Bitcoin will never make it.  It has no practical application.  I mean, how can you rely on a currency whose value in real terms changes every second?  You cannot expect the lay person to accept that the price of the BigMac on the menu behind the checkout counter is going to change many times before they get to the front of the queue to place their order.  And then they must wait for 10 minutes while their payment is confirmed in China (because that is where 65% of all Bitcoin is mined) and a ton of coal is burned?

I am sure you hear comments like this all the time when you are not in your Crypto echo chamber.  And they are very valid with one caveat.  The reference point for comparison is the current status quo of what money is and how we pay for things.  The problem with this is that Bitcoin lives in a parallel financial dimension.  To compare it to Fiat money like the US dollar, or to compare the payment mechanism to what we have available from the card schemes of VISA and Mastercard, would be like comparing a car to an aeroplane.  They both can get you from A to B, but in very different ways.  Cars and planes live in the parallel transport dimensions of land and air, respectively.  If you had to use the plane to get from A to B, but it had to stay on the ground all the time, it would be impractical and frustrating.  And trying to get a car to fly… well good luck with that.

The parallel financial dimension that Bitcoin lives in is the decentralized financial dimension.  Fiat money like the US dollar and the card schemes of VISA and Mastercard live in the centralized financial dimension.  The decentralized financial dimension is in its infancy though.  Bitcoin is just the very first building block of that dimension and is much more like gold than it is like the US dollar in today’s terms (because the US dollar and Fiat money in general are not backed by their underlying assets anymore and there is no limit to the supply).  In the early days, gold was also cumbersome for frequent transactions, and reserved for less frequent, larger, settlement type transactions.  Over the centuries, services were built on top the underlying asset of gold to make it more convenient and secure to use, like bank notes/cheques, credit, loans, exchanges, insurance, etc.

The recent surge in the value of Bitcoin (relative to the US dollar for example) can largely be attributed to the rise of the next set of building blocks in the Bitcoin timeline. Aptly name DeFi, for Decentralized Finance, these next set of building blocks make use of Smart Contracts (mostly Ethereum based) to build brand new financial services that are decentralized.  Ethereum and Smart Contracts are not new, it is just that the penny has dropped for using them to build financial services for this decentralized financial dimension (rather than all the other silly app ideas Ethereum has been used for in the past).  Ethereum combined with the use of overcollateralized stable coins (specifically DAI) to remove price volatility, makes it possible to build a fully fledged financial system that is decentralized - one that lives in parallel to the centralized financial system we have today.  Additionally, stable coins provide the bridge or connection point between the centralized and decentralized financial dimensions.

Take for example an Exchange like Binance or the NYSE.  These are centralized.  Ultimately, the small group of people or single person in charge of these organizations will make the final decision on how they work and who they will work with.  A Smart Contract can do exactly these same things, with the added benefit that it is immune to censorship.  This means that an entire Exchange can be completely deployed within the boundaries of a Smart Contract in this decentralized financial dimension and provide all the features of an Exchange in a completely autonomous and incorruptible manner.  Once the Smart Contract is deployed, that is how it will work forever (unless the consensus decides to hard fork of course, which is a much more democratic turn of events).

The first of these DeFi Exchanges, or DEXs, have seen immense adoption across the Crypto community and have given rise to the development and adoption of other decentralized services collectively referred to by the ghastly name of “Money Legos” (I mean, Lego is just way too sacred to allow the term to be claimed like that!). These “Money Legos” when combined are designed to provide complex services like lending and liquidity management for the decentralized financial dimension to name a few.  All the core building blocks that you need in a fully-fledged financial system.  It will not be long before you see the first completely decentralized bank using a combination of these “Money Legos” to offer its services to the market, except, it does not have a banking license issued by a central bank.  The bank itself will probably be funded by its own ICO, and it can be used as the foundation to build the user experiences that consumers and businesses in today’s centralized financial dimension have learnt to expect, and then outclass them completely.

Like the analogy with the car and the plane, in some cases it makes sense to use both at the appropriate time to get from A to B.  You might take the car to the airport, fly somewhere, and then take a car to your destination after you land.  I see a future where both the centralized and decentralized financial dimensions work together to provide a more stable financial system for the world.  We cannot deny how successful Bitcoin has been with the “gold use case” of the less frequent, larger, settlement type transactions with the likes of TransferWise for example.  They are a great early example of the centralized and decentralized financial dimensions working together with only the very first building block of the decentralized dimension. 

