requiring banks to publish and make available through Open Banking a range of other quality measures.

Requiring banks to send out suitable periodic and event-based ‘prompts’ such as on the closure of a local branch or an increase in charges, to remind their customers to review whether they are getting the best value and switch banks if not. Unlike many other financial products such as home insurance, current accounts do not have annual renewal dates to act as natural reminders and other possible triggers like business growth are not prompting customers to review what they are getting from their bank.

Underpinning these remedies, the CMA is introducing further measures to make it easier for customers to search and switch. At the moment only 3% of personal and 4% of business customers switch to a different bank in any year. This is despite, for example, personal customers in Great Britain being able to save £92 on average per year by switching provider, with savings of around £80 a year on average available for small businesses. Larger savings are available for overdraft users – for example, personal customers who are overdrawn for one or two weeks every month could save £180 per year on average.

The CMA has also introduced specific measures to benefit unarranged overdraft users, who make up around 25% of all personal current account customers, and small businesses.

Banks make £1.2 billion a year from unarranged overdraft charges. Banks will be required to send alerts to customers going into unarranged overdraft, and inform them of a grace period, to avoid charges – research by the FCA has shown that this type of alert, when combined with mobile banking, can heavily reduce overdraft charges. Banks will also have to set a monthly cap on unarranged charges, and tell their customers about it.

The CMA found that small businesses lack tools providing comprehensive information about bank charges, service quality and credit availability. The CMA is throwing its weight behind the independent charity Nesta in a new initiative to put this right, requiring banks to provide Nesta with financial backing and technical support, alongside introducing a range of other measures targeted at small businesses such as a loan eligibility tool.

Alasdair Smith, Chair of the retail banking investigation, said:

The reforms we have announced today will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks.

We are breaking down the barriers which have made it too easy for established banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.

Our central reform is the Open Banking programme to harness the technological changes which we have seen transform other markets. We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs.

This is backed up by a wide package of measures to improve the current account switching service, to make it easier for small businesses to shop around and open new accounts or get a loan, and to see how the quality of service provided by your bank compares with other providers.

We are also taking measures to give customers much greater control over their overdraft charges, so that they are clearly told when they are about to be incurred and have an opportunity to avoid them. Alongside this, banks will have to cap their monthly charges for unarranged overdrafts.

The CMA will now focus on putting in place the remedies announced today, working with others whose role it is to make individual remedies happen, such as HM Treasury, FCA, Bacs and Nesta

Will Internet Users Start Using Mobile Payment Apps Anytime Soon?

From Emarketer.

Mobile payment apps have been around for a while, but its seems people aren’t rushing to use them anytime soon, according to April 2016 research. In fact, more than three-quarters of US internet users said they are very or somewhat unlikely to start using a mobile payment app within the next 12 months.

The likelihood of respondents using a mobile payment app soon was low, data from Citi Cards uncovered. Just 21% of internet users said they were likely to start using one in the next year.

However, separate research from Retale revealed that consumers may in fact be warming to mobile payments. Internet users surveyed in 2015 said that retailers should offer mobile payments in-store, and many were interested in using mobile payments to make an in-store purchase during the holiday season.

Furthermore, eMarketer estimates that proximity mobile payments in the US will ramp up aggressively this year. Transaction value will triple in 2016 due to a growing user base, broader merchant acceptance and the greater frequency of consumers using their phones to make point-of-sale payments on medium- and high-priced products.

Under Pressure, US Banks Vie for Instant Payment Market

From NY Times.

In this digital age when almost anything can be had in an instant, the movement of money can seem glaringly slow.

Most people paying a housekeeper or collecting money for an office pool still use cash or a check, which can take days to go through — a relative eternity that banking regulators worry is impeding commerce and economic growth.

The slowness has led many Americans to new mobile services, like PayPal’s Venmo or Square Cash, which make it possible to pay a friend instantly with just a phone.

Venmo processed nearly $4 billion in P2P payments last quarter, which represented 141% growth from the prior-year quarter. By comparison, mobile payments processed at PayPal’s core app rose 56% annually to $24 billion.

PayPal’s total processed payments — which include its website, third-party sites, retail stores, and Xoom — rose 29% on a constant-currency basis to $86 billion during the quarter. Venmo might seem small when compared to PayPal’s entire business, but it’s also its fastest-growing platform. However, Venmo is already facing lots of competition in the P2P payments space.

