Are there any strong examples of disruption through fintech in your jurisdiction?
Fintech (2nd edition)
In just the last few years, we have seen fees charged to consumers in industries like trading, payment processing, money transmission, and lending decrease drastically as a result of the increase in competition and the advent of new business models. Development in fintech offerings will continue to disrupt fee structures and how services are delivered to consumers.
One example in the United States (and around the world) is the rise of the neo-bank. Neo-banks are fintechs that offer financial services once only offered by incumbent financial institutions, such as checking and savings accounts, money transfer services, and loans. Neo-banks operate solely online to keep costs low and to be able to compete with incumbent financial institutions. The low cost, consumer benefits, and mobile delivery of services can lead to adoption by tech-savvy consumers and the unbanked. Neo-banks pose risks by operating and advertising themselves as providing bank services. However, often neo-banks are not banks, and therefore may not offer the same deposit insurance or consumer protection that banks can unless they partner with a chartered bank.
At the moment, there is no single major fintech disrupting the whole financial sector at once. However, there are several sector-specific initiatives that each adds value in its own way. Examples of this are Qover (insurance), Pom and Digiteal (both e-invoicing), Monizze (e-meal vouchers), Edebex (invoice market place) and mozzeno (P2P lending).
We have reasons to believe that more and stronger examples of disruption of the Belgian financial sector will appear in the coming months and years.
Disruptions through fintech are developing through Bermuda-based business operating internationally, however, as of yet there have not been any disruptions in the domestic market thus far.
On April 26, 2018, the National Monetary Council issued Resolution No. 4,656 providing for the setup and operation of two new types of financial institutions specialized in lending through electronic platforms: Direct Credit Company (Sociedade de Crédito Direto - “SCD”) and Peer-to-Peer Loan Company (Sociedade Empréstimo entre Pessoas - “SEP”).
According to the Central Bank of Brazil (BACEN), this new regulatory framework seeks to foster innovation at the National Financial System (SFN) as well as to improve competitiveness and increase competition among financial institutions in the credit market, thus creating the conditions for a reduction in interest rates.
The business model of an SCD is characterized by lending, financing and acquisition of receivables exclusively through an electronic platform, using financial resources that originate solely from its own capital. This means that an SCD is prohibited from raising funds from the public or collecting deposits to be used in its financial activities.
On the other hand, SEP stands for a financial institution that, exclusively through an electronic platform, brings creditors and borrowers together in a peer-to-peer lending arrangement. By so doing, SEPs will intermediate the borrower-creditor relations, thus engaging – in the words of BACEN – in a 'typical financial intermediation activity.
The new resolution has brought greater legal certainty to the lending fintech industry by specifically regulating transactions in this incipient market segment and allowing it to detach from the traditional banking industry. It is hoped that the setup and authorization processes develop at a reasonable pace so that lending fintechs may soon start doing business in the new format proposed by the Brazilian monetary authorities. Currently there are several SCD and SEP approved and in the process of being approved by BACEN.
Currently, there are no big disruptions in the industry. The major operators (commercial and investment banks, insurers, and brokers) operate under strict regulations, which represent a strong entrance barrier for smaller competitors. Thus, small Fintech companies are often being acquired by these major players to be incorporated in the major financial institutions’ platforms.
There have been several strong examples of disruption by fintech companies in China. The largest disruption has been in the payments space, as discussed above, but there have been others as well. For example, there has been a sharp rise in online lending/deferred payments provided by fintech giants such as Alibaba and JD, which provide loans to shoppers on Taobao or JD (both similar to Amazon/eBay), who can choose to make instalment payments when purchasing products. This move by e-commerce companies into consumer credit pits them against China's largest credit card issuer, UnionPay, and banks.
Deposit-like vehicles are also challenging banks' funding models. For example, in 2013, Alibaba launched an app called Yuebao that allowed users to seamlessly invest in money-market funds, with no minimum amount and with the option to withdraw funds at any time. These funds offered higher rates than those associated with bank accounts.