When I say, “It’s over for Bitcoin”, I mean the fight for proving the use case for Bitcoin is finally over, and we know undoubtedly that it is useful and here to stay.  We are on to the next thing now of building a decentralized financial system on top of it.  In the past 20 years we have seen the erosion of personal privacy, the near collapse of the financial system and an increase in censorship and control, all by centralized authorities.  Over the coming decade, the willingness for the world to fight back against that trend will tell how far down this decentralized rabbit hole we go.

The Digital Banking Conference is quickly becoming the premier FinTech and Banking event in the US, with this year’s event boasting some great content around Open Banking and high profile speakers.  We also got the opportunity to meet and chat with Pepper the Robot who was stationed across the way from out booth.

We were lucky enough to meet some fantastic new emerging FinTech companies, a total of 21 companies doing amazing things in Banking and who will be working with over the coming months to integrated into our FutureBank Marketplace and make it easier for banks to plug and play this technology into their core banking environments.  As for Austin, the live music capital of the world, there could be no better place to host an event.  Oh, and of course, we can’t forget the bats…

The ICBA (The Independent Community Bankers of America®) generally attracts a large following from smaller banks around america as there are multiple banks for each state. These banks are called community banks and are generally quite s bit smaller. These community banks have various digital needs. The ICBA is the ultimate gathering for community bankers who are serious about dialing into high-tempo networking and learning. It is also the ideal space for us to exhibit our Futurebank product as community banks can benefit greatly from Open Banking.

Community banks can meet digital banking needs with Open Banking APIs

To compete with large national banks and maintain a competitive advantage, community banks need to collaborate with fintech partners who can help integrate new technologies that result in more efficiency, more profitability, and secure transactions. All this while making the banking institution attractive to younger generations of customers who expect flawless, easy-to-use, convenient access to banking and payment services.

The way that banking customers are choosing to bank is changing faster than any other component of financial services. This is due to digital transformation and growing customer demands. The increasing consumer demands is influenced by the customers’ experiences in other industries too - putting pressure on smaller banks to change for the better. What is clear is what has worked in the past will not work in the future.

The Digital Opportunity. What is Your Strategy?

Digital is the new norm in banking – it’s not just about digital payments, it’s digital everything. Today, banks of all sizes need a proactive, cohesive digital strategy that provides the right products, services, and best possible customer experience. Why is a digital strategy so important? For one, Boomers are aging and as a group their numbers are on the decline although they will continue to be the wealthiest generation in the country until at least 2030, according to Deloitte.

They are also set in their ways with whom they bank and how they bank. Next, the massive growth opportunity for community banks is with Millennials and Gen Z. Accenture projects Millennials to make up as much as 40% of U.S. consumers by 2020 and today are the largest generational demographic group in the history of the United States.

Open Access Banking is Key for community bank

According to the FIS 2018 PACE survey, It has been shown that people who make use of community banks also utilize mobile applications more than any other type of banker. A large 53% of them claim to use mobile apps more now than 2017. The growth of mobile app usage is continuously increasing.

Consumers are doing more “core” business on financial mobile apps, such as making investments, applying for loans and even opening new accounts. This will only continue as open access banking makes its way into the mainstream and Open Banking is embraced.

Open Banking is an opportunity for community banks to engage the right tech partners and create a win-win situation that expands usage of and loyalty to their services. The 2018 PACE findings say,” this might be one of the best and most agile approaches for banks to add the ancillary products and services their customers want.”

Community Banks in Great Shape to Capitalize on New Technology

Community banks continue to grow and prosper every year. The 2018 PACE Study says that 8 in 10 customers are satisfied or very satisfied with their community bank provider. This means that the customer base is loyal and is not eager to opt out of using their bank anytime soon. However, this also assumes that the bank is keeping pace with technology and offering the digital products and services customers have come to expect.

Customers will move to another banking provider if their digital needs are not being satisfactorily met. Mobile is viewed as the main branch by many consumers. All generations except baby boomers (and older) bank on their phones and tablets more than via desktop PCs, ATMs or physical branches. In addition, PACE says that “feature parity is here. Community banks that introduce features like P2P payments see rapid adoption, and it has never been cheaper or easier to add national bank digital capabilities.”

