Palgrave Studies in Financial Services Technology The Future of FinTech Integrating Finance and Technology in Financial Services Bernardo Nicoletti Palgrave Studies in Financial Services Technology Series Editor Bernardo Nicoletti Rome, Italy The Palgrave Studies in Financial Services Technology series features original research from leading and emerging scholars on contemporary issues and developments in financial services technology Falling into broad categories: channels, payments, credit, and governance; topics covered include payments, mobile payments, trading and foreign transactions, big data, risk, compliance, and business intelligence to support consumer and commercial financial services Covering all topics within the life cycle of financial services, from channels to risk management, from security to advanced applications, from information systems to automation, the series also covers the full range of sectors: retail banking, private banking, corporate banking, custody and brokerage, wholesale banking, and insurance companies Titles within the series will be of value to both academics and those working in the management of financial services More information about this series at http://www.springer.com/series/14627 Bernardo Nicoletti The Future of FinTech Integrating Finance and Technology in Financial Services Bernardo Nicoletti Rome, Italy Palgrave Studies in Financial Services Technology ISBN 978-3-319-51414-7 ISBN 978-3-319-51415-4 (eBook) DOI 10.1007/978-3-319-51415-4 Library of Congress Control Number: 2017932557 © The Editor(s) (if applicable) and The Author(s) 2017 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Cover design by Samantha Johnson Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Acknowledgments This book is the result of the last several years of research on financial services, where several people are worthy to be acknowledged for their support, useful comments, and cooperation A special mention should be made of Prof Gustavo Piga, Prof Corrado Cerruti, and Prof Andrea Appoloni at the Universita’ di Tor Vergata a Roma Moreover, I acknowledge the support from Dr Gian Marco Balletti in collecting and evaluating some basic materials during his thesis at the same university A special thanks also to Aimee Dibbens from Palgrave Macmillan for her continuous support and encouragement This series started with mobile banking, continued with digital insurance, and now analyzes fintech initiatives I acknowledge my family, whose constant support and patience made this book happen Bernardo Nicoletti v Contents 1 Introduction 1 2 Financial Services and Fintech 3 3 Model and Classifications 31 4 Fintech Innovation 81 5 Critical Success Factors 161 6 Responses of Traditional Players 177 7 Regulations 195 8 A Business Model for Insurtech Initiatives 211 9 A Case 251 vii viii Contents 10 The Future: Financial Services as Platforms 261 11 Conclusions 275 Glossary 279 References309 Index321 List of Abbreviations and Acronyms ABI Associazione Bancaria Italiana ACH Automated Clearing House ADAS Advanced Driver Assistance Systems AFI Alliance for Financial Inclusion AI Artificial Intelligence AML Anti-Money Laundering API Application Programming Interface App Application (mostly for mobile) ATM Automated Teller Machine B2B Business to Business B2C Business to Consumer BaFin Bundesanstalt für Finanzdienstleistungsaufsicht BCBS Basel Committee on Banking Supervision BI Business Intelligence BMC