How Regulation Is Killing Big Banking

 

Every so often, events take place that have a ripple effect on human society. Some are very obvious while others pass by with less notice. We have seen two examples of obvious cataclysms in the very recent past—Brexit and the Trump presidency—but a third is likely to slip by without much fanfare.

Regulation. It is a concept most people tend not to think about, yet holds incredible importance to our social and business structures, as it keeps people and businesses operating in a way that benefits society as a whole. Whether we know it or not, regulation plays a big part in keeping our banking system and will become a more pressing issue as the big banks continue to struggle in the market and FinTech continues to change the banking industry.

As it stands right now, big banks are not well liked by society as a whole and none of the major banks hold a rating that is better than ‘fair’ on the Harris Poll. Current consumers are tolerating them but have no real sense of loyalty and could easily choose to walk out the door with the right incentive.

Well, thanks to recent actions of the big banks, they might just have that incentive. In August, HSBC admitted they have ignored a U.S. regulator’s orders to increase the bank’s defenses against financial crime; then, in September, Wells Fargo admitted to fraudulently opening millions of accounts in clients’ names. These revelations are causing serious damage to the companies’ credibility and the results could be devastating. In Wells Fargo’s case, 44% of their customers are now contemplating taking their business elsewhere.

If the situation continues down this path—with the big banks incurring fines for breaking regulations and customers moving their accounts in response—the loss of profit could be the final nail in big banking’s coffin. According to NTT Data Inc., 46% of U.S. consumers currently have an account with a FinTech provider and this number is going to grow once millennials become the guiding force in the economy. After all, this is the generation that overwhelmingly (71%) say they prefer the experience of going to the dentist to dealing with the big banks and 50% are expecting that FinTech startups are going to bring in the new financial system.

Although it is impossible to know for sure what the future holds, the prognosis for big banks is not good.
The future belongs to FinTech, as it is the more stable and innovative solution.
 

How Wealth Management Is Going Digital

Digital wealth management: The much needed evolution of wealth management, bringing financial advisory services into the next generation. It is creating a rift in the industry, as the new technology brings an increased level of access between clients and wealth managers and the old school players are not moving quickly enough to adopt it. (In fact, according to a PwC report, 75% of wealth managers only know how to connect via e-mail.) This is creating an opportunity for newer startups and businesses to position themselves as the new wave of wealth management, complete with the improvements that FinTech brings with it.

Look at Tridus: It is using the technology to create a fully mobile office and is passing the savings onto its clients by offering lower wealth management fees. The mobile office is a fantastic draw for today’s busy businessman, as it means meetings can be set up during lunch breaks (through Skype, etc.) and don’t require them to leave the office. Founded by Matthew Unger and Harry Royden McLaughlin, both of whom have extensive experience in financial advising and wealth management, the startup is set to revolutionize how clients interact with their advisors.

Then there is iBillionaire, an app designed to help people invest the way that the affluent do. Users choose the billionaires they will to emulate and model their portfolios based on what these power players are doing. Strategies are clearly laid out, giving users the information they need before choosing their portfolios. For those investors who dream of one day making it big, this is a great way to move with the power players before actually reaching their income level.

At the other end of the scale, Trizic is offering its services to help wealth management move to the digital sphere. This startup has created wealth management software designed to make the online process easy for clients and has made this software available to wealth management firms and advisors. Their platform creates portfolios for investors from a simple (and quick) three-step process, gives them insight into how their investments are doing and allows them to easily move money in and out of accounts.

As the baby boomers age and millennials become the power players in the marketplace, the need for wealth management to include modern technology is going to grow. As the older wealth management firms lag in the adoption of new technology, startups are moving in and offering investors fantastic opportunities through digital wealth portfolio management and robo-advisors. Know this and use it to your advantage to conquer the wealth management market.

Case Study: How Vanguard’s Robo-Advisor Platform Leads the U.S. Market

 

The robo-advisor market is ever expanding and numerous startups are entering the fray hoping to make their mark. These new companies, not yet experienced in the field, will become one of the many failed startups if they don’t learn how to play the game.

Smart startups will look at the leaders in the field and learn from them how to best manage their new business. For robo-advisors, Vanguard can show them what true success comes from. The company, which lists itself as “a client-owned mutual fund company with no outside owners seeking profits,” has launched a robo-advisor platform that is easily eclipsing the success of the other major players.

