2 Tug-A-Wars and 3 trends in Digital wealth

Abaka  conversational AI for financial advice I took the rolling escalators to the Gallery at King`s Place where the annual Robo investing 2day conference takes place, thinking about The cash piles that wealthy people are stacking away in the UK market – FFI = Funds Flow Index by Calastone The frustration of the asset management […]

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Six diverse picks of Fintech shovels & Fintech stacks

The transformation of Financial services continues and re-bundling is one of the trends that is at work. Fintechs are collaborating and creating fuller stacks by bundling several services and growing their businesses. Six picks give you a picture of the diversity of this trend. Mambu is a leader in the Saas core banking sector. It […]

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Saas offerings, re-bundling and the pot of gold

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Jessica Ellerm wrote about `Something as a service`, the new fintech paradigm while looking at Raisin`s offering. This prompted a discussion with Richard Turrin and Aki Ranin around Saas models for banking. Richard is a proponent of `Buy versus build` which allows for rapid deployment. Aki is a proponent of shared infrastructure because it allows for economies of scale and expansion in additional markets.

Increased Saas model adoption and APIs, make it difficult to predict whether incumbent banks or Fintechs are becoming the plumbing of financial services. For me, we actually need to reconsider whether this should be a question at all.

Two or three years ago, the `dump pipe` debate was hot and terms like Big banks becoming Dumb Pipes or Dumb pots, were trending as discussion topics in articles, conferences and debates[1].

`The “dumb pipe” debate originated from the telecom industry and there is a lot of literature on the subject. The grandfather of the debate is David Isenberg who in 1997 published the seminal paper The Rise of the Stupid Network.` Excerpt from Andra Sonea`s post On banking “dumb pipes” and “stupid networks”

We have been using the `dumb pipe` term because it works in the attention economy which is dominated with trendy jargon. But we each map the term to a different concept.

We are actually even biased. When we look at a Fintechs with a B2B Saas offering like Mambu, then we may think that it if Mambu powers an incumbent bank to offer lending, then maybe the bank is at risk of becoming a dumb pipe. On the other hand, when we realize (if we do at all), that Mambu is powering N26, we don’t classify N26 as a bank with a high risk to become a dumb pipe.

Mambu is a great example of a Fintech specialized in a Saas core banking offering. It powers up Oak North bank, which is the No.1 UK challenger bank. It is the heart and brain of the ABN Amro`s digital banking spinoff, New10, that focuses on SME lending; and more.  Mambu does not offer the banking license (a different approach to Solaris Bank). Just by looking at these two examples – Mambu and Solaris Bank – that have unbundled financial services in different ways; we have to pose the question `Where is the value being creating?`

  • Powered by Mambu means: Go to market fast with a Saas cloud-native solution – Client has the banking license; Fintech has the tech – Who is the dumb pipe?
  • Powered by Solaris Bank means: Get into banking with a Saas cloud-native solution – Client can offer banking services without a banking license of its own – Baas – Fintech has the license and the tech – Who is the dumb pipe?

The `dumb pipe` threat was native to the digitalization phase of unbundling as the disruptive force that was going to dominate. Now we are in a re-bundling phase and fintechs are growing their stack of offerings, incumbent financial institutions are transforming their offerings, and tech companies are also stepping in. From Sofi moving from lending into wealth management and Habito powering the mortgage offering of Starling bank; to Kabbage powering Santander`s business loan offering, to Motif launching structured products for Goldman Sachs; to Goldman powering the Apple card and Solaris bank powering Alipay`s acceptance in Europe.

I hope you are convinced that we can’t spot easily dumb pipes in this kind of world. If business expansion is powered through a Saas cloud offering, then the next question to ask is whether this powers your ability to offer advice by analyzing what is processed in the pipes and whether it enhances your brand through strengthening your trusted relationship. As the re-bundling continues and the commoditization of transactional banking services also continues, the

Last man standing will be Brand and Advice[2].

If you use Saas offerings towards offering advice and enhancing your brand, then there is no reason to fear becoming a dumb pipe.