How FutureBank can benefit community banking?

An Open Banking environment can improve the overall customer experience and third-party partnerships can also become a source of competitive advantage. It can also make the banking process easier for those who have multiple accounts in different banks. Aggregating all those banking operations into one simple application is the best solution for community bankers.

FutureBank is a secure and customizable Mobile and Internet Banking solution with an Open Microservices API that integrates with the most popular Core Banking systems in the world. It will allow each community bank greater flexibility and scalability. We also provide an architectural blueprint and code framework which makes FutureBank the perfect solution for any new FinTech product.

Come visit our booth at the ICBA in Nashville from the 18th of March till the 22nd. We will be exhibiting our FutureBank product. For more on FutureBank, visit getfuturebank.com

References:

Getfuturebank.com. (2019). FutureBank Platform – Secure. Compliant. Simple. Flexible.. [online] Available at: https://getfuturebank.com/ [Accessed 8 Mar. 2019].

Icba.org. (2019). 2019 ICBA Convention. [online] Available at: https://www.icba.org/events/2019-icba-live-convention [Accessed 8 Mar. 2019].

Johnson, J. (2018). Community banks can meet digital banking needs with open banking APIs. [online] RISE with FIS. Available at: https://www.risewithfis.com/Community-banks-can-meet-digital-banking [Accessed 8 Mar. 2019].

Oradian and FutureBank Partnership

Oradian integrate their Instafin Core Banking solution with the FutureBank Platform product suite into a seamless banking experience aimed at the unbanked in Nigeria, Ghana, the Philippines and more.

In total; 2.5 billion of the world’s adults don’t use formal banks or semi formal micro-finance institutions to save or borrow money ⁽¹⁾ . Of that number nearly 2.2 billion of these unserved adults live in Africa, Asia, Latin America, and the Middle East.

This is problematic as it restricts these populations from having significant benefits and increases in financial assets for families and individuals that have the ability to gain account ownership.⁽²⁾

Micro Financing Institutions (MFIs) in frontier markets have unusually made lending decisions without access to the sort of customer data and documentation commercial banks take for granted: credit scores, identification documents such as passports or government ID cards, bank statements, lending history and collateral.  These unbanked individuals do not have the necessary documentation needed for traditional lending methods from banks. This is why Oradian made an effort to physically visit these communities and find groups of people who want to lend money. Lending activities are then tracked on Oradian’s cloud-based core banking system Instafin via tablet interfaces and the lender can come back periodically to collect the returns from one of the unbanked individuals in each of these communities.

It is evident from this case that there is a growing need for a digital banking system that may assist and connect these unbanked populations to relevant banks and providing them with access to the financial services they need.  While Oradian’s Instafin core banking solution is able to manage financial products and the record of accounts for this market, the FutureBank Platform can provide regional, demographic specific and targeted digital user journeys for the unbanked user in this market.

What is Oradian?

Oradian is a company founded in 2012 that provides MFIs in countries with underdeveloped banking infrastructure with a finance management platform for personal banking.

The Croatian fintech company was originally focused on Nigeria , where it grew its customer base to 24 MFIs with roughly 490,000 end users. Philippine Central Bank supported the project and since the young company has had a rollout in the Philippines, where it already works with 18 MFIs. Oradian today is also present in Ghana, Liberia, and Malawi.

What is our collective vision with this project

The long term vision of Oradian’s Instafin and the FutureBank Platform is to connect 100 million previously unbanked families to the financial system globally, especially in areas where technology is underdeveloped, through an end-to-end digital banking experience.  Our combined software helps MFI’s grow their businesses and lower the cost of finance to end users. In order for this project to be implemented, our FutureBank Platform will be used in conjunction with Instafin to provide a seamless banking experience. Collectively, we can make an accessible user interface paired with connection to the relevant lending accounts for the unbanked target market.  We can also provide services to the unbanked that will make their lives a whole lot easier, like being able to provide prepaid services directly from their mobile devices so that they can eliminate costly travel to urban areas in order to purchase electricity and other basic services. Instafin is the operational platform on which microfinance institutions, cooperatives and credit unions manage their day-to-day operations, and FutureBank Platform is the digital experience that the unbanked user interacts with.

