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Finovate Blog
Tracking fintech, banking & financial services innovations since 1994
If there were a Challenger Bank Hall of Fame, then rest assured that Anne Boden, who founded U.K.-based Starling Bank in 2014 and is the challenger bank’s CEO, would be prominently featured therein. As we learned in our conversation with Ms. Boden, her inspiration for founding the U.K.’s first digital bank was driven by both the opportunities presented by new technologies as well as a banking industry that was still significantly shell-shocked from the Great Financial Crisis of 2007 and 2008.
Headquartered in London, Starling Bank now has more than three million accounts and four different account types. Voted Britain’s “Best Current Account” five years in a row, Starling Bank maintains offices in Cardiff and Southampton, as well as London, and still has zero brick-and-mortar branches. Starling Bank secured its banking license from the Bank of England in 2016, launched its first mobile personal current account in 2017, and introduced the country’s first digital business bank account in 2018.
On the decision to launch a fully-digital challenger bank
(T)he banking sector, back in 2014, was still looking backwards. They were still looking at the financial crisis, trying to repair their balance sheets, trying to repair their financials, and they weren’t really looking forward about what they could do to improve customer experience or customer satisfaction. I went around the world, talking to big banks and talking to technology companies and asking what they were doing. I came to the decision in 2014: wouldn’t it be great to start a new bank? Wouldn’t it be great to have a new bank with all new technology, a different way of engaging with customers, being fair to customers? And here we are in 2022 and things have gone from strength to strength.
On the challenge and opportunity of digital transformation in financial services
Organizations have become far more fixated on minimizing the risk of change. “Let’s do small projects around the core. Let’s not change the core. Let’s make big decisions at the senior level. Don’t empower people.” But in order for big banks to be more successful and compete with the new startups such as Starling, they have to have new technology, but above all a culture of being prepared to change. I am trying to empower people – the CTOs, the CIOs – to knock on the door of the CEO and say: “We can be better. We can embark upon technology projects. And we can compete with the new guys.”
On the present and future of Starling Bank
In the U.K. we’re very, very successful. We’ve built a whole new technology stack. We have a new banking license, three million customers, (and) we have something like eight percent of market share in business banking. That is huge. We’ve done in three years what some banks have done in 300. But that’s because we have this remarkable technology stack which we call Engine, and we have lots of banks around the world asking us if they can use Engine. We don’t plan to get a banking license in the States, but banks in the States will be able to use our Engine technology. So we’re going to be software-as-a-service, based on Engine, so lots of businesses around the world can have a bit of the Starling magic.
The world of banking is ever-evolving, and NCR has been part of this evolution since it was founded in 1881.
To get some insight from a firm that has had a front-row seat to industry changes– and to get a glimpse of what’s next– we spoke with NCR Chief Product Officer Erica Pilon. She has spent more than 20 years in the fintech industry, having also spent time at FIS managing three unique digital banking platforms.
What products and technology are resonating with NCR’s 600+ institution clients?
Erica Pilon: Our clients are really responding to data enhancements, crypto, and self-service support. Consumers today expect all interactions to be hyper-personalized, which is impossible without real-time, reliable data. At NCR we are helping financial institutions personalize banking experiences for customers at scale through enriched data and analytics. For example, we recently announced that Allegacy Federal Credit Union has partnered with us and Google Cloud for our data warehousing and analytics solution to make data actionable, unlock predictive insights, and drive innovation and financial health.
Another service resonating with our clients is the ability to offer buy/sell/hold of bitcoin within digital banking as it drives opportunities to build relationships, increase data insights, and generate revenue. Our clients have also shown increased interest in and excitement around enhanced self-service offerings, such as the Kasisto intelligent digital assistant, which provides human-like digital customer support.
What trends are making the largest impact in fintech in the coming year?
Pilon: Community financial institutions no longer only compete with the institution down the block but also with nontraditional threats like neobanks, big techs, and fintech providers. There is a new sense of urgency for financial institutions to provide modern, convenient experiences with robust, innovative products and services to retain customer loyalty, trust, and market share.
Open banking is a massive trend that is transforming the fintech space; it’s creating an opportunity for banking as a service and giving smaller fintech players the ability to try and steal market share from traditional institutions. To compete, banks and credit unions must work with partners that will help them stay open while continuing to leverage the significant trust advantage they have with customers and members. This is another reason why personalizing the experience within digital channels is so important; it helps community financial institutions retain their differentiator and compete with emerging threats.
How is NCR preparing itself for web3?
Pilon: We recently acquired LibertyX, a leading cryptocurrency software provider, which lays the groundwork for us to deliver a complete digital currency solution to our customers. This includes the ability to buy and sell cryptocurrency, conduct cross-border remittance, and accept digital currency payments across digital and physical channels.
NCR remains committed to delivering the agile software platform and services necessary for institutions to power flexible, efficient, and modern banking experiences across all customer touchpoints. Our platform is designed to help our clients quickly innovate and deliver new offerings to keep pace with emerging preferences and trends.
