FinTech Disrupt

Writing about FinTech startups across the globe

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The Future Way to Pay

http://letstalkpayments.com/the-future-way-to-pay/?utm_source=twitter&utm_medium=twitter&utm_campaign=twitter

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Why Fintech Now?

I have been asked many times "Why Fintech now?" probably due to the fact that I came from banking industry and Fintech startup as well. My high level answer to this is very clear in two points though many say due to regulation change or just obsolete industry in terms of innovation; 1. Power Shift in Supply Chain It has a lot to do with the higher penetration of smartphones, which almost work as mobile-pc in the pocket drastically lowering the asymmetry of information for end users. Because of this shift, especially consumers now get "choices" for whatever they are about to do. To me it is the next shape of "show-rooming" emerged due to the cost effective e-commerce site, (this is basically for PC users) and now it is literally happening similar things on the road. This brings the situation where users have incredibly lower switching cost as a result. Thus, the power shift in supply chain has been changing from manufacturer and giant retailer to consumer. Fintech players are, often cases, keen on meeting demands of certain target segment with specifically designed UI/UX, what is called in the industry "unbundling of banking". It now all comes back to the previously written post, industry needed this structure that the role as a retailer in financial market to attract end users.

2. High Familiarity with Technology Bank, its history goes back as old as thousand years, is the industry with high compatibility with data and technology. It always had to deal with massive calculation and prediction, which led the industry adopting latest technologies. The concept of currency wire transfer and future trading spread to other industry as a matter of fact. Just because technology existed in each sector of industry, once the move for integrating them take place due to demands from end users, the scale and speed can be phenomenal. 

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Payment and money transfer

Payment is done through money transfer, vice versa. The two can be a single concept of thing, even from service offering perspective. In Japan, where banks and card companies are totally separate entities, this will be the disruptive.

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What is Money

Money makes the world go round; we want it, we strive for it and we fight for it. It is at the heart of our socioeconomic system and became the dominant objective in our lives. But what is it? 

Originally, money was used to facilitate exchange; it avoided the inconveniences of a pure barter system in which goods have to be traded against other goods. Money can only become money when a group of people agrees it to be money. Hence, if we accept shells to be a medium of exchange; it shall become money.

In the past it used to have an intrinsic value; may it be the value of a shell or gold. Nowadays, money does not represent intrinsic value anymore; it is only worth the paper it is printed on. Therefore, it is important to maintain a certain scarcity, otherwise people lose faith in it and do not accept it to be money anymore.

Currently, there are three different forms of money; (1) money that is exchanged only between banks, (2) the paper money we hold in our wallets and (3) the money that exists in the form of digits on our bank accounts. The first two forms represent only a small part and are issued by the central banks of states. The last form represents the majority of money and is issued by commercial banks when lending out money. Hence, money is debt and for every €/$/£ in the system someone is paying interests. And because there is never enough money in the system to pay for all the interests, more and more money (or debt) needs to be created; until we might lose faith in it.

It is therefore why investing is a good thing. It allows us to attach real value to money. We ultimately hold tiny parts of companies that produce goods and services for the society.

However, it does not solve the underlying problem of our monetary system. This challenge is a little bit bigger. To solve it, we need to understand money. I therefore encourage everyone to dig into that topic. As a starting point I propose you to consider the initiative PositiveMoney. It addresses the problem of the current system and proposes an alternative; thoughts worth thinking about.

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Banking in the next 5 years

“A staggering 68 million U.S. citizens do not use a bank. Meanwhile a survey by Goldman Sachs just last week found that 33 percent of American millennials thought that they would not need a bank in five years.

It’s this alliance of the underbanked, millennials, and “the next billion” to come online over the next 10 years who will drive adoption of mobile payments and digital currencies. If banks do not support them, they risk missing out on a vital source of revenue.” http://techcrunch.com/2015/04/03/be-your-own-bank/#.bxzata:axzm

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The ideal way to reduce bad lending is to crowd it out with good lending. (Like @payoff)

http://m.theatlantic.com/politics/archive/2015/03/the-odd-couple-fighting-against-predatory-payday-lending/388093/ (via hackingfinance)

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Effective from 2015 October, the interchange fee rate in EU will be drastically reduced to 0.2% per transaction for Debit card, 0.3% per transaction for Credit card which have been around 1-2%. It seems that the world is heading to the healthier environment for competition. That said, banks or card companies will need to compensate the potential revenue decrease.

