Michael Backes, co-founder of innovation laboratory Liquid Labs, discusses how FinTech development is stepping up a gear and tackling regulations
If you had started a FinTech company five or six years ago your principle concern is likely to have been how to access the wealth of information banks and other financial instructions hold. It is probable that your pitch to investors would have upsold just how good your new platform was at mining information and using it to pioneer a new segment, such as online payments. Fast-forward to today and this is no longer a compelling pitch. The majority of banks are fully online and the market is saturated with companies that have managed to comply with regulations to gain access to this data. The question of how to get data has been answered, FinTech has moved on to ask what innovative things can be done with this data.
Plenty of companies are seeking to answer this question by building services or software which leverage the readily available data to disrupt new market segments, surpass current regulations and resurrect old business models.
To put the change the FinTech sector has undergone in such a short time into context, consider the hurdles start-ups had to overcome to create a simple online payment app in Europe only a few years ago. The sheer number of online banking standards in each country would have required a large enterprise project to gain access to the data needed to power the app. This project would have been led by backend-financial software experts. As this is largely no longer needed, the development of the app can be led by people who know how to design great apps. FinTech companies can also focus more, thinking of ways to leverage data in more innovative ways.
For example, say a start-up has created software for banks to improve customer retention through incentives. This start-up will employ data analysts and developers that have created algorithms identifying patterns from a large data set. A good illustration of this would be looking at a stream of purchases at hardware stores and inferring that the account holder is undertaking a large renovation project. Discounts can then be offered to that customer every time they spend money on their debit card buying hardware or decorating products.
Generally, with speedy innovation comes an inevitable clash with slow moving legislation. However, in relation to FinTech, companies have actually pushed current legislation out of the equation. I do not mean that FinTech companies are ignoring regulations, quite the opposite, many have developed systems which are more stringent than current regulations. The rationale behind this is simple, innovative financial products can carry inherently greater risks. Whether these risks are merely perceived risks or actual ones is immaterial – FinTech companies have sought to pre-empt any question marks over the safety of their products.
An illustration of this is how P2P online money transfers have sought to tackle ‘know your customer’ regulations. This is where the identity of the customer has to be known in order for them to do things such as transfer money or use prepaid credit cards. As the usage is increased, the more data the bank is required to have on each person. Consequently, it is simpler for banks to ask for information, such as proof of address and different forms of ID, up front when customers open an account. What this means is that a lot of personal information is needed from customers, even if they are undertaking activities which do not require it.
However, a FinTech start-up can build in these thresholds and guide the customer through the process in a much less intrusive way. As the start-up does not use banks, customers can undertake the activity they require without providing unnecessary information and if they do reach the threshold the entire ‘know your customer’ process can take place on an automated platform.
This has the added advantage of allowing the start-up to identify potential problems much more quickly than a bank. Data about the device, the context of where the money is going to and behavioural components can all be integrated into the process. It allows the start-up to identify patterns for fraud above and beyond what regulations currently require.
Faster innovation, better apps and services and strong compliance with regulations have seen FinTech companies visit seismic changes on the financial sector in the last five years. With the speed and quality of innovation set to continue to increase, and new sectors becoming ripe for disruption, the next five years will see the FinTech sector manifestly change the way we all do business.
Guarantor loans surge to top of UK financial complaints chart
By Huw Jones
LONDON (Reuters) – Complaints about guarantor loans by companies such as Amigo soared last year, eclipsing grievances over payment protection insurance (PPI) that have dominated for more than a decade, Britain’s Financial Ombudsman Service (FOS) said on Wednesday.
Consumers have turned to loan providers since last March as lockdowns to fight the COVID-19 pandemic strained their finances.
“For more than a decade, the Financial Ombudsman Service received an unprecedented number of complaints about PPI. We’re now seeing thousands more complaints about credit – including about guarantor loans,” FOS said in a statement.
Guarantor loans require a friend or family member to guarantee they will take on repayments if the borrower falls behind. Complaints about this type of loan reached more than 10,000 in October to December, up from just over 300 in the same period a year before, the FOS said.
Complaints about other types of home credit jumped to over 6,000 from 430 over the same period.
The complaints about consumer loans usually focused on inadequate affordability checks, FOS said.
Amigo describes itself as Britain’s leader in guarantor loans. FOS said complaints about the company totalled 12,854 in the second half of 2020, up from 1,163 in the first half.
Amigo said it launched a scheme of arrangement, or court-approved compensation process, in January after receiving a high number of complaints last year.
“We are a new leadership team that wants to correct past mistakes in a way that is fair and equitable to all our customers – including our 700,000 past borrowers and guarantors,” Amigo said in a statement.
Provident Personal Credit Ltd was the second most complained about company, with 10,390 complaints in the second half of 2020, FOS said. Provident had no comment.
PPI became Britain’s costliest retail financial scandal that dominated FOS work until the final deadline for complaints passed in August 2019.
(Reporting by Huw Jones; editing by Barbara Lewis)
Sunak promises to do ‘whatever it takes’ to shield the economy
LONDON (Reuters) – British finance minister Rishi Sunak plans to say in a budget speech on Wednesday that he will do “whatever it takes” to support the economy, and that the task of fixing the public finances will only begin once the country is recovering from the COVID-19 crisis.
