It can be difficult to pin down a birth year for fintech, but no matter how you look at it, our industry has come a long way. I was recently reminiscing and found a post published in 2003 by Finovate Founder Jim Bruene titled, The 10 Most Significant Innovations & Developments of 2003. These developments, Bruene said, “provide the best glimpse at the future of online financial services delivery.”

2003 was officially 20 years ago, which makes it a perfect benchmark. I’ve taken a look at the 10 developments and innovations that Bruene deemed “most significant” in 2003, and outlined some of fintech’s most recent updates and persistent struggles.

Phishing undermines trust (for now)

One of the original enemies to widespread adoption of online banking was phishing. In the last two weeks of December of 2003, one (now-defunct) organization had recorded 60 unique phishing attacks, sending an estimated 60 million fraudulent messages.

Those numbers don’t look so bad compared to today’s figures. The Anti-Phishing Working Group (APWG) recorded more than 14,000 phishing attacks per day in the third quarter of 2022, marking the worst quarter for phishing the organization has ever observed. However, while phishing persists, it hasn’t deterred the majority of users from adopting digital banking.

Banks move to boost security perceptions

In this section, Bruene referenced an increase in keylogging incidents, along with one bank’s efforts to circumvent keylogging attacks by adding a keypad on the screen to allow users to click the buttons to enter their PIN instead of typing on their keyboard. The bank also implemented a secondary password requirement.

While these workarounds likely mitigated some of the fraud, they simultaneously introduced more friction for end users. Today, many firms have implemented biometrics to eliminate keylogging. However, while biometrics may have gotten rid of keylogging attacks, the authentication method has not put an end to fraud.

Citibank launches interbank transfers (A2A)

Citibank added online interbank transfers in the fall of 2003, making it the first major U.S. bank to offer such a service. At the time, Citi tapped CashEdge (acquired by Fiserv in 2011 for $465 million) to power the transfers.

Today, of course, the industry doesn’t consider account-to-account transfers an innovation. Rather, the service is now considered table stakes for all banking service providers. What has changed are the rails. A handful of banks have started piloting using the blockchain to transfer funds, especially in the case of cross-border payments.

Press turns positive toward online banking and other online financial activities

Twenty years ago, the dot-com crash was still fresh in the minds of both investors and everyday consumers. According to Bruene, 2003 was a turning point as consumers began to embrace the conveniences and efficiencies of online banking.

Today, while we’re not recovering from a dot-com crash, we are still reeling from the FTX scandal that took place late last year. It is estimated that around $1 billion to $2 billion in consumer funds were lost after the digital crypto exchange failed. And while the event will not result in negative press about fintech in general, it has already soured the press and industry analysts on crypto.

Bank of America hits seven million users

As you may imagine, adoption of Bank of America’s digital banking looked vastly different in 2003. “Bank of America had as many online banking customers as all U.S. banks combined had five years ago (at year-end 1998),” said Bruene. “The bank’s 7 million active users account for 43% of its checking account base, and 22% of all households. Year-over-year growth was an impressive 50%, with 2.3 million new active users.”

Today, Bank of America serves 67 million retail and small business clients. Of those, 55 million use Bank of America’s digital banking services. In July of last year, those customers logged into their Bank of America accounts one billion times– a record number for the bank.

The decline of paper statements begins

While 2003 may have marked a decline in paper statements, it didn’t mark the beginning of the end. According to a 2017 Javelin Strategy & Research report, only 61% of checking account customers have committed to paperless statements. In the report, Javelin suggests that much of this is unintentional. “Consumers now reflexively reach for their smartphones in all aspects of their lives and banking is not an exception,” said Mark Schwanhausser, Director, Digital Banking at Javelin Strategy & Research. “The intent is not to take statements away from customers; it is to provide an alternative that convinces them that paper statements are as unnecessary and obsolete as a checkbook register.”

Banks redesign websites for Yahoo-like clarity

Of the ten developments on this list, this one is my favorite, and not only because of the use of Yahoo! as an example. Optimizing online user interfaces is a science, and by 2003, developers didn’t know as much as they do today about creating user-friendly services.

Today, the shining examples in tech have shifted from Yahoo! to the likes of Uber, Stripe, and Airbnb. And by now, most large firms’ digital experiences exhibit “Yahoo-like” clarity. Still, there will always be room for improving the user experience, especially as consumers become aware of new enabling technologies like open finance.

Real-time credit for remote deposits

In this section, Bruene applauded two FIs for offering consumers instant credit for mailed remote deposits. It baffles me to think about mailing in a paper check to deposit it. However, in a pre-smartphone era such as 2003, there weren’t many other options that didn’t require additional hardware or infrastructure.