Business Model Canvas BMI Business Model Innovation BPM Business Process Management BTC Bitcoin C2B Customer to Business CA Controlling Authority CB Commerzbank CBA Commercial Bank of Africa ix x CD CFO CIB CIO CKM CLV CPU CRM List of Abbreviations and Acronyms Compact Disk Chief Financial Officer Corporate and Investment Banking Chief Information Officer Customer Knowledge Management Customer Lifetime Value Central Processing Unit Customer Relationship Management or Credit Risk Management CSR Customer Service Representative DLT Distributed Ledger Technology (aka Blockchain) ECB European Central Bank ECM Enterprise Content Management ECN Electronic Communication Network EMV Europay, MasterCard, and VISA ERP Enterprise Resource Planning ESA European Space Agency EU European Union EY Ernst & Young FCA Financial Conduct Authority FINMA (Swiss) Financial Market Supervisory Authority Fintech Financial Technology FINTRAC Financial Transactions and Reports Analysis Centre of Canada FMA First Mover Advantage FTE Full-Time Equivalent FX Foreign Exchange GPU Graphics Processing Unit HR Human Resource GSM General System for Mobile 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Japan, 25 Malaysia, 25 Middle East, 25 Pakistan, 25 Singapore, 25 South Asia, 23, 25 South East Asia, 23, 25 Sri Lanka, 25 Taiwan, 25 Thailand, 25 C Chief Information Officer (CIO), 35, 119, 124 commerce e-commerce, 11, 35, 38, 45, 107, 268 Alibaba, 268 Amazon, 226 eBay, 103 m-commerce, 45, 152 consultants and advisory Accenture, 23, 27, 49, 71, 125, 180 Associazione Bancaria Italiana (ABI) Research, 123 CB Insights, 21, 212 Celent, 116, 133, 134 Deloitte, 124, 131, 148, 149, 241 Donaldson, Lufkin and Jenriette, Ernst & Young (EY), 19, 49, 94 Forrester Research, 84 Gartner, 114, 123, 165 H2 Ventures, 45, 51, 118, 150, 228 KPMG, 45, 51, 118, 150, 228 Magna, 147, 148 McKinsey & Company, 10, 67, 68, 113, 132, 177, 219–21, 235 Panorama, 43 Pew Research Internet Project, 123 PricewaterhouseCoopers, 67, 116, 138, 189, 212, 216, 217, 245 Long Finance, 245 Schroders Global Investor Study, 142 TCS, 49 E ecosystem, 4, 13, 19–25, 31, 51, 53, 91, 114, 117, 185, 207, 237, 246, 247, 255, 263, 264, 267–71, 273, 275 Europe European Central Bank (ECB), 8, 148 France, 220n10, 226n12 Paris, 164 Germany, 220n10, 226n12 Berlin, 164 Ireland, 220n10 Italy, 6, 220n10 The Netherlands, 200n6, 220n10 Portugal, 220n10 Spain, 220n10, 226n12 Sweden, 220n10 Switzerland, 226n12 UK, 15, 28, 220n10, 226n12, 275 Financial Conduct Authority (FCA), 22 Index Financial Conduct Authority (FCA): Project Innovate, 22, 203 F financial institutions AIB, 188 Bancassurance, 90, 241 Bank of New York Mellon, 152 Barclays, 8, 15, 40, 180, 188 BlackRock, 137, 144 branch, 8, 9, 16, 89, 92, 97, 143, 188, 223, 264, 266 Citigroup, 16 Commercial Bank of Africa, 190 Credit Suisse, Fidor Bank, 49 ICAP broker, 152 ING, 16 Morgan Stanley, 137 People’s Bank of China, 197 Royal Bank of Scotland, Santander, 152 Standard Bank, 188 systematically important financial institutions (SIFIs), UBS, 152 Unicredit, 8, 189, 190 fintech economics financing modes, 44 crowdfunding, 34, 42, 43, 46, 47, 61, 94, 131, 270 initial public offering (IPO), 21 venture capital, 21, 22, 73, 190, 258 323 selling, general, and administrative expenses (SG&A), fintech startups Advanced Driver Assistance Systems (ADAS), 235 Amodo, 239 Avant, 120, 121 Basel Committee on Banking Supervision (BCBS), Battery Ventures, 53 Betterment, 138, 