Now, the banks are catching up. On Monday, Wells Fargo joined JPMorgan Chase, Bank of America and US Bank in allowing customers to send money in seconds to one another’s bank accounts using just a phone number or email address. Customers of the biggest banks can now use their mobile phones, say, to send money instantly to a child in college who needs cash.

“We pay attention to what customers are asking for, and we are doing all the things we need to stay competitive,’’ said Brett Pitts, who leads digital initiatives at Wells Fargo.

The stakes are high: Banks are under broad pressure both from the Federal Reserve, which has a “faster payments committee” aimed at requiring immediate improvements, and from tech companies like PayPal and Apple, whose Apple Pay service was a bright spot in its recent earnings report.

All these companies, and Visa and MasterCard, are competing to build and control the payment network of the future.

Banks are promoting their new services as cool and convenient: One Chase advertisement shows the basketball star Stephen Curry dribbling a basketball while making an instant payment on his phone.

American bank executives fear that they could lose ground to plucky payment companies like Venmo, a popular choice among millennials who want to pay each other — and send emoji-filled messages to their friends.

The banks worry that if they do not respond with their own instant payment offerings, they will be relegated to performing less-profitable back-office functions for hip new payment companies, which make their money primarily by charging small fees to customers who pay by credit card rather than directly from a bank account.

The person-to-person payment market is valuable because it allows financial companies to gain the first point of contact with a consumer and then try to sell them other products like loans.

Analysts predict that eventually the new payments network could be extended to connect consumers with merchants, providing a potentially lucrative source of fees for banks.

“It’s like owning a toll road: You are going to get paid by everybody that uses it,” said Gareth Lodge, a payments analyst at Celent, a financial consulting firm.

Mastercard and Visa, which have a tight grip on payments made with credit and debit cards, are also trying to gain a foothold in these new networks.

Late last month, Mastercard acquired a majority stake in VocaLink, the company that operates a mobile and internet payment network in the United Kingdom and is helping to develop an even broader system in the United States. Also, Visa recently announced a broad partnership with PayPal that will make both of their offerings more instantaneous.

Instant person-to-person payment is something that people in many other countries have been able to do for years, and the absence of the service in the United States has been a marker of the relative backwardness of American banks.

The banks began developing the system being introduced this year in 2011, when Bank of America, JPMorgan and Wells Fargo created a network called clearXchange. That system has already allowed bank customers to send each other money using just an email address or cellphone number, but transactions were not instant until this year.

In addition to payments technology that the nation’s largest banks are rolling out this summer, banks that belong to an industry group called the Clearing House are developing a broader network that will allow businesses and even governments to make large instant payments.

A fast and efficient payment network also has implications for the economy. Federal officials and analysts say the current lag time between when a payment is sent and when the money is cleared to spend can hinder businesses from balancing their books and managing their supplies. The lag also puts the United States at a disadvantage compared with, say, Europe, where banks are far ahead in making payments instantaneous.

The banks now face a challenge to make their real-time technology easy enough to lure customers away from start-ups like Venmo.

With Venmo, a user can send money to anyone simply by tapping into the app and entering a phone number or email address. By contrast, customers of JPMorgan Chase, for example, must log into their Chase app using their password, then navigate through a series of somewhat clunky tabs to initiate a transaction with QuickPay. The banks also lack the social networking capabilities that have helped make Venmo a hit.

Talie Baker, a payments analyst at the Aite Group, a banking consultancy, said that even her friends who have Chase’s service often do not think it is worth using. “I can’t get anybody to accept a Chase QuickPay payment from me,” she said. “Banks are probably going to start losing market share if they don’t make their applications as easy to use as Venmo is.”

Chase and the other banks say the additional steps they ask of customers provide more security. The banks also say they are already handling significantly more personal payments than Venmo and other competitors like Square Cash.

Chase said that last year it processed about $20 billion in so-called peer-to-peer payments, while Venmo handled about $10 billion. PayPal as a whole made about $40 billion in such payments, the company said.

The banks should have a significant advantage over technology companies, given the sheer number of customers they already have, payment industry analysts say.

PayPal and the banks say the most immediate opportunity is not taking business from one another, but cannibalizing the enormous number of payments that are still made by cash and check, which represent more than three-quarters of all peer-to-peer transactions.

Bill Ready, who oversees Venmo at PayPal, said he was happy that American banks were finally catching up with the progress that has been made in most other developed countries.

