To what extent are the banks and other incumbent financial institutions in your jurisdiction carrying out their own fintech development / innovation programmes?
Fintech (2nd edition)
There is an increase in new product offerings from banks and other incumbent financial institutions nationwide likely resulting from an increase in industry competition and a desire to continually improve current offerings. These offerings stem from a variety of places, including in-house developments, joint ventures, partnerships, and collaborations. As the financial system continues to grow and mature, incumbent financial institutions are increasingly turning toward new technologies including artificial intelligence, machine learning, and blockchain to ensure their customers are being offered efficient and effective products.
Incumbents often organise and support the field in which fintechs can grow (dedicated incubators or “FinTech villages”). In this way, a cooperation is set up, whether or not with a view to an imminent takeover by the incumbent. It is important to note that fintechs may be favoured by specific regulations (e.g. PSD2), which makes this way of operating an attractive option. On the other hand, established banks are found to launch innovative projects, which are developed in-house.
As mentioned in Questions 1 and 7, the Banking and Deposit Companies Amendment Act 2018, which came into force on 17 August 2018, permits financial institutions to apply to the Bermuda Monetary Authority for a restricted license enabling them to provide banking services to companies (and agents or affiliates of the same) who are licensed under the DABA or wish to conduct an initial coin offering. As of the date of writing, no such license has been granted by the Bermuda Monetary Authority.
Several innovation programs are being developed by the incumbent banks. Most of them, in fact, involve financing startups, in order to implement their technologies that are applicable to the financial market. There are some examples of this trend such as Bradesco´s InovaBRA”, Itau’s Cubo and BTG´s Boostlab.
Banks and financial institutions have not been keen to show the public their support to Fintech development, and have instead acquired tech companies to complement their platforms. However, there are some examples of banks working together with Fintech:
- As we mentioned, BCI Bank launched the mobile app Mach, which is both a mobile wallet and as pre-paid virtual card.
- Santander has partnered with One Pay FX, a blockchain-based-payment solution. In Chile, it is being used as a wallet, but in the future, it will be used for international money transfer.
Banks in China have been recently investing more in technologies such as artificial intelligence, biometric identification, big data and blockchain.
Recently, China Construction Bank, one of the largest state-owned banks, released an app to connect real-estate developers, purchasers, owners and renters in the Greater Bay Area (which covers Hong Kong, Macau and 9 cities in Guangdong province). Among other features, renters can apply for loans for long-term commercial leases through the app.
Another bank, the Industrial and Commercial Bank of China, also one of the largest state-owned banks, has launched facial scanning technology at ATMs, which permits customers to access their financial services simply by entering their personal codes following the facial scan.
A number of incumbent financial institutions (including both banks and insurance companies) are actively involved in running fintech programmes and accelerators. Barclays has for some years run an accelerator in partnership with Techstars, with a number of notable success stories, and today most of the major retail banks run an innovation or accelerator programme of some kind, often teaming up with tech consultancies. In addition, many of the banks and insurance companies now have their own specific innovation function which is tasked with finding and partnering with fintechs that will be useful for their business.
Until December 2018, banks were not allowed to invest in fintech companies which forced them to develop their own fintech programmes. Banking market leaders have already been working for some years in becoming fully digital banks and increasing their savings offers to digital wallets, which is a success business case for incumbents. This same segment was so appealing that even money market fund managers decided to indirectly fund fintechs to provide similar services.
Additional developments exist in parents accompanies but due to regulation restrictions these programmes were carried out or funded at a higher or parallel company level. A very successful example of this is Colombian securities exchange owned Sophos, a separate company that provides trading technology for banks and other participants which grew from a side-business to representing a quarter of corporate earnings.
Many banks and other incumbent financial institutions in the UAE are active in the authorities’ accelerator programs and provide their services and support to participants. Additionally, these financial institutions are prospective, and in some cases mandatory, investors for start-ups and their presence facilitates the provision of pitches to them.
Many banks and other incumbent financial institutions in the UAE, particularly in Financial Free Zones, have also launched a variety of initiatives to carry out their own fintech development and innovation programmes, e.g. Emirates NBD established the Future Banking Lab as a key initiative of its digital strategy, it is through this program that it developed and launched the “Cheque Chain” mentioned under question 16.
Taiwan banks and financial institutions have been embracing fintech, either through technology or business model, and devoting many efforts and resources in adopting new technologies, although the developments are not as apparent or prominent as in other jurisdictions, such as China or Singapore. The main reason for this is that banks and the other financial institutions are subject to strict regulatory scrutiny. In Taiwan, financial institutions are required to obtain prior approvals for almost all of their business activities, including adopting new technology or engaging services providers. Another reason may be that the traditional financial products and services have been well developed in Taiwan and hence, consumers do not seem to be particularly enthusiastic about using new financial products or services. Currently, many banks already allow their customers to access their accounts via the Internet, including offering on-line ATM service. Many financial institutions also launched “Robo-Advisor” services. In the near future, the three winders of the “Internet-only” banking licenses will launch their “Internet-only” banking services and re-shape the local banking market and change the user habit, especially the young generation.
