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How Banks Can Survive in an Increasingly Competitive Financial Landscape

By Daniel Bahar For quite a few years now, financial institutions considered fintech companies as the industry’s biggest potential disruptor, as confirmed by KMPG’s recent survey. As such, many financial institutions have been formulating their fintech strategies, opening innovation hubs and investing in fintech startups to some extent. However, collaboration levels have been limited to […]

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By Daniel Bahar

For quite a few years now, financial institutions considered fintech companies as the industry’s biggest potential disruptor, as confirmed by KMPG’s recent survey. As such, many financial institutions have been formulating their fintech strategies, opening innovation hubs and investing in fintech startups to some extent. However, collaboration levels have been limited to specific service acquisitions and initiatives and there is so far limited evidence of a significant enough change taking place in the traditional banking sector.

Being slow to embrace new technologies, highly sophisticated fintech startups have managed to flood the market, offering customers superior user experience as standard and enabling the strongest fintechs to gain significant share of the banking world’s core business. Over the past year we’ve seen a dramatic increase in the complexity of the competitive landscape both from early and later stage fintech startups. To add to this, competition has come from the new economies being created thanks to blockchain technology on the one hand, and the big tech giants strengthening their fintech capabilities on the other.

In this rapidly changing market, financial institutions are feeling the pressure and are tooling themselves up by adopting new technologies, breaking down the barriers between siloed internal systems and creating fintech strategies for adopting a more collaborative working framework with the wider industry. If they are to maintain their relevance moving forward, the banks know change needs to happen now.

In the past few years we have seen over 30 fintech unicorns and many equally significant companies start to rival the banks at their core activities including lending, investments, payments, personal finance and digital banking. 

Top 5 fintech companies by area of focus:

Unburdened by outdated legacy systems and heavy operational costs, the fintechs of tomorrow benefit from having strong artificial intelligence and machine learning capabilities and are able to offer highly personalized, timely, optimally designed financial products that are often perfectly tailored to a consumer’s behaviour.

Supported by regulators trying to level the playing field and open the market up for more competition, rulings such as the PSD2 regulation in Europe allows 3rd parties (mainly fintechs) to access consumer financial data, stripping the banks from one of their most valuable assets.

The blur between pure e-commerce and fintech as the worlds of offline and online shopping start to merge is creating a totally new dynamic and threat for traditional banks. An example of this was eBay’s acquisition of PayPal back in 2015. PayPal, a fintech company now valued at $90B, alongside other payment solution providers included in the image above, retailers’ growing credit card business, consumer loans and lending solutions are becoming more deeply rooted in the overall shopping experience.

In Asia, we’re seeing e-commerce platforms expand their remit by providing full stack financial service offerings. The most significant of which is Alibaba’s Ant Financials. Founded in 2014, it’s now the world’s largest online banking platform and is planning to IPO with an estimated valuation of $100B. Pure evidence of the potential power that can be created thanks to an alliance between a fintech and an online retailer.

2017 has also been a transformative year for blockchain technology and the crypto economy. A substantial financial services ecosystem has emerged in creating a $400B plus blockchain based economy in less than a year. Given the size of this new economy and its rate of growth, the threat posed to traditional banking is very real. Consumers and businesses are steadily being offered a totally alternative economic system, that has the potential to replace infrastructures, governance mechanisms and the value distribution between parties. The potential for blockchain to truly disrupt the traditional banking system as the technology continues to mature, is not far off.

Whereas blockchain promotes a decentralised economy, on the other end of the spectrum, highly centralised economies are starting to form within the tech giants (GAFAM – Google, Amazon, Facebook, Apple & Microsoft), as they start to build up their fintech capabilities. Their increasing global dominance, reach and technical superiority gives them the potential to overshadow the traditional bank’s relationship with consumers. Built on data collected from each interaction powered by the most advanced AI and machine learning technology, they are defining the standards for customer experience and control the most pervasive consumer social channels and experiences (Siri, Alexa, Google’s personal assistant etc).

To add to this, the increasing adoption of cloud based solutions by traditional banks is leading to a growing reliance on tech giants for their cloud based services. Consequently, this has the potential to erode another valuable asset of traditional banks – their legacy systems.

So far, the GAFAM giants have only displayed subtle attempts at competing directly with traditional banking. Amazon’s growing lending business, and the other giants’ initial attempts to enter the payments and transfers environment have been small in general. But nonetheless, these moves could certainly be seen as early signs of their desire to expand by leveraging the significant power stored in their balance sheets.

The Asian fintech ecosystem serves as an example of the potential dominance major platforms can have on the financial industry. Tencent managed to reach a $500B market cap, now offering full stack financial offering thanks to its WeChat payment solution. Together with Ant Financial, Tencent has managed to capture over 50% of the fintech market in Asia.

Competitive landscape of the financial industry:

It is clear that with so many competitive pressures placed on the traditional banking sector coming from multiple directions, banks should be rethinking their objective of trying to control the entire value chain. Instead, they have a huge opportunity to focus on leveraging what they have and working in a more collaborate way with the wider ecosystem.

