While much of fintech over the last few years has been about improving the front end of banking, the focus is now shifting to streamlining the back office.
More startups are eyeing technology that would help ease the burden banks face in maintaining compliance with regulation. They are helping banks look for ways to cut back on paperwork and automate some manual processes, and in some cases, looking for ways to cut humans out of the equation entirely. Of course, there are still plenty looking to change the way people interact with money and their banks.
These trends were apparent in New York this week at a pair of gatherings. On Wednesday, Next Money, a fintech conference with a pitch competition for three BBVA Open Talent winners, was abuzz with talk of artificial intelligence and identity. On Thursday and continuing on Friday, nearly 75 startups are pitching banks, investors and analysts on their business at the annual Finovate Fall conference.
The following are takeaways from Next Money and the first day of Finovate.
The Rise of 'Regtech'
Technology intended to help companies stay compliant is having its moment.
Sydney-based Identitii showed off its distributed ledger and token-based system that creates an "information layer," sits above the bank's legacy systems and allows different institutions to provide enhanced information about each payment. It has conducted three proof-of-concept exercises with several global banks and is partnering with Swift and seeking U.S. bank partners for a larger trial of its platform in November, in light of calls for greater cooperation and information-sharing among banks following the cybertheft carried out over the Swift network.
Meanwhile, a Canadian company called Trulioo says it provides "instant identity verification" services for banks and other businesses. The company says its product enables identity verification for more than 4 billion people via 200 data sources for anti-money-laundering and know-your-customer purposes via a single portal.
Identity was also a popular topic at Next Money. Dave Birch, director of Consult Hyperion, broke it into three types. One is "mundane" identity, or "real-world" identity, although that term seems increasingly detached, he said. The others, he said, are digital identity and virtual identity. He also spoke of identity in terms of things, not people.
The Internet of Things can seem like a great way to connect something — anything — to the internet, although just because you can, doesn't mean you should, Birch said, because disconnecting things is very difficult. Shared ledger technology can help provide a safe, secure infrastructure to help track things to verify identity — and satisfy the demands of different sectors.
The same can be said of people. More than 1.5 billion people, or 20% of the world's population, lack an identity. While there still isn't an agreed-upon definition of "identity," perhaps people and industries working to solve identity issues would be more easily understood talking about it in terms of things, instead of people, Birch said.
"Regtech" has been a widely discussed topic in the banking industry recently. As banks' regulatory compliance needs become more complex, and more data needs to be mined from disparate systems for compliance purposes, technology is being touted as a savior for banks in this area. Venture capital and private-equity firms are also eyeing this space. In recent interviews with American Banker, leaders at Nyca Partners and GTCR both mentioned their respective interests in startups focused on compliance.
Innovation in Small-Business Lending
Marketplace lending might still be trying to figure out its future as an industry, but it succeeded in pushing banks to reconsider how they approach lending.
That's particularly true in small-business lending, an area that remains one of the more manual (and paper-intensive) areas of the industry.
Fintech is taking note of the shift.
LendingFront is one of the Finovate presenters attempting to tackle this issue. During its demonstration, the New York company showed off its cloud-based platform that consolidates banks' lending operations into a single system.
Small-business-focused nonbank lenders have doubled their outstanding portfolio balances every year since the mid-2000s, according to research from Aite Group earlier this year. Further, 26% of businesses surveyed by Aite for a report released this month stated they "probably or definitely" would consider using an alternative lender the next time they need credit.
Emphasis on Artificial Intelligence
When average consumers think of payments today, they picture an image of a credit card, but banks need to come up with a better way before customers start to view payments as something slowing them down, fintech players say.
Enter artificial intelligence.
The future of banking services needs to be contextual so they can enable consumers to live their lives, Brett King, co-founder and chief executive of Moven, said at Next Money. That means payments need to be embedded into experiences, like Amazon Echo or Apple's Siri assistant.
AI has already made its mark on robo-advice, but King said in coming decades it will likely infiltrate the rest of banking, outlining three types of AI: machine learning — that is, machine-specific AI that duplicates human functions; AI that mimics human functions but is still manageable by humans; and hyperintelligent machines, where AI is smarter than humans.
How certain parts of a bank employ certain types of AI remains to be seen. King cited Tesla CEO Elon Musk, who said last month that humans will be banned from the Model 3 production facility, where machines make the cars without people, so the production line doesn't "drop to people speed." King argued that the same could be said for banking. The products banks sell will become experiences that differentiate their brand in day-to-day life.
"If we add a human into banking, we don't just slow it down to human speed, humans create friction," King said. "Humans only ever add friction."
Expanding Social Commerce
Social payments, such as paying someone via Spanchat, have been a hot topic in fintech. Some are betting that "social gifting" is the continuation of that trend.
Swych, of Plano, Texas, describes itself as a "mobile gifting platform." The company says it has come up with the next generation of exchanging gifts — specifically gift cards — with a platform that enables users to instantly buy and send gift cards from their mobile device. The cards can be sent via social messaging apps, such as Facebook Messenger, and represents a "trillion-dollar opportunity" globally for banks, which could offer such a service to their customers.