“The rest of the world has already been here a long time,” he said. “To see an industry move is a great thing.”

Small Business Market Place – Proquo – Fires Up

I had the opportunity to catch up with the joint CEO’s of the SME digital market place, Proquo – Carl Spurling, from NAB and Ricky Lam from Telstra, to discuss the development of the platform and their future plans.

Proquo was formally launched a couple of months ago, following research in 2015 with SME’s from NAB’s SME Village and Telstra’s Gurrowa Labs. It uses a custom built software platform to enable SME’s to build a network of contacts and to trade with each other, for cash or in kind. Proquo say they are well on their way to acquiring their target of 2,000 customers in the first six months, from across the country.

We discussed the motivation for the launch of the business. Both NAB and Telstra have strong interest in the SME sector, and recognise the importance of getting SME’s digitally enabled. They cited research showing that 40% of SME’s were not online at all. They said they had identified a real need to provide an onramp for SME’s, and so spotted the opportunity to create the marketplace.

Now Proquo offers small business owners and accounting experts access to a range of services from other providers. Users can create briefs for the work they need, provide quotes, manage payments and publish reviews, all on the one platform. Micro and small business owners, as well as experts in the accounting industry are invited to register for free to take advantage of this tool to aid networking and help their business thrive. The services offered under the accounting umbrella include: Budgeting, Book keeping, Xero, tax and many more.

They want to focus, rightly, on getting the core platform running smoothly, and acquiring new customers. However, we discussed some of the potential extension strategies which might be considered later.

First, the data which is being captured in the system has the potential to be used for many purposes. For example, individual SME’s could be rated, just like other digital marketplaces, as part of building a network of trusted contacts. They have no firm plans to offer loans, but with the NAB connection, it is certainly an option for later.

Another angle could be the consolidation of purchases, via ecommerce, thus enabling individual businesses to gain group discounts. Again, for now, group buying is not enabled, but could be in the future.

We also discussed the thorny tax issues around offering services in kind. The ATO of course says that barter transactions will have a tax implication. So it will be important to track and manage this aspect. Whilst Proquo can generate a range of documents, they will not be offering tax advice. That said, within the network there could be Accountants who could help. We think there is an opportunity for Proquo to embed this type of tax reporting in the system.

Finally, today the platform is web based, and optimised for mobile, tablet and PC. Down the track, they may well consider a dedicated app, but only once the core functionality has been bedded down.

For now, Proquo is focussing on getting established with a high-quality portfolio of businesses. They will measure success by how successful customers on the platform will be, and how much value SME’s gain from it. Whilst it is a for-profit business in the long term, their initial focus is on building momentum and value for their customers.

We think this is an excellent example of digital innovation, and has the potential to assist many SME’s, who in the early years especially find building a network of customer’s hard work, and funding difficult. In fact, half will fail in their first five years in business. Proquo looks like a good catalyst and the SME sector should welcome the innovation it represents.

Alternative Lending 101

Kabbage is one of the most interesting platform lenders offering loans to SME’s in the US, and now Canada, Mexico and via white label platforms other countries, including Australia. Their analytic platform takes business activity data such as online sales and accounting information to facilitate fast underwriting in just a few minutes. Loans of up to $100,000 are available to businesses with a turnover of $50,000 or more.

The Kabbage platform has originated more than US$1.6 bn in loans, via Kabbage, the SME platform, Karrot, their consumer lending business and via white labeling to third party lenders. Kabbage is funded and backed by leading investors including Reverence Capital Partners, SoftBank Capital, Thomvest Ventures, Mohr Davidow Ventures, BlueRun Ventures, the UPS Strategic Enterprise Fund, ING, Santander InnoVentures, Scotiabank,and TCW/Craton.

In 2015 Kabbage announced plans to move into the Australian market with a white-label offering of its small business lending technology. The launch in Australia represents Kabbage’s first foray into the Asia-Pacific region, having already been in operation in both the U.K. and the U.S.

The service in Australia is operated by Kikka Capital, which licensed the platform and manages marketing, funding, and loan servicing. Kabbage handles underwriting and management of the loans.

Here is an interesting post where Kabbage discuss small business funding options. We have previously discussed the difficulty SME’s face in getting access to funding, and the role of fintechs have in changing the lending landscape. The latest Disruption Index measures the growth in momentum for SME lending in Australia.