In addition, the initial absence of regulation sparked the boom of the online lending market, but also gave rise to many scams and high-risk financial models. The most headline-grabbing case was Ezubao, in 2016, which was an online peer-to-peer lending platform that promised double-digit annual returns to investors. However, the platform turned out to be a ponzi scheme. After the Ezubao scandal, P2P Platforms braced for the first wave of regulation intended to standardise the industry, which placed caps on loan sizes and forced lenders to use custodian banks to hold their deposits. A pilot program for registration of the remaining Chinese P2P Platforms in a national monitoring system was originally scheduled to close by summer 2019 but has been extended to the end of 2019. We believe that the tighter regulatory environment will lead smaller players either to fold or to collaborate, and that several stable companies will emerge.
The UK boasts many examples of fintechs disrupting the traditional financial, payments and insurance systems. The UK has seen more challenger bank activity than other regions, hosting Atom Bank, Tandem Bank, Monzo (the first online-only challenger bank with a full banking licence) Monese, Pockit, Starling, Tide and Revolut, among others. A number of these have already obtained a full banking licence whilst others have followed the path of first obtaining an e-money licence.
The implementation of the second Payment Services Directive ((EU) 2015/2366) paved the way for a host of providers of account information services (“AISPs”) and, to a lesser extent, payment initiation services providers (“PISPs”). Notably, UK AISPs have taken the initial regulatory description of provision of account and transaction data from multiple accounts to a consumer and elaborated on this, developing innovative uses for this data to bring new fintech products to market, whether by improving on existing processes or creating new offerings. For example, AISPs are currently using account and transaction data to speed up the process of evaluating SME and consumer credit eligibility, thus streamlining the process of obtaining loans. Providers of accounting services use access to account data to provide faster and more accurate accounting services to their users. Other uses of AIS include innovative applications such as automated loyalty point and cashback provision. This space has also seen the growth of intermediary providers of account data, such as TrueLayer and OpenWrks, who are registered as AISPs and provide AIS as a service to third parties in the fintech space who then use the data to provide services to end-users.
Other areas in which UK fintechs lead run the gamut from robo-advising and app-based investing (Nutmeg and Wealthify), peer-to-peer money remittance (Transferwise), business-to-business lending (Funding Circle), providers of SME small- and micro-loans (Iwoca), identity-verification (Onfido, Yoti), peer-to-peer lending (Zopa), invoice factoring (Market Invoice), and open banking (Fractal Labs, Fluidly).
PagosOnline (acquired by PayU) started in 2002 to work in payment solutions for e-commerce and introduced payments gateways which changed the ecosystem so much that (i) regulation was revised in order to introduce rules for the newcomers, (ii) market supervisor decided to turn a blind eye into some of the gateways activities as not to hinder innovation. Rappi, initially set up as a delivery company, is growing fast by distributing digital wallet services to retail consumers but moving rapidly into any type of good or service.
A strong example of disruption through fintech in the UAE is the lower requirement for over-the-counter banking services due to the availability of digital services. Another strong example is the launch of crowd-funding platforms, which result in a decrease in demand for loans from banks, e.g. Smart Crowd, which was a part of the DIFC Fintech Hive program and now a company licensed by the DFSA, obtained an operating license in April 2018 as a property crowdfunding website.
There has not been any strong “disruptive” force in the fintech market in Taiwan. Given that offering of financial services is subject to strict scrutiny by the regulators of the financial industries as well as our central bank, many fintechs have been struggling in trying to find ways to sustain their operations. For example, before the FSC allowed e-payment services, local players had fought really hard against the foreign exchange regulation and the traditional banking system. Although the new e-payment law was finally promulgated, none of the new players granted with the required licenses have reached the “critical mass” thus far. P2P lending and crowd-funding may be two other areas where a few players have made their presence on the market, but the scale of their operations is still small.