Today, while consumers can deposit most checks via smartphone, the deposits still generally take two-to-three days to post in consumer accounts. As a bonus, most firms have discovered a way to turn remote deposits into a revenue generating opportunity by charging consumers for instant deposits into their accounts.

Identity Theft 911 provides a credible source to fight ID theft

Identity Theft 911 has a storied history. The company rebranded to CyberScout in 2017, was acquired by Sontiq in 2021, which was bought by TransUnion in late 2021. Regardless of the multiple transitions, all companies shared a similar mission. Today, TransUnion helps consumers build and grow their credit scores, offers credit alerts, fraud alerts, credit monitoring, and more.

What’s different about this industry today, however, is the number of competitors in the space. Many organizations offer free credit monitoring. Other, paid services offer monitoring and reporting from all three bureaus, identity theft insurance, and more.

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Photo by Leeloo Thefirst

If you plan on binge watching holiday movies in the next few weeks (or if you have been since October), here’s something to think about. Did you know that many of these films come with lessons for the fintech industry?

Here are some films you may want to watch over your winter break, along with some of the wisdom they hold.

Home Alone (1990)

In this movie, Kevin McCallister finds himself left at home without any adults to help him carry out daily tasks and defend himself against burglars. In the same way, many customers are conducting their banking activities from home on their own devices. The only tools they have to successfully conduct banking activities are a strong password and your bank’s user-friendly design.

Lesson: Don’t make your customers feel at home alone. Provide them with tools they need to successfully conduct everyday banking tasks from your app.

It’s a Wonderful Life (1946)

After George Bailey contemplates suicide during a time of financial instability, his guardian angel comes to show him all the ways in which he has made a difference in the lives of others. In the end, he begs his angel to give him his life back. After he does, his community rallies around him to help him regain financial stability. The current economy is impacting firms across banking and fintech differently. Every organization has a storm to weather.

Lesson: Pay attention to what’s truly important in life and maintain a focus on community, especially in the midst of economic turmoil.

Family Stone (2005)

When a woman from the big city, Meredith, accompanies Everett, her boyfriend, to his childhood home for Christmas, they both discover that they aren’t right for one another. As the story progresses, it becomes apparent that Everett and Meredith’s sister Julie are falling for each other. Keep your bank or fintech partners in mind while watching this one.

Lesson: Finding the right bank or fintech partners can be a struggle. However, it is worth conducting proper due diligence to find the right partner before committing.

The Santa Clause (1994)

Toy salesman Scott Calvin is unexpectedly forced to become Santa Clause after the original Santa Clause falls off his roof. After spending much of the movie in denial and resisting his new role as Saint Nick, Scott Calvin ultimately accepts his new role, and everyone is better off because of it. Has your organization ever had to make a similarly drastic pivot?

Lesson: When the needs of the customer evolve, so should your business. Being able to pivot to meet customer expectation not only benefits end users, it will also be good for your bottom line.

Die Hard (1988)

When New York City Policeman John McClane visits his ex-wife at a holiday party on Christmas Eve, terrorists attempt to take over the building and John realizes that he is the only one who can save everyone. Whether you can see the fraudsters or not, everyone deals with them on a daily basis.

Lesson: You are responsible for creating the first line of defense between your customers and cybercriminals.

Jingle All the Way (1996)

In this holiday movie, Howard Langston tries to impress his son by giving him the season’s hottest toy, the Turbo-Man, for Christmas. The toy is almost sold out, however, and Howard goes to great lengths to compete with another father to get the toy. Ultimately– and only after proving himself a hero– Howard gets the Turbo-Man toy to give to his son in time for Christmas. While the customer acquisition race isn’t as competitive as a war over the Turbo-Man toy, it may seem like a battle at times.

Lesson: There will always be competition between and among banks and fintechs. And just like Howard’s fight for Turbo-Man, fighting to gain customers takes sacrifices and ultimately may require your organization to prove itself a hero to the customer before winning them over.

How the Grinch Stole Christmas (1966)

The Grinch, who hates Christmas, tries to take the joy away from the townspeople of Whoville by stealing their presents and other Christmas paraphernalia. Even after he does so, however, he hears the townsfolk joyfully celebrating Christmas, despite the lack of presents, food, and decorations. In the end, the Grinch realizes that Christmas is more than presents, tinsel, and bows. Just as the Grinch discovered there is more to Christmas than the money-making aspects of it, perhaps we can all look beyond our bottom lines this season to discover how we can better serve our target market.