Many small business owners might at some point find it difficult to get working capital or a small business loan from a traditional bank – and in that situation, it’s important to know about the various alternative loan options that are available.

According to a recent article in the Harvard Business School “Working Knowledge” blog, as of May 2014, only 13 percent of applicants for small business loans at big banks were getting approved. The SCORE organization has found that small business owners are less likely to get a bank loan if their business is young (less than 2 years in business), if they have less than perfect credit (credit score below 640) and if they are seeking a relatively small loan amount (less than $250,000). Big banks tend to prefer to issue larger loans than most small business owners need, because the banks’ costs of issuing loans are not much smaller for small loans than they are for big loans.

According to a survey published in an article in the Wall Street Journal, 19 percent of small business owners have postponed investments in their businesses because of lack of loan funding, and only 18 percent could get a bank loan – faced with a lack of funding from traditional sources, 17 percent of business owners borrowed money via credit cards, and 13 percent asked their friends and family for loans. Small business owners are starting to get more creative in looking for alternative loan options when they cannot get what they need from the traditional bank lenders.

One of the biggest new trends in helping business owners find alternative loan options is the rise of platform lending. With platform lending, borrowers can get the money they need without relying on the traditional bank system. A study from Harvard Business School found that in 2014, although the total loan volume of small business bank loans decreased by 3.1 percent, overall online lending to small businesses grew by 175 percent. This is a sure sign that platform lending is on the rise and is taking the place of traditional lenders.

With so many business owners seeking loans and finding it more difficult to get approved by traditional bank lenders, it’s no wonder that new options like platform lending are starting to fill the gap. Platform lending is an innovative new way to get loans, where people can sign up online, go through a faster, efficient approval process and get the funds they need more quickly than a typical bank loan.

If you’re looking for a small business loan and wondering how to navigate the alternative loan options such as platform lending, here are a few guidelines on how to evaluate each of your options:

Loan from Family and Friends

Borrowing from family and friends is often a first-resort loan for many small business owners. After all, the people who know and love you best are often eager to support you in your business endeavors. If you want to let your family and loved ones in on a great investment opportunity, selling equity in your business or asking for a small business loan could be one way to get the cash you need.

Advantages: Friends and family typically know you best, and they will believe in you and support your vision of success, even if a traditional bank lender cannot offer you a loan. It’s natural to want to turn to your inner circle first. And your family might be willing to give you more favorable payment terms – lower interest rate, longer time to pay off the loan, etc. – than a typical bank would.

Drawbacks: First of all, it can be hard to raise enough money just by asking your family and friends. Unless your family are a bunch of angel investors, they might not have enough money to spare to be able to fund a significant business investment. And even if you can get enough money from them, borrowing from friends and family can be risky – not only in a financial sense, but also emotionally risky. After all, what if your business idea doesn’t work out? What if you lose your family’s money? What if your business becomes a source of hurt feelings and damaged relationships with the people you love most? It’s often better to keep business and family concerns separate from each other.

Crowdfunding

Other small business owners look for alternative loan options by using crowdfunding. By setting up an online crowdfunding campaign, your business can ask your social media followers, friends and fans to contribute money to help fund your business’ next phase of growth.

Advantages: Online crowdfunding platforms like Kickstarter, GoFundMe and others give you the power to raise money to support your business, whether it’s funding for new product development or for any other specific purpose. By giving away prizes and using other participation strategies, you can motivate people to give more money – for example, by giving donors a special behind-the-scenes experience or an early-stage sample of your new product.

Drawbacks: Crowdfunding is flexible and adaptable, but that same flexibility can also make the results unpredictable: according this Kabbage article, the typical crowdfunding campaign takes about 9 weeks and raises an average of $7,000. Depending on how much time you have and how much money you need, crowdfunding might not be the best fit for your goals.

Platform Lending

With banks making it more difficult for small business owners to get loans, a variety of online services known as “platform lending” services have come onto the market. Kabbage is one of these online platform lenders where business owners can get loans more quickly and often more effectively than they could from a traditional lender.

Advantages: Platform lending is often a good option for people who have less-than-perfect credit. Also the loan amounts offered by platform lending services are often a better fit with what small business owners are seeking – for example, $40,000 to $100,000. Another advantage of platform lending is that the approval process is more flexible and relevant to small businesses than the traditional bank loan process; for example, platform lenders tend to look at a business’ online sales and social media following and other metrics to show the creditworthiness of the business that are separate from the traditional approach of looking at credit scores.

