A New Way To Access Credit
The TomoCredit team.
Kristy Kim knows first-hand the challenge of obtaining credit in the US without an established credit history.
Kim, who came to the US from South Korea, couldnt initially get access to credit despite having a job in investment banking after graduating college.
I was in my early twenties, I had a good income, my job was in investment banking but I could not get approved for anything, Kim told Insider. Many young professionals like me, we deserve an opportunity to be considered but just because we didnt have a Fico, we werent given a chance to even apply, she added.
Kim started TomoCredit in 2018 to help others like herself gain access to consumer credit. TomoCredit spent three years building an internal algorithm to underwrite customers based on cash flow, rather than a credit score.
Henry Yoshida is the co-founder and CEO of retirement fintech startup Rocket Dollar.
Fintech startup Rocket Dollar, which helps users invest their individual retirement account dollars into alternative assets, just raised $8 million for its Series A round, the company announced on Thursday.
Park West Asset Management led the round, with participation from investors including Hyphen Capital, which focuses on backing Asian American entrepreneurs, and crypto exchange Krakens venture arm.
Hum Capital cofounder and CEO Blair Silverberg.
Blair Silverberg is no stranger to fundraising.
Qolo CEO and co-founder Patricia Montesi.
Payments And Operations Support
While countless small businesses have been harmed by the pandemic, self-employment and entrepreneurship have found ways to blossom as Americans started new ventures.
Half of the US population may be freelance by 2027, according to a study commissioned by remote-work hiring platform Upwork. HoneyBook, a fintech startup that provides payment and operations support for freelancers, in May raised $155 million in funding and achieved unicorn status with its $1 billion-plus valuation.
Durable Capital Partners led the Series D funding with other new investors including renowned hedge fund Tiger Global, Battery Ventures, Zeev Ventures, and 01 Advisors. Citi Ventures, Citigroup’s startup investment arm that also backs fintech robo-advisor Betterment, participated as an existing investor in the round alongside Norwest Venture partners. The latest round brings the company’s fundraising total to $227 million to date.
Money Transfer With Mobile Devices
Gone are the days when we needed to carry hard cash to make payments. Technologies like Apple Pay, Android Pay, Samsung Pay, let the customers link their credit cards and bank accounts to their mobile phones and other smart devices such as a smart watch. A considerable shift has been observed in the way customers behavior is changing when it comes to banking experience. It is expected that by 2022, the mobile payments market is estimated to grow up to $3.4 trillion. If these estimates are anything to go by, the traditional banks will have to catch-up soon or they will be left behind.
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Quick Money Transfer Apps
Almost everyone is familiar with the frustrations involved with trying to transfer money from your personal bank account to someone else. A few years ago, completing a money transfer in under five minutes would be essentially impossible. But even with all the technology we have at our disposal today, it can still be incredibly difficult for a consumer to use the technology available at their primary bank.
But a new crop of services emerged to take the pain out of transfers. PayPal, Venmo, Square Cash and others like them allow consumers to link their credit cards or bank accounts and make quick P2P transfers. While set up takes a bit of time , repeat use makes paying friends back for things movie tickets or last nights round of beers extremely quick and easy.
Millennials have come to expect such an experience. Many banks and credit unions are starting to realize this, but theyre a little behind the eight ball. For instance, traditional institutions are working on Zelle, a Venmo-like app created to work with traditional banks and credit unions.
What Can Banks And The Finance Industry Do
For some customers, banks can be difficult, but, without them, life would be brutal. Banks are not going to go bankrupt or disappear, but almost everyone agrees that they need to embrace change. The majority of established banks already have platforms to deliver new servicesthe challenge is about the implementation of customer experience design in banking.
Shifting from product-centered thinking into a more customer-centered service design approach is established as the main priority by 79% of respondents from a survey by Finextra & Virtusa of over 100 banking executives throughout North America, Europe and the Asia Pacific region.
Digital customer experience improvement challenges traditional banking operating models and culture. It requires a customer-centered approach to deliver financial services that customers would welcome using banking technology.
Todays digital customers have higher expectations than ever. To be successful, financial companies need to be more innovative to attract and retain customers through highly relevant and personalized experiences across multiple channels. One of the best ways to do this is to integrate Design thinking, not only in the processes but also in the culture of the institution.
This strategy, mixed with flexible product innovation provides a key for success in the digital banking industry and enables banks to compete with the Fintech disruptors in the future banking marketplace.
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Prioritizing Automation For Accounts Payable & Receivable
Getting paid quickly and efficiently is huge for international businesses. How much time does the average company waste tracking income, making invoice payments, and keeping the books up to date? The older commercial banking structure makes it hard to accurately track and manage thousands of transactions moving around the world, even if you have one central portal to work from.
Fintechs know that, despite a thriving business, many finance teams still manually enter data into a payment portal managed by a traditional bank. This leads to wasted time and money across the board. Employees can spend the majority of their day just processing payments. Teams may be using a spreadsheet to keep track of everythingif theyre lucky, a bank may be able to adjust the CSV file for payments or process a CSV from QuickBooks and upload through the portal.