Howhas the recent consumer-first narrative changed how NCR develops its banking products?
Pilon: NCR continues to prioritize consumer-first, mobile-first experiences in our technology solutions. Now, in a world with so much optionality, banks and credit unions must be able to offer a wide range of choices for how consumers can conduct their banking. This means robust self-service capabilities with strong support options like video chat, as well as sophisticated physical footprints.
The consumer-first narrative is another reason NCR is so focused on data; banking interactions today must be personalized, or customers will quickly go elsewhere. This doesn’t just mean knowing basic details like names and birthdays, it also means being able to provide meaningful advice and guidance related to things like financial health and wellness.
How has NCR evolved to serve bank clients in today’s digital-first era?
Pilon: We firmly believe that digital-first doesn’t mean digital-only, but rather digital everywhere. This is where NCR is uniquely differentiated in the market; we have the ability to offer sophisticated digital solutions for both physical and digital touchpoints, enhancing the customer experience and increasing efficiencies. For example, we can facilitate the ordering ahead of cash or coin for small businesses or starting an account opening process online and then finishing it in the branch. NCR bridges the gap between physical and digital touchpoints.
The pandemic only emphasized what NCR and our clients have known all along: the future is digital, and it’s time to adapt. NCR remains dedicated to providing the flexible, innovative, and efficient technology needed to power excellent banking experiences and strengthen credit unions and community banks’ competitive positions.
In a digital world, there’s no way around digital identity. The topic touches all corners of fintech and ecommerce, and while it can create a stumbling block, leveraging consumer identity data can also hold great opportunity.
We recently spoke with Experian’s Kathleen Peters for her thoughts on digital identity and how financial services companies can use consumer data to their advantage.
Peters started her career as an engineer at Motorola and later moved into voice and messaging encryption technology. Eventually, she began working in Experian’s global fraud and identity business and now serves as the company’s Chief Innovation Officer.
The fintech industry has always struggled with digital identity. Why is digital identity so difficult to get right?
Kathleen Peters: A consumer’s identity is personal; every interaction and transaction requires their identity. Consumers expect a seamless and frictionless experience, but also rely on organizations to protect their information. The balance is crucial and challenging.
As an industry, fintech is known for creating compelling and personalized online journeys. But that experience can suffer if the fraud-prevention routines are perceived as burdensome by consumers.
Every year, Experian conducts a survey of consumers and business leaders, asking them about sentiments, trends, and other matters around fraud and identity. Year after year, the number-one consumer concern is online security. When transacting online, people want to know that their information is safe and secure. In striking a balance with consumers to instill trust, industry players need to show some sign of security that reinforces privacy.
Putting this balance into practice, if a consumer or business is performing a large online transaction, they want to see added layers of identity verification. Conversely, if they are performing a simple online purchase, industry players should not over-index with heavy-duty identity resolution (e.g., facial recognition, passcode) on low-risk, low-dollar transactions. In short, we need the right fraud‑prevention treatment for the right transaction; it is not a one-size-fits-all exercise.
It is important to know a customer’s identity for compliance reasons, but are there business use cases for this as well?
Peters: When it comes to KYC (Know Your Customer) compliance, you want to verify that you are dealing with a real person (not a made-up entity) and ensure that you are not dealing with criminals or people on watch lists. This is a basic compliance check and mitigates the risk presented by increasingly resourceful “bad actors” who have become very sophisticated in how they find and exploit vulnerabilities.
For commercial entities, especially small businesses, you want to know that they are a real business. You want to know that the principals involved in the business (the owners, board members) are not criminals or people on watch lists, or that the company itself is not somehow engaged in things that you do not want to deal with. In this sense, KYC applies to consumers and businesses alike in terms of a compliance check. There is a different level of compliance for consumers versus businesses, but the KYC concepts remain similar.
With KYC, businesses can check the box that indicates that “I am compliant.” That does not necessarily grow a bank, fintech, or online merchant’s topline revenues. Compliance is certainly a core element of identity, but so is identifying a potentially fraudulent transaction. For example, recognizing synthetic identity scams can prevent an organization from losing hundreds, if not thousands, of dollars in fraud losses.
When the concept of personalization was introduced in fintech, there was a lot of discussion of privacy concerns and fears that consumers would perceive banks’ efforts as “creepy.” Does this still exist today?
Peters: Our annual Global Identity and Fraud Report shows that people hold banks in high regard. They possess an especially strong degree of trust from consumers. Yet, unknown fintechs that may reach consumers through a banner ad or other similar means may not yet possess that same amount of trust. Building trust with consumers is critical, especially for fintechs, and it starts with transparency and reinforcing the value exchange.
What is the best way for banks and fintechs to build trust among their consumers?
Peters: Banks and fintechs need a layered approach to identity resolution that accommodates the balance between fraud detection and the online experience to build consumer trust early in their relationship. Establishing that trust should be a top priority and involves having visible means of security, being transparent about why you are collecting certain types of data, and delivering value for that data exchange (e.g., personalized offers, speed). And that value needs to be immediate and a tangible benefit, not a down-the-road promotion or assurance.