Drawbacks: Platform lending tends to charge a slightly higher interest rate than a typical bank small business loan. Make sure to do your research and understand the fine print of any platform lending agreement before you sign – just like you would if you were signing up for a new credit card or other financial product.

If your business is struggling to get approved for a bank loan, don’t get discouraged – get money! There are more alternative loan options than ever before, especially if you are able to be creative and flexible and pursue some new services like platform lending.

Fintech will boost bank earnings by 3.8% – UBS

From Fintech Business.

A UBS survey of bank management worldwide reveals fintech will help boost bank revenues by 3.8 per cent over the next three years.

The UBS Evidence Lab surveyed 61 banks to gauge the objectives, targets and expectations of management of fintech.

The study shows impact (both negative and positive) of fintech on revenues net of cost benefits is estimated at 3.8 per cent over the next three years.

However, the effect is more pronounced in emerging markets where boost to revenues is projected to be 5.1 per cent. In developed markets, the boost to revenues is only 1.3 per cent.

The UBS survey found that 38 per cent of bank management respondents currently have a partnership with a fintech company offering a service other than mobile banking.

This is expected to rise to 51 per cent in the next 12 months.

UBS said investment in fintech has boomed in recent years, with more than US$50 billion invested in the sector since 2010 – including US$22 billion of investments in 2015 alone, according to an Accenture report.

“As the so-called ‘fourth industrial revolution’ approaches, the pace of growth in fintech investments shows no signs of abating, with the emergence of new areas of fintech innovation, from blockchain and smart contracts to robotics, artificial intelligence and the internet of things,” UBS said.

“Against a backdrop of rapid change, banks cannot afford to stand still and do nothing.

“Players that are quick to embrace innovation and digitalisation, possibly via partnerships and collaboration, will be well-placed to maximise opportunities to improve revenues and efficiency while mitigating disruptive pressures.

“In contrast, banks that are slow to adapt and invest are at risk of losing their competitive strength, market positioning and ultimately their earnings power.”

Financial Sector Digital Disruption In Full Swing

The latest edition of the Disruption Index, a joint initiate between Moula and Digital Finance Analytics, shows disruption continues apace. In the latest results, focussing on small business lending, more of the market is in play, with an overall disruption score of 36.18, up 2.99%.

SME service expectations continue to rise with the continued deployment of online applications and tools, in concert with the ongoing rise in mobile, always on smart devices. There has been a significant rise in awareness of non-traditional funding alternatives this quarter, following recent publicity and government innovation statements on fintech. As a result, a slightly higher proportion of SMEs are willing to trade their data.

Business confidence amongst borrowing SMEs has risen, as a result of the announced budget tax changes, and more favourable business conditions, especially in the east coast states. This was offset by a fall in confidence in WA and SA.

While knowledge of non-bank lenders is starting to increase, we are still seeing low usage of such credit options by small businesses (at less than 10% of all businesses in the sample); with increasing awareness, and increasing focus on the fintech sector by media commentators, we expect that non-bank lending to small businesses will become mainstream in time.

SME expectation of the time it should take to access unsecured finance has continued to collapse, with the most recent observation at 6.5 days. This is reducing quickly, and highlights the small businesses sector’s increasing awareness of alternatives in the market, coupled with the expectation that lending decisions should be fast in an era of data availability.

We are witnessing a significant trend in terms of borrower’s preparedness to provide electronic access to private information, mainly in the form of bank and accounting data feeds. This trend has been evolving quarter on quarter, with the most recent quarter showing an 11% increase in loan applicants that permission data, and a doubling since the Disruption Index began a year ago.

The key interpretation here, we believe, is that consumers and small businesses have accepted that data permissioning and data transfer are:

necessary to access new financial service offerings, and
data transfer is generally accepted as being secure.

The Disruption Index is an important tool which will highlight the changing face of financial services in Australia. There is no doubt that new business models are emerging in the context of the digital transformation of the sector, and bank customers are way ahead of where many incumbents are playing. The SME sector in particular is underserviced, and it offers significant opportunity for differentiation and innovation.

Digital Finance Analytics says that in the last three months we have seen a significant shift in attitudes amongst SMEs as they become more familiar with alternative credit options and migrate to digital channels. The attraction of online application, swift assessment and credit availability for suitable businesses highlights the disruption which is underway. There is demand for new services, and supply from new and emerging players to the SME sector.