Silicon Valley? No, Chilecon Valley

Silicon Valley? No, Chilecon Valley
In previous blog posts regarding fintech in Latin America my position was, and remains, that one of the reasons for being behind is that it lacks of a “Silicon Valley” equivalent. Efforts to create a fintech ecosystem, as Finnovista is doing, become a good alternative to overcome the absence of a geographical pocket of innovation. Particularly consider the market fragmentation of Latin America comprised by 19 countries, some of which have 3M inhabitants to Brazil having +200M. People in most countries may speak the same language but markets are far from being similar just for that. Under (or against?) these circumstances, Chile is working to become Latin America’s Silicon Valley. One of its most attractive initiatives is “Start-Up Chile”, created four years ago to transform the Chilean entrepreneurial ecosystem. It began with a question: “What would happen if we could bring the best and brightest entrepreneurs from all around the globe and insert them into the local ecosystem?” The initiative offers work visas, financial support, and an extensive network of global contacts to help build and accelerate growth of customer-validated and scalable companies that will leave a lasting impact on the Latin American ecosystem. The idea is to make the country a focal point for innovation and entrepreneurship within the region. Start-up Chile, with only four years, is a start-up itself but it has a good starting point and great potential:
  • Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
  • This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.
While other countries and cities in the region are working in offering support to start-ups, it seems Chile is leading the way. Hopefully this triggers some healthy competition in the region, which in the end will benefit all. In the meantime, let’s meet at Finnosummit in Bogota – Colombia next February 16th. Join financial institutions, consultants, tech vendors, startups and other digital ecosystem innovators, to learn how startup driven disruption and new technologies are reshaping the future of financial services in the region. Remember to use Celent’s discount code C3L3NT20% for a 20% discount on your conference ticket.  

Reports of small business lending’s death are greatly exaggerated

Reports of small business lending’s death are greatly exaggerated

I’ve spent much of my career in and around the financial services sector focused on small business banking. In the US, small business customers get bounced around like Goldilocks—they are too small to be of interest to commercial relationship managers and too complex to be easily understood by retail branch staff.

I applaud those banks that make a concerted effort to meet the financial needs of small businesses. After all, in the United States small businesses comprise 99.7% of all firms. (According to the US Census Bureau, a small business is a firm with less than 500 employees). In general, larger small businesses are better served as they use more banking products and generate more interest income and fee revenue than smaller small businesses. The lack of “just right” solutions for many small business financial problems has been a golden opportunity for FinTech firms.

In the FinTech space, much of the focus is on consumer-oriented solutions like Mint for financial management, Venmo for P2P payments, and Prosper for social lending. But FinTech companies figured out early on that small businesses weren’t getting the attention they deserved from traditional banks. Many of the top FinTech companies—Square for card acceptance, Stripe for e-commerce, and Kabbage for business loans, have gained prominence serving primarily small businesses.

Online small business lending by direct credit providers has especially taken off. Disruptors like Kabbage, OnDeck, and Lendio were quickly followed by more traditional players like PayPal, UPS, and Staples. Morgan Stanley reports that US small business direct lending grew to around $7.5B in 2014 and projects expansion to $35B by 2020. They also maintain that most of this growth is market expansion, not cannibalization of bank volumes. This makes sense—direct lenders usually attract borrowers that can’t get bank loans and charge accordingly. For example, Kabbage averages 19% interest for short term loans and 30% annually for long term loans. According to the Federal Reserve, the average interest rate for a small business bank loan (less than $100k) in August 2015 was 3.7% and current SBA loan rates range from 3.43% to 4.25%.

And that common wisdom that US banks have pulled back from small business lending? Let’s take a look at data compiled by the FDIC starting in 2010.