According to our Global Identity and Fraud Report, consumers are willing to give more data if they trust the entity and feel as though they are receiving value.
Once the value exchange is established, those feelings of trust and recognition lead to increased brand loyalty, a holy grail for banks and fintechs.
Given this, what are ways banks and fintechs can leverage consumer data combined with an increase in their trust to better connect with consumers?
Peters: Building relationships with consumers comes down to recognizing them, protecting their information and offering a personalized experience. Consumers want to feel confident that their online accounts are secure, and that they don’t need to jump through hoops to access the resources they need.
It comes down to identifying and understanding consumers and their needs. The best way to do that is with a lot of data. It serves as a vast resource to look at the multitude of behaviors historically and predict the next likely behaviors and intent. Predictive modeling like this can be hard to do, especially if you do not have a lot of historical data. However, with aggregated data, scores, and solutions from a provider like Experian, it can be a very powerful way to drive engagement.
For instance, if a consumer is in-market for a new credit card, banks and fintechs may want to engage their consumers with a personalized offer or increase dollar-value transactions—both ways to build trust.
Innovation and regulation are the ying and yang of financial technology in many respects. To this end, we caught up with Justin Beals, co-founder and CEO of Strike Graph, to talk about the relationship between fintech innovation and fintech regulation, and why compliance is something that successful fintechs are taking seriously.
Founded in 2020 and headquartered in Seattle, Washington, Strike Graph specializes in helping companies secure critical security compliance certifications. These are the certifications that can both impact revenue and reduce the time to close, as well as demonstrate the maturity of an organization.
Why banks and financial services companies need a compliance partner.
The challenge (for banks) is that the standards that you’re trying to meet can be complex. It’s important to not only have technology, but (also) a provider of that technology with intelligence about how to meet the standard so that you don’t essentially spin your wheels trying to do things that don’t necessarily make you more secure and don’t necessarily impact compliance.
So when revenue is on the line – and that’s what the challenge is here – being unable to represent a security posture that meets certain standards (means) you might not get that partnership, you might not get that contract … You really need to do it efficiently and effectively and be able to maintain it for a long period of time.
On the role an effective compliance partner can play to help financial services companies
I think one of the secrets about compliance practices is that if there’s some aspect of your business that isn’t applicable to the standard, you’re actually not required to be assessed to it. And so what’s really important is to customize your security posture according to the types of risk that your business is meeting in the marketplace, and then respond to those risks. Then, (you are) able to talk to the assessor and say, “hey, look, you know we don’t necessarily have this particular risk. It’s not something we solve for and therefore it’s not something we need to be assessed for.” That way you get through the compliance process as efficiently as possible.
On Strike Graph’s approach to helping financial services companies meet compliance obligations
The secret sauce at Strike Graph is that we have a very intelligent SaaS platform that helps our customers customize that particular security posture based upon the risks that are impacting their business.
This is impacting any B2B company that’s sharing data. And that’s really how we describe our marketplace. And, of course, fintech handles some of the most precious transactions and pieces of data, and they have a long history of things like PCI DSS where compliance is really important. So they really do understand the value of having a good compliance practice.
The fintech industry talks a lot about bank-fintech and fintech-bank relationships. Everyone in this industry will proudly declare how essential these partnerships are for everyone in the value chain. However, the recent introduction of crypto and decentralized finance (DeFi) is complicating things. How can a traditional financial (TradFi*) institution like a bank align itself with a DeFi startup or get involved in crypto?
For insight, we spoke with Sila CEO and Founder Shamir Karkal. Karkal co-founded Simple, one of the first digital banks, in 2009 and sold the company to BBVA in 2017. The following year, Karkal founded Sila, a company that offers banking, digital wallet, and ACH payments APIs to help companies integrate with the U.S. banking system and blockchain quickly, securely, and in compliance.
In our conversation, Karkal highlights the intersection between TradFi and DeFi and examines ways the two can work together while still regarding necessary compliance measures.
What are some ways you are currently seeing crypto businesses and TradFi organizations interacting?
Shamir Karkal: Unquestionably, crypto is becoming part of life. It is becoming part of everyday finance. We had a massive crypto boom in 2021 and now we are experiencing a crypto bust. But public markets and fintechs have performed equally as bad – or worse – than crypto. Over the last few years, traditional finance has been waking up to the crypto space. They take it seriously now.
During mid-to-late 2020, most TradFi organizations thought of crypto as a passing fad, a new dotcom boom. Today, there is no more dismissal of it. The top levels of large banks understand that crypto is here to stay – that it is an important part of the future of finance. Clearly, how this future will look in detail is still to be seen. Some TradFi organizations have embraced crypto whole-heartedly, such as Cross River bank and Silvergate bank, but there are also others still on the fence.