Last minute footnote – As I am finished posting this article, a Linkedin post from Richard Turrin grabbed my attention about Tencent`s investment in a UK startup, Truelayer which is tech company leveraging APIs within the PSD2 and Open banking progressive European regulatory frameworks, to give access to financial services.  TrueLayer powers neo bank Monzo.

[1] Are Banks Destined To Become The Next “Dumb Pipes”? via Tech crunch

Banks May Be Turning Into Dumb Pots Of Money via Forbes

The Big Banks Are Becoming `Dumb Pipes`; As Fintech Takes Over via CBinsights

[2] Inspired, copied and stolen from Gary V`s tips from his the recent at The Financial Brand Forum’s. See 9 Priceless Tips For Financial Marketers From Gary Vaynerchuk

 

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

The 5 Banking commandments for your own Bezos moment

Dear Banks,

It only takes an internal memo to ignite your own Bezos moment.

Five clear and crystal commandments[1] (“good artists borrow, great artists steal”) that you can steal from Jeff B.:

  1. All teams will henceforth expose their data and functionality through service interfaces.
  2. Teams must communicate with each other through these interfaces.
  3. There will be no other form of inter-process communication allowed: no direct linking, no direct reads of another team’s data store, no shared-memory model, no back-doors whatsoever. The only communication allowed is via service interface calls over the network.
  4. It doesn’t matter what technology they use. –(tech neutral)
  5. All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.

Bezos ended his 2002 now famous mandate with a chilling little twist:

  • “Anyone who doesn’t do this will be fired.  Thank you; have a nice day!”

Just 17 years later, you can feel free – I would say you should feel inclined to do so – and steal this. You can end your internal memo with a kinder twist:

“Anyone who doesn’t do this will no longer be with the team.  Thank you; have a nice day!”

2019 in Finsev

I am using `Banking` to refer to financial institutions that have traditionally been in the business of serving retail, institutional, and corporate clients across all the spectrum of their needs. The Banking business model has been a PUSH operating model and the opaqueness and regulatory barriers to entry have allowed them to morph into a predominantly product business.

I am celebrating this month 4 yrs with Daily Fintech, during which I have been writing every single week on global innovations in Capital markets, wealth and Asset management[2].

I can safely say by now, that the only sustainable banking model is a PULL operating model that at its core becomes a platform as a service business. Much like Bezos transformed Amazon from a digital bookseller business, into a platform as a service.

For this to happen, the core transformation needed is in the `middle office` (conventional parlance) via APIs. Unless banks realize this, they will become suicidal and victims of a `lemming effect`. Their herd behavior to keep up with digitizing the `front office` to improve their customers` experience and even their engagement; will prove futile. The reason being, that as long as the culture remains that of selling products eventually; banks will find themselves in a commoditized business with margin going to zero.

`Any bank that does not transform its `middle office` via APIs; will become extinct. Thank you; have a nice day!”

 The good news about this transformation is that it has lots of possibilities and variations. But a bank has to start its platformification process, first internally.

Think first Private APIs that enable each and every department to access data and workflows in real time. Then, one can think of Public APIs, Partner APIs, and the Open Banking obligation or opportunity. Banking transformation needs to look more like 2/3 internal APIs in the first phase.

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Chris Skinner and Jim Marous, have been preaching relentlessly about these issues. But it seems that it is difficult to convince `Doubting Thomas`[3]. There is no reliable data (to my knowledge) on this topic that is essential, despite the fact that it may seem a `detail`. The devil always hides in the details.

 

Over the past 3yrs, I have been monitoring the Financial APIs from the Programmable Web and there is clearly an increase. From 2016 to date, we have gone from 1700+ to 3800+ financial APIs. Of course, there is no quality differentiation or usage stats with this doubling. And none of these stats, are related to the paramount internal transformation measured by Private or Internal APIs, and their usage.

The one piece of evidence that I can share with you, is from Goldman Sachs. Marquee[4], is the GS sophisticated freemium platform for its institutional clients, which I have used as a great example of `Empowering Asset Owners and the Buy Side` WealthTech Book, 2018 Wiley.