Modern digital banks present this as a huge opportunity to boost ROI for customers.
Theyve evolved to give customers better all-in-one platforms that eliminate portal headaches. Customers enjoy a real-time view into account transactions and up-to-date, automated reconciliations across currencies. If businesses can automate around 50% of the effort they were wasting, they stand to regain a substantial amount of revenue and brainpower to use on bigger and better things.
Some Common Applications Of Fintech
In broad terms, the term FinTech can apply to any invention or innovation that can improve or optimise the way people conduct business and financial transactions. Many of these solutions are based on cutting-edge technologies like Artificial Intelligence, Blockchain and Deep Learning that enable financial services firms to collect rich swathes of customer data, deduce usage patterns and even replace human intervention by automated algorithms. This convergence between Finance and Technology has incubated a host of useful products and services that are redefining financial services and making them more accessible to the masses. These include:
- Fund transfers and online remittance tools
- Mobile wallets
- Online payments platforms for shopping and entity-to-entity
- Insurance aggregators
- Peer-to-peer lending and Crowdfunding tools
- Financial assets trading platforms
These products and services broaden the digital ecosystem, and thus, make finance more inclusive, democratic and customer-focused.
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How Is Fintech Changing Financial Services
Whether it’s finding shortcuts to do things more efficiently or cutting costs through automated processes, here are some of the key ways fintech is changing the financial sector:
- Improved service. While traditional banks rely on hooking customers into an entire ecosystem of services and products, fintechs narrow their focus towards doing the small things well. Fintechs target specific problems and build trust with customers through referral-based acquisitions. 90% of fintechs agree that customer experience is king.
- Clever branding. As fintechs grow independently to traditional financial services firms, their marketing teams take a refreshing approach to building brands people love. The gamification of marketing can create customer-friendly experiences which turn somewhat mundane and boring tasks into something engaging and personal.
- Better Value. If a fintech isnât regulated as a deposit-gathering institution, they have the freedom and flexibility to create lean business operations which save customers money.
Poor Customer Service And Slow Response Times
Traditionally, customer support teams in banking organizations spend much of their time and effort repeating the same information every time during call support, resulting in slow response times. As a result, organizations cant respond quickly enough to new opportunities and address other emerging customer issues. Unfortunately, only a handful of organizations are successful at dealing with customers better. With growing pressure on organizations to provide the best level of customer service at the speed of business, Chatbots has emerged as an opportunity to transform more quickly.
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Why Is The Fintech Transition Important For Consumers
People have more choices about how they handle their finances and spend money, thanks to fintech. The disruption also pushes banks to improve their services, often making them cheaper and faster to use. Furthermore, fintech is a benefit to financial inclusion since it enables people who would otherwise be unable to access such services.
Unfortunately, it’s not all sunshine and rainbows for everyone, as some consumers complain they do not understand all of the jargon of fintech companies or have difficulty engaging with high-tech gadgets. Others are concerned this transition will lead to financial exclusion or risk for those who can’t afford new technologies such as smartphones or learn how to use them in the first place.
As artificial intelligence advances, many employees in the financial services sector also feel their functions will become automated and their jobs taken away. Although this is a concern, fintech companies have created thousands of jobs in other areas. They require a wide range of occupations, from designers and developers to salespeople and human relations.
Fintech Is Challenging Traditional Insurance Companies Positions In The Value Chain By Enabling The Creation Of Products Tailored To Customers Specific Needs
Most insurance companies know a lot about their customers. However, when it comes to finding ways to monetise customer data, FinTech firms have the edge. By using sophisticated analytics and data models, they are better able to identify, quantify and mitigate risk, ultimately broadening their customer base and maximising their profits.
At the other end of the spectrum, FinTech is also helping users. Savvy consumers are now demanding insurance products with features tailored to their specific needs such as location, timeframe, age, lifestyle and uses. Thanks to aggregator products, consumers are able to compare insurance solutions from different providers, and choose what works best for them. Thus, a one-size-fits-all policy is no longer acceptable. Consumers demand for More-Better-Now! pushes firms to expand the scope and scale of their data collection activities. This not only helps them design tailored insurance products for their customers, but also enables them to find newer ways to convert all the collected data into tangible profits. Without the paradigm shift brought about by FinTech, data monetisation in the insurance industry would not have been possible.
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Digital Disruption In Banking
Digital disruption in banking can allow traditional banks to cope with the rising competition, or better yet partner with fintech to disrupt the whole banking industry. In 2019, nearly 70% senior banking executives expressed that its a good opportunity for banks to collaborate with fintechs and Big Techs to create new services.
According to Citibank, due to the rise in fintech, we can expect a 30% decrease in the banking sector job market. This is because fintech software development services are allowing companies, businesses, and individuals to overhaul their operations and opt for automated and improved fintech services.