One reason for its success: Vanguard’s Personal Advisor System melds technology with human advisors, giving investors the best of both worlds and easing the concerns they might have about giving control over to faceless technology. After setting up an account, human advisors guide investors through their goals, concerns and expectations, making sure the right options were chosen and customizing the plans as needed. This human aspect is a huge part of their success, as the personalized interaction means customer satisfaction is much higher. Although startups may not have the manpower available to offer constant one-on-one interaction to their customers, the need to speak to a human cannot be underestimated.

Another main advantage Vanguard has is a large distribution team in the United States and easy access to an already established customer base. In fact, more than 90% of their robo-advisor clients were already Vanguard clients and just adopted the new service. Although this may seem like bad news for a new startup, what it really tells you is your strongest client base will come from pre-existing connections.

In Vanguard’s case, as with many of the established players, this pre-existing base consists of older generations and approximately two-thirds of Vanguard’s clients are retirement age. True, this is the section of the market that have investment portfolios, but startups do not necessarily need to compete for these customers. Instead, focus on the younger sections of the market. There is real opportunity here, as technology-friendly investing will heavily appeal to generation X and millennials.

By using Vanguard as a model, startups can learn how to shape their company in order to compete in the digital wealth management market. Startups should adapt the company’s successful choices to fit with their company. If done properly, your robo-advisor business will move from the startup stage and continue to grow.

How InsurTech Is Revolutionizing Insurance 

 

It could be said that FinTech is very much an over-achiever. It has already revolutionized the banking world and could have chosen to rest on its laurels and watch as the new technology improves lives around the world. Instead, though, it is exploring where else the technology could be used and is now working to overhaul the insurance industry.

The vital need for this revamp is the same as the need for the original FinTech wave. New technology like blockchain, data analytics and apps have changed the business game—not to mention everyday life. As technology becomes more ingrained in our lives, we expect every aspect of our lives to feature it and the benefits that come with it. In order to survive, insurance (like finance) needed to adapt.

InsurTech funding rose dramatically between 2014 and 2015 (from $740 million to $2.7 billion) and has been steadily increasing since then, which is great news for startups that want to explore this area. Hundreds of startups have taken up the cause, offering new insurance services to people around the globe.

Of course, not all of these startups are aiming at directly challenging the insurance providers. Others are choosing to direct their efforts at improving the process by offering assistance in various ways.

Cyence, for example, works with insurers to assess their cyber risk, a vital need in the new technologically-enhanced era. Cyence uses analytics to examine a company’s data and determine the financial implications of cyber risk. Considering cyber risk is an element to which all modern insurance companies need to pay attention and take caution, this startup is positioned to fill a vital area.

Embroker offers a management system that allows businesses to safely explore and store insurance policies, easily enabling them to research and analyze their options. According to the CEO, Matt Miller, the Embroker system was designed to increase transparency in the insurance industry. The company aims to reduce the stress and paperwork usually associated with insurance policies and offers its platform to users at no cost.

Simple Disability Insurance is a new platform designed to simplify the disability insurance application process, helping the millions of Americans who currently don’t have disability coverage. The startup has dramatically simplified the application process, reducing the sales process from six months to 10 minutes. Considering that this is a $61 billion market, an application that improves the process will be very well received.

This overall revamp of the insurance industry, changing who our providers are as well as how they offer their services, is long since overdue and will greatly improve the lives of billions across the globe. First FinTech, now InsurTech…we just have to wait and see what comes next.

How Equity Crowdfunding Can Help Your Startup

You have more than likely heard of crowdfunding, but are you aware of how large this movement has become in recent years? Finally, do you know about the impact FinTech is having on crowdfunding?

 

 

Prior to the internet and the emergence of FinTech, crowdfunding was a much more laborious process involving benefits or mail-order subscriptions. Generally, it was used by people in creative fields (authors, theatre companies) and contributors would gain access to the product they helped fund.

Then came the internet, vastly increasing our access to the general population, and then FinTech entered the scene. The advancements that have come with the evolution of FinTech have changed how startups (and this includes FinTech startups) seek out and obtain funding. Rather than relying on loans or large contributions from established investors, startups can amass the necessary capital from a large body of donors through an online payment system.

Because of this advancement, we are now very much at the point where FinTech is helping FinTech. New FinTech startups can access the technology FinTech has brought to the table in order to fund their development and bring their product to the market through equity crowdfunding.