Small Business C&I Loans The overall volume of small business loans increased year-over-year from 2010 to June 2015, with a CAGR of approximately 3%. The total dollar value of small business loans outstanding dipped slightly in 2011 and 2012, reflecting slightly smaller loan amounts, a result of tighter lending standards. The facts are that US small business loan volume and dollar value outstanding are at their highest levels since the FDIC began collecting this data from banks. And by the way, there are almost 2,200 fewer banks in the US today than prior to Lehman’s collapse in 2008. Banks are happy to work with credit-worthy small businesses to meet their working capital needs. And direct lenders are happy to work with everyone else—-a win-win for all.

Helping build the fintech ecosystem in Latin America

Helping build the fintech ecosystem in Latin America
A few weeks ago, Dan Latimore and I had the chance to attend Finnosummit in Mexico City. IMG_1341 While Dan was the one really working (he presented on “How Big Data can change Financial Services”) I mingled around the participants of this vibrant ecosystem encompassing entrepreneurs, financial institutions, investors, and regulators among other stakeholders. It is amazing how the ecosystem continues to grow and how fintech start-ups are booming.IMG_1349         Celent has been collaborating to help create the fintech ecosystem in the Latin American region since its inception and I had the honor, for 2nd time, to judge the fintech start-ups participating in the BBVA Open Talent, which brought the Latin American finalists into town as part of Finnosummit. They had their 5 minutes of glory (or suffering) by pitching their venture to the audience and two winners were selected at the end of the day. Discover the finalists of all regions here. In Latin America two chilean start-ups were the winners: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin. In the US & RoW the two winners were: ModernLend enables users with no credit profile to create one in just 6 months by using alternate metrics; and LendingFront which facilitates short term commercial lending through a simple platform. In Europa the winners were Everledger, specialized in anti-fraud technology for financial services and insurance; and Origin an electronic platform that facilitates bond issuing in the capital markets. Many fintech startups that made it to the finals focus on Blockchain technology and payments. These seem to be the areas of major investment for the last two years. If you are interested in these themes I suggest that you follow my colleagues John Dwyer, Zilvinas Bareisis and Gareth Lodge. Coming back to Dan’s presentation, he made a very interesting observation around the need to move from the old paradigm (Customer response optimization) to a new paradigm (Anticipate and shape customer intent) based on the use of big data and analytics, but also warning that disruptors are out there applying the new paradigm today. If you want to get deeper into any of the subjects covered here, please let me know. By the way, is there any fintech start-up you believe has great potential? Share with us please!

The importance of customer experience in financial services

The importance of customer experience in financial services
Service Design. Journey Maps. Customer Stories. Mood Boards. Experience Recovery. These are a handful of the topics discussed at this week’s Customer Experience for Financial Services (CXFS) Conference, organized by Worldwide Business Research in Charlotte, NC. As an analyst currently immersed in research on corporate banking financial performance, regulatory environment, economic conditions, business demographics, and financial technology, the CXFS event was a welcome change of scenery.
Journey Mapping

Journey Mapping

The CXFS conference was all about the “voice of the customer” (VoC) and how financial institutions (FIs) can improve their customer “listening” skills. One of the sessions mentioned that FIs are listening to anywhere from four to ten channels including web site, call center, e-mail, Internet, customer surveys and social media. But as one presenter stated, having more VoC channels doesn’t automatically result in a better customer experience. For example, in recent years many global banks fully integrated their major lines of business with product, operations and technology grouped organized under one segment leader. These integrated groups have created silos which create a highly verticalized client experience (CX), preventing consistency across a firm. Event attendees were encouraged to “climb over the silos and create a collective story to make things change”. Customer experience strategy and technology have gone a long way since I was involved in online banking user interface design in the early 2000s. Technology providers at the event are enabling banks to digitize and tag unstructured data such as call center recordings, agent notes, e-mails, and social media posts. This enables firms to mine and analyze the data to inform customer-centric innovation. Other firms specialized in market research including voice of the customer and voice of the employee surveys. Customer experience consultants are helping firms to understand how customers are thinking, feeling, seeing, saying doing and hearing so that people, processes, products and technology can be improved. The event featured discussions on how to build CX into people, processes and products by creating centralized information stores, centers of excellence, customer councils, and shared KPIs. Most of the FIs at CXFS were early in their customer experience journey and still working out a comprehensive solution. My favorite quote of the event was advice from Ingrid Lindberg, CXO of ChiefCustomer.com: “Have the patience of a saint, the heart of a lion, and the tenacity of a street fighter because it is one giant game of Whack-a-Mole.”