The major banks and insurance companies have their own research and development departments, but also work together with start-ups. Smaller banks entered into formal co-operation with fintech startups or buy their products.
Traditionally, banks and other incumbent financial institutions Denmark have focused on developing their own Fintech solutions and innovation programmes, as opposed to partnering with local fintechs. However, as previously stated, we are beginning to see a growing shift in the market towards collaboration between incumbent financial institutions and fintechs, either through formal partnerships or acquisition.
We have seen some banks and incumbent financial institutions (even law firms) developing their own fintech and innovation programmes. This is because big institutions have realised that the research and development costs would be significantly reduced through collaboration (as we mentioned before).
Another path approached by banks is to outsource some services, like IT or data analytics. This allows banks to make use of programmes that would have high costs to develop internally and, most importantly, it saves the time and expertise that it would take to develop and test.
Banks and other incumbent financial institutions have not fully embraced Fintech in their business but are gradually introducing Fintech in various areas. However, rather than developing their own technology, they work in collaboration with IT companies who have the necessary technology primarily.
Most major private banks pursue their own digitization strategies and R&D and also either maintain their own incubators or corporate VCs or otherwise strive for external growth in the fintech area. The decentralized Volksbanken and cooperative banks also frequently acquire participations in fintechs or enter into cooperations with them.
All of the banks have an online presence and online banking apps. The apps are all being widely used by Icelanders. A very high percentage of online banking users also use specific electronic certificates to log in to their online banks. The banks have also offered instant loans with the borrowing process conducted solely by electronic means and interest rates based on the borrower’s credit score.
In addition, and as discussed above, the incumbent financial institutions have been working towards open banking initiatives as a means to encourage and facilitate fintech development in Iceland.
Arion Bank has also been hosting Fintech hackathons in cooperation with the payment solutions company Valitor, the information technology company Advania, the IT service centre for Icelandic financial markets RB as well as Meniga, covered below. Íslandsbanki has also been influencing the fintech market with the mobile app, Kass and recently announced a partnership with the global fintech hub LATTICE80.
The current status of fintech development by banks and other institutions in Portugal can be described as being in a very early stage, though some innovations are starting to appear, notably in the account information services component. There are some banks, mostly those whose business model is based on remote/web-based services with a more younger and tech-savvy target that are also currently developing some fintech-related projects.
In the digital payments space, PPI mobile wallets offered by non-bank PPI issuers had initially captured a significant share of the stored value digital payments market. However, banks were quick to sense the potential that this space has to offer, and proceeded to launch their own prepaid wallets. Changes in law (particularly around KYC and onboarding of customer rules), however, have significantly increased the regulatory burden and costs of operation for wallet players, causing several players to re-think business strategy. Increased regulatory burden and costs of operations have resulted in increasing co-branding arrangements between banks and non-bank entities with each partner playing to its strength to formulate attractive products for their customers.
Banks have also assimilated their systems, by developing compatible interfaces on top of already existing technological infrastructure, with UPI to offer extended services to their customers. Post the roll-out of UPI, a number of banks have been able to tweak their existing digital banking solutions to enable functionalities offered by UPI, with a view to retain customers and provide the full benefits of UPI to their customers without substantially changing user experience.
In addition to co-branding arrangements, leading banks have invested in research projects to take advantage of developments in block-chain technologies and their adoption in the services offered by them.
During the last 3 years, most Peruvian financial institutions have started a process of digital transformation which include FinTech development and innovation programmes, as it is shown below:
- Banco Internacional del Peru – INTERBANK, has created “Labentana”, its own laboratory for FinTech development based on “Design Thinking”.
- Banco de Credito del Peru – BCP, has created the “Centro de Innovación CIX BCP” its own laboratory for innovation. In addition, BCP holding Credicorp has conformed Krealo, a vehicle created with the objective of acquiring or financing FinTech companies in LATAM.
- Scotiabank Peru, has created Digital Factory, its own laboratory for innovation.
- BBVA, with the support of the Spanish Innovation Center, is implementing “Design Thinking” methodologies within the organization, not only for the delivery of products, but also for its internal processes.
According to what we know, all banks in Israel are exploring various potential fintech projects, have their own innovations teams and consider development of fintech projects or partnering with existing fintech players.
Three of Israel’s largest banks developed electronic wallets (for FIAT only) and provide payment services to the users thereof (some of which are NOT account holders with the said banks).
All insurance companies and pensions funds are exploring fintech tools, including onboarding solutions and underwriting, risk assessment and consulting tools.
The Netherlands is home to numerous start-up accelerator programmes. We refer to paragraph 9 above. The largest Dutch banks and insurance companies have acceleration programmes (eg, ING – www.ing.com/About-us/ING-Labs.htm), or have founded their own fintech start-ups (eg, ABN AMRO’s crowdlending platform New10 and the account information service provider services provided via its Gripp app; Rabobank’s investment app Peaks; Nationale Nederlanden’s insurance app Gappie; and Kasbank’s currency overlay platform for professional investors, KasHedge).