Lesson: Perhaps there is more to fintech than just pandering to populations that seem the most profitable. Look for ways to benefit to others, even if they may be a net-zero opportunity.

Any Hallmark Christmas special

Many Hallmark holiday movies seem to share a similar premise. A big-city girl inherits a vineyard or a bed and breakfast in a small town. During her visit to the country, she meets a charming man and falls in love with both him and the small town lifestyle. You don’t have to watch a Hallmark movie to realize that expanding your horizons can be beneficial.

Lesson: It may profitable to serve the underserved populations found in rural locations. They could have more in common with your existing target audience than you think.

National Lampoon’s Christmas Vacation (1989)

Clark Griswold tries to create the perfect Christmas for his family, but when the Christmas bonus he expected for the year fails to come through, Clark’s cousin Eddie takes the issue up with Clark’s boss. Though Clark ends up receiving his bonus after all, the movie serves as a reminder not to financially overcommit before funds are guaranteed.

Lesson: Even when times are good, don’t count on extra cash to get your company through. Watch your burn rate.

Frozen (2013)

The main characters, sisters Anna and Elsa, illustrate the ups and downs of the crypto market. After Elsa freezes the town, the damage seems permanent, and residents wonder if they will have to live in wintertime conditions forever. At the end of the film, Elsa figures out how to control her magic and returns the town to its regular climate.

Lesson: Crypto will one day exit the crypto winter and will once again level out. The key to achieving this stasis may be the arrival of regulation in the cryptocurrency space, which is already be on its way. Today, U.S. Senator Elizabeth Warren unveiled a bill to enforce against crypto money laundering.

Update: Binance has called off the agreement to buy FTX.

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If you’ve spent any time reading fintech news in the last 24 hours, you know that Binance has agreed to buy the non-U.S. unit of FTX. For those in the crypto world, this is a big deal. Why? It’s a riches-to-rags story– almost like crypto’s moment of an Enron-like collapse.

The downfall of FTX is part of a long story, which multiple outlets have already covered in great detail. Here are the highlights. FTX is considering a sale because it is reportedly facing liquidity problems. The crypto exchange’s cash flow issue is the result of the devaluation of its digital currency, FTT. The coin is currently trading at just under $3.50.

What happened?

Why has the value of FTT been destroyed? FTX minted FTT to lend to Alameda Research, a quantitative cryptocurrency trading platform founded by FTX owner Sam Bankman-Fried. Alameda Research borrowed stablecoins against FTT, and sent the stablecoins to FTX. This cycle made it appear that FTT was valuable even though it was essentially nothing more than printed money. Alameda Research has reached insolvency and FTX is now worth nearly nothing, despite the fact that investors valued FTX at $32 billion earlier this year.

FTX rival Binance stepped in earlier this week announcing a non-binding agreement to purchase the non-U.S. unit of FTX. If the deal goes through, Binance will be the largest player in the crypto space. “This elevates Zhao as the most powerful player in crypto,” Ilan Solot, co-head of digital assets at Marex Solutions told the Financial Times. “Zhao’s view of the world will matter a lot more, in terms of how he wants to interact with regulators and policymakers . . . the weight of his views will be much more powerful.”

What this means for fintech

• Crypto is down all around
  Cryptocurrencies were having a tough year already. Many outlets were referring to this year as a “crypto winter,” a time during which cryptocurrency values have been depressed when compared to prior periods. This scandal only intensifies this. According to Forbes, “the total market capitalization for crypto has slid to $860 billion in the last 24 hours.”

• Expect more regulatory scrutiny
  Cayman Islands-based Binance and Bahamas-based FTX may be beyond any meaningful regulatory scrutiny. However, this event has caught the eyes of regulators across the globe. Yesterday, in fact, Republican member of the U.S. House Financial Services Committee Patrick McHenry issued a statement imploring Congress to take action. “For years, I have advocated for Congress to develop a clear regulatory framework for the digital asset ecosystem, including trading platforms,” said McHenry. “The recent events show the necessity of Congressional action. It’s imperative that Congress establish a framework that ensures Americans have adequate protections while also allowing innovation to thrive here in the U.S. I look forward to learning more from FTX and Binance in the coming days about these events and the steps they will take to protect customers during the transition.”

• Consolidated industry
  Experts have suggested that crypto wallets will eventually be whittled down to a handful of meaningful players, just as Apple and Android serve as the two main operating systems. If Binance’s acquisition of FTX goes through, the two players will be Binance for non-U.S. wallets and Coinbase for U.S. wallets.