Although many people today are familiar with crowdfunding, equity crowdfunding is not as familiar—likely because it just came to the table in June 2015. Equity crowdfunding seeks to dismantle the system in which only the wealthy are offered the opportunity to invest in startups. It follows much of the same path as crowdfunding, but differs in its reimbursement system. Rather than receiving a product or service for your contribution to the crowdfunding drive, equity crowdfunding provides shares to contributing parties. This is actually the ideal opportunity for people who want a stake in a company before it goes public. Through platforms like StartEngine, startups can create profiles and build campaigns and investors can offer financing in exchange for securities.

The StartEngine process is set up so startups can “test the waters,” checking to see if there are in fact any investors that are interested enough to offer financing and investors can do their research on the company. Once it’s been established that there is a solid interest in the startup, the company seeks approval from the SEC and the investors are contacted to arrange financing. Once funding is established, these investors are given constant updates on the startup’s process.

FinTech is changing the game and leveling out the playing field in so many ways. If you are aiming to find funding for your startup or get a stake in an up-and-coming business field, FinTech has the technology you need to find your answers. How fantastic is that?

 

How Will FinTech Manage in the New Political Landscape?

 

November 8, 2016 saw the end of a very long U.S. election campaign. After a fierce political battle, the Republican Party won the U.S. election and will take (back) control of the White House on January 20, 2017. The changes they institute will have dramatic effects on the U.S. market, which could in turn impact FinTech’s growth.

Take net neutrality: A vital concept to a fair internet and a key part of the development of many FinTech startups, which rely on open-source development and access to a quality level of internet. The Republican Party is not supportive of this concept and Donald Trump has voiced concerns over net neutrality, stating that it will target conservative media. Although he has not formally issued any plans to overturn net neutrality, the fact that both the incoming president and the Republican Party do not favor the concept could become a problem for FinTech startups in the upcoming year(s), as the loss of net neutrality would lead to the creation of a digital hierarchy that would seriously hinder the development of startups and smaller companies in the U.S. marketplace.

On the other hand, the Republican Party has stated they would look into reforming regulation. If this is put into action, it could create a much more welcoming environment for FinTech companies, as they are presently operating under rules that were instituted long before the internet became a guiding force in the business world. In fact, in the current international market, California and New York are ranked as the least regulatory-friendly FinTech centers. A regulatory reform could bring the U.S. business environment into the modern age and allow U.S. FinTech companies to grow and compete on the domestic and international stage. As well, the proposed lower business tax rate will likely lead to higher profits and income for businesses, leading to greater investment potential for startups.

It is too early to judge what the full implications of the U.S. election will be on the burgeoning FinTech market, but startups should be on alert to prepare themselves for the changing market and the complications that have the potential to come into play. If you can learn to manage under the new rules, you have the potential to flourish as the FinTech market continues to grow.

Choosing Private Equity or Venture Capital For Your Startup

Startups take money, and FinTech startups are no exception to this rule. When it comes to finding backers, venture capital and private equity are the major areas entrepreneurs need to examine.

Venture capital is the first area many entrepreneurs consider and there are pluses to this option.  Namely, venture capitalists are well connected and knowledgeable in the business field, an important element for startup owners that may be lacking a business background. For people entering the startup process for the first time, this safeguard may make the process less daunting. The downside(s), however, is the potential loss of control that can come once others have a stake in your business. As these venture capitalists will be well versed in the business field, you could face real complications if they decided they wanted a greater stake in the company.

Although private equity doesn’t have the pedigree that venture capital does, it is an ever growing presence in the FinTech financing field. In 2015 private equity investors closed a record number of FinTech investment deals and this number was 79% higher than the investment tally in 2012. Despite this increase in investment interest, private equity may not be the ideal option for your startup. One of its major hindrances for startups is the fact that private equity tends to deal in much larger amounts of money (i.e. deals below $100 million are rare).

Say you decide to explore the venture capital option in order to obtain seed-stage financing. This is a good option, considering this partnership has been shown to influence innovation and reach the public stage sooner. However, if you want to successfully obtain funding, you need to make contact in the right way. Your best bet is to use the connections you already have to meet people in the venture capital market. Make sure your proposal is tailored to the company and take your approach one company at a time. Remember that the connection won’t be instantaneous and you’ll be dealing with a lot of back and forth. Make sure you have the information ready for each step of the way (from the elevator pitch to the full business plan).

The good news is there are venture capitalists that specialize in FinTech. Some, like Accion, devote all their attention to this financial field. Others, like iNovia Capital, also fund other segments of the market but do partner with FinTech startups. By approaching these venture capitalists you can be assured that they have interest and knowledge in your area.