Crypto has scaled dramatically in 2021, which – ironically, some might say – has made crypto businesses appreciate traditional finance a lot more. They are not fans, not by a long shot. But, for example, they understand that compliance is not optional, and that one needs to comply with the law in one’s jurisdiction. As crypto businesses matured, reality has set in partially because when you‘re big, ignoring the law is not an option. In fact, crypto businesses often have a better understanding of regulations than fintechs. Because most answers are subject to change in the world of crypto, participants need to understand and follow very closely how things evolve.
Some of the largest TradFi organizations such as JPMorgan went as far as launching their own stablecoin (JPMcoin). All are going to have similar projects. In my view, big banks have no ability to compete head-to-head with anybody in the crypto space. However, they are perfectly positioned to provide services to the winners in the crypto space– to the big exchanges, the big processors. All of those firms need all the services that traditional finance provides. Providing financial services to crypto winners is where the money is to be made. The foundation of the future of finance is still the financial services that today are supporting any other businesses.
What types of partnerships do you expect to see in the future?
Karkal: To partner is in the interest of both crypto and traditional financial institutions. Crypto businesses are using traditional finance to broaden and speed up adoption of crypto services. True, a lot of people want to get into crypto. Still, everyone who does today has money in a bank account or a debit card. Even if your business is all about crypto, you need to create the bridge to allow people to move money from here to there.
When it comes to regulation, what do banks need to look for when partnering with crypto startups?
Karkal: In technology or crypto, it is often said that you need to look for teams who move fast and break things. That is not true in banking. Banks need to look for projects that have good teams, are well funded, and where teams have an understanding of the compliance issues they will face. Because you can only develop a plan to deal with problems after they are recognized. One key question to ask is, “Do you have an opinion from an experienced lawyer?”
My advice is to look for real teams with real people that are serious about a long-term relationship. Beware! There are plenty of scams out there. Don’t support people who are only interested in making a quick buck, or the next ponzi coin (a real thing).
Crypto is also fraught with fraud. There are many, many different types of fraud: fraudulent businesses, payments fraud, ACH fraud, etc. Banks have been combatting these issues longer than crypto businesses. They stand to know more about them and can help. The key is to identify crypto businesses that built out the necessary capabilities, and that get advice from the good lawyers in the space. That’s a good litmus test.
How can banks position themselves as good partners for crypto companies?
Karkal: The key is to figure out which products and services the bank is willing to offer. That sounds basic, but a bank has to ask itself if it is willing to service a crypto company. Is it ready to be their corporate bank? To do payment processing? To be a custodian for their funds, or their customers’ funds? After figuring out what a bank is willing to do, the second step is to go do it with some startups. Some banks act as if they want to partner with crypto businesses, but then their compliance processes are so onerous, it just won’t work. They end up standing in their own way. My advice is: if you’re serious, go do it with a couple of crypto companies first before making a big marketing push. If you’re successful, word will spread through Discord or Telegram channels. And, suddenly, you’ll find other projects and companies that will be coming to you.
Here is the rap. The question is really, “Can you get to the point of opening an account?” Remember: crypto businesses do not have the profile of traditional customers. It might come as a Delaware subsidiary of a company registered in the Cayman Islands with senior people sitting all over the world. As a highly regulated bank, what is your process for this setup? You need to figure out your compliance piece to make such a setup work.
I know of crypto businesses that are public companies abroad, are serious players, and yet have trouble opening corporate bank accounts in the U.S. As a bank, you need to understand that there is one thing crypto businesses don’t have: patience. They won’t wait 12 months while a bank’s internal committee rejects their application for the 13th time because they have a subsidiary in the British Virgin Islands that’s on a black list somewhere. You as a bank need to figure out this and related processes first, before your sales people are soliciting crypto businesses.
*TradFi refers to traditional financial institutions as well as fintechs.
There have been plenty of discussions surrounding fintech valuations this year. Rumors of a bubble have plagued fintech for a few years, and high valuations combined with seemingly endless funding rounds have analysts raising their eyebrows.
We spoke with CMFG Director of Discovery Fund Elizabeth McCluskey to get her take on fintech investment, M&A activity, and industry trends.
How is this year trending so far when it comes to investing? What are the funding numbers and volume as compared to years past?
Elizabeth McCluskey: Fintech startups raised $28.8 billion in funding during Q1 2022. Despite being down 18% from the previous quarter, this marked the fourth-largest funding quarter on record. And this represents a large share of all venture capital activity; fintech startups raised 1 out of every 5 VC dollars in Q1, indicating that the sector is still immensely popular for investors. CMFG Ventures is no exception—we’re on pace for our busiest and biggest year to-date since the inception of our funds. Transactions have been strong across all stages of companies.
Our two funds serve distinct purposes but share the same goal of fostering innovation between financial institutions and fintechs. Our main fund supports Series A companies and beyond, investing in fintechs focused on lending, banking technology, financial wellness, challenger banks, and insurtech. It has supported and validated nearly 50 fintechs. In 2021, we launched the Discovery Fund to support underrepresented entrepreneurs, who are building solutions for financial inclusion. It has funded 12 early- stage companies led by BIPOC, LGBTQ+, and women founders.