The number of people who own smartphones is increasing in Nigeria, Ghana and the Philippines as the retail price drops. This means there is a growing opportunity to extend Oradian reach by making use of digital banking with the help of FutureBank.

Instafin and FutureBank     

To create the tools for financial inclusion and make them accessible to all financial institutions The FutureBank Platform is an ideal product to integrate with Instafin in order to reach this goal to give the system a useful and customizable front end banking interface.  Each region and demographic group has its own nuances and requirements, and the FutuerBank Platform is specifically designed to accommodate rapid, agile customization to user journeys that can be quickly deployed and easily scaled.  The technology also supports offline capabilities and zero rated services through integrations with regional Mobile Network Operators (MNOs) in Nigeria, Ghana and the Philippines.

Instafin can reduce high operational costs through automatic reporting that dramatically speeds up time-consuming month-end reporting processes, thus minimising inefficiencies that exist in across these rural banks servicing the unbanked population.  Instafin has other features such as messaging, automatic updates, maximum data security and pricing engines. It also provides training and implementation services on the ground in the areas they service — including data migration from their previous CBS or from spreadsheets.

The FutureBank Platform provides the unbanked users with access to their basic financial information, such as their current balance, transactional history, loan account status and other repayment information.  It can also provide direct access for the user to purchase pre-paid services available to them based on their area. These kinds of features add immediate value to the quality of life for the unbanked individual and puts them on a path to financial security and wealth for their families into the future.

At its core, the FutureBank Platform is a MicroServices API platform that integrates into the most popular Core Banking systems in the world.  The Banking API exposes a common interface to digital channels and FinTech partners whilst abstracting the complexities of the underlying legacy Core Banking systems.  The Banking API can provide a single end point into multiple disparate Core Banking systems which is useful in the case of the project with Instafin.

FutureBank uses unique asymmetrically encrypted HSM tokens to secure each transaction through the platform – adding an additional layer of security.  The platform exposes an event driven SDK architecture for easy integration into 3rd Parties, Merchants and Individuals.

SOURCES:

1. Source: McKinsey research conducted in partnership with the Financial Access Initiative (a consortium of researchers at New York University, Harvard, Yale, and Innovations for Poverty Action); we relied on financial usage data from Patrick Honohan, “Cross-country variation in household access to financial services,” Journal of Banking & Finance, 2008, Volume 32, Number 11, pp. 2493–500.

2. FITZPATRICK, K. (2014). Does “Banking the Unbanked” Help Families to Save? Evidence from the United Kingdom. Journal of Consumer Affairs, 49(1), pp.223-249. doi:10.1111/joca.12055

I’ve watched a lot of Finovate clips and videos on YouTube and I’ve heard Martin tell many a story on what Finovate is all about and how to approach it.  However, this year I attended Finovate for the first time in San Jose, and like most global spectacles, an in person perspective is priceless.

For those that don’t know, Finovate is a demo only format event where presenters get 7 minutes to demo something innovative in the FinTech space.  No slides or videos are allowed.  You need to demo working software and you have 7 minutes to convey the innovation behind your product before a loud bell sounds and you get physically ushered off the stage.  The rules are strict and the host is spectacularly good and coordinating, inspiring and enforcing these rules where appropriate.

For me Finovate is the perfect opportunity to see the actual trends of where people in the FinTech space are focusing their energies.  Last year was mostly about AI, BlockChain and “Banking for the Unbanked”, so I was curious to see where the trends had moved this year.  I decided to get a little scientific and plotted some data about the presentations.

* Even though there is some overlap, as an example a lot of the presentations incorporate AI at some level, the AI category is just for solutions focused on AI specifically.

To my surprise there was an overwhelming large number of Loan Origination Optimization solutions.  Is this an indication of a housing boom in the US?  Or is it that there is an influx of Millennials buying their first homes and there is a new level of customer experience that FIs are expected to attain?  Either way, it was certainly not what I was expecting.  If you add the pure KYC based solutions to the tally, which are typically used to optimize the loan origination process, and combine this with two of the presentations I’ve classified in the "Everything Else" category that were property related, something is brewing.

* About the Everything Else category above, this is where I’ve grouped everyone that I felt stood on their own and cannot really be put into a group.

