Tapping into 2018 fintech trends: LATTICE80 X Rainmaking Innovation panel

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Banks risk having some of their core services and competences outperformed by niche fintech startups, but they also have incumbent advantages to fall back on. In 2018, the real thing keeping the banks up at night may be the fear of main rival banks adopting and innovating faster than they can, leveraging huge amounts of data, rather than scrappy upstarts.

This and more was some of the key discussion topics at a panel on 2018 fintech trends, held this morning at fintech hub LATTICE80. The panel was conducted in partnership with Rainmaking Innovation. Panelists included:

  • Joe Seunghyun Cho, Co-founder and Chairman of Marvelstone Group and Founding CEO of LATTICE80
  • Michelle Katics, Co-Founder and CEO of PortfolioQuest
  • Samuel Hall, Managing Director, Singapore at Rainmaking Innovation and Startupbootcamp FinTech in Southeast Asia
  • Vincent Perrier-Trudov, Chief Product Officer and Head of Asia-Pacific at Consulting Quest

The panel broke the discussion down into three key trends of global fintech as we head into 2018. They are unbanking, unlearning, and rebundling. Below are excerpts of the thoughts and contributions to the discussion made by each panelist:

Samuel Hall, Managing Director, Singapore at Rainmaking Innovation and Startupbootcamp FinTech in Southeast Asia

  • Banks are being disrupted by fintechs and no longer have the competencies to compete at all levels of the financial stack. We are seeing fintechs entering the market for niche segments (i.e. lending, payments, wealth management).
  • The advantages of the banks remain, for now at least, around capital and infrastructure. For startups, it’s a technology advantage. Evolution is not wiping slate clean but creating lots of small innovation that is resulting in a “death by a thousand cuts” effect on banks that do not keep up.
  • Banks will have to decide on their core competencies. Fintechs can position themselves as ecosystem players with platforms built around them, allowing other services to plug in different applications – i.e. a messaging app that is trusted can then add layers such as payments.
  • Traditional banks make it hard to switch to other banks due to layers of bureaucracy that hinder the ability to get things done quickly. Fintechs are doing a good job of building trust in core services, and from there adding additional layers. Look at how Grab is moving to manage merchant payments beyond just a taxi booking app.
  • Many fundamental banking needs of customers are not that profitable. Innovation labs and hackathons are not having clear impact on banks’ bottom lines, which means they are not doing it properly. For banks to innovate, they have to focus on business growth. They won’t succeed by working with early stage startups or focusing on PR efforts.
  • Banks need startups that have experience working with bigger institutions. Right now, there’s not enough innovation in specific business units of the banks. However, 2018 will be year when innovation at banks start being done properly.
  • The banks’ incentives for attracting the really credible startups to their innovation contests are not good enough at present. The bait is that these startups get the chance to pitch to the board and do a proof of concept, but for the really competent startups making money this isn’t a good enough deal to divert their time.
  • Banks still have huge unfair advantages in size and scale. By working with large corporates, startups can access these unfair advantages. Banks are most afraid of the incumbents and other banks that change their models in line with evolving technology, less so the scrappy upstarts.
  • They will have to be brave and cut out parts of their services that are not going to help them grow and be profitable in a new technology-driven era.
  • Finally, working with innovation team at a bank as a startup is immediate red flag because they don’t have real innovative KPIs. Startups need to deal with the person within the business unit you’re targeting that controls the budget, because they are ultimately the decision makers.

Vincent Perrier-Trudov, Chief Product Officer and Head of Asia-Pacific at Consulting Quest

  • Banks traditionally made their money from the large SME segment, with retail customers being largely absorbed as a cost. However, fintechs are targeting these consumers who are too small for the banks.
  • Now the tables are turning, with some customers who qualify for bank accounts no longer wanting one. Instead, they may want prepaid cards of e-wallets on their mobile. We no longer need the whole legacy structure of bank. It’s difficult, though, for banks to go into a platform play due to the inertia of their history.
  • Banks still make customers queue for long waiting times in branches, which makes the customers feel they’re not valuable. Also, the people working in the banks suffer due to systemic inefficiencies.
  • But there are examples where the banks are adapting well: DBS digital bank has successfully addressed a low margin segment of customers in India by starting everything from scratch. It didn’t work to implant the existing bank structure in Singapore – it required a different model and approach.
  • Unlearning is needed in terms of shaping banking structure to suit local markets needs. If a few units or system within a bank can operate at 10 per cent of legacy cost, it’s already a big saving for the bottom line in that market. New fintechs are building niche solutions and systems that allow for that.
  • Banks will benefit if they can be nicer to their retail customers.
  • If I’m a bank in 2018, I’ll be afraid of GoJek, which is doing great things with payments, having built the fundamental pillars of financial services to address the needs of Indonesia’s retail segment. In America, banks should be afraid of Amazon, which has a stake in payments around all its assets.
  • The new reality is that the outside pressure on innovators is higher than the pressure on cushy insiders with vested interesting attempting to keep their jobs in legacy banking operations. The value of data for the retail segment is becoming worth more than the profits they can make from investing relatively small bank account deposits from these customers.

Michelle Katics, Co-Founder and CEO of PortfolioQuest (moderator)

  • Customers now have value in form of data, which is the new oil.
  • Banks should be afraid of the companies with the most data who know how to use it.
  • They need to cut costs while at the same time adding value – a difficult balance to strike.

Joe Seunghyun Cho, Co-founder and Chairman of Marvelstone Group and Founding CEO of LATTICE80

  • Banks have advantages over fintech startups: they own the data, and have established branding and reputation in the market. They have huge customer bases and transactional data, which is what smaller startups are trying to get. But banks have lots of people in engineering and compliance that slows them down.
  • It is increasingly hard to distinguish between banks and fintech companies with banking licenses.
  • Korea is an example of a tech-enabled government where tax is calculated and deducted automatically. People didn’t expect Kakao to function as a bank and make money through offering lots of financial services. Alibaba became a top M&A player in China.
  • Banks are afraid of fintechs: if Alibaba wants to buy 5 per cent stake in of DBS, how will the regulators and other stakeholders react? This would be interesting to see. The fact is Alibaba can raise hundreds of billions in private equity funds, which is larger than DBS’s market cap.
  • ICOs are too interesting to ignore, with Bitcoin hitting more than $7k this month. I disagree that cryptoeconomics is not as influential as the underlying blockchain, and feel it’s a wave not to be missed. Startups that wanted $1 million from me as an investor a few years ago have went on to raise tens of millions through ICOs, so it’s disrupting early stage funding. We are still friends, but they don’t need traditional investors as much as before.
  • The challenge for cryptocurrency remains: where can I spend it? Regulations will need to mature further around ICOs and cryptocurrencies for the market to stabilise. Personally, I want to provide a way for institutions to have exposure to cryptocurrencies as an alternative asset class.

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