Disruption occurred with the ICO boom of 2017; ICOs became a major competitor to private equity funding; the same applied with respect to crowdfunding platforms. It may continue which the establishment of security tokens as a fully accepted alternative to the listing of securities at a stock exchange. Disruptive to a certain degree were automation of derivative products (such as the Leontec model) or robo advisors (there are about ten in Switzerland, although not yet very successful), although often there will be a combination of models (robo advisors supporting the relationship managers of banks) and not a full disruption.
Over the last few years, we have seen a number of examples of disruption through fintech in Denmark. A particular focus of this disruption has been within open banking and data aggregation, where new start-ups have been able to disrupt the market, partly at least, as a result of PSD2. An example of this includes Lunar Way, a digital mobile-based banking app, which now has more than 100,000 users across the Nordics.
Some Fintechs in Spain are doing extremely well and one in particular has over 800.000 users, which is an impressive number.
It is our understanding that the main disruption will not occur as expected through loosing market quota from incumbents but rather in the provision of services. With the recent shift in the new ways of collaboration clients would be the ultimate beneficiaries.
We do not believe that such examples exist in Korea.
There are many examples of successful disruption in the German market. These include, for example, the business models of Sofortüberweisung (online payments), Scalable Capital (robo-advisor), N26 (direct banking) and Raisin (deposit marketplace).
As mentioned above, no great disruption has occurred through fintech. That may be the result of the generally high adaptability of the incumbent financial institutions.
Despite fintech-related businesses and initiatives being currently in a very early stage in Portugal, the recent surge in crowdfunding platforms has begun to make some impact in what concerns the market perception regarding the different financing sources, with more and more individuals and small businesses resorting to this new financing alternatives instead of more traditional bank-based lending solutions.
Further true disruption on the payments side of the market is still to be seen, but with the PSD2 finally transposed onto Portuguese law we envisage that, in the short to medium term, both incumbent banks and new players will start bringing disruptive products and solutions to market.
The strongest examples of disruption in India are the prevalence of PPI wallets and UPI enabled solutions to facilitate customer to merchant and peer to peer transactions. India has traditionally been a cash based economy, but, is now rapidly transforming into a digital economy on the strength of the digital payment products offered by FinTech players operating in the country, especially in the wake of demonetisation and the Indian government’s push towards digital payments. In the 12 months that followed demonetisation, digital payments saw growth in transaction values of 1,540% and transaction volumes of almost 755%. Demonetisation and the consequent growth of digital payment products in the country is a classic example of disruption caused by FinTech products in India.
A key area where further disruption in the payments ecosystem is expected is the adoption of evolving technologies such as block-chain and AI by payment service providers (including both bank and non-bank entities). Both bank and non-bank entities have already began to rely on AI based tools to improve customer experience, especially, in the areas of product identification and matching, background and credit verification checks which all make for a seamless customer experience.
No. We have not seen any strong examples of disruption through FinTech in Peru. It is expected to happen with the arrival of digital banks.
The activity of Wobi in the insurance field turned out as a disruption in the automobile insurance field. This disruption has affected the travel insurance area too but has not yet penetrated other insurance areas (life insurance, pension, elementary insurance).
The activity of the banks’ electronic wallets (Bit/ Pepper/ Paybox) seems to be disruptive in the area of micropayments.
The bank of Israel recently notified its consent to grant a bank license to the Digital Bank innovated by Marius Nacht (one of the founders of Checkoint) and Amnon Shaashua (one of the founders of MobileEye). This has a strong likelihood of becoming a disruptive force in the banking world.
[disclosure: the undersigned represent the Digital Bank]
Fintech solutions appear not to be disruptive up until now. In the payment and banking chain, this is probably mainly caused by the relatively high confidence that Dutch customers, still, have in incumbent financial undertakings. The impact of PSD2, and in particular access to the account provisions therein, could however have a more disruptive effect.
Increased disruption and competition should perhaps be expected from the tech giants – for example, both ABN AMRO and ING recently announced the launch of Apple Pay as an instore payment method for its customers.
There are thus far no strong example of disruption through fintech in Japan.
