Four days of information and interaction, including two full days of demos from almost 80 financial technology companies—from crypto to credit solutions—can take time to process. The majority of the companies that presented and participated at FinovateFall 2018 in New York aim to help banks improve the customer experience. Personalization will continue to advance, and many see this as the key to success in the next five to 10 years. The technologies that banks and other financial institutions (FIs) currently utilize, such as Machine Learning (ML) and Artificial Intelligence (AI), are helping to advance digital interactions with human-like assistance and knowledge, automate and secure processes, and deepen engagement across channels.
Many of the fintechs are trying to eliminate friction for consumers and employees, increase security, and improve customer engagement, and it can be a daunting task to stand out when presenting among 38 others in a few hours’ time. Whether you do can depend on the attendees’ needs—if they are from an FI looking for a new security solution or if they are a venture capitalist (VC) looking for the next app that can go from B2C. The demos were interesting to gauge exactly where we are and get a taste of what is on the brink of substantial adoption.
Best in show – differentiation is difficult
A lack of differentiation is an issue for banks. It can be an issue for fintechs as well—which one(s) will be able to integrate into the banks’ systems seamlessly? The winners of best in show reflected the variety of companies included at Finovate and exemplified what resonated with the audience.
Bond.AI represented a popular technology area among presenters over the past few years. It is an example of AI getting to the next level with an “Empathy Engine.” It can give recommendations, be more conversational, and can be used across channels. It helps the bank better understand user behavior and, in turn, encourage users to improve their financial health. FinnAI and Clinc are two other examples of companies focused on conversational technology.
Banzai was unique in its focus on educating people, particularly junior high and high school students, about personal finance. According to the company, it has “industry-leading, turnkey, CRA (Community Reinvestment Act)-eligible, experience-based learning solutions that help users master personal finance.”
Two other winners, both of which stood out to me as a consumer, were Bumped and Golden. Bumped features technology that enables brands to give their customers free stock for their purchases with the goal of “turning loyal shoppers and spenders into shareholders.” Golden is a “financial caregiving” app and website that allows adult children to take care of their aging parents’ bills and finances. Golden estimates that there are 75 million baby boomers who are taking financial care of their 50 million senior parents; this is a good example of solving a real-world problem.
Finally, there was Meniga, the four-time winner that offers white-label digital banking solutions that “enable banks to build customer engagement and help customers improve their financial lives.” The demo featured the “money monster,” which helps customers save by “stealing” random amounts of money from their current account and putting it in savings.
Other standouts include Crypterium, which makes crypto as easy to spend as cash at merchants, and Open Bank Project, a company based in Europe that has an open application programming interface (API) for banks to enhance their digital offering quickly using an ecosystem of third-party applications. Billshark also received attention for its B2C bill reduction API, which enables consumers to negotiate or cancel costly subscriptions.
There was a slew of security and authentication companies as well. This is clearly top of mind for FIs. According to Onfido, which demoed a facial check with video, “identity is the new currency.” There was also Face2Pay, a literally named Russia-based company, and many authentication solutions (e.g., Arcanium Technologies, Biometric Signature ID, ID R&D, Secured Touch, and Dual Auth).
Payment innovation came from Spreedly and Sezzle, and regulatory solutions from Ocrulus. Loan and credit solutions were there in force as well and included LendIndex, Credivia, and ItsCredit. Launchfire made waves with its game-based digital education system, and Simpler Trading aims to soften the learning curve for traders. More specific issues, such as the expanding gig economy, are being talked about more, e.g., Vaultz’s SmrtSvr helps independent workers with their taxes.
Integrate and innovate
A bit of a disconnect remains between the technology being created and what banks can actually implement, but there were startups looking to fill the gap this year. Some solutions could integrate into legacy systems with APIs, helping banks solve this ongoing problem; “seamless as a selling point,” as Greg Palmer, Vice President of Finovate, put it. Fintechs are now looking at all aspects of transformation, not just customer-facing technology.
The constantly improving technologies are being applied to the FI’s pain points. Palmer talked about how most of the fintechs at Finovate have a core value proposition around four basic tenets: increasing the bottom line, eliminating a pain (e.g., compliance/regulatory), the ability to offer something new (e.g., a service from a small credit union that can now compete, a new product to pass through to customers), and those looking for funding.