Some have talked of a funding slowdown. Do you expect 2022 to finish with lower funding totals than last year? Or will it build on the momentum?
McCluskey: Fintech continues to be a space for disruption and growth, presenting the industry with many opportunities to fund new solutions. The biggest fintech IPO of 2021 was Coinbase, which today has a market cap around $16bn. That seems like a large number, but it’s less than 5% of the market cap of the largest bank in the U.S., JP Morgan. Clearly, there is valuable market share still to be gained by fintechs. By capitalizing relevant and scalable companies, VCs can give fintechs the agility they need to compete in an increasingly active space.
2022 will build on several years of momentum – regardless of whether the final funding numbers are higher or lower than 2021. There is still a lot to do to keep pace with the rapid digitization of finance. Consumers expect Amazon-like speeds of interactions and a hyper-personalized, predictive experience. And businesses want their trusted financial institutions to deliver quick, frictionless decisions and client service. Financial services technology is primed for a future of tremendous growth for years to come.
Are we currently experiencing a fintech bubble? Do you think fintechs are overvalued?
McCluskey: It’s easy to get caught up in bubble talk, and there are certainly some frothy valuations in the private market in particular. However, there are many underlying opportunities for disruption and innovation, which leads me to believe the industry isn’t experiencing a bubble. What I do think we are seeing is fintech startups maturing to the point where they are being treated more like their “established” peers, and that is a good thing. While private markets may value potential in the form of user growth or even revenue generation, the public market wants to see profits.
Fintech companies that went public in 2021 have performed quite poorly vs the S&P, despite displaying strong revenue growth that in many cases exceeded expectations. The reason for this has been big misses on their earnings per share (EPS) results. For example, Robinhood’s user growth has been over 50% in the last year, and revenue nearly doubled. Yet they are down over 75% from their IPO price after disappointing from an earnings perspective. I don’t think we’ve seen a correction to the same extent in private markets yet, because companies are typically only resetting their price 1-2x per year when they raise a new round. So I expect private valuations to be a bit more tempered going forward.
What trends are you looking to invest in this year? Are there any specific trends you’re following?
McCluskey: As the Director of the Discovery Fund, I’m interested in fintechs focused on financial inclusion, specifically how we can make financial services more affordable and accessible to everyday Americans. This need only will grow in importance as people adjust to rising interest rates. Millennials and Gen Z have never experienced a sustained rising rate environment. Savers will be able to earn more, but borrowers will be impacted by higher rates for auto loans, mortgages, and personal loans. Our investments in portfolio companies like Climb, Line, and Zirtue will help them manage these uncharted waters.
I’m also interested in non-crypto applications of blockchain and distributed ledger tech, particularly in the mortgage industry. Use of these technologies has the potential to revolutionize the process of homebuying, as well as the secondary market for mortgages. A portfolio company of ours, Home Lending Pal, is working with IBM to make this process more seamless for both first time buyers and the financial institutions lending to them.
And lastly, I’m on the lookout for fintech solutions focused on the Latinx consumer. The GDP of this segment is growing 57% faster than the U.S.’s, according to a 2021 LDC U.S. Latino GDP report. Despite its size, the demographic continues to be an underserved market. Companies like Listo are building solutions to provide credit to Latinx consumers who are credit invisible yet display strong creditworthiness.
2021 was a record-making year for exits. Will we see increased M&A and IPO activity this year or are you expecting things to slow down?
McCluskey: M&A and IPO activity skyrocketed in 2021, yet the landscape may look a little different this year. Interest rates will play a factor in M&A, as borrowing money to fund acquisitions is expected to become more expensive. That said, if economic growth slows, then acquisitions are one way to bolster profits and growth.
Given the expected volatility in the public markets, I believe many companies will continue to raise VC dollars rather than following the IPO route, even if private market valuations take a hit. And we will continue to see the emergence of platforms for secondary transactions of private companies, which will enable employees to get liquidity even without an IPO.
In a world full of inequalities, it is no surprise to see an imbalance when it comes to finances, and investing in particular.
For more insight into this industry conundrum, we spoke with Rukayyat Kolawole, CFA. Kolawole is familiar with inequities in the financial world, given her role as Founder and CEO of PaceUP Invest, a new platform launching on May 15th that offers e-learning, financial coaching, investment strategy, and execution for women and underrepresented groups.
Our conversation below highlights not only tips on bridging the knowledge gap, but also on building diversity and her view on the future of the retail investing industry.
When it comes to retail investing, there is a significant knowledge gap. What are some practical ways the fintech industry can bridge this gap and ultimately increase the number of investors?
Rukayyat Kolawole: The fintech industry can bridge this gap by incorporating financial literacy into its solution. The main reason people, especially women and those from underrepresented communities, do not invest is because of the lack of knowledge and being underserved by the finance industry. Many robo-advisors stop the process if the client indicates they are a novice to investing. Even though they include information and definitions of financial terms on their platform, this is not provided with the aim of increasing financial literacy overall, irrespective of the product they sell.