Adam Korn, who has spearheaded the project of giving out Marquee for free, reported late last year that:

` After months of work, Marquee now fields more than 100 million API calls each month, about 5 million of which come from outside Goldman’s four walls. Marquee now has roughly 12,000 monthly active users, split evenly between internal and external clients. And the number of users is beginning to increase, according to Korn.`

[1] The API Manifesto Success Story

https://www.profocustechnology.com/enterprise/api-manifesto-success-story/

[2] https://dailyfintech.com/author/efipylarinou/

[3]doubting Thomas is a skeptic who refuses to believe without direct personal experience—a reference to the Apostle Thomas, who refused to believe that the resurrected Jesus had appeared to the ten other apostles, until he could see and feel the wounds received by Jesus on the cross. https://en.wikipedia.org/wiki/Doubting_Thomas

[4] Named in honor of CIO R. Martin Chavez, known by everyone as “Marty”.

Book one hour with Efi – Ask me anything (AMA) for 0.10BTC – Efi@dailyfintech.com

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Finastra’s Open Banking Readiness Index – DBS takes Asia top spot

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Finastra recently released their open banking readiness index along with a report  on how banks in Asia have performed against certain criteria. Its not surprising that of the five dimensions that Finastra has set for open banking readiness assessement, DBS bank have topped two. DBS, in my view, have been one of the more innovative banks.

The assessment was done across Banks that together constituted 60% of assets in Asia, so its a fairly good indicator of where banks are.

Now a deeper dive into the index and the criteria:

OpenBankingFinastra

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APIs are the future, and we have heard that time and time again. The key pillars of the frame work are focused around how banks have prepared to

  • Adopt APIs
  • Integrate with Fintechs and other third parties
  • Manage and mine data internally
  • Monetise data
  • Be innovative

These are fairly broad criteria to assess the readiness across various aspects of producing, managing and sharing data around the value chain. The coverage, in my view, is comprehensive. And purely based on the framework used, it can clearly be replicated across Europe and other parts of the world, to see who the global leaders in open banking are.

On the breadth of coverage, I would have liked better insights on standardisation across APIs. Open banking is great, but when there are some standards that banks can agree on amongst themselves, and conform to them, that would help downstream firms and systems consuming their data.

However, the depth of the assessment is really what could be invaluable. Each of these pillars have left some points unanswered. Let me go through some points I would have liked to have better clarity on.

While adoption of APIs internally and externally is a key metric, I believe awareness around open banking is pretty low amongst the consumers. Shouldn’t readiness factor-in the efforts that banks have put in to raise awareness amongst consumers?

The following are the points that API adoption assessment covers. While this report is all about the readiness of banks for open banking, adoption should lead to something meaningful. And that would be customer uptake.

OpenBanking2

Also, establishing partnerships with Fintechs and integrating are broadly covered. But what we define by partnerships need to be clarified.

Many startups that are approved for open banking have access to Banks’ APIs. But are still miles away from doing anything meaningful with it. Again, the end customer is forgotten here.

Banks have more to do than follow up with these downstream businesses and ensure end customers are benefited. But regulatory framework that approved these Fintechs to use Banks APIs, should have taken some kind of customer metric as a criteria- to me that is readiness where the entire value chain is considered.

One argument is that, it is a pure bank readiness report, and has nothing to do with customers. But there are times where the report talks about integration with the developer community, apps builders, and also with third party service providers, so why not customer uptake too?

For example, the number of live third party applications that actively use a bank’s APIs could have been a good metric.

Another point on the data readiness of banks, where data security and governance are key criteria. In all my years of experience with systems in banks, I know the quality of data is generally very poor. I have worked in environments where a highly critical report has 150,000 manual adjustments in its underlying data. And this is so common place – at least used to be, not long ago.

If banks automate data of poor quality using APIs, and claim readiness over data security and API infrastructure, that would be like lipstick on a pig.

There is no point in securing, sharing or making business decisions on low quality data. This problem is generally amplified in parts of a bank where there are lingering legacy systems. While accuracy of data is taken into consideration, when banks are tested for data readiness, data quality will need to be the number 1 criteria.

It almost feels like the framework has allowed the most topical data problem (information security) as the number one criteria – to me, it is not.