Overall, there are lots of lessons to be learned from this, and more will come as the story develops. Perhaps the top takeaways are the simplest ones. Be ethical. Be honest. Be humble.

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Photo by Miguel Á. Padriñán

The U.S. Consumer Financial Protection Bureau (CFPB), which is tasked to protect consumers from unfair, deceptive, or abusive practices, has had a busy month. The bureau is in the headlines once again this week, this time with an update on the organization’s stance on regulating open banking and open finance.

In an address to the audience at Money20/20, CFPB Director Rohit Chopra laid out the CFPB’s proposal of requirements to protect consumers’ financial data rights. In his keynote, Chopra detailed three aspects of the CFPB’s plan, as well as the organization’s process and timeline to get there.

Requiring financial institutions to set up secure data sharing methods

Chopra said the bureau plans to require financial institutions that offer deposit accounts, credit cards, digital wallets, prepaid cards, and other transaction accounts to set up API-based data sharing. For now, it looks as if this will be limited to organizations that offer the aforementioned financial products, but Chopra made it clear that the CFPB will add the requirement in the future to those offering products not on the list, such as investing and lending.

The purpose of the rule will be to facilitate new approaches to underwriting, payment services, personal financial management, income verification, account switching, and comparison shopping. The requirement will also serve as a “jumping-off point” for a standardized approach to infrastructure allowing consumer-permissioned data sharing.

Screen-scraping is still a common practice in the U.S. and doesn’t offer customers input into which organizations use their data and how they use it. An API-first approach, like the one Chopra is suggesting, would put an end to screen scraping in financial services.

Stopping institutions from improperly restricting consumers’ access to control over their own data

The CFPB said it is looking at “a number of ways” to stop large traditional financial institutions from restricting consumers’ access to their own data. The group wants to ensure that when consumers opt to share their data, it is only used for the purpose the consumer intends.

This rule intends to target not only financial institutions themselves, which may use consumer data for marketing purposes, but also seeks to target those who use consumer data for nefarious purposes.

“While Americans are becoming numb to routine data breaches, including massive ones like the Equifax failure, we know that more needs to be done to stop this underworld from intercepting even more highly sensitive personal data,” said Chopra.

Chopra did not list specifics on how he planned to give consumers meaningful control while limiting bad actors, but he said that when a consumer gives organizations consent to use their data, the firm should not be able to exploit that data for other purposes.

Preventing excessive control or monopolization of the market

The new set of requirements will seek to limit monopolies and oligopolies present in credit reporting, card networks, core processors, and others by creating a decentralized, open system. “It’s critical that no one ‘owns’ critical infrastructure,” Chopra said.

Chopra cited Big Tech firms and incumbents as those who may set standards to rig the system in their own favor, jeopardizing an open ecosystem.

Next steps

Before these rules come into effect, the CFPB must gather a group of small firms representative of the market to provide input on our proposals. The CFPB is moving fast on this and plans to release a discussion guide for small organizations to make their voices heard this week.

After the CFPB culls input from this group, the organization will solicit input from what it is calling “fourth parties,” or intermediaries that facilitate data transfers.

Once this process is complete, the CFPB will publish a report on the input, which it will use to guide in the process of crafting a rule. The CFPB plans to publish its findings in a report in the first quarter of 2023, will issue the rule in late 2023, and will finalize the rule in 2024. The timing of the implementation relies on feedback from the small firms and intermediaries.

In other news

The news comes at an interesting time for the CFPB. The Fifth Circuit Court of Appeals ruled last week that the organization’s funding structure is unconstitutional. A panel of judges determined that the way the bureau is funded, “violates the Constitution’s structural separation of powers.”

“This isn’t an esoteric point of theory; it means the CFPB cannot do anything unless and until Congress appropriates funding for it,” said Former Deputy Assistant Attorney General James Burnham. “That’s a big deal.”

The CFPB is expected to appeal to the Fifth Circuit and then to the Supreme Court. In the meantime, however, the CFPB’s power in the Fifth Circuit region, which includes Texas, Louisiana, and Mississippi, is limited.

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Photo by Polina Kovaleva

Traditionally, we’ve talked about Amazon, Google, Apple, and Meta (formerly known as Facebook) as big tech companies with the potential to rise up as competitors in the banking and fintech space. However, there is one giant that is worth adding to this list– Walmart.

Walmart is not a fintech company, or even a tech company, it’s a retail firm. Or at least that’s what it was when Sam Walton founded it in 1962. But what does Walmart’s future look like? The company has made it clear that it will not only begin offering financial services, but will also evolve into a super app. On examining the company’s ambitions, it appears that Walmart may have what it takes to ascend as a competitor in the fintech space.