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Payment network is on the verge of establishing a new business model, delivering offers on top of its network.

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Bill Gates, co-chair of the Bill & Melinda Gates Foundation, is bullish on mobile banking. A "low-cost digital debit card," he said, along with the

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3 reasons that debit card has not been popular in Japan

As I have written previously (old post), less than 1% represents debit payment in Japan while the percentage in other major countries such as US and UK represents almost the same as credit card payment.

This article is for exploring the reasons for this gap. It is often cited that the fact that debit payment is so small in Japan as J-Debit, Japanese debit network built in 2000, did not take off due to the network vulnerability and insufficient affiliated stores. It is certainly true and gets in the way for the penetration of VISA Debit Card became effective in 2006. While VISA Debit Card, which works on the same infrastructure as VISA credit card, has seen a sign of growth since last year thanks to the promotion of VISA Japan and the largest commercial bank, Bank of Tokyo Mitsubishi UFJ, I see 3 major reasons that likely pose debit card (even VISA Debit Card) to catch up quickly in Japanese market;

1. Insufficient benefit Unique characteristics of Japanese market are that retailers greatly promote their house cards by offering plenty of points/mileages and there are electric money (prepaid) such as Suica or PASMO for smaller amount transaction. Unless the case that account balance hits negative, consumers are likely to choose credit card to get rewards. Cash-out service, which allows debit card holders to withdraw cash at retailer’s cashier, is not currently available as the regulatory has not officially approved/disapproved. 2. Clearing method In the US or those people who choose to be in UK, the amount spent with credit card needs to be paid through checks within certain period of time. In Japan, the process that the full amount with credit card payment is automatically deducted from the connected account at due date has been a standard. This way, there is no need for using debit card as a mean to get rid of sending checks.

3. Settlement timing/Fee This is more from retailers’ perspective. In Japan, as acquirers proceed settlement to retailers altogether regardless of card types (debit/credit), while retailers in the US can enjoy much faster settlement timing (usually within a few business days) with debit cards. Swipe fee is capped for debit card to be much lower than that of credit card under Dodd-Frank Act Rules in US while the fee rate has been the same for debit card and credit card in Japan.

That said, I still believe that instant visualization of card payment would capture customers needs, the conventional use of debit card might not offer enough incentives to Japanese consumers unless above circumstance is changed.

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PFM not as "add on" service in banking anymore

In the past, PFM (Personal Financial Management) has been delivered as "add on" service in banking. Cadence Bank, a regional bank in Southern part of the US, has integrated PFM into their banking services. I believe this is one of the basic direction banks are headed even in my home country, Japan.

While a purpose of managing spendings is to save money, it does not always have to be too much detail-oriented and complex. I believe that a crucial aspect of PFM is simplicity and sustainability as nobody, by nature, really wants to budget oneself if he/she does not need to.  Read more for the bank's initiative on this topic here.

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FinTech in Italy

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Great breakdown of consumer FinTech landscape with insights. (source: The state of consumer FinTech) If I was to add something here, "purchase rewards" including CLO and customer loyalty program might be an option such as Cardlytics, CardSpring for CLO and Thanx, Clinkle (Treats), and Chime for customer loyalty.

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(US) Millennials' behavior towards banking

As hyper-connected generation with mobile, recent Accenture survey 2014  brings takeaways of Millennials' behavior towards banking; (Millennials are defined as 18-29 years old)

94% are active user of internet banking 72% are active user of mobile banking 67% are interested in tools and services which help them create and monitor a budget (compared to 31% for those over 55) 66% follow a budget (compared to 36% for those over 55)

In the US, a number of millennials is said to be 53 million. (source) It means that if the service get 10% share of the mobile banking market, there will theoretically be 3.8 million users.