FINTECH ARTICLES OF THE WEEK 09/13/17
The Bank for International Settlements (BIS), often described as the central bank for central banks, recently published its take on FinTech. The BIS’s Basel Committee on Banking Supervision’s report, “Implications of fintech developments for banks and bank supervisors,” handily summarizes the changing face of banking:
“A common theme across the various scenarios is that banks will find it increasingly difficult to maintain their current operating models, given technological change and customer expectations. Industry experts opine that the future of banking will increasingly involve a battle for the customer relationship. To what extent banks or new fintech entrants will own the customer relationship varies across each scenario. However, the current position of incumbent banks will be challenged in almost every scenario.
“In fact, changing customer behaviour and demand for digital financial services are the key drivers for change. The faster pace of change means that the effects of innovation and disruption can happen more quickly than before, implying that incumbents may need to adjust faster.”
We see those forces playing out in this week’s news, along with the predictable consequences of incumbent arrogance and inertia that the BIS committee seeks to mitigate. It likely will be resisted, but customers are taking notice, and they are not happy.
Square’s bid to be industrial bank inflames ILC debate
Payment processor and point-of-sale technology provider Square applied for an industrial loan charter (ILC), American Banker reports. ILC holders are supervised by state bank regulators and the FDIC but are exempt from parts of the Bank Holding Company Act. Banks are not happy with what American Banker this week reports as a bona fide trend, in an article headlined “Square’s ILC bid may open floodgates for fintechs” (paywall).
Amazon is a threat to banks — just not in the way you think
The threat to banks by technology companies takes on a different twist in a Tearsheet article focused on the technology side of FinTech. As they adopt digital technologies, “financial institutions of all sizes are becoming more dependent on cloud‐based infrastructure provided by companies like Amazon, Oracle and IBM to scale and deploy processes, according to a report published by the World Economic Forum (WEF) and Deloitte. Ultimately, that could force them to relinquish some of their control over costs — and data,” writes Tanaya Macheel. It’s a bit overblown given that many banks are dependent on a few core technology providers, and cloud firms are providing other options, but interesting all the same.
Equifax debacle breaches data and trust
The biggest threat to any financial services firm of any time became very clear with the multifaceted mistakes at Equifax. A security breach combined with a failure to handle it in any kind of satisfactory way, along with the perception that executives bailed first and filed a report on the problem later led to headlines like these:
- Literally everyone should be thinking about suing Equifax
- How stupid does Equifax think we are? Answer: really stupid
- BankThink Equifax breach: Told. You. So.
- Seriously, Equifax? This is a breach no one should get away with
- Equifax, bowing to public pressure, drops credit-freeze fees
The banality of the Equifax breach
This has to be the saddest comment on the affair, from Ian Bogost writing in The Atlantic. “Breaches of more sensitive data, like bank, social-security, address, and health or employment records, have also become common. Home Depot, Target, Sony, Anthem, the U.S. Office of Personnel Management, and other recent violations felt shocking and violating at first, but over time that sensation has waned. With over half of the entire U.S. adult population potentially exposed by the Equifax breach, what’s left to do but shrug and sigh?”
How to gracefully split the check in the Age of Venmo
Equifax if nothing else showed a lack of common etiquette, and I’m glad to see that former FinTech Rising writer Tatiana Walk-Morris, writing in Vogue, brings a personal and graceful touch to what can be an impersonal and awkward act. “With changing technology, of course, comes a shift in cultural norms. Read how “personal finance and etiquette experts weigh in on the new rules for digitally divvying up expenses.”
Federal Reserve next steps in the payments improvement journey
After reviewing the final report of the Fed’s Faster Payments Task Force, the natural and mostly unanswered question was, So what now? (PDF). Here are the three initiatives the Fed will engage in as next-steps in the development of a faster-payments services in the United States:
- Support an interim collaboration work group and other collaborative industry efforts to develop a faster payments ecosystem that achieves the Federal Reserve and industry shared desired outcome and the Faster Payments Task Force vision.
- Pursue Federal Reserve settlement services that address the future needs of a ubiquitous real-time retail payments environment.
- Explore and assess the need, if any, for Federal Reserve engagement as a service provider, beyond providing settlement services, in the faster payments ecosystem to support industry achievement of the desired outcome.