“We’re using the full measure of our fiscal firepower to protect the jobs and livelihoods of the British people,” Sunak will say, according to excerpts of the speech to parliament released by the finance ministry on Tuesday.
“First, we will continue doing whatever it takes to support the British people and businesses through this moment of crisis,” he said in the excerpts.
“Second, once we are on the way to recovery, we will need to begin fixing the public finances â€“ and I want to be honest today about our plans to do that. And, third, in today’s budget we begin the work of building our future economy.”
Britain has suffered the biggest COVID-19 death toll in Europe and the heaviest economic shock among big rich countries, according to the headline measures of official data, after shrinking by 10% last year, its worst slump in three centuries.
Sunak has so far spent almost 300 billion pounds ($419 billion) on emergency support measures and tax cuts.
But Britain has also rushed out Europe’s fastest COVID-19 vaccination programme, raising the prospect of an economic bounce-back once its current, third lockdown is relaxed.
Sunak said in media interviews on Sunday that he would not rush to start addressing Britain’s yawning budget deficit, which is approaching 400 billion pounds – its highest as a share of the economy since World War Two.
Prime Minister Boris Johnson plans to lift lockdown measures gradually, starting with next week’s reopening of schools in England, before most measures are removed by late June.
Sunak is expected to announce an extension of his emergency support measures, including huge income subsidies that are on track to cost more than 100 billion pounds, to provide a bridge for the economy until then.
But he has also said he will “level with people” about how Britain’s 2.1 trillion-pound debt pile would carry on growing without action, which is likely to mean future tax increases.
(Writing by William Schomberg; Editing by Catherine Evans)
UK gilt issuance to be second-highest on record at almost 250 billion pounds – Reuters poll
By Andy Bruce
LONDON (Reuters) – Britain is likely to sell nearly 250 billion pounds ($347 billion) of government bonds in the coming financial year – the second-highest total on record – to help power an economic recovery from the COVID-19 pandemic, a Reuters poll of dealers showed on Tuesday.
The survey of all 15 wholesale primary dealers, or banks tasked by the government with creating a market for its bonds, pointed to gilt issuance of about 247.2 billion pounds for the 2021/22 financial year starting in April.
Such a sum marks a sharp drop from the 485.5 billion pounds of gilts that the United Kingdom Debt Management Office (DMO) plans to issue in the current 2020/21 year to finance the economic response to the COVID-19 pandemic.
Finance minister Rishi Sunak is due to deliver his budget around 1230 GMT on Wednesday, after which the DMO will publish its 2021/22 gilt issuance remit.
Sunak has said he would not rush to fix the public finances as he readies a budget, which will add more borrowing to almost 300 billion pounds of COVID-19 spending and tax cuts.
In November, the Office for Budget Responsibility (OBR) forecast borrowing in 2020/21 would reach 393.5 billion pounds, or 19% of GDP, a peacetime record. The latest official data suggests borrowing will fall below this, partly because more taxpayers than expected have opted against deferring payments to 2021/22.
The poll showed Sunak is expected to announce a budget deficit forecast for 2021/22 of 180 billion pounds, 16 billion pounds more than the OBR had predicted in November.
“Our current estimate is that the latest lockdown will ‘cost’ around 16 billion pounds in terms of additional fiscal support,” said RBC economist Cathal Kennedy.
He cited the fact that more workers are now furloughed than the OBR had assumed in November, as well as expanded support for self-employed people and business grants announced in January.
In addition to the budget deficit, the government must also refinance 79.3 billion pounds of gilts due to mature in 2021/22.
As in the current year, much of the issuance will be soaked up by the Bank of England’s asset-purchase programme, which is due to buy around 100 billion pounds of government debt during the next financial year.
The poll suggested the government will finance borrowing almost entirely through gilts in the next financial year, rather than additional issuance of T-bills or via the government’s retail investment arm.
The DMO is likely to ramp up its issuance of inflation-linked gilts in 2021/22 to around 14% of the total, compared with 7% in the current financial year, the poll showed.
The DMO reined in sales of index-linked gilts through most of 2020 due to uncertainty caused by a review into the future of the retail prices index measure of inflation, which is used to price the bonds.
“Given pent-up demand, we think that this target is achievable,” said Deutsche Bank analysts Sanjay Raja and Panos Giannopoulos.
The dealers did not expect much change in the split between short, medium and long-dated gilts. Britain already has a longer average maturity for its debt than any other major economy, but the recent jump in global bond yields has prompted some commentators to say the DMO should do more to lock in low rates.
The government has also said it will issue the first “green gilts” – bonds to finance environmentally friendly projects – in 2021/22. Most respondents expect one or two bonds to be issued, of around 10 billion pounds in total.
(Reporting by Andy Bruce, editing by Larry King)
OPEC oil has advantage over U.S. shale during pandemic recovery
By Jennifer Hiller (Reuters) – The once-brash U.S. shale industry, which spent profusely in recent years to grab market share,...
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