Below are five aspects of Walmart to consider when evaluating it as a potential competitor.

User base

As one of the most recognizable brands across the globe, Walmart comes with a large, built-in user base. The company sees 265 million customers worldwide each week, and many of those shoppers seek out Walmart as their primary retailer. Walmart+, the company’s $99 annual subscription service, counts 32 million members.

Once Walmart begins its formal foray into financial services in earnest, it will certainly not count all 32 million members as users right away. However, having a built-in, captive audience will help jump-start its user base and will lower customer acquisition costs.

In-app rewards

In both retail and financial services sectors, rewards create stickiness. As one of the oldest retail companies, Walmart has figured this out. Leveraging a partnership with Ibotta Performance Network, Walmart recently launched Walmart Rewards, a way for Walmart+ members to earn additional savings toward their future purchases at Walmart.

Checking account

Earlier this month, Bloomberg unveiled that Walmart plans to launch a digital bank account to serve its shoppers and 1.6 million employees. While no specific details have been released, it is clear that the digital bank will stem from One, which Walmart acquired in early 2022. One is a neobank that offers a debit card and boasts non-traditional products and services such as earned wage access, fee-free overdraft protection, and digital wallet integration.

Currently, One relies on Coastal Community Bank to provide banking services. It is not clear whether Walmart will continue to use that model, or if it will seek its own banking license. Walmart initially pursued a banking license in 2005. After two years, the company withdrew its application after receiving opposition from bankers and other credit institutions. Given hurdles involved in earning a banking license, my guess is that Walmart will rely on its relationship with a traditional bank like Coastal Community Bank.

For more clues into Walmart’s banking ambitions, I checked out job advertisements on LinkedIn. Walmart is currently hiring for a range of positions within its financial services arm. “We are starting some exciting ventures as we expand our financial services in various ways to engage and provide capabilities to our customers,” one of the job descriptions states.

Physical presence

Walmart has 11,501 physical retail stores across the globe. The largest U.S. bank, JP Morgan Chase, has fewer than half that number at around 5,080 physical bank branches. And for customers who are not into doing business IRL, Walmart has them covered, as well. The company just launched Walmart Land, a new immersive experience in Roblox.

If Walmart truly wants to become a large competitor in the financial services world, it already has more than enough physical infrastructure to do so.

Part of why this matters isn’t the sheer number of physical locations or square footage. Having these physical stores will impact who Walmart is able to serve, just as much as it will impact how many people it is able to serve. That’s because Walmart stores are typically located in rural and suburban areas– in other words, Walmart stores are close to non-urban customers who may not rely on their mobile devices as much as city dwellers, and therefore may not be comfortable maintaining an account at a digital-only bank. No smartphone? No problem, just drive down to Walmart and open up an account.

Super app

The term “super app” is used quite lightly in the fintech sector these days. However, Walmart is one of the few firms in the U.S. with the potential to evolve into a true super app. In a piece published earlier this year, Chief Research Officer at Cornerstone Advisors Ron Shevlin summarized Walmart’s potential as a super app. “Walmart’s DNA is efficiency and cost control—and that’s the ultimate promise of a super app for the supercenter,” said Shevlin.

Currently, the company’s app offers Walmart+ subscribers online grocery and retail shopping with free shipping; access to Scan & Go, a tool that enables shoppers to scan barcodes as they shop, pay with their phone using their card on file, and scan a QR code at the cash register before they exit the store. Subscribers also benefit from discounts of up to 10 cents off per gallon of fuel at 14,000 gas stations; and free access to stream movies and shows at Paramount+.

As it stands, Walmart’s app with the above services does not constitute a super app. In a blog post last year, I detailed a list of ten elements required for a super app. Here is what Walmart has and where it needs improvement:

• Ecommerce: currently offers
• Health services: currently offers vaccination services and provides medical care at locations in four U.S. states.
• Food delivery: currently offers grocery delivery, but not prepared food delivery
• Transportation services: currently offers fuel discounts and in-app fuel payments
• Personal finance: does not offer, but is actively working on plans to do so
• Travel services: does not offer
• Billpay: does not offer
• Insurance: does not offer
• Government and public services: does not offer
• Social: does not offer

Using that summary, Walmart receives a score of 4.5 out of ten on the super app scale, and it will likely progress in the next few years. Walmart has made it clear that it plans to create a super app. As Omer Ismail, CEO of Walmart’s One, told the Wall Street Journal, the company’s strategy “is to build a financial services super app, a single place for consumers to manage their money.”

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Photo by Marques Thomas on Unsplash