140 Bitfinex, 128 Bluevine, 44 business model innovation (BMI), 136, 137 Citybizlist, 44 Clearmatics, 152 Cofunds, 269 Coinify, 151 Colu, 151 CommonBond, 13, 41 Credibly, 57 Droit Financial Technologies, 36 Everledger, 242 Fintastico, 229 FreeFormers, 188 Fundbox, 44 FutureAdvisor, 144 Genfour, 147 Kabbage, 57 Kantox, 33, 34, 44, 49 Kickstarter, 13, 34, 42, 43 Kreditech, 118, 121, 144 Ladenburg, 240 Lenddo, 134, 135 Lending Club, 13, 39, 41–2, 57 324 Index fintech startups (cont.) Lufax.com, 121–2 Matchi, 46, 118, 150, 188, 228 MoneyFarm, 141 OnDeck, 57 Personal Capital, 140 Robotica, 251–60 SafeCorp Financial Corp, 140 SafeShare, 241 Satago, 57 Square, 53, 54 Square Capital, 53 Startupbootcamp, 214 Tendermint, 127 Tradle, 241 TransferWise, 9, 49, 57 Trov, 229 Venture Scanner, 18 Warfield, Edwin, 44 Wealthfront, 13, 36, 139 Xero, 37, 54 ZhongAn, 117–18 Zopa, 49 G Generation Generation Y, 288, 291 Generation Z, 288, 291 Millennial, 5, 66, 141, 142, 144, 151, 220, 248 I insurance companies Aegon, 269 Allianz, 243 Assicurazioni Generali, 180 Aviva, 243 MetLife, 243 Nationwide, 243 Ping An Insurance, 118, 122 Progressive Insurance, 119 Tencent Holding, 118 international bodies for virtual currencies Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT), 150 Committee on Payments and Market Infrastructures (CPMI), 150 Commonwealth Secretariat, 150 European Banking Association, 150 Financial Action Task Force (FATF), 150 Organisation for Economic Co-operation and Development (OECD), 150 United Nations Office on Drugs and Crime (UNODC), 150 investment vehicles exchange-traded funds, 83, 142 mutual funds, 142 options, 142, 182 stocks, 142 structured products, 142 L lean critical success factors(CSF), 164 key performance indicator (KPI), 290, 294 lean and digitize, 74, 164 lean thinking, 164 Index M magazine New York Times, 137 Wall Street Journal, 15, 121 merchant Pizza Hut, 125 models business model canvas (BMC), 59–63, 75, 96, 97, 145, 218, 221, 252–60 business model innovation (BMI), 51, 56–8, 81, 135–7 marketing mix, 115 technology acceptance model (TAM), 64, 152–4 O Oceania Australia, 24 New Zealand, 24 operating systems Android, 140 iOS, 140 Linux, 243, 260 P payment companies automated clearing house (ACH), 45 FirstData, 49 PayPal, 35, 49, 61, 62 Visa, 125 Checkout, 125 persons Cerrone, Emma, 188 Cryan, John, 325 Darwin, Charles, 219 Davenport, Tom, 103, 109–111 Deming W. Edward, 300, 304 Diemer, Sebastian, 118 Galvani, Paolo, 141 Garibotti, Paola, 189 Gelis, Philippe, 33 Goldstein, Al, 120, 262 Hall, James, 147 Harris, Bill, 140 Jaffrey, Hyder, 152 Jenkins, Antony, 40 Jing, Chen, 117 Just, Dennis, 228 Kent, Rachel, 208 Kipling, Rudyard, 32, 32n1, 32n2, 84, 84n2, 244, 244n34 Klein, David, 41 Lagarde, Christine, 149 Laplanche, Renaud, 42 Lee, Roger, 53 Levcin, Max, 35 Malamed, Adam, 240 McCarthy, Jim, 125 Meiri, Amos, 151 Monteleone, Daniele, 254 Mumdžiev, Marijan, 239 Nakamoto, Satoshi, 16 Nash, Adam, 36, 127, 139 Obama, Barack, 169 Pemmaraju, Satya, 36 Porter,Michael, 87, 267–9 Schindler, Karl, 207 Shadab, Houman, 14 Steinart, Alex, 241 Stein, Jon, 140 Stewart, Jeff, 134 326 Index persons (cont.) Stone, Oliver, 15 Vayngrib, Gene, 241 Visti Larse, Christian, 151 Voelker, Ray, 119 Volcker, Paul, 14, 14n17 Walton, Charles, 38 Wynaendts, Alex, 269 R regtech AQMetrics, 206 Corlytics, Basel 2, 206 Fintastico, Basel 3, 229 Friendsurance, 242 FundApps, 207 FundRecs, 206 Hogan Lovells, 207–8 Knip, 228 Silverfinch, 206 