Although it won’t be a quick and easy process, with the right amount of legwork, you’ll get the financing you need and a partnership that will help you and your startup grow.

Why Big Data Is a Big Deal

 

Spend enough time in a business gathering and you’re bound to hear someone mention big data. After all, it has revolutionized how businesses look at and manage information.

Big data has a name which is pretty self-explanatory, and the massive amount of information it refers to means companies have the opportunity to look at situations in a whole new (detailed) light. This is where the analytics element comes in, allowing people and companies to find the patterns in the data and the underlying issues the data uncovers.

How important is big data analytics to the success of a company? According to a study done by the Economist Intelligence Unit, 59% of business owners considered data analytics a vital aspect of the business process and 29% considered it to be very important. When it comes to the issue of profit, 60% believe the data generates revenue and 83% say its value leads to greater profit in existing products and services.

Now, if you think big data is only a tool for large corporations, think again. Startups can—and should—use it in order to properly prepare themselves to compete in the marketplace. In fact, in some ways they will be better at using the information big data provides. For one thing, given their size, they can use their agility to their advantage, reacting to problems and implementing the solutions much quicker than a massive corporation can. They can also use big data to determine the best shipping options—a vital element for customer satisfaction.

There is another option as well: Using the big data technology to create a new service and company. ZestFinance, for example, is using big data to transform the credit industry, offering its services and technology to larger companies in order to transform consumer credit. Credit decisions are made quickly and accurately by running the necessary stats through multiple mathematical models, identifying candidates who are good borrowers and allowing the lender to offer lower-cost credit to these candidates. Zest’s knowledge and utilization of big data is why it is one of the fastest growing FinTech startups.

Used properly, big data can be a game-changing tool, a new way to see the marketplace and find improvements. It can be used by companies to improve how they work in the marketplace and it can be used to improve the services or products the startup offers. Any startup seeking to grow and eventually rule the business world should take a serious look at what it has to offer and see what they can do with the wealth of information it brings.

How Crowdfunding & Impact Investing Are Changing the World

 

 

The concept of investing is not new or unknown. That being said, it is often seen as an action reserved for the older and more financially settled generations in society. With the creation of the JOBS Act and the rise of social impact investing, however, this could change.

The JOBS Act of 2012 recognized the importance of social impact investing and crowdfunding and relaxed the rules on who could invest in early age startups. This means that modern startups have a much wider pool of potential investors and need to know how to reach them.

Look at the millennials: This generation is known for being very socially conscious and, as they become more of a presence in the market, social impact investing will have an increasing level of importance. Relatively new in the investing world, impact investing means people can feel they are really making a difference by supporting a certain cause (while also potentially gaining a financial return).

Startups can and should use this new investment wave to gain the necessary funds to help grow their companies. However, the important thing to remember is this: In terms of millennial investors, your success will likely depend on your ability to show how the startup has a positive social impact.

The good news is there is an easy way to present yourself to these noble investors. Wefunder (the “kickstarter for investing” and one of the companies that fought to get the JOBS Act passed) allows startups to create profiles and put themselves in front of close to 80, 000 potential investors. These profiles provide companies with the opportunity to show how they plan to change the world.

One example of the type of company on Wefunder is Kharity Marketplace, which calls itself a charitable ecommerce marketplace. Kharity Marketplace aims to link buyers to sellers while also donating 10% of every sale to charity (one that is chosen by the seller). Buyers will in fact be able to shop based on which cause they want to support, changing the notion of shopping for the better.

The impact investing market is incredibly popular right now and there are fantastic financial companies working in this area. Many of these impact investors and startups were present at The Social Finance Forum held at MaRS Discovery District on October 27 and 28, 2016.

One of the standouts: Impak Finance.  Impak, the first impact investing bank to make an impact in the Canadian market, proudly proclaims its desire to change the world through the creation of a “transparent and collaborative financial ecosystem” and offers loans to Canadian companies that are making a positive social and/or environmental impact in the world. The company recently raised more than $1 million in two weeks, a great example of how important impact investing is right now. As it grows, Impak says it will offer the services provided by conventional banks while staying true to its mission as an impact investing bank.

The millennials have been called the most socially conscious generation and have grown up with technology. When it comes to investing, they will want to know their money is making a positive influence and they will want the ability to use technology to manage their portfolios. It is easy to see how important platforms like Impak and Wefunder will become and how much potential there is for socially conscious FinTech startups to find their backers and fund their businesses.

Yes, FinTech and social impact investing really will change the world.