Data monetization models are well thought through. However, how some of those models would help create better (cheaper) products for the end consumer is something banks should start thinking about. And more importantly, how those monetization models will be communicated to the customers in a transparent fashion, is pretty critical in a #facebookIsDead era.

In summary, the report does a great job of providing a view of how open banking can drive innovation within banks. While I have pointed out some minor areas across the framework used, my biggest criticism is that, the customer seems to have been forgotten even in this report – yet again.

Readiness can be about infrastructure readiness, process readiness, or business model readiness. But the so-what needs to be the final readiness score – it has to be about how soon it will benefit customers.


Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

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Clearcover’s Expanded API and the power of incidental Insurance

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Prediction #2 from my 2018 Insurtech predictions focused on 2 buzzwords that I thought would be quite prevalent this year; API and Ecosystems.

For APIs, this centered around a couple key premises:

  1. APIs help to enable digital ecosystems/platforms to distribute Insurance products with more ease and,
  2. Insurance carriers with API-enabled police admin systems/infrastructure will be able to be more nimble in their ongoing operations.

There are quite a number of companies within the Insurance industry now offering APIs across the Insurance value chain.  There have also been a number of new API announcements over the past couple of months.

This week, Clearcover, an Insurance MGA headquartered in Chicago and currently selling auto policies in California launched an expanded API offering for its product.  

I had the chance to catch up with Clearcover’s CEO and Co-Founder Kyle Nakatsuji to learn more about his background, how Clearcover compares to other incumbent and startup Car Insurance companies as well as what their expanded API offering is all about.  

Kyle’s background and why he started Clearcover

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Kyle started his career as a startup attorney.  In 2013, he left to co-found American Family Ventures (the VC arm of American Family Insurance) along with Dan Reed.  

‘I spent four years there investing in all sorts of really cool insurtech startups.  At the beginning, we were mostly investing in software companies that sold to the Insurance industry.  Towards the end of 2014 and early 2015, Insurtech started gaining momentum and people started getting interested in the category.  We started to see all sorts of really interesting startups that were no longer just doing things that were adjacent to Insurance, but were actually trying to be integrated in the insurance value in a more meaningful way,’ Kyle explained to me.

He went on to add, ‘One of the things that we got really interested in as we started exploring Insurtech more in-depth was this idea we called incidental Insurance.  What we believed was that if you could use a modern technology stack and APIs to integrate Insurance more naturally and seamlessly in places where it was going to be highly relevant to people, you could give them great customer experience, make the product easier to buy and use, and also save them a lot of money because you could avoid spending on things that end up driving costs.’

With this in mind, Kyle left American Family Ventures in 2016 and founded Clearcover with co-founder Derek Brigham.  They decided that Car Insurance was the right line of business to start experimenting with this model.  

‘In P&C, we thought that the last fundamental distribution innovation was back in the 1930s, when GEICO started selling its product without the traditional commissioned agent.  In doing so, they were able to dramatically change their cost structure as an insurance company.  Because of that, they were able to offer the product for less money. Fast forward 80 years, the Internet came around and it changed how much money people spent or where they put their money, but it didn’t fundamentally change anyone’s (Insurance carrier) cost structure the way that the first distribution innovation did.  So, when we looked at what categories where customers serve to benefit the most from the affect of our distribution and business model, it was clearly Car Insurance.’

Clearcover went live with auto products in California February of this year.  As of today, they have sold over 6000 policies with annualized written premium approaching $10 million USD. Their premium run rate for the year is $17-18 million USD.

Clearcover’s Value Proposition

When it comes to startup Car Insurance providers in the US, many look to Root and Metromile.  

Both are fully-licensed Insurers, have raised some recent large funding rounds ($90m Series E for Metromile and $100m Series E for Root) and have Usage-Based Insurance (UBI)offerings within their products.  

Further, because they are fully-licensed Insurers who file quarterly earnings, their financials are regularly analyzed by Insurtech Influencer Matteo Carbone and Deputy CEO of P&C Partners for SCOR, Adrian Jones (a great quantitative analysis I must say!).