The number one opportunity and also challenge, is for banks to leverage their consumer data and become powerful data driven organizations. Their ability to harness AI and and machine learning capabilities is critical to their survival. The challenge comes in organising existing data systems that often sit across multiple, siloed platforms where data is inhomogeneous and the appetite for change is often not aligned internally.

Nevertheless, instead of passing on financial data to industry newcomers, they should instead  use their extensive financial product portfolio and position of trust, to offer their consumers enhanced financial products via GAFAM channels by working in collaboration with tech giants. For example, imagine a time when consumers could openly interact with their e.g eToro account, or apply for a loan from Kabbage via their own bank thanks to a voice activated personal assistant of choice.

In addition, banks should be embracing blockchain technology both for internal system means, as well as for building stronger bridges in order to further strengthen their position of trust.

Despite many weaknesses, the current banking system still remains the backbone of the financial industry. Although outdated, their legacy systems are proven to be the most reliable at scale. They also benefit from having a significant equity cushion and are the ones to carry the inherent risk in every financial transaction. To add to this, their systems and equity position are highly supervised by regulators and government insurance schemes, which over time have given the banks their most valuable asset, trust. Trust, however, can erode quickly if the banking system is to continue to lag behind in terms of customer experience and poor financial product offering.

We have a significant way to go before we see a real transformation of the banking industry but it really is now or never if the banks are to preserve their position of strength. To accelerate this transformation, we’ve seen many interesting investment opportunities in Israeli startups focused on helping the traditional banking system to advance. They include startups focused on advanced data analytics capabilities, more personalised customer journey and interface platforms, process automation, data governance and security solutions. All of which are powerfully trying to close the innovation gap and help build a more collaborative financial ecosystem.

Source: https://www.iangels.com/2018/02/banks-can-survive-increasingly-competitive-financial-landscape/

Private Equity

Alternative Investments: Accelerate’s Alt ETFs Now On RBC Dominion Securities A+ Platform

Accelerate Financial Technologies Inc announced this week that its alternative ETFs have been added to the RBC Dominion Securities A+ platform. RBC Dominion Securities describes the A+ as the next level of wealth management.

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Alternative Investments: Accelerate’s Alt ETFs Now On RBC Dominion Securities A+ Platform

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The A+ is for you if “you require serious investment management for your serious money.”

Accelerate Financial Technologies Inc announced this week that its alternative ETFs have been added to the RBC Dominion Securities A+ platform.

RBC Dominion Securities describes the A+ as the next level of wealth management.

For select clients with serious money, the platform provides greater convenience, customization, RBC’s Unified Managed Account technology, access to elite money managers worldwide, and tax efficiency.

Accelerate’s Alt ETFs on RBC A+

The range of alternative ETFs from Accelerate allows investors to diversify beyond stocks and bonds by including alternative asset classes in their portfolios.

The firm is known as a pioneer in institutional caliber alternative ETFs including hedge fund and private equity ETFs. It claims it is “disrupting the asset management industry by offering performance-oriented alternative investment strategies previously reserved for wealthy investors at a fee significantly lower than competitors.”

“We are pleased to be chosen by RBC Dominion Securities, a global leader in wealth management, as one of the select group of high-quality investment managers on the exclusive A+ platform for RBC Dominion Securities advisors and their clients,” said Accelerate CEO Julian Klymochko. “In an era of rock-bottom interest rates and record-high stock market volatility, we are pleased to provide investors with diversification, alternative yield, and alpha generation solutions through alternative investment strategies including absolute return, arbitrage, enhanced equity, and private equity replication.”

Selected ETFs

The alternative ETFs on the RBC Dominion Securities A+ platform include:

  • Accelerate Absolute Return Hedge Fund (TSX: HDGE) – a diversified, liquid, and performance-oriented long-short equity hedge fund
  • Accelerate Arbitrage Fund (TSX: ARB) – provides exposure to SPAC arbitrage and merger arbitrage investment strategies
  • Accelerate Enhanced Canadian Benchmark Alternative Fund (TSX: ATSX) – combines exposure to the S&P/TSX 60 plus a long-short Canadian equity overlay
  • Accelerate Private Equity Alpha Fund (TSX: ALFA) – designed to provide investors with private equity-like investment returns

Related Story:  Liquid Alt ETF Provider Accelerate Offers Ready-Made Alternative Investment Strategy                                                

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Source: https://dailyalts.com/accelerates-alt-etfs-now-on-rbc-dominion-securities-a-platform/

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Private Equity

Venture Capital: AgTech Startup Benson Hill Lands $150M

Benson Hill, an agtech startup based in St. Louis, announced Thursday its close of a $150 million Series D round led by Wheatsheaf and GV (formerly Google Ventures). It uses biotechnology and data science to enhance the nutritional qualities and sustainability of crops.

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Venture Capital: AgTech Startup Benson Hill Lands $150M

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Benson Hill uses biotechnology and data science to enhance the nutritional qualities and sustainability of crops.

