The argument about if Fintechs and Banks are frenemies would never end. And it’s justifiably so.
Retail banks have a model of providing checking, savings, investment account services. Of course, they layer that with credit cards, personal loans, mortgages, etc. Fintech showing up on the scene means one thing, banks would be losers. There isn’t any clearer way to say it.
Think about it this way, banks earn money from these services and would want to continue that way. Fintechs showing they could do it better means they also want to gain something as well. So, any of these could happen: banks would lose, and Fintechs could gain; Fintechs and banks would gain from increased service cost and customers would pay more; Fintechs would lose, and banks would be cool.
There is also the friction that comes with who owns the customer experience. Most banks loathe to see new players sandwich between them and the customers and would prefer to control every single data point. On the flip side, when customers start to use apps for Personal Financial Management and their bank accounts, they start seeing the banks as a repository of their funds or provider of loans.
Retail banks don’t even trust Fintechs as their services tend to aggregate and disintermediate. None of the banks want to be a bucket for storage.
But wait, why not?
The traditional model makes losers out of the retail banks for Fintechs to win, maybe the only way would be to have a new type of bank, modeled from grounds up to take away the arguments of retail banks.
So imagine a bank, fully licensed but whose interaction is via APIs that Fintech and others can use to connect to it. Fintechs are the actual customers because the banks help them to hold their customers’ funds and loans in compliance with the regulation.
Dropbox was happy to become the programmatic storage for many apps, and that cemented its position in the world of cloud storage. Of course, Google Drive, Box, Microsoft OneDrive, etc. support the same approach but nothing represents personal commodity storage more than Dropbox.
A bank, fashioned after Dropbox, could have the same model and would face no pressure to compete with Fintechs but be the backbone for them. Such a bank, with no direct customer interface, would be barebones to run with the most minimal of operational overhead.
Could this be a viable model?
If this model works, then it’s possible that the future of banking will be the gradual transformation to the utility company providing services to the Fintechs who will own the customers. Nevertheless, there may not be a total elimination of the traditional model though, or one where all banks become a full-scale utility.
The harsh reality for Fintechs is that banks still own the customers’ trust for now and that counts for a lot.
Being a utility player offers no room for differentiation, and it simply becomes a case of the best bank offering ease and variety of API integration (across the various requirements of the Fintechs – Risk and Regulatory Compliance – i.e. KYC, AML, security of deposits, etc.).
What is likely to happen is more of a gradual acceptance of the Fintechs services as options for customers in areas where the banks may not have the capabilities. For example, Santander is selling SME lending via Kabbage or providing Personal Financial Management via Meniga, The ultimate Fintech bank that will provide an integrated suite of all the customers’ required financial services may just not be on the horizon yet.
But it will be interesting to see how this pans out for the future of banking.
#Note
Contributions from Ladi Asuni
Category: Future
mCash would change the future of payments in Nigeria
The Nigeria Inter-Bank Settlement System (NIBSS), along with numerous banks, have launched mCash as an alternative payment system in the populous country in Africa.
mCash rides on USSD and anyone can easily use the code to make payments at large stores, corner shops, etc. The mCash payment system, which is automatically available to over 28 million account holders in Nigeria, can be used with any smart or feature phone.
The Central Bank of Nigeria has been pushing electronic payments in Nigeria for years. The elaborate program, dubbed Cash-less Nigeria, was driven massively in partnership with banks, switches, schemes and other stakeholders. The results have been fantastic as electronic payments in Nigeria is on a tear.
Despite the massive success of the Cash-less Nigeria program, merchant payments using Point of Sales (POS) terminals have not been as successful. Payments at POS terminals have been bedeviled with a lot of issues: High cost of terminals, which has been exacerbated by the devalued Naira. Poor telco data/GPRS infrastructure. Overregulation of participation and fees, which has made the business to be highly unprofitable. The list of issues goes on.
It was no surprise that banks started pulling back. Many at times, merchants desirous of having terminals are not given because they may not have enough transactions to allow the banks breakeven.
Not deterred by these, NIBSS and some banks rallied around to design a new payment system which would latch on to the recent success of the USSD banking in Nigeria.
Rising from the ashes of mobile money in Nigeria, another failed experiment in the quest for a cashless society, banks quickly repurposed their USSD codes to connect directly to bank accounts instead of mobile wallets. As the average Nigerian is already used to using USSD codes to load airtime or select call back tunes, there was an immediate affinity. USSD banking in Nigeria now has more users than all other channels apart from payment cards.
The mCash payment system allows account holders to dial their bank codes or a special general purpose code and then pay any merchant. The paying customers and merchants do not need to be with the same bank. The transactions ride on the existing NIBSS Instant Payment infrastructure. Merchants get settled instantly instead of waiting until the next day as it would be for POS transactions. Banks do not need to create additional back office processes as the payment transactions are treated like regular NIP transfer payments.
Even the merchants love the new system as they would not need to pay interchange or MSC.
This is a new payment system and the jury is still out on how transformational it could be. It has all the potentials of a successful platform: reach, ease of use and cost to merchants.
The Artificial Intelligence (AI) Challenge
I’ve been on the AI train for quite a while. Sounds like the next thing humans will do but you never know it may end up like the disappointment genetics ended up being despite the promises of 1990s.