In this connection, it should be noted that no cryptocurrency is supported by the Japanese government or the Bank of Japan (“BOJ”). According to a February 2019 working paper entitled “Information Technology Innovation/Data Revolution and Central Bank Digital Currency” published by the BOJ, the BOJ currently has no plans to issue its own digital currency. However, the working paper also notes the BOJ’s view that digital information technology may expand the utility of money in the future.
No, there are none that we have seen disrupting the Jersey market as yet. As mentioned above, we understand that there are a number of fintech projects being undertaken (including as a response to PSD and PSD2) which will affect the Jersey market in time and disruption may well occur in coming years.
Given the optimistic attitude of the financial sector described above and its general support of digitization and change, there are currently no strong examples of disruption in Liechtenstein. This may be due to the general positive sentiment towards this new form of economy and the more institutional client base in Liechtenstein.
Absolutely, we strongly believe FTIs have contributed to the democratization of financial services in Mexico, a feature which resulted in the creation, for instance, of the “Asociación de Plataformas de Fondeo Colectivo” ‘Crowdfunding Platforms Association’ and of the Fintech Association (IDB, 2018). The issuance of the Fintech Law itself can be seen as a case for disruption in Mexico.
Particularly, the “Comisión Nacional del Sistema de Ahorro para el Retiro” ‘National Pension Savings System Commission’, enacted regulatory provisions which allow pension fund managers ‘administradoras de fondos para el retiro’ to explore and implement new mechanisms, guided by technology innovation, that serve best their customers and, moreover, opened a “sandbox” in March (2019) to FTIs within the pension system.
On 14 february 2019, the Luxembourg parliament passed a law permitting the use of distributed ledged technology ("DLT") for the circulation of securities, facilitating the use of blockchain technology in financial services and demonstrates Luxembourg's proactive approach to production use of blockchain technology by FinTechs. Based upon the examples given under 21, it is, however, to be expected that several other areas of financial services will be "disrupted" in the forthcoming years.
Fintech companies in Malta have been witnessed to disrupt several sectors such as payments, insurance, investment, and risk management. The vast majority of fintechs in Malta are e-money and payment institutions with the former offering services such as prepaid card services, e-wallet services, and money transfer services; while the latter mainly offer payment processing services, and virtual card payment services.
There is no one specific example of major disruption through fintech in Malaysia. However, the disruption is visible mostly in payments and digital wallet, followed by lending, wealth management, marketplace, crowdfunding, and know your customer (“KYC”). The digital wallet from established player such as AliPAy, Wechat Pay and others will continue to disrupt the payment market and impact bank’s revenue. It must be highlighted that fintech start-ups that engage in activities under the purview of the central bank must comply with existing laws. The regulated businesses which include banking, insurance or takaful, money changing, remittance, operating a payment system or issuing payment instruments.
The regulations that govern fintech industry in Malaysia are regulated by BNM and other relevant authorities help to alleviate and mitigate the disruption that arise through fintech. The fintech players are also moving fast in their alliances and partnerships with financial services institutions in order to ensure the innovation of their products and better solutions. With a large migrant worker population in Malaysia, the payment services sector has been disrupted recently with entry of non-bank local and foreign owed businesses.
Furthermore, those that continue to rely on physical documents and wet signatures will likely be the first to fall. KYC is a tedious task for customers. For the KYC to be done, customers have to be physically present to meet face to face with bank representatives for many types of banking products. BNM has recently published the e-KYC guidelines for remittance companies and is currently mooting an industry wide adoption. Should the e-KYC be approved a wave of change would be seen on how customers apply and sign up for products digitally in the future. Nevertheless, this would be a great innovation for the financial sector in Malaysia.
Yes. Some key examples that have been reported on are as follows: (1) Payment intermediaries such as GrabPay, which facilitate electronic payments in a fast and secure manner; (2) Deployment of chatbots by financial entities such as DBS, OCBC, Standard Chartered and Citibank, to automate customer support and allow for an immediate response to customer queries; and (3) Deployment of robo-financial advisors as a substitute for human financial advisors – AI systems that recommend portfolio compositions to investors based on algorithms developed by the robo advisor’s company.