Fintech Forum: Open innovation in Financial Services
The 2018 Canada Fintech Forum was held at the Palais des Congrès in Montreal, Quebec from October 29 to 31. As a Finance Co-op student, I had the opportunity to attend it on behalf of Concordia University’s Co-op Institute along with five other students. The gathering was organized to bring leaders of top banks, FinTech firms, and regulators together to discuss topics such as changes in banking, the regulatory framework, and how fintech is impacting the financial sector. We attended panel discussions, spoke with leading tech companies, and voted for fintech entrepreneurs pitching their ideas.
One of the many interesting topics discussed was open banking. For some time, FinTech firms have changed the basis of competition in financial services, but they have struggled to overcome the scale advantages of large financial institutions. With open data and new players entering the banking market, financial institutions must change their business models and data management policies by going from a centralized bank to an “open bank”. By implementing an open banking system, the bank is essentially sharing its resources on an open source network with other institutions and authorized third-parties to make use of that information. This forces large banks to collaborate not just with each other, but also with smaller and newer players. It creates a more competitive market by giving smaller companies the information they need to succeed and furthermore by forcing institutions to create better banking services.
As one can imagine, open banking also involves sharing the customer’s financial data. Thus, much of the talk about open banking revolved around regulations. The push is largely driven by customer expectations, namely millennials, to create better banking experiences. One major risk of implementing open data for the large banks is the data going rogue. This is a valid concern, given that 21% of financial institutions have been touched by cyber-attacks. With the memories of the 2008 financial crisis still fresh, for banks to be trusted again, they must show that they can be the data custodians of customers. It seems that it is more beneficial for large institutions to prolong the transition, to avoid the blame of anything bad happening. Sairam Rangachari, Global Head of Open Banking at JP Morgan, mentioned the importance of security risk and reputational risk. Although banks can do the best due diligence, they cannot fully control what third-party actors do.
Many FinTech startups are taking a proactive approach, even though open banking regulations are still uncertain. Their services are mainly targeted towards millennials because they generally expect more from their banks and prefer to make transactions digitally rather than going to a physical banking office. In the credit industry, there is typically no contact with a lender until the lender is in default. Saroop Bharwani, CEO and co-Founder of the Canadian company Senso, has developed a perpetual relationship management process throughout the loan period that allows them to take preventive steps before the default. With $14 trillion in consumer debt, Senso uses resources such as data from the credit bureau to monitor customers using data analytics, and then sends the sales and retention team a notification when it detects pre-default issues. Another Canadian company, Symend, analyzes consumer engagements and behaviors to improve debt collection by retaining delinquent customers through personalized engagement. This strategy gives Symend a greater understanding of the customer’s feelings during the process.
One of my favorites companies present at the Forum was the UK-based CreditScript. They provide alternatives for investors and asset managers by allowing them to buy into digital B2B loans. They have essentially created a private debt market that is regulated and rated by the company itself. Given the debt cycle that we are in today, I am very curious about how the B2B and B2C credit lending industry is going to look like in the future.
Overall, I truly enjoyed attending the panel discussions and having the opportunity to network with industry leaders, regulators, and consumers. As we may all know, the gap between the current industry practice and the potential for artificial intelligence’s impact is huge. Open banking should be a move towards transparency, collaboration, and fairness in the market. With time, large institutions and regulators will find the appropriate approach to collaborate on a deeper level with startups, without having to put their businesses and reputations at risk. That said, the large players will likely be taking a slower approach towards open banking.