Some of the fintechs that are innovating around implementation integration were eBankit and Round Pegs, a platform that helps a bank take an idea and see it through by specifying the real-world requirements—the people, metrics, and investment.
Palmer talked about “two-dollar bill fintech” solutions that are cool, but as of yet unproven on a large scale. These companies can move out of this space; the challenge is “getting over that hurdle to that massive distribution level,” he said. He noted that the smaller banks and credit unions, often with fewer resources, is where fintech can really catch on. Events like Finovate can open up fintech and innovation to these groups, and as “solutions become more mainstream, consumers will see more of the benefit.”
Murkiness in regulation
One of the topics that seemed to be more on the margins was regulation in the United States (US). There is ongoing uncertainty around how regulations are likely to change. The unpredictability may be causing some low-level fear as things could “change very suddenly and open up avenues or make existing technologies obsolete overnight,” said Palmer. Regulations have the power to dictate who will win in the marketplace.
There was some potential for clarity a few months ago when the US Office of the Comptroller of the Currency (OCC) released a report announcing that it would accept national banking charter applications from fintech companies. At the moment, most fintech companies operate under state regulations that usually vary in each jurisdiction. However, since then, the New York Department of Financial Services has filed a lawsuit against the OCC claiming that it cannot offer national bank charters to fintech companies because the OCC does not have the authority to regulate them if they are not banks. It is a federal vs. states’ rights battle, and the lawsuit could be a harbinger for fintechs that there may be a fight to get the regulatory pieces they need.
Summit day – a deep dive
The AI and Blockchain Summit Day was developed for FinovateFall to discuss whether banks’ pain points are being eased with the use of these technologies. They will be “a good use of time and resources if it brings tangible results,” said Palmer. Blockchain is currently being used in many other areas, e.g., supply chains, so increased adoption in banking is expected. As one might expect, the focused topics and demo companies for Finovate are chosen based on data. According to Palmer, the event aims to reflect the current trends out there on the stage. They use feedback from attendees, and there was “massive amounts” of interest in AI and Blockchain. Summit Day, new this year, was created for those who really want the deep dive. The focus was real-world examples of AI and Blockchain in banking. It is clear FIs see the value, but, overall, many are still in proof-of-concept or experimental stages.
The most important asset in today’s economy has changed—it is now data, according to keynote speaker Alex Tapscott, the author of Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World. AI and Blockchain can help by providing banks with cleaner data and aiding in the ongoing pursuit to “know your customer.” They have myriad other functions in banks as well, including securing identities and deepening customer engagement and personalization across channels on the front end. On the back end, they can automate processes and help in fraud prevention and detection.
Many FIs have used Blockchain through IBM’s HyperLedger technology as a fabric. There was also a use case featuring intercompany forward exchange contracts in Africa, a scalable solution where no reconciliations are required. Additionally, JP Morgan recently announced the expansion of its Interbank Information Network, the first live Blockchain service offered by the firm, which removes delays in the global payments process and is built on Quorum, a “permissioned variant of the Ethereum Blockchain.”
Up next for Palmer and the Finovate team are FinovateAsia (in Hong Kong October 29 and 30) and FinovateAfrica (in Cape Town November 27 and 28). This is the inaugural Finovate event in Africa, so it will be interesting to see how things play out there and if different themes emerge.
In Hong Kong and Southeast Asia, Palmer noted that there is a consumer willingness to engage with fintech on a daily basis. Average consumers are still going into branches here in the US. This is shifting, but in Asia, a fintech can get millions of users much quicker than in the US. The scope is enormous; with the population and those that engage with technology, there is “incredible opportunity there,” said Palmer. Banks have the same basic pain points globally, but innovations can vary depending on how the consumers adopt the technology.
At FinovateEurope, which takes place in London February 12-15, there is usually a mix of companies from the United Kingdom, European Union (EU), and countries outside the EU. Because all of the companies operate under different regulatory constraints, they may have different approaches to how they do business and solve problems. The event provides an environment where companies can share best practices and discuss their unique approaches to challenges posed by the General Data Protection Regulation (GDPR) and the second Payment Services Directive (PSD2).
Collaboration and follow-up
As a final note, the networking potential at FinovateFall was great. With a good mix of FIs, fintech startups, and investors, all with a similar focus on successful collaboration, conversations about how people can work together and next steps were happening almost constantly. Naturally, follow-up is key for all involved. What comes from these talks will almost certainly have a significant impact on what we see at next year’s event.
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