This represents a missed opportunity by the current robo-advisors to provide learning products and improve financial knowledge. At PaceUP Invest, we provide a hybrid, jargon-free financial literacy and investment platform to bridge the gap, and we have seen the impact on different communities. Incorporating behavioral science is also key to helping educate and increase the participation of potential retail investors.
How does the industry stand to benefit when the number and diversity of investors increases?
Kolawole: The industry will benefit immensely from a retail investor’s perspective because we will start to see a lot of gaps. For example, we’ll see a pension gap, retirement gap, and racial wealth gap gradually narrowing. Policies are still needed to ensure all these gaps are narrowed. Underrepresented communities and minorities will be greatly impacted by making a financial decision that will increase not only the number but also the average financial assets that they will hold. The economic benefit for society would be even larger.
When we look at capital allocators, it is still very much the old boys’ club of white and male. Very little is going towards women and people of color. The only way that people can get funding to solve real problems affecting their communities is if more women and people of color are writing the cheques. Otherwise, it’s going to be the same boys’ club.
How has the state of retail investing and retirement planning changed from how it was just five years ago?
Kolawole: Across the globe, we saw a spike in retail investing due to easy-to-use investing and trading apps. 2020 was called the year of retail investors, and the pandemic has no doubt contributed to the spike in retail trading. People became more empowered than ever. Retail trading has taken off more in the U.S. than in Europe. Retail investing in Europe makes only around 5% to 7% of total investments in Europe, compared to 25% in the U.S. and 60% in China.
With the large pension gap in Europe still not changing much in the past five years, low-interest rates, and new online brokerages being built could help to propel enough momentum to increase participation in the capital markets to solve these problems. Retail investing is here to stay!
However, we need to make it more inclusive for women and underrepresented communities.
When you think about what the industry will look like 10 years from now, what do you think will be different? What role will decentralized finance play?
Kolawole: People will have more choices and be in more control of their finances. More people will be financially independent and empowered via choices of products that solve their problems. Fintech will revolutionize and help to reduce a lot of gaps we currently have when it comes to money and wealth.
Banks will have their place in the future financial system, requiring more flexibility and a customer-centric approach by partnering with fintech companies to solve real-life solutions.
However, our financial world will probably not become that decentralized due to regulations and governments wanting to retain monetary power.
“What mmob does is solve the pain points on two sides of an ecosystem. On one side for third party product providers and service providers, we integrate all of their products and services onto our network. Then we also make that seamlessly accessible through to larger distribution channels so their products and services can be integrated natively.”
“(Identity verification) is very challenging, especially when you look at it as a global problem. Every region, every geography has a little bit of a twist. People may not have consistent addresses in some countries, or may not have a track record with a financial institution or a utility compared to some other places. So identity verification is very, very difficult and made much more complicated if you operate in a lot of countries or incorporate a lot of data sources.”
“We are an AI company focused on analyzing billions of articles and messages from the web in real -time using a technology called Natural Language Processing (NLP). We basically process text data and we derive insights that are consumed by financial professionals and corporates. We have the ability to screen an enormous, 20 billion articles and messages and to detect things like environmental, social, and governance risks; early warnings; analyzing competitors; measuring sentiment on companies and on concept.”
“Finshape is a new brand in the digital banking market. It has come about with the merger of two companies: BSC (Banking Software Company) and W.UP. With the combined force of these two companies, Finshape now has about 700 people with a hundred banking clients across the globe as clients and partners across four continents. We’re very proud to have built this digital powerhouse and we’re looking to do a lot more in shaping the future of digital banking.”
Stay tuned for more videos from Greg Palmer and the Finovate Podcast’s Conversations with Best of Show winners.
Last month, President Joe Biden signed an executive order on ensuring responsible development of digital assets. The order, which comes at a time of rising interest in digital assets such as cryptocurrencies, seeks to protect consumers, financial stability, national security, and reduce climate risks.
We recently spoke with Peter Torrente, National Leader of KPMG’s Banking and Capital Markets practice, to gain some insight on how the executive order may impact banks and fintechs. With more than 30 years of experience, Torrente primarily works with global financial services companies.
What are the highlights of the executive order?
Peter Torrente: The U.S. has an interest in responsible financial innovation including the continued modernization of public payment systems. This executive order details the country’s first comprehensive government strategy for exploring digital assets. It outlines steps to reduce risks that digital assets could pose to consumers, investors, and businesses. It also addresses other important considerations such as financial stability and financial system integrity; combatting and preventing crime and illicit finance; national security; U.S. leadership in the global financial system and economic competitiveness; financial inclusion and equity; and climate change and pollution. Finally, it also explores a U.S. Central Bank Digital Currency (CBDC) by placing urgency on research and development of a potential digital version of the dollar.
What are the major implications for banks and fintechs?
