In the world of fintech, digital lending has become almost mainstream and alternative B2B payment systems are widely available, but distributed ledgers are still up to a decade away and truly digital banks are just beginning to appear.
That’s how the world looks to Matteo Rizzi who has two decades of experience in financial technology, going back to well before the fintech label was invented. He was a cofounder of Innotribe, the innovation program created at SWIFT and he launched the Innotribe Startup Challenge which was the first global contest for fintech entrepreneurs.
Rizzi continues to operate at the cutting edge of financial technology innovation with the FinTechStage, which he co-founded with Lázaro Campos, former CEO of SWIFT. It holds fintech innovation programs in cities like Milan, Barcelona and Luxembourg to bring together venture capital firms, banks, and tech startups eager for exposure to sources of funding and market expertise.
“There are still gaps,” said Rizzi, but online lending is probably not one of them. Lending Club, Prosper and a host of similar fintech companies offer ways to evaluate borrowers’ credit worthiness through digital records and tools that go well beyond simple credit scores. Banks and investors from pension funds to family offices and university endowments use the platforms to lend and achieve returns that are well above what most bonds pay. The digital lending services sometimes compete with banks and sometimes assist banks in their lending to SMEs and individuals.
“A major gap is probably blockchain and distributed ledgers, Rizzi added. “Everyone talks about its potential to revolutionize the finance environment. I think that as well, but it will take 10 years to move from hub and spoke to peer-to-peer. It will offer big advantages in cost, velocity and reach, but of course the regulation gap is too big.”
In discussions of fintech, regulation is often overlooked, but it has a major impact on the financial services industry. The U.S., for instance, regulates money transmitters and insurance at the state level, requiring companies to go through licensing at each state, slowing down innovation.
“Regulation is a big gap,” Rizzi said. “Different regulators haven’t yet synchronized their speed with the speed of the market.”
UK regulators pushed banks there to provide real-time payments starting in 2008, and the country is now working on a second generation of faster payments. By contrast, in the U.S., where the Federal Reserve has taken a lighter touch, a faster payments network is still two or more years away. The UK has also used regulation to encourage new banks and new payment services.
“The U.S. is way more regulated and too fragmented,” Rizzi said.
“In countries where the regulators are smart enough to encourage competition, the market becomes a bit more fair, more customer centric and better at serving millennials. Like the UK, where you have newcomers that are challenging the incumbent banks.”
Fully digital banks have been another gap in fintech, but that one is getting filled. The UK has nearly 20 licenses for digital banks — banks that have few if any branches.
“I think this is one tangible real result that fintech brought. Until four or five years ago to have a digital bank in a developed country would be able to challenge the old players and it would have been too hard to accomplish. Now we are getting there.”
Banks and fintech firms have a mixed record in working together effectively. Some banks are actively engaging, some are developing funding arms, some just go to conferences looking for startups with useful products, and a few are trying to develop their own fintech programs in-house, with decidedly mixed results.
“UBS has set up a blockchain lab in the UK. These are not startup incubators, these are organizations where the banks are doing what we did with Innotribe — they are setting up a sandbox, with a real budget and executive approval for a program to investigate and research, but with no P&L requirement. More and more banks are doing that.”
A less successful approach is to create an innovation department and use existing bank employees to run it, not because of scarcity of skills, but for a mismatch of culture. It actually take a bunch of “misfit” profiles to trigger innovation, he said.
“Most of large financial institution’s investment funds are on the bank’s balance sheet. It is therefore very challenging to navigate through the compliance issues and yet remain agile and effective in making investments. A few have succeeded, like my good friend Mariano Belinky at Santander InnoVentures.”
At the BAI Payments Connect conference in San Diego at the beginning of March Rizzi (@matteorizzi) will participate in the BAI Disruption Forum. He will talk about how the old and new in financial services can talk to each other more effectively and the different approaches banks can take in working with startups. He will also give a global view on how different cities in the world have become or have the ambition to become FinTech Hubs, and what are the assets required for a FinTech eco-system to prosper and how different players benefit from it.
“I still have a few scars from trying to promote a culture of innovation within banks 10 years ago,” he said. “Eight years ago you couldn’t convince banks they should be in social media or even mention investing in startups.”
Rizzi is also a senior advisor to the Omidyar Network, created by eBay founder Pierre Omidyar to promote financial inclusion through both nonprofit and for profit arms. Rizzi is working in the for-profit side to improve financial inclusion in the developing and the developed world — almost 50 percent of U.S. households are, 2 million people in the UK don’t have bank accounts and 9 million people are underbanked in France, he said.
Original source : Click Here