To keep up with the growing competition, a lot of banking systems have also started adopting newer technologies. These include blockchain, artificial intelligence, quantum computing, and more.
Moreover, banks are also gradually getting comfortable with the idea of investing in, and collaborating with fintech companies.
For now, it wouldnt be correct to assume that fintech will completely replace banks in the future. However, theres no denying the fact that effects of fintech on banking industry have been huge.
How And Why Did The Fintech Disruption In Banking Started
In 2018, venture capitalists raised $111 billion USD to support the Fintech revolution.
From the first sight, with the biggest banks controlling nearly $17 trillion in assets, $111 billion of Fintech industry looks like peanuts.
We have to consider that retail banks spend $30 billion annually on digital transformation, which is not so impressive compared to Fintechs $111 billion.
It’s self evident that the Fintech disruption in banking industry is in full swing and this trend is growing stronger and entering all the financial sectors.
Traditional banks and financial sectors have been playing catch-up with very little change over the past 20 years. Bank managers are hesitant to embrace change and new technologies into the banking industry. Some may disagree, saying that banks have come a long way over the years, but, in reality, all improvements were made in favor of a banking profit and not the customers.
Online banking has reduced the need for regular visits to bank branches. This has changed how we perceive banking services but not the banking model itself.
Online banking probably wouldnt happen if accountants didnt notice that the costs of maintaining an online banking system are much less than that of the branches.
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What Are Fintech Companies And What Do They Offer
Fintech means financial technology. It is a new and emerging industry focusing on using new technologies to make banks of the future more efficient, transparent, and easy to use for both customers and businesses alike. It is said to improve the customer experience according to research by PWC, Deloitte, and KPMG – among other multinational accounting firms.
Fintech companies also offer loans or help with investments in stocks, bonds, and new forms of assets like cryptocurrencies.
From lending to savings, fintech companies provide a wide range of services. They also bring forth more digitalisation, which banks have been slow to adopt. As a result, financial technology companies are taking advantage of this opportunity in the market by offering similar services at lower prices.
Banks Can Play The Fintech Game Too
Fintech, shortened from financial technology, is assumed to be a modern movement, yet the use of technology to assist financial services is by no means a recent phenomenon. Financial services is an industry that introduced credit cards in the 1950s, internet banking in the 1990s and since the turn of the millennium, contactless payment technology. Yet, fintechs place in the public conscience has really taken off in the past three years:
The takeoff of this term has come from startupsactors not within the inner circle of financial services, taking a more prominent role within the ecosystem. Three core trends have led to this emergence:
The narrative that the fintech landscape suggests is that startups are using technology to disrupt incumbent banks. Yet, there is no reason to suggest that banks are facing their own Kodak or Blockbuster Video moment. They still remain widely used, profitable, and cash-rich businesses. What this article will address, though, is how they can respond better to this fintech vs banks movement as, in my opinion, their response so far has been suboptimal.
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Focus On Partnerships And Connections
In the book Bank 4.0, Brett King describes how an Australian bank spent months in talks of collaborating with his neobank, Moven. They would ask him all sorts of questions trying to take in as many technical details about how the neobank worked, the features, the partners and the objectives. The talks went on for nearly 3 years, and it was soon obvious that they had no intention of partnering up. In 2015, they then proceeded to spend $20 to $30 million to launch their own financial wellness app. It cost them two years and over $20 million to launch their own product, when they could have partnered with Moven, launched in 3 months and spent under $1 million.
The point is, banks shouldnt believe they need to build everything themselves. The future is partnerships, APIs and Banking as a Service. Fintech is disruptive because its all about integration: they specialise in doing one thing very well, then connecting with everyone else.
Truelayer allows any company to get into financial services. Onfido makes it easy to implement online KYC. Moov allows companies to store, receive and send payments.
Fintechs are disrupting banking because they focus on doing one thing well and then partnering up with others. Banks are still trying to build everything themselves, which means they lag behind, are slow to compete and waste money and energy on unnecessary projects.
More Collaborative Equity Investing In Fintech Startups
**The end-game of banks investing in startups is also confusing. If it comes out well, there will be a one-off financial windfall, but presumably one would also infer that the disruption faced by the bank has now scaled. Acquiring the invested companies also results in integration difficulties and the zero-sum game of cannibalizing existing offerings via the startups own. The incentive to be involved and keep a finger on the pulse also runs the gambit of alienating other investors and distracting the founders unfettered direction.
Taking equity stakes in startups should be more of a collaborative exercise for banks. One of the core value-adds that a corporate investor provides, over say traditional VCs, is that they have a sandbox of clients and activities that are potential customers of the startup. Instead of investing with a view to perhaps aquire the startup at a later date and hoard it for itself, bank investors should open up their own client roster to the startup. Such iterative tests will allow for the startup to validate itself and for the bank to provide a value differentiator to clients, while demonstrating internally what industry innovation really looks like.
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