Global Themes

On Globalization & Venture Capital

FinTech for Good

My first blog post on Huffington Post, “Fintech for Good” – slightly edited version below…

Back in 2009, a global consortium of researchers published a report with a provocative title, “Half of the World is Unbanked”. Five years later, the numbers had already dropped by 20%. Yet close to 2 billion adults globally still do not have access to formal financial services. They remain financially disconnected, without opportunities to increase their incomes, unable to securely save for a rainy day or borrow to improve their lives.

Even basic financial products and services remain out of reach for these people. An illness, accident or a death in the family can spell disaster for their financial situation and cause powerful shocks to their daily lives. These hundreds of millions are effectively locked out of a world which you and I take for granted.  It does not have to be so.

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February 8th, 2017 Posted by | Development Issues, Emerging Markets, Financial Inclusion, FinTech | no comments

Fintech startups – Can they make any money?

Extracts from, “Here’s the huge question facing fintech startups — can they make any money?”

Something strange happened to a few hundred customers of startup, app-only bank Number26 last week — their accounts started closing.

With no explanation other than to cite terms and conditions allowing unexplained account closures, Berlin-based Number26 emailed a clutch of its 160,000 customers to tell them their accounts would shortly be shutting down.

Many customers took to Twitter to complain. This, after all, is a bank that promised to be more like “Uber or Spotify” than a High Street lender.

Number26 told BI in an emailed statement that the account closures were for “various reasons”, including suspicious activity, but admitted at least some of the closures were for a very weird reason indeed — customers using their services too much.

…Essentially, Number26 let users withdraw money for free on the assumption that they wouldn’t really do it very much. But people did use it and it ended up costing Number26 too much money.

This odd incident gets to the heart of a key question asked over and over about the fintech (financial technology) sector — can any of these guys actually make money?

…Many startups have underpinned their promises with services delivered either at cost or with razor-thin profit margins. Think of TransferWise, which charges just 0.5% on top of the mid-market rate on many international money transfers, and Revolut, which lets people spend money at the best rate abroad on its card with no commission.

But these kinds of models aren’t exactly money spinners. While TransferWise’s revenues and total transfers are rocketing, the startup made a loss of £11 million in the year to March 2015, up from just £2 million the year before.

Even Funding Circle — the biggest UK peer-to-peer lender, which takes a cut of loans made over its platform — lost £10.8 million in 2014, the most recent year accounts are available for.

…But critics say many of the business models are unsustainable and simply being supported by the financial teat of venture capital money. The likes of TransferWise and Revolut can only afford to offer such cheap services because of a plentiful supply of free and easy cash from investors that subsidises prices, so the argument goes, not because of any real technical innovation.

…We could be about to see which side is right. VC cash is drying up —with investment in UK fintech startups collapsed 41% in the first quarter of the year. That could spell trouble for business models conceived during the boom times.

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October 24th, 2016 Posted by | FinTech, Tech & Innovation in Europe, Venture Capital in Europe | no comments

Digital-only banks face big challenge to usurp traditional high street giants

Interesting excerpts from Digital-only banks face big challenge to usurp traditional high street giants (emphasis added):

Only a small minority of consumers strongly agree that (online, digital) providers will offer better service, rates, or security than they receive from their existing banks, and well over half would prefer to avoid banks that lack a track record or do not have a high street presence.

He added: “Consumers’ primary criteria when selecting banks include whether the organisations have an established reputation and conveniently located branches. This plays right into the hands of traditional banks and leaves the challengers at a disadvantage.

To emphasise the importance of actual walk-in branches, the analysis revealed that although online is growing in significance as an acquisition channel, more than half of current accounts opened between 2013 and 2016 were arranged in-branch.

Our research finds that, if anything, younger consumers are even more dependent upon branches for day-to-day banking than those in older age groups,” said Mr Fakhri.

Given that these new entrants are targeting precisely this younger demographic, they will find it particularly difficult to gain significant numbers of customers.

Borrowers are sceptical about non-traditional lenders, with over half stating they do want to use lenders that lack established reputations and a minority agreeing that online lenders offer better rates or service.

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October 23rd, 2016 Posted by | FinTech, Tech & Innovation in Europe | no comments