One thing that stood out is the eerie absence of new Blockchain based solutions.  Perhaps that’s not surprising considering $1bn has been invested so far into Blockchain in the US banking sector and there is exactly $0 in revenue so far reported and nothing actually in production in the banking sector.  It’s as if the successes of Bitcoin and Ether as crypto currencies immediately implies that Blockchain has to be successful in the banking sector for smart contracts or recon processes or whatever people think up next.  It’s like a solution waiting for a problem.  It’s slow, has a limited security time window and not even that innovative anymore – take AI and Quantum computers and put them together into some malware and the Blockchain ledgers will get corrupted across the globe within milliseconds.  Don’t get me wrong, it’s that I’m not a BlockChain fan, and I believe there are opportunities for it outside of banking, possibly government, legal and pharmaceutical sectors.  It’s just that I’m waiting for it to go past the peak of inflated expectations so we can get to the trough of disillusionment.  Maybe that just happened.

In the above I also plotted how many of the presentations spoke about having available APIs that could be exposed to developers and FIs.  With all the pressure with PSD2 in Europe for FIs to open their APIs to the world I was expecting there to be a much higher focus on API availability, but the data seemed to prove otherwise.  Of all the presenters, only ~28% of them offered APIs and more than 70% either hadn’t gotten around to it yet or weren’t ever going to expose an API because of the nature of their product (which is understandable in some cases).

To me this is symptomatic of two possible things.  The first is that the pressure for open APIs from Financial Institutions is not as prevalent yet in the US like it is in Europe and other parts of the world.  What is possibly a more alarming conjecture being that perhaps, because these new innovators are startups, they’ve rushed their development and engineering pieces to get their product to market and haven’t architected them properly with a solid foundation of APIs and/or SDKs followed by the User Experience and engagement channels.  This presents a fantastic opportunity for a product like FutureBank, because, if these innovations get traction they will need to build out their products at scale and facilitate integration with the Financial Institutions, and FutureBank does just that.

We are hoping to get a 7-minute window at Finovate New York in September this year to showcase how quickly we can spin up a brand new FutureBank instance that integrates with most core banking systems and exposes APIs for FinTechs to integrate into.  I believe our product will be invaluable to all the new innovative FinTech’s coming out of the woodwork every year who at some point in their success stories will need to integrate with FIs quickly and seamlessly and have their solutions scale to meet demand, and I hope FutureBank is their secret weapon.

Finally, some highlights and lowlights.

The highlights were:

• Capitalise (Natural language processing so you can talk your investment ideas and the AI builds the trading algorithms for you and publishes them to a trading algorithm marketplace – wow right!),
• Jumio (the best of the KYC solutions with incredible OCR and video technology),
• MicroBlink (Receipt processing via image recognition) and NCR (VR training solutions for remote workforces in the banking industry working on ATMs and the like).
• In general, the emergence of more sophisticated Financial Robo Advisory tools (watch out for FutureBank’s Investment Management features coming out next year) was a highlight.

There was only one lowlight.  Turn Key Lender was so embarrassingly unprepared that it was kind of an insult to the attendees who’ve spent good money getting to the event.  They may have a great product, but I just couldn't get past the lack of preparation in the presentation.  If you are going to be presenting at Finovate in the future, remember to take some of Martin’s advice.

Earlier this year we concluded agreements with Entersekt that enable us to embed the Entersekt technology within our FutureBank Platform.  The FutureBank Platform now supports out-of-band unique device registration and step up authorizations on our mobile channels as well as soft token generation for securing Internet channels.

Our choice of security partner in Entersekt was an obvious one.  Entersekt are far ahead of any of their competitors in the field of authentication and mobile security.  The reason for this is their focus.  Whilst many of their competitors cover a very wide security spectrum in terms of solutions, Entersekt focus specifically on the areas of authentication and mobile security.  As a solution provider we can in turn offer mobile and Internet banking solutions to Entersekt customers with our FutureBank Platform, allowing them to keep this focus on authentication and mobile security.

By embedding best of breed security technology into FutureBank in the form of Entersekt, we ensure that our FutureBank Platform is the most secure mobile and internet banking solution in the market today.  The FutureBank Platform now also includes biometric authentication for securing sensitive transactions as well as tamper detection for compromised mobile devices.

For release in September this year we will be introducing some new advanced features arising out of this partnership that we will be able to showcase in the FutureBank Platform.  More on this to follow.