The Banking Drama

This week, the banking drama unfolds in three acts:

I.   Payments Possibilities
II.  Regulatory Ruminations
III. Lending Lessons

I. Top 10 trends in retail payments

Today's digital culture is changing payments faster than any area of financial services, reports Jim Marous in The Financial Brand. Although payment usage remains relatively stable, the means of making payments is starting to shift, according to an Accenture report covered in the article. Here are Accenture's top 10 trends:

  1. Gen Z Rising
  2. UX is the New Gold
  3. Mobile Hits its Groove
  4. Rewards Revolution
  5. The Network Effect
  6. FinTech and Bank Fusion
  7. An Arms Race in Code
  8. Payments Everywhere
  9. Fraudsters Innovate Too
10. Rip and Replace Required

Marous's conclusion is apt: "All that said, complacency is the biggest enemy being faced in the banking industry. Just because change has been slow in the past does not mean it will remain that way. And, as was found with mobile banking, when the transition of consumer preferences changes, the transition will be quick.

I wrote about the importance of UX for banks earlier in the year for Independent Banker. Alex Kreger, who leads UX Design Agency, gives his perspective in "UX Strategies for Small Banks," a FinTech Rising guest post.

Big corporate payers want more information and greater transparency. "When it comes to payments, big corporations want to see lots more payment information from their banks," writes Tom Groenfeldt, reporting on a recent conference held by cryptopayments firm Ripple. This is as true today as it was when I attended sessions of Accredited Standards Committee X12 in the 1980s.

At a recent conference, for instance, the corporate representatives were not so keen on the business case they can make for payments unless it contains rich data. Existing payments systems worldwide cannot transfer all of the information large companies want with the payments, end to end. My understanding is that the Ripple network is not currently designed to handle information in this degree. So we still have B2B checks.

II. Regulation does not have to be boring, even if banking is

Bloomberg View columnist Matt Levine gives a short, complete, and entertaining synopsis of the current regulatory drama in the United States. Yes, it's entertaining. I even read it aloud to my wife. Don't laugh.

"After the financial crisis, regulators set out to make banking more boring, and to a remarkable degree it worked. . . .The risk of a new crisis is probably lower, but it might come at the cost of reduced economic activity; the risk of banks ripping off customers is probably lower, but it might come at the cost of less access to credit. But for the purposes of entertainment it's not even a tradeoff: The beautiful stuff is entertaining, and the stupid stuff is entertaining, but the boring stuff that replaces them both isn't entertaining at all."

Where do consumers fit in all this? Federal Reserve Governor Lael Brainard, who speaks frequently on FinTech regulation for the Fed, gave her answer last week in a conference sponsored at the University of Michigan. It's a richly researched speech, and here's a brief scan of the main points:

"The new generation of fintech tools offers the potential to help consumers manage their increasingly complicated financial lives, but also poses risks that will need to be managed.

"In many ways, the new generation of fintech tools can be seen as the financial equivalent of an autopilot.

"As consumers start to rely on financial autopilots, however, it is important that they remain in the driver's seat and have a good handle on what is happening under the hood.

"In short, consumers should remain in control of the data they provide.

"In some cases, the choices may be confusing.

"If things go wrong, consumers may have limited remedies.

"Banks have a stake in ensuring that their vendors and third-party service providers act appropriately, that consumers are protected and treated fairly, and that the banks’ reputations aren’t exposed to unnecessary risk.

"Responsibility for establishing appropriate norms in the data aggregation space should be shared, with banks, data aggregators, fintech developers, consumers, and regulators all having a role.

"If we work together effectively toward this goal, the fintech stack may be able to offer enormous benefits to the consumers they aim to serve, while appropriately identifying and managing the risks."

III. The Cleveland Fed pulls its P2P lending report

The Cleveland Fed recently published a report critical of person-to-person, marketplace, and other direct-to-consumer lending models. Industry participants pointed out flaws in the report and its methodology and asked the Cleveland Fed to retract the report, which it did. Peter Renton of Lend Academy summarizes the drama and its unfortunate consequences:

"The shame of all this is that all the sensational headlines have already been written and confirmed in many people’s minds the supposed shady nature of our industry. It would have been far better for everyone if the authors of this report had done their homework and produced a thoroughly researched report in the first place.

"I am not so one-eyed that I will only believe positive studies on this industry. We need to understand consumer behavior better and every company should be able to answer definitively how and whether their products are benefiting consumers. That was what the Cleveland Fed study was trying to do but unfortunately they fell short. Maybe the revised study will provide more insight."

The climax and summary of the drama goes to Pascal Bouvier CFA, venture partner at Santander InnoVentures, in a recent LinkedIn post, published here in its entirety:

the financial services industry is easily distilled into short statements:

- incumbents (banks, insurers) that own mountains of data but lack insight, operate obsolete technologies & old biz models

- startups that own no data, lack insights, build new technologies & think new biz models (i include centralized & decentralized constructs here)

- big tech companies that own mountains of data, have insights, operate new technologies & new biz models

- regulators who have little understanding as to how incumbents, startups and big tech companies should be regulated going forward

further, unity of time, action and place being respected, this Greek drama is unfolding in real time and no one really knows the specific outcome we will inherit.

while the majority of these actors think in terms of econ. impact (old school) when they should think in terms of individual well-being. [the end]

Read the post and its comments on LinkedIn.

BLOCKCHAIN WATCH

This is the last edition of the Blockchain Watch, which I started in January 2016, as blockchain became the thing to watch in cryptofinance. It still is, but cryptocurrencies have gained so much institutional acceptance this year, I'm changing the section to Crypto Currents.

Singapore's fintech dive now delves for proof beyond concept. One of the more remarkable developments I noted last week was the attendance at the Singapore FinTech Festival: more than 25,000 attendees, according to Bloomberg. Money20/20 in the United States, by contrast, had more than 11,000.

"Of the numerous announcements made by the Monetary Authority of Singapore (MAS) during the Singapore FinTech Festival, one of the most significant is the partnership between Singapore and Hong Kong to build a blockchain-powered trade network," reports the Business Times. "MAS also plans to expand on an inter-bank payments pilot with the Bank of Canada to create a cross-border payments system between two countries that is powered by blockchain technology. The "killer app" is to go cross-border, according to MAS managing director Ravi Menon.