By Daniel Döderlein, founder and CEO of Auka
Banks and financial services institutions who were among the first to help Facebook realise their first version of a payments solution might be feeling quite safe at the moment. After all, they’re in cahoots with one of the world’s most used platform. Surely a deal with Facebook meets the requirement for a tick in the innovation box, right? I’d caution them against getting too comfortable.
This is Facebook dipping their toes into payments to learn about a huge new market. This partnership is unsurprising – MasterCard is desperate to keep cards relevant. They subsidize and partner with seemingly anyone to keep their business growing, as cards become less relevant in mature markets.
Banks in Europe are extremely conscious – or at least they should be – that January 2018 brings about the second payment services directive (PSD2). While this is an EU regulation, banks around the globe will no doubt be aware of the precedent this will set for how people want to and will do their banking. Unless they make a dramatic shift, the banks will effectively become the backend for financial services offered and controlled by others once they figure out that direct from account is much better than using a third-party, like MasterCard.
PSD2 regulation, from the beginning of next year, gives direct account access to anyone who has applied and been granted the appropriate license.
The effect this regulation has on everyone living (and banking) in Europe can be easily illustrated. Imagine this: you wake up sometime in January 2018, reach over and do your obligatory Facebook check…
Facebook, who already have the required license issued in Ireland, ask you a question: Would you like to see the balance of all your cards and accounts in one place? They say: we will make it easier than ever to simply pay your friends and make payments at shops. Of course there’ll be a few other compelling offers alongside this – apart from it being hassle free and similar to many other third-party services you already use with Facebook.
After you approve this, your bank accounts will be accessible through an easy to use interface that you already use many more times a day than you would ever use the mobile banking app offered by your bank.
Internet banking and banking mobile apps will die because you now use Facebook (or Google, or an Apple app). Your money is still safe and sound in your bank account, but the way you interact with your account and your money will change forever. Banks will lose their customer interface to players who are experts at making the digital experience engaging and problem solving.
Scandinavian banks saw these changes coming and took early action. They now boast the highest levels of bank-owned mobile payment use in the world. What this means for them, is that as companies like Apple (with Apple Pay), Google (with Android Pay) and now Facebook, gain traction in other regions with their current payment solutions, they have yet to enter the Scandinavian market. Why? The banks solutions offer more than just another way to pay.
Right now and until PSD2 comes into effect, all that third-parties like Apple Pay or Facebook can do is create a payment experience that is essentially exactly the same as using a bank card. Until they can blow people away with a completely new experience – which they will – people are starting to losing interest.
So right now, this gives banks the upper hand and a first mover advantage if they decide to take it. If they, as Nordic banks have done, innovate like never before and invest in delivering sticky solutions people actually want to use – before the competition gains massive traction and accounts are opened up – they have the opportunity to remain relevant.
A recent EY survey of 55,000 banking customers in 32 countries found that traditional banking trust is under threat and that relevance with consumers was waning. The resulting report recommended banks undertake a serious overhaul when it came to re-thinking their approach to consumer relationships.
Further, a PWC report from last year, Catalyst or Threat, found that most European consumers were already using digital payments, including mobile. It also suggested that these same consumers were itching to patronise third-parties building financial solutions post PSD2. All of this paints a pretty clear picture. Unless banks take action and do something fairly revolutionary, their customers aren’t going to continue using an outdated system when, in every other aspect of their life, ease of use wins over loyalty.
Signing a deal with a tech behemoth does not guarantee continued relevancy. In a matter of months, that same tech company will be able to access bank customers with or without a formal agreement. Nor does introducing technology – such as NFC (near field communication) – to a payment that can already take place with a card at the store.
So many banks are falling into the trap of repeating what others have done – even when the evidence is mounting up to prove that bank owned NFC wallets do not work long-term. While banks fumble with card payments, app based payments are growing like crazy in the Nordics and in China. Banks must create something that considers all payments situations – enabling commerce, building eco-systems and solving problems. Skip Apple Pay, forget PayPass and don’t make host card emulation (HCE) solutions – this is throwing money down the drain.
So, whilst Facebook is right now having to partner with the likes of MasterCard, this is just the beginning. This is their chance to warm up – and get as many people on board and addicted as possible – whilst they work on game changing payments solutions for a post-PSD2 world and wait out the next nine months.
Bank of England’s Haldane says inflation “tiger” is prowling
By Andy Bruce and David Milliken
LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.
In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.
“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.
He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.
Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.
Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.
But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.
Haldane’s comments put him at the most hawkish end among the nine members of the MPC.
Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.
“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.
(Editing by Larry King and John Stonestreet)
Bitcoin slumps 6%, heads for worst week since March
By Ritvik Carvalho
LONDON (Reuters) – Bitcoin fell over 6% on Friday to its lowest in two weeks as a rout in global bond markets sent yields flying and sparked a sell-off in riskier assets.
The world’s biggest cryptocurrency slumped as low as $44,451 before recovering most of its losses. It was last trading down 1.2% at $46,525, on course for a drop of almost 20% this week, which would be its heaviest weekly loss since March last year.
The sell-off echoed that in equity markets, where European stocks tumbled as much as 1.5%, with concerns over lofty valuations also hammering demand. Asian stocks fell by the most in nine months.
“When flight to safety mode is on, it is the riskier investments that get pulled first,” Denis Vinokourov of London-based cryptocurrency exchange BeQuant wrote in a note.
Bitcoin has risen about 60% from the start of the year, hitting an all-time high of $58,354 this month as mainstream companies such as Tesla Inc and Mastercard Inc embraced cryptocurrencies.
Its stunning gains in recent months have led to concerns from investment banks over sky-high valuations and calls from governments and financial regulators for tighter regulation.
(Reporting by Ritvik Carvalho; additional reporting by Tom Wilson; editing by Dhara Ranasinghe, Karin Strohecker, William Maclean)
Britain sets out blueprint to keep fintech ‘crown’ after Brexit
By Huw Jones
LONDON (Reuters) – Brexit, COVID-19 and overseas competition are challenging fintech’s future, and Britain should act to stay competitive for the sector, a government-backed review said on Friday.
Britain’s departure from the European Union has cut the sector’s access to the world’s biggest single market, making the UK less attractive for fintechs wanting to expand cross-border.
The review headed by Ron Kalifa, former CEO of payments fintech Worldpay, sets out a “strategy and delivery model” that includes a new billion pound start-up fund and fast-tracking work visas for hiring the best talent globally.
“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.
Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.
“This review will make an important contribution to our plan to retain the UK’s fintech crown,” finance minister Rishi Sunak said, adding the government will respond in due course.
The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance all mean the sector’s future in Britain is not assured.
Britain increasingly needs to represent itself as a strong fintech scale-up destination as well as one for start-ups, it added.
The review recommends more flexible listing rules for fintechs to catch up with New York.
“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.
The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).
“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.
Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.
“It’s a question of knowing who to call when there’s a problem,” Swinburne said.
($1 = 0.7064 pounds)
(Reporting by Huw Jones; editing by Hugh Lawson and Jason Neely)
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