Weekly Briefing No. 169 | Fintech Unicorns Gallop to London, Banks’ Digital Sale Fail, and More


Welcome to The FR. Hope you enjoy our new spring colors.

In this edition:

  • London Attracts Fintech Unicorns

  • Why Banks Fail at Digital Sales

  • Future of the Cashless Society

  • Minimum Wage and Megabanks

  • Aussies, AI, and Regulatory Compliance

London as the New Fintech Unicorn Hub

London is one of our favorite cities — you simply can’t beat a freshly poured Samuel Smith’s at the Chandos upstairs opera room, among many other delights. And it seems the fintech world is coming to the same conclusions.

A report that was just released finds that London is now home to the second-most fintech “unicorns” (yes, that word again) in the world, behind only San Francisco. Of the world’s 29 fintech unicorns — which the report defines as private companies valued at more than $1 billion — nine are in San Francisco, while seven are located in London.

Indeed, the report further notes that in 2018, job creation within the fintech space increased by 61% — making it the fastest growing sector in the London economy. The city also tops all others in Europe in terms of venture capital funding for fintechs — with 39% of all European VC money going to London-based firms.

Of course, much of this sustained success depends on the outcome of the seemingly never-ending Brexit negotiations. A so-called “soft exit” would likely not impact London’s fintech sector much. On the other hand, the “hard exit” option could have greater ramifications.

Why Can’t Banks Sell Things Digitally?

Virtually anything today can be purchased with the tap of a digital button on a smartphone. Groceries, pet food, toilet paper, stocks, cars and even therapy sessions are among the myriad items you can buy at the click of an app. Yet, how many financial institutions allow a consumer to apply for and receive, say, a small business loan entirely through digital means? The answer is very few.

A great paradox of today’s banking industry is that despite the massive leap forward in tech innovation, most banks still have trouble selling digital services to customers. According to research from technology firm Temenos, banks are meeting “only the basic requirements of digital account opening for personal banking,” and even less than that for business banking. Overall, the global poll of 60 large and mid-sized banks found that only around 50% of the accounts they offer could be opened entirely on a mobile device. That number is surely much lower when it comes to smaller regional and community banks.

Some of this is regulatory-driven for sure — selling someone a loan or a money market account is different and more complex than selling them toilet paper. But still, the reality is that banks that can offer robust digital sales services can be well ahead of the curve and gain a competitive advantage going forward.

Pumping the Brakes on the Cashless Society

The rise of mobile and digital payments has led to some nations around the world becoming nearly cashless. The benefits to eliminating cash from an economy exist; these include getting rid of the time and cost spent handling and storing cash, as well as making it far harder for criminals to launder money.

However, as we have previously argued, there are also great downsides to a cashless society: namely that it would disproportionately affect the unbanked, elderly, and disabled. Apparently, Amazon agrees with that notion as well, as it announced it will start accepting cash at the currently cashless AmazonGo, in an effort to address “discrimination and elitism,” according to a company memo. Some states and municipalities have already begun to pass laws banning stores from being cashless, so perhaps Amazon is also getting ahead of the regulatory game.

Though digital payments are quick and convenient, not everyone can use them; and giving consumers more choices instead of fewer is always generally the better path to trod.

Banks Get in on the Minimum Wage Debate

The minimum wage — and what it should or shouldn’t be — continues to be a topic of passionate debate in America. And while there are reasonable economic arguments on both sides as to how, and to what extent, government should get involved in setting minimum wage rates, some businesses have taken action of their own volition.

For example, Bank of America announced this week that it would seek to raise minimum wages to $20 per hour by 2021; other big banks like JPMorgan Chase have also raised the minimum wage for some employees to between $15 and $18 per hour. Given the generally negative views the banking industry has among the public, a cynic might say these moves are more for PR optics than anything else, what with big banks testifying before Congress this week. But JPMorgan Chase CEO Jamie Dimon has said that in his firm’s case, the raises are due to the generally more stable nature of the financial industry these days. Let’s hope he’s right.

AI Inches Further into Regulatory Use

Aussie regulators recently dipped a cautious toe into using artificial intelligence for regulatory purposes — specifically using natural language processing technology to detect when financial institutions are engaged in possible misconduct. The technology will scrutinize promotional material and advertisements, among other things, to see if they contain falsities or if they breach any rules. While much of the talk around AI in financial services that grabs headlines tends to be around consumer-facing applications such as chatbots and personal assistants, we believe both financial firms and regulators will use it more for the purpose of ensuring and monitoring compliance.

Quote of the Week

“Venture-backed startups with billion dollar market caps are called 'unicorns' because they are supposed to be rare mythical creatures that few entrepreneurs will ever ride.”

—Jay Samit