TradeFlow, 206 Trov, 114, 229 Trustev, 206 regulations Basel Basel III, 115 Solvency II, 115 relationships business to business (B2B), 2, 39, 43, 44, 62, 251, 255, 257, 260 business-to-employees (B2E), 45 business-to-government (B2G), 45 person-to-business services (P2B), 39, 42, 45 person-to-person services (P2P), 33, 39–41, 45, 48, 49, 57, 94, 99, 122, 126, 131, 136 P2G, 45 small-and medium-sized enterprises/subject matter experts (SME), 20, 37, 44, 62, 246, 252, 253, 259 unbanked, 23, 149 S shared economy Airbnb, 83, 266 Uber, 83, 85, 266 social network Facebook, 103, 105, 133, 134, 226, 268 LinkedIn, 103, 133 Twitter, 133 T technologies automated teller machine (ATM), 14, 14n17, 15, 42, 92, 100 call detail records (CDR), 100 cloud computing, 38, 50, 90, 98, 107, 115, 170, 180, 215, 217, 243, 245, 276 connection modes application programming interface (API), 151, 257, 273 web service, 16, 65, 89–90, 166 data management, 111, 113, 230–32 analytics, 11, 37, 71, 72, 82, 90, 91, 95, 96, 98–121, 201, 203, 215, 216, 227, 230–33, 235, 245 Index Big Data, 1, 11, 50, 71, 72, 82, 90, 91, 95, 96, 98–121, 170, 201, 203, 214–16, 227, 230–33, 235, 245, 276 business intelligence (BI), 37, 110, 111 data-driven documents, 109 data governance, 111, 117 enterprise content management (ECM), 289 Hadoop, 110, 111 know your customer (KYC), 90, 241 distributed ledger protocols Asynchronous Randomized Business Consensus (ARBC), 127 BAR, 127 blockchain, 44, 126–32, 148, 155, 215, 227, 240–43, 245, 277, 282 SCP, 127 information and communication technology ERP, 290 software development lifecycle, 162 Mobility, 50, 82, 92, 112, 170, 215, 216, 227 OCR/ICR, 146 PDA, 283 proof of concept, 113 robotics robo-advisor, 136, 137, 142, 143, 231 robot process automation, 239 virtual robots, 91, 252–4 security encryption, 286, 289 327 SecureKey, 38 Smart Contracts, 131, 241 technologies for payments contactless, 124, 301 Java languages, 257 natural language processing, 72 NFC, 199 POS, 100, 253, 258 remote payments, 301 technologies for payments network modes Bluetooth, 125 GPS, 107 GSM, 291 Internet of Everything, 2, 88, 122–4 Internet of Things, 1, 14, 122–32, 233–6 omnichannel, 60, 61, 65–6 75, 95, 235 SMS, 133 technology company Apple Apple Pay, 99 App Store, 266 Cisco, 88, 122 Fiserv, 49 Google Google Wallet, 99 IBM, 132 Microsoft Azure, 282 EthBaaS, 282 SunGard, 49 telecom operators Amodo, 239 VocaLink, 41 Zapp, 41 328 Index U United Nations, 150 V virtual currency Bitcoin, 16, 42, 48, 57, 126–8, 131, 148, 149, 151, 168, 245, 272 Coinify, 151 Digibyte, 151 Dogecoin, 151 Ethereum, 282, 286, 290 Hypercoin, 151 IOCoin, 151 IXCoin, 151 Litecoin, 151 Mintcoin, 151 Novacoin, 151 Peercoin, 151 Quarkcoin, 151 Reddcoin, 151 Startcoin, 151 Storjcoin, 151 TetherUS, 151 Utility Settlement Coin, 152 XNubits, 151 W World Economic Forum, 57, 70, 149 ... relationships between the customers and the financial institutions The ATM innovation is interesting It has marked the start of a new fintech era The relationships between financial services and technology, ... one of the initial applications of technology to the financial area, allowing important economic savings to financial institutions by introducing automation rather than a person’s labor in the relationships... especially the younger generations, the so-called 2 Financial Services and Fintech millennials, had lost faith in the traditional financial services From their point of view, financial institutions