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Banking And Fintechs Will Align More in 2020, Say CB Insights and Mastercard

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The year ahead should be a good one for fintech, according to a study by CB Insights and Mastercard which sees an expansion of existing products and services rather than any radical innovation.

“Echoing other sectors, FinTech companies first “unbundled” incumbent offerings and are now ‘rebundling’ them in an entirely reimagined financial stack.”

Ken Moore, executive vice president and head of Mastercard Labs, explained that payments and credit decisions have always been key elements of customer journeys.

“However, consumers now increasingly expect these banking activities to be integral parts of the overall experience rather than a separate event. To meet these expectations, banks are transforming how they deliver products, and fintechs and digital players have moved into banking.”

The report breaks fintech into regions and includes a number of companies, such as Denver-based Infinicept that are part of Mastercard’s Start Path program for later stage startups. Infinicept combines automated services and APIs to let companies become payment facilitators.

“In regions like North America, digital players with large customer bases are increasingly moving into financial services and looking to partner with strong service providers,” Moore said. “We’ve seen this with Google’s new checking accounts, Uber’s announcement of its plans to hire a financial services team or Mastercard's partnership with Apple and Goldman Sachs to launch the hugely successful Apple Card.”

CB Insights has, over the years, published graphics with a bank at the center and an explosion of fintech firms that offer competing services in specific areas such as payments, lending, security and mobile. Mastercard’s report has the unenviable challenge of trying to define some rather hazy company definitions in the evolving trend of firms offering Banking as a Service (BaaS) as Green Dot and others have described their product catalog.

Temenos, with its API store of software products that at times compete with its own offerings, is an example of hybrid bundling, especially since its acquisition of Kony.

Both banks and tech firms are paying attention to, if not obsessed with, the customer experience.

“We are living in an experience economy – providing banks with the ability to easily integrate and combine traditional banking products with services from new innovators is paramount if they are to meet customer demands,” added Moore. “As we look toward 2025, we expect consumers will demand not just turnkey experiences but also hyper-personalization within those experiences. This creates a need for banks and their providers to deliver customization at scale. As a result, banks have begun to operate more like fintechs – they’re developing APIs, leveraging agile practices, and forming new partnerships to roll out services with holistic experiences.”

The role of regulators gets prominent attention in the report, with CB Insight-Mastercard describing the U.S. as a laggard in adapting regulation to new tech capabilities in finance, especially since an October federal judge rules the Office of the Comptroller of the currency does not have the authority to issue banking licenses to fintechs. Moore said he expects that heavy investment will continues in the U.S. fintech market despite the court ruling on the OCC.

“This investment will continue to shift the financial services value chain in the U.S.,” he explained. “Over the medium-term it’s likely that open banking regulatory initiatives will spread to all parts of the globe and we’ll see a number of challenger banks in the U.S.”

Europe, with open banking and PSD2, has enabled the rise of challenger banks and leads the world in smart regulation, the report concludes. The region is awash with well-funded startups that have acquired millions of customers, although debate continues on how many have made the mobile app their primary bank account with direct deposit of pay. Several of them including Revolut with its Mastercard-issued debit card, N26 and Monzo are entering the U.S. market, which has its own set of regulatory challenges and major money center banks that are leaders in mobile banking app development.

In Southeast Asia the study finds that some firms are following the Chinese model of Tencent’s WeChat and Alibaba’s Alipay which started outside of finance — in social media and ecommerce — before moving into banking products. Indonesia’s Go-Jek ride hailing app expanded into the Go-Pay mobile wallet and handled $6.3 billion in 2018. whether the Indonesian firms will make it to super-app status remains to be seen, the report concludes.

In the Latin America-Caribbean (LAC) region fintechs have focused on the underserved, both individuals and small businesses. Mexico has adopted the FinTech Law and a regulatory sandbox, while Brazil in 2018 adopted laws to allow fintech firms to offer P2P lending services. Elsewhere in the region governments have been slow to adopt guidance for fintech firms.

Africa continues to be a leader in mobile payments and banking, building on the success of M-PESA. Nigeria’s OPay “is a one-stop mobile-based platform for payment, transportation, food and grocery delivery, as well as other common everyday services.” Flutterwave, also in Nigeria and a Start Path company, has developed a payments infrastructure for business to make a receive payments across Africa.

“In 2019, FinTech startups have gained scale, moved into new geographies and continued to build a financial stack from the ground up,” the report concludes. Mastercard’s Start Path aims to use the company’s global structure to assist its participants in finding new geographies for their products, especially across the southern hemisphere where a product developed in Latin America, for example, might find a market in Africa.

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