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The FinTech World is Looking East

The trend has been confirmed — Asia is the leading region in the world, as measured by FinTech investment. Globally VC-backed FinTech funding (down 13% to $12.7BN) and deals (down 1% to 836) are on the downturn. Asia is the only part of the world where FinTech investment is increasing. Last year, the top 10 Asia-based FinTech deals were worth in aggregate around $4BN. 2016 Asia mega-round deals ($50MN+) were dominated by Chinese firms. Ant Financial raised $4.5BN in private placement, Lufax.com raised $1.2BN in Series B funding, and JD Finance raised $1BN in a Venture Round.

There are different ways to analyze the above numbers. On the justification side, Asia is the most populated part of the world with the most discrepancy regarding wealth distribution and the fastest growth of the middle class. Said differently Asia is a market of unmet demand where there is room for incumbents and new players to target some of the next 1.2 billion digital banking customers. However, while impressive, it is important to see who is raising the money. The Ant Financials, Lufax or JDs of the world are by no mean young companies. They have been building on over ten years of pre-existing traction and user base to develop a new FinTech Layer.

Let’s look at their business model.

· Baidu connects People with information

· Alibaba connects People with products

· Tencent connects People with People.

Each of these companies has hundreds of millions of users, and for them, FinTech is just a commoditized layer that is used to enhance their core product:

· Baidu can better sell information by letting you not only search for your favorite restaurant but also handle the reservation of the table, the payment of the menu and the taxi ride back home.

· Alibaba can better sell products by facilitating express checkout via Alipay and can assist the number of products available by financing the SMEs that it knows will sell

· Tencent can better connect people