While these type of UBI offerings can be an interesting propositions for consumers, they are not for everyone.  ‘With a lot of these UBI-based products, you have to drive around for a while before you can get a quote. It’s not the type of system which lends itself well to relevant moments, because you have to commit to the insurance process for a very long time before you can make a decision,’ Kyle shared with me.  

Personally I agree.  While I like the concept of UBI, it is a bit of a commitment to me in terms of time and my personal data that I am not willing to give.

Building on the concept of incidental Insurance which Kyle mentioned to me above, is where Clearcover stands out in the current new offerings of Car Insurance in the US.

‘Kudos to them (Root and Metromile) for positioning and marketing this way.  For us, we have an Insurance product that doesn’t have a lot of complexity to it and is of really high quality, which also doesn’t require you to do much different than you would do if you were buying from a GEICO, Progressive or a State Farm. The difference is that the technologies that we’ve built allow us to deliver a better customer experience at a much lower price. Further, the use of integrated channel partnerships and our API to deliver the product in moments when it’s relevant to people allowing us to be more efficient with our advertising marketing money compared to what incumbents and startups spend,’ Kyle said.  

‘When we launched, we began with a product called Quote API, which helped us to work with price comparison engines and neo agents (digital agency platforms).   These were places where the customer is already looking for an Insurance quote. The Quote API also works in places like online shopping for a car, financing for a vehicle and online personal finance managers.  We think these areas were where we thought seeing an insurance quote would be relative to people and signed up a whole bunch of partners really quickly to use that API.’

Expanded API Offerings

‘What we’re now launching is an expanded API platform with more integration options for a partners outside the insurance industry so we can go directly to a consumer whether it’s when they’re shopping for a car, financing a vehicle, managing their personal finances, getting a loan, looking for ways to save money on bills, exploring different vehicle options, etc.’

‘There’s all sorts of opportunities for us to now say, look, you are doing something where Insurance is relevant, if you’re interested in saving a bunch of money, here’s a really easy way to start and finish that process with Clearcover.  We’re expanding the breadth of opportunities to bring Insurance to people when it’s going to be relevant to them, but the time in which they can go from interested shopper to Clearcover customer [and all while saving a bunch of money] is the fastest it’s ever been,’ Kyle explained to me regarding their new API offering.  

‘By the end of Q3 2018, we should have somewhere around 20 integrations live and that’s just the beginning.’

Some of the companies they are working with are Cars.com, Gabi, Insurify and The Zebra (to name a few).  They are also starting to add more independent agencies as they continue the move some of their business online.  

If you are interested in learning more about their API for your business, visit this link.  A further write up of their expanded API from Clearcover’s VP of Product, Adam Fischer, can be found here.

Summary

As I was preparing for this article this week, I was speaking with one of my closest friends, who is in the tech industry.  I told him that this week’s article was on APIs. His reply was ‘oh, are APIs now the buzzword for Insurtech? That’s soooo 3-4 years ago, bro.’

Well, we know the Insurance industry has taken some time to catch up to the rest when it comes to digital and innovation.  Once we are in it, though, there is no turning back.

There are a number of reasons why the API is important to the Insurance industry.  As mentioned at the beginning:

  1. APIs help to enable digital ecosystems/platforms to distribute Insurance products with more ease and,
  2. Insurance carriers with API-enabled police admin systems/infrastructure will be able to be more nimble in their ongoing operations.

Ryan Hanley, now CMO of Bold Penguin, wrote a very interesting article last week about the value of APIs.  In this, he highlighted the APIs of Lemonade, Ask Kodiak, Roost, Bold Penguin and Risk Genius.  

A list of all Insurer, Intermediary and Enabler APIs can be found here from Coverager. You can also find links to many of the Insurance APIs themselves here.

Looking at all of these offerings, one can see that APIs are adding to the flexibility that needs to come into our industry.  

What Clearcover is doing is leveraging the concept of that flexibility along with the power of the ecosystem (the other buzzword mentioned in Prediction #2) to create cost-savings that they pass along to customers in the form of significantly more affordable car insurance paired with great service.

The combination of these two buzzwords and the concept of incidental Insurance may help to turn it from a product that is sold, not bought, to one that is bought without the need to sell.  

Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.

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