Torrente: The executive order seeks to ensure that the largest financial regulators, including banking regulators in the United States, make coordinated plans to oversee the blockchain industry. I see this order as a good signal for a comprehensive set of regulations for the digital asset industry. First, the new laws and regulations will require banks and fintech companies involved in the digital asset industry to enhance their governance and control frameworks related to Anti-Money Laundering (AML) / Combating the Financing of Terrorism (CFT) processes. Second, this executive order indicated that the federal government sees digital assets as an important part of the economy and society; it creates opportunities for traditional banks take another look at their digital asset strategy. Lastly, it explores a U.S. CBDC, which would significantly impact domestic and international wire transfer processes. I also see this order as an encouraging signal for banks and fintech companies to push forward with financial innovations associated with the digital asset industry.
Will the executive order benefit end consumers? Or make them worse off? How?
Torrente: Yes, it has the potential to benefit end consumers. First, the initial set of regulations will focus on establishing the baseline rules to protect investors and consumers from fraudulent activities. It can create transparency for end consumers and help them make informed decisions. Second, this executive order promotes building innovative financial platforms. End consumers may benefit from improvements in business performance, efficiency, and enhanced financial inclusion through these innovations. Given digital assets have the potential to increase the speed of payments, it can vastly improve access to financial services, especially for low-income Americans often left out of the traditional banking system. Lastly, new policies and laws for the digital asset industry could potentially help reduce excessive price volatility and improve market stability as cryptocurrency becomes a mainstream financial technology.
Do you envision further regulations around ESG in the future?
Torrente: The pace of proposed rules and regulations related to ESG risk identification, measurement and disclosure has clearly accelerated over recent months. But when we take a step back, these regulatory actions are largely the result of growing interest from a variety of stakeholders – investors, analysts, community groups, and government leaders – who may have been focused on sustainability and ESG for years. There is a widespread desire among stakeholders for enhanced consistency and comparability across ESG targets and metrics. Standardized disclosure requirements are viewed as important to advancing the broader ESG agenda. Stakeholders’ expectations of companies’ ESG strategies, commitments and disclosures are only increasing, which may lead to additional regulatory guidance and focus.
Humanizing AI has been a challenge ever since humans created AI. At FinovateEurope last month, digital pioneer, AI scientist, and author of The Fifth Industrial Revolution Inma Martinez shed her wisdom on how firms can create a human-centric approach to AI innovations.
Martinez has been developing with AI since the year 2000, when she and her team built the first AI to power original mobile internet services. Since then she has been working in other sectors that have digitized, including music, video, and smart cities.
In her conversation with Finovate’s David Penn at FinovateEurope, she discussed how retail banks and fintechs can create a human-centered approach to technology. The first step is to consider the needs that the user at the other end will have, Martinez explained. She added that organizations must take into consideration that, at the end of the day, they have to service the needs of the person.
As a second point on humanizing AI, Martinez advised firms to not only better manage their data, but also make the data available to all parties in the organization who may need access to the data. This reduces the friction of calling data back from the lake or needing to contact data services.
In her interview, Martinez also compares the usage of AI in the financial services industry with other sectors and offers advice on how firms can prepare for future disruption.
Zilvinas Bareisis is Head of Retail Banking at Celent. Based in London, Bareisis specializes in consumer and card-based payments, as well as identity and authentication. He is especially interested in payments innovation, and what he calls “the perfect storm” of competitive, regulatory, and technology developments that are shaping the present and future of consumer payments.
Embracing the open ecosystem is a really big topic right now – from open banking to embedded finance. How do you innovate around products and how do you differentiate yourself? Banks are starting to talk about their purpose, how they embrace different communities they may be serving, and how they tailor their products to those communities. Even things like crypto (are important). Twelve months ago I didn’t think retail banks should be interested in crypto, and here we are talking about that now.
On the role of enabling technologies in financial services
You really need to have the right set of technology tools – and those tools are diversifying. It’s easier now to have composable building blocks that might be coming from different parties, platforms like low code and no code that do not require much IT capability so that business users can start developing applications and, of course, the cloud. A lot of our clients are looking into how to migrate to the cloud and how fast.
On the promise and potential of embedded finance
At the heart of embedded finance is the idea that customers are out there, doing their own things and, as they do those things, they realize that there might be a need for a financial services product, which is something they can acquire right there and then. The idea itself is not new; you and I have probably bought car insurance at the same time we bought our car at the dealership. What’s changing is that there are nice, big, sophisticated digital experiences, first of all, and it’s easier now for financial services to plug into those experiences because now the technology is catching up.
Check out the rest of our conversation with Zilvinas Bareisis from FinovateEurope 2022 on what’s next in the “new normal” in fintech and financial services.
Founded in 2012, SmartAsset is an online hub for consumer-focused financial information and advice. The company reaches approximately 75 million people each month via its educational content, personalized financial calculators, and other tools. SmartAsset also powers SmartAdvisor, a nationwide marketplace that helps connect consumers with financial advisors.
We caught up with Ms. Lapides to discuss her goals as Chief People Officer, the evolution of human resources and talent management in the tech industry, and how a smart “People strategy” can help companies grow.