Google AI recently spanked someone at the game of Go, considering that “someone” is one of the best humans at Go, that’s something.
Suddenly everyone is sitting up with many bandying around the belief that there would be Armageddon when machines take over the world. It won’t probably end that way but then who knows? What I know is that AI has been quietly creeping into our daily lives without anyone even noticing. Your smartphones are chuck full of blistering AI technologies. When Siri is bantering about all sorts of rubbish, you think it’s your cousin?
For me the greatest challenge AI can face is being able to analyze video – recorded or live stream.
Before I go into more explanations, AI today can check a picture and identify items in it. Facebook can see a picture and identify all your friends in there. Scary enough? No, hear this: Facebook can identify you from pictures even when your face isn’t visible.
All I want is to have AI watch a video and tell me the plot of the story or watch a live camera feed and tell if something untold is happening. This is beyond facial or material identification, this is AI understanding plot!
At least I can spare myself the horrors of watching Batman V Superman and let the damn AI just tell me it ain’t worth visiting the cinema.
Mum, AI took my job
Recently jobless, I took to trolling the internet for good inspiring stories and I fortunate to bump into a long form on George Hotz inventing a self-driving car. George is of internet fame when he was the first to successfully hack an iPhone and then made a mess of Sony. That’s then.
There are many ways to skin a cat, at least if you can kill the cat first. But then automating self-propulsion isn’t a piece of cake. Planes have been flying themselves for over 84 years but all because danfo drivers don’t fly. Come to terra firma, somewhere around Abule Egba, and it’s a different ball game.
The best known name in the game is Google and they have been plugging away at this for years. Meanwhile African bad boy, Elon Musk recently released a patch that allows a Tesla to drive itself on the highway.
Summary, it costs zillions of dollars and millions of years to do build a working self-respecting self-driving car. Really?
George has turned all this on its head. In October of this year, he invested $50,000 ($30K of this was for a brand new Acura ILX 2016) and presto out came out a decent self-driving automobile. In 2 months? You must be kidding me.
This is where it starts to get interesting.
George’s approach is totally different from others. Instead of programming every conceivable rule and regulation of how to drive and what to expect (let Google come to Obalende!) he taught the car driving like the way I could teach my niece. Many things have made this possible – advent of deep learning, cheap computers, sensors, etc.
The bit I love is his bet against Musk.
So what has AI got to do with losing your job? Well, truth is AI can be taught to do many things. They already power simple things around you – SIRI, Cortana, Google search, image recognition, etc. What happens when it can be a perfect secretary, equity trader, physician, customer service officer, proofreader – correcting my numerous typos?
There is a lot it can do or may not do. The scariest for me though, would be when AIs can invent other AIs. Then, I’m sure that damnation would be an understatement.
Goodbye Hard drives but I won’t miss you
I just read an article where experts said price of SSD will continue to fall. Sincerely that’s the most stupid statement I have read in months. It’s like saying the sun will rise tomorrow morning.
SSD, which is an acronym for Solid State Drive, is basically a bigger USB drive shoehorned into the size of hard disks so they can fit into the same compartment. It’s a means of deceiving computers that they are HDDs but just magically faster. You can read more about SSD here.
I use a Dell Latitude E6540 and a MacBook Pro (which has refused to leave its original packing, tear nylon!). The Dell is one dog of a laptop. It’s big, ugly, heavy and very slow. I was almost gearing to use it as a self-defense tool when I finally got an epiphany that maybe the hard drive may be begging to retire. So I got a Samsung (or was it San Disk) SSD and plopped it in. Whoa, never seen such a transformation. Oh, yes, it’s still big, ugly as sin and very heavy but slow isn’t a word to describe it. After all, a pig with a lipstick is still a pig, albeit a pretty one.
Enough of my katzenjammer!
I have become an unrepentant evangelist of SSDs. I now approve it as replacement drives for my colleagues because, ding dong, it’s affordable. At the last check, a 240GB SSD cost around N35K.
Now for those who have some interest in electronics, trended over a period of time, the price of devices is always inversely proportional to the performance. If this law holds true, SSD will get cheaper and cheaper until it finally supplants hard drives. I have watched this trend for a while and if things go at the rate it’s going, then by 2018, hard drives may become what people do – drive hard!
However other schools of thought think that SSD may never catch up with HDDs in performance but I know that as long as the price is reasonable, the performance of SSD will always bitch slap HDDs any day or time.
So far the consumer SSDs have been coming in the HDD form factor but why should it? New computers are going on sale with SSDs soldered directly on the motherboards which is giving rise to skinnier and sexier laptops.
And it doesn’t stop there.
The IDE and SATA interfaces are hogs, slow and annoying. A prehistoric interface protocol. So guys at FusionIO turned everything on its head – they started putting storage on the PCIe bus, right within server innards. The benefit is that the processor can reach the drive as fast as it could reach the memory. The devices are not for small children though – a typical 2.4Tb bundle will set you back about $28,000. With that kind of price, I will rather save my documents within 2B exercise books.
Back to saner shores.
SSD can transform performance of anyone. It could mean the difference between a good day or a bad one. So let’s do it!