infrastructure

FINTECH: From mobile networks in Africa to global eCommerce platforms, marketplace banking is on the rise

It has long been the promise of regulations like PSD2 or plain old web-forced transparency, that banking information and products get popped out from behind the curtain and made to compete within the foreign land of tech platforms (i.e., App stores and e-commerce). This means prices fall and economic rents go to fewer winners that have strong APIs, integrations, and a nimble balance sheet. The promise is a utopian Fintech ideal in which one’s cash, savings, debts, bills, tax, investments, and assets exist in a single platform that is fast, secure, and globally accessible. And where the long tail of banks evaporates into commodity providers as their regulatory and distribution moat falls away. The symptoms of this happening aren't difficult to find either.

Take open banking platform Plaid – a US-based data aggregation platform that powers authentication and banking detail provision -- not "personal financial management" only -- for any tech startup that wants your bank account and routing number. The platform has built a major open financial data infrastructure for over 15,000 tech startups such as Venmo, Acorns, Robinhood, and Coinbase. It goes without saying that these startups Such success has driven the platform to the shores of the UK, in which it is already connected to over eight of the largest digital-only banks. The claim is that the platform will give UK Fintech businesses access to 70% of all personal current accounts and promote the democratization of financial service offerings to customers between the US and UK. Essentially, these open banking platforms -- Tink and Bud included -- aim to be the Amazon Web Services for financial service companies.
 
A less obvious but just as important example is in eCommerce, where marketplaces like Amazon are partnering with financial institutions to shift the flow of retail into its walled garden -- Bank of America for merchant lending, American Express for SME credit cards, JP Morgan for checking accounts, and so on. The goal here being to monetize a sticky business customer (SME) within the eCommerce platform over and over again -- remember the cross-sell is bigger than the sell. We found two noteworthy new developments in this department. (1) African mobile network operator MTN is building a digital marketplace platform to offer everything from financial products to household goods. The platform will be bootstrapped to MTN's existing mobile money app MoMo, with hopes of it becoming a leading full service banking and eCommerce platform, offering loans, savings accounts, insurance, as well as third party products. The reach of such a digital service would be massive with MTN operating in 22 countries with over 200 million customers. Compare that to the "Amazon of Africa" eCommerce giant Jumia's 4 million customers across 14 countries and you have yourself a juicy competitive advantage situation. 

(2) eBay has just announced a partnership with Santander to offer loans to its 200k SME customers – similar to the Amazon BoFA cooperation. The vision is that eBay have proprietary data that that could indicate SME revenues before those revenues even materialize -- for example: the traffic on product pages by consumers on the eBay website. Here the story is the same where financial institutions are leveraging the customer base and stickiness within eCommerce platforms to sell their products, with the intention to either up-sell or cross-sell them to higher margin products at a later stage.

Overall, it is clear that there is a movement to consolidate financial products and services into digital marketplace platforms is afoot. Should this concern existing banking incumbents? Not entirely, as such institutions still hold the resources sufficient to rapidly spin up their own Fintech startup -- Goldman Sach's Marcus and Well Fargo's Greenhouse. For those that don't, and rather partner with Fintech marketplaces -- the incumbent becomes the client of the Fintech -- the risk is clearly commoditization. Why would anyone choose the pain of shopping for and opening a third-party bank account, if one comes pre-installed in our virtual shopping assistants? Here, Fintech's have their cake and get to eat it.

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Source: Novobrief (article), Plaid screenshot (Plaid Blog), MTN MoMo (MTN Cameroon)

REGULATION: The Ethics of Sovereign Technology

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The Chinese tech companies sit comfortably between media, software and finance. No distinction needs to be made between using someone's social media data, search history, shopping habits, education and financial track record -- all of these data points flow into massive AI power-houses with half a billion users, inside Alibaba, Baidu, Tencent and others. Now, imagine if your Facebook friends and Google searches and Amazon shopping and Visa purchases determined if you could get a student loan to go to university. China's social credit system will do just that, reports Futurism.com while referencing an infamous Black Mirror episode that explores a dystopian view of this concept.  While countries like the US certainly struggle with systemic bias in the commercial activities of free participants, at the least such bias is not put into software by the federal government and used to determine access to services. 

Or is it? Consider that a regulatory agency, the Federal Communications Commission (FCC), is working to remove net neutrality rules in order to allow Telecom companies to meter how and where Internet traffic flows. While Comcast may not turn off access to some particular site, they could in theory tier the speed of the Internet according to economics, politics or whim -- such that, for example, Goldman Sachs or Amazon load quickly, while Crypto Kitties or Telegram load slowly. And loading time is a major determinant of consumer behavior and information exposure. We can't trust the Telecoms to not extract economic rents. Therefore, this policy choice will strengthen the ability of entrenched commercial interests to determine what people have access to, and consume.

And what if the rationale for such policy decisions is not even driven by the sovereign, or the collective will of that state's people? Data Scientist Jeff Kao deed a deep dive on the FCC comments using natural language processing analysis. In the best case, at least 1.3 million of the pro-repeal comments sent to the FCC were automated. In the worst-case, only 800,000 of the 22 million submitted comments came from real people, with 99% of those opposing the repeal. In the graph below, the height of the bar shows how often a campaign was repeated on an exponential scale. The color Red is associated with repealing and the color Green with keeping net neutrality. The clustered Red middle suggests the work of spambots that can generate slightly different language with the same meaning. The long Green tail is likely to be written by real people, though the first top bar shows a form letter repeated 7.5 million times. This cuts in every direction.

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And of course, other examples of propaganda bots are well documented -- already in use by 30 governments, with election impact in 18 countries. According to a recent report from Freedom House, Internet freedom is declining on a global basis. The mental stretch from a government controlled social credit system to global information warfare over national policies is not as unlikely as it may first appear.
 

Source: Freedom HouseJeff Kao