Viewing mobile payments strategy holistically

Viewing mobile payments strategy holistically
As the one year anniversary of Apple Pay approaches, banks have to make more decisions about their mobile payments strategy. Android Pay launched in the US a few days ago, and Samsung Pay is expected to be available there soon as well. Should a bank just stick with Apple Pay or enable their cards with all the “pays?” Should they consider alternative options, such as their own HCE-based, or depending on the market, even SIM-based NFC solutions? The answer is that banks have to view their mobile payments strategy holistically. Apple Pay, good as it is, is only available for the latest iOS devices, and only for in-store and in-app payments. Android ecosystem offers more choice: Android Pay, Samsung Pay, HCE and SIM for NFC, but what about P2P and other payments? Barclays in the UK announced this week that it will be launching its own version of mobile payments for Android-based phones. Barclays was a notable absentee when Apple Pay launched in the UK, and are forging ahead with Pingit and bPay wearables. As a result, some view this latest move as yet another indication that the bank “appears to be adopting a go-it-alone strategy with its roll-out of mobile payments, preferring to retain the primary contact with the customer rather than providing the rails for interlopers like Apple, Google and Samsung to hitch a free ride.” I wouldn’t read too much into it. Barclays has since said that it would support Apple Pay at some point in the future. In my view, Barclays is doing what all banks should do – think about mobile payments holistically, i.e. how they will support mobile payments across different platforms and use cases (e.g. in-store, in-app, P2P, etc.). Yes, Android Pay has been launched in the US, but it’s not yet available in the UK. Yet HCE technology has given banks around the world an opportunity to launch their own branded NFC solutions for Android, irrespective of whether Android Pay is available in their market or not. Rather than waiting for Android Pay or Samsung Pay to come to the UK, Barclays is joining the growing list of banks such as BBVA in Spain (read the case study of BBVA Wallet, our Model Bank winner here), RBC in Canada (who were granted a patent for their Secure Cloud payments earlier this month), and others that are taking a proactive stance in developing mobile offerings for their Android user base. I have a new report coming out soon that covers key digital payments issues, such as Android Pay and tokenisation in more detail. Watch this space!

Execution: the Achilles Heel of cool new stuff

Execution: the Achilles Heel of cool new stuff
I’m heading into Finovate in a couple of hours. The UN general assembly is in town, and the only reasonable Starwood hotel I could find was the Aloft in Harlem. It’s amazing that this hotel has exactly the same feel as its counterpart at the Denver Airport…but I digress. I’m writing because Aloft has a cool feature called Keyless Entry. Very simply, I checked in on my SPG app, was given my room (which puzzled the clerk as I tried to check in again – apparently I didn’t even need to stop at the front desk), and my phone was to serve as my key. Brilliant in theory, but in practice I overshot my floor on the elevator because I couldn’t activate the security pad quickly enough, and getting into my room and the health club took several swipes (5-10 seconds) each time. So while I like ditching the plastic key, that convenience is more than outweighed by the hassle of having to call up the app (which takes 5-10 seconds itself to load) and then match it to the pad. I’m using a plastic key next time. Another great idea is using a phone’s camera to capture data, most notably a U.S. driver’s license. I love the demos I’ve seen at prior Finovate events, but when I’ve tried it to open new accounts, it simply didn’t work. Just to show I’m not wholly negative, I also activated my BofA TouchID login today. It worked beautifully, and now I can stop typing in a truly secure password with my thumbs! BofA waited until they got it right (at least for me!). What’s the moral? When rolling something new out, you’d better be sure that it works. Few consumers will give you a second chance, at least not anytime soon, particularly when the alternative is almost as good and the experience is tried and true.