Benson Hill, an agtech startup based in St. Louis, announced Thursday its close of a $150 million Series D round led by Wheatsheaf and GV (formerly Google Ventures).

The company said other strategic and ESG focused investors also participated. These included Argonautic Ventures, Caisse de dépôt et placement du Québec (CDPQ), Emart, GS Group, Louis Dreyfus Company, iSelect Fund, Fall Line Capital, Mercury Fund, Prelude Ventures, Prolog Ventures, S2G Ventures, and additional strategic and family office investors.  (FOOD navigator-USA.com)

Benson Hill technology

Benson Hill uses biotechnology, data science, and AI to enhance the nutritional qualities, flavor, and sustainability of crops and vegetables.

The firm’s “Cloud Biology” is the fusion of data, machine learning, and AI techniques with biology. Its “CropOS” is a proprietary platform that facilitates the accessibility and actionability of Cloud Biology.

The CropOs platform uses plant phenotyping, predictive breeding, and environmental modeling algorithms to better control the plant breeding process and realize these advantages:

  • Produces plants that are highly productive, highly nutritious, and better tasting
  • Better texture
  • Reduce the number of processing steps
  • Reduce the need for additives
  • Grow plants that “do more with less,” thus boosting sustainability

The company’s work so far has been concentrated around soybeans.

Its new, ultra-high-protein (UHP) soy products spiked the interest of investors. They come from a highly productive non-GMO soybean that is rich in oleic oil content.

Use of funds

Benson Hill plans the commercial launch of the first Ultra-High Protein soybean varieties in 2021, among other product launches.

It also plans to expand its team by adding top talent and continue the development of Cloud Biology and CropOS.

“As a society, we’re at a crossroads made more evident as the pandemic has revealed strengths and vulnerabilities in our food system,” said Matt Crisp, Benson Hill CEO. “Food choices that create enjoyment, make us stronger, and help preserve our environment need to be accessible to everyone, and the power of plant diversity and technology innovation can help fuel that evolution.

Related Story:   Smart Farm Technology To Take The Drudge Out of Plant Breeding

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Source: https://dailyalts.com/agtech-startup-benson-hill-lands-150m/

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Private Equity

FinTech: Alliance Data Buys BNPL Fintech Bread For $450M

Alliance Data Systems (NYSE: ADS) said Thursday that it will acquire Bread and its digital platform for $450 million of which $100 will be paid through Alliance stock. The transaction would expand Alliance Data’s own digital offerings by including buy-now-pay-later (BNPL) products.

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FinTech: Alliance Data Buys BNPL Fintech Bread For $450M

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Alliance Data will pay in cash and stock for the acquisition.

Alliance Data Systems (NYSE: ADS) said Thursday that it will acquire Bread and its digital buy-now-pay-later (BNPL) platform for $450 million of which $100 will be paid through Alliance stock.

The transaction would expand Alliance Data’s own digital offerings by including BNPL products. BNPL is a major trend now that consumers have embraced the interest-free, zero-fee facility to pay in installments. Alliance is a provider of data-driven marketing, loyalty, and payment solutions. (Alliance)

Digital BNPL is particularly popular with millennials and the younger set. They prefer not to run up credit card debt and like the speed and convenience. The technology and products acquired from Bread will address this segment of the population.

Bread already has tie-ups with merchants such as online jewelry seller Noémie, the luxury watch seller Hublot and Newton Baby, the crib mattress provider.

BNPL customer experience

“Bread’s flexible, easily-integrated payment solutions, coupled with Alliance Data’s Enhanced Digital Suite, will improve the digital customer experience and support increased acquisition and checkout rates, offering the best payment product to the right consumer at pivotal moments in the customer’s online shopping journey,” Alliance said in a statement.

Alliance intends to leverage Bread’s solutions along with its own existing private label, general-purpose and commercial products.

COVID-19

Its brand partners will therefore get another advantage in the eCommerce channel, with online businesses already getting a boost from COVID-19.

“With the timing of the holiday season upon us, the COVID-19 pandemic has accelerated the adoption of digital technologies, and perhaps nowhere as significantly as in financial services and payments,” said Val Greer, chief commercial officer, Alliance Data.

BNPL is now crowded with cash-rich players

Payments giant PayPal (NASDAQ: PYPL) announced in August that it would begin offering BNPL services, recognizing that COVID-19 had triggered a dramatic increase in their popularity.

Other players in the BNPL field include Klarna, Affirm, Afterpay, and Quadpay.

In a recent study, Tech Crunch found that PayPal had the highest retailer coverage with a presence of 65% retailers. Afterpay was a distant second at 10%, then Affirm 6%, Klarna 5%, and QuadPay 2%.

The study concluded that PayPal was primed to dominate the BNPL wars.

Related Story:   PayPal Challenges Klarna In U.K. BNPL Tussle                                                

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Source: https://dailyalts.com/alliance-data-buys-bnpl-fintech-bread-for-450m/

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