As noted above, financial institutions have a strong interest in blockchain technology.
For instance, it is reported that one of the largest Japanese banks has considered to issue its stable coin fully or preponderantly pegged to the price of Japanese Yen (“JPY”). A stable coin can be used to pay unspecified persons or entities for goods or services provided by them, can be transferable to unspecified persons or entities and can be converted to JPY.
A stable coin, fully pegged to the price of JPY(“JPY-pegged coin”) does not fall under the PSA's definition of "Virtual Currency". Such a coin is likely to be considered a "Currency Denominated Asset". Meanwhile, a JPY-pegged coin, being a tool for fund transfer, is likely to be considered electronic money. In order to issue JPY-pegged coins, the issuer must be a bank, a financial institution that is permitted to handle deposits under applicable laws or a fund transfer business operator registered with the relevant Local Finance Bureau under the PSA.
We understand that Jersey banks are undertaking a number of fintech projects and innovation programmes As mentioned above, several Jersey banks are part of larger banking groups, and many of these projects are being developed outside Jersey but will impact Jersey when the resultant products are launched.
We would be happy to discuss the Jersey implications of any such fintech initiatives. Please do contact us using the details below.
The majority of Liechtenstein financial institutions are carrying out their own fintech/innovation programs in one form or another, while some of the financial institutions stated that they are more cautious and have currently no active programs.
Liechtensteinische Landesbank AG for instance has announced in its annual report that an internal innovation management position has been created and it has already generated several ideas. Two ideas have already achieved proof of concept status and will be pursued further. However, details have not yet been made available.
Yes, “in 2017 BBVA Bancomer launched its open innovation program called Open Sandbox” (IDB, 2018); also in 2017 Santander Tap launched its “Santander Tap” pilot program. Many other financial institutions, such as Banorte, have followed this course with similar initiatives. Moreover, according to the “GFT Banking Expert Survey 2017”, 30% of the Mexican banks have a defined digital transformation strategy, while 50% have a digital transformation strategy being developed.
In Luxembourg, there are quite a few examples in which incumbent financial institutions are carrying out own fintech development / innovation programmes. Examples, amongst others, include:
- LUXHUB, a joint initiative creating a PSD2 API connectivity platform of the four leading banks in Luxembourg (BCEE, BGL BNP Paribas, Banque Raiffeisen and POST Luxembourg), has been established last year;
- i-Hub, a wholly-owned subsidiary of POST Luxembourg, offering innovative services for the collection, verification and storage of (AML/KYC) data and documents; and
- FundsDLT, a collaboration between Fundsquare, InTech (a subsidiary of the POST Group) and KPMG Luxembourg, a fund administration platform based upon blockchain.
Large banks have developed their fintech products which have been largely accepted by consumers. One example are mobile applications through which users can bank and transfer money through their phones. Furthermore, the vast majority of banks operating locally have often communicated their intention to keep developing fintech in the years to come. In addition, there have also been initiatives by financial institutions aimed at creating safe spaces within which fintech startups can grow. The Malta Stock Exchange is sponsoring a fintech accelerator programme which aims to develop an ecosystem within which fintech companies can be supported. One of the largest financial services firms in Malta has just recently launched its cryptocurrency trading platform, built upon the model of their trading platform, while offering 24/7 customer support.
As mentioned above, it can be seen that the financial institutions in Malaysia considered fintech as an innovation rather than a threat. There are several instances to show that Malaysian financial institutions are carrying out their own fintech development and innovation programmes. For instance, RHB has launched an application known as RHBMyHome mortgage app which enables users to apply for mortgage loans, submit their documents and check the status online. Alongside with that RHB has also launched the RHB Rider Service. It is an account activation service that allows RHB customers who have opened an online account, to request for a bank’s staff to visit their office or home for KYC and account activation.
Another example that can be illustrated in which Maybank has launched their Maybank Fintech Sandbox. It is a platform which aims to provide opportunities for start-ups and innovators to develop and test new ideas by leveraging on the banking group’s internal digital and technology expertise. The sandbox will also provide fintech companies with the environment, tools, simulated data, APIs to experiment around. Maybank was recently known for being the first bank to launch a digital wallet called MaybankPay and their recent soft launch for Maybank QRPay.
Banks and other financial institutions in Singapore are generally active carrying out their own FinTech development. This is done either through the banks’ in-house team, or through FinTech incubators.
For example, DBS Bank initiated the Startup Xchange program in 2018, whereby FinTech startups are paired up with its business units, such that each startup will be able to directly address and solve problems that are faced by the business unit.
Similarly, other banks also have their own accelerators. Citibank, for example, runs an accelerator program for startups through Citi Ventures. Under this program, Citibank invests in promising startups, including those in the FinTech space, and also provides mentorship and guidance to these fledgling startups.