Why did you decide to take the opportunity to be Chief People Officer for SmartAsset?
Meghan Lapides: SmartAsset’s mission of helping people get better financial advice really spoke to me. Planning for your future is incredibly important and many people start late. Being part of a company that helps people think smartly and early about financial planning is something that aligns with my personal mission of helping people. When I met the leadership team and members of the People team, I knew this was the place for me. Their passion and intelligence combined with our CEO’s vision was the right combination of factors that confirmed my decision to join SmartAsset.
Is SmartAsset your first fintech? Is there anything unique about building a People strategy in fintech compared to other tech companies you have worked for?
Lapides: Yes, SmartAsset represents my first professional experience in the fintech space! One of the things I love about Human Resources is that when you change companies you get the opportunity to learn an entirely new industry. I love what I do, so I find it exciting to be doing what I love and applying my expertise in a completely new environment. I’ve been lucky to work in multiple different industries, including enterprise SAAS, consumer, and professional services, as well as different fields, such as advertising, public relations, technology, and fashion, so I’ve embraced these opportunities to learn something new. When I was considering my next move, I was interested in companies that were in the fintech space and also mission driven – SmartAsset was both of those things! I also wanted another professional opportunity to be a part of building something great, impactful, and meaningful. I’m thrilled that SmartAsset checked all of those boxes and honored that they selected me to oversee and scale their People department.
How has talent acquisition and management changed over the years that you have been involved in human resources?
Lapides: It’s wild to think about it now, but in my first recruiting coordinator role, we didn’t have an Applicant Tracking System. We used paper files to track candidates and I typed the labels for those files on a typewriter! We went from antiquated processes like that to new intelligent systems that help source great candidates and mitigate bias while offering data collection and analysis to iterate and improve on processes that make the most impact. “Data Fuels Our Decisions” is one of SmartAsset’s core values, and I’m happy that today’s HR systems allow us to make informed decisions in an efficient and timely manner.
When I was thinking of going into HR after studying to be a Marriage & Family Counselor in college, I spoke to a family friend who was the COO of a huge company about whether or not it was the right move. He told me that “Personnel was not for me. I was too creative for that.” We still joke that I have spent the last 20 years proving him wrong.
I’ve been lucky to work for progessive, people-centric organizations, but I’ve seen a huge increase in flexibility and creativity when it comes to managing talent. But more than that, especially post-pandemic, the People team not only has a seat at the table, but also we are key influencers in setting the strategy for the company’s most valuable resource: its people. The intersection of the business and our people is where our team sits and the two can’t be successful without the other. Highly engaged, happy and healthy employees build strong businesses. Businesses that allow people to make an impact internally and externally are the ones that attract the best talent. I am energized by being able to spend my time focusing on building a strong business and a culture that gives our Assets the best chance of success and allows our employees to grow.
What is most important to you in terms of leadership development within a company?
Lapides: Openness and shared vision. We all know how important mission, vision, and values are in building culture – but it’s very important for leadership to have a shared vision on what leadership looks like and how you can support each other to be successful from both the top down and the bottom up. I also think in order for a company to be truly successful – and have a highly engaged workforce – you need to have the openness to create a place where people can come as they are, lead as they are, and celebrate diversity in all forms.
What role can diversity and inclusion policies play to help drive growth and expansion?
Lapides: When you are creating products and services for the world, you need to look like the world you are creating it for. Studies show that the more diverse companies are, typically the more successful they are. But DEI is way more important than financial success. It helps DEI and company expansion to remove barriers to entry, reduce bias, open your recruiting pipeline, and create a safe, open, and equitable culture. When it comes to retaining your best talent, companies must ensure that their workplace allows people to be themselves, engage in real world events and issues, and also create a culture of belonging.
SmartAsset made the decision to remain a remote-first company. This helps our DEI strategy because it removes geographical barriers and helps us to be more accommodating of diverse work styles. Being a remote-first company further allows us to hire talent more quickly to support our rapid expansion given the fact that there are fewer geographic barriers.
What are some of the challenges a People strategy faces as businesses get bigger? How do companies overcome or manage them?
Lapides: Scaling a company is a huge challenge. Processes that worked at 50, 100, or 200 employees don’t always hold up at 500, 1,000, or 2,000. People teams also tend to run lean at a startup, so it’s really important to put talent behind that team – especially as you scale – to ensure the needs of your employees are met and you can get ahead of big projects and initiatives.
Are there any other issues you think might be worth highlighting about your new role?
Lapides: SmartAsset is a remote-first company, which is incredibly exciting because it allows us to hire the best talent wherever they are in the country. However, that comes with challenges as well. We are looking for opportunities to focus on asynchronous workflows to allow people to do their best work in their own time zones, but also have the ability to collaborate across different teams. We are focused on allowing the flexibility for both independent work and cross collaboration, and creating an environment that allows people to build relationships, focus on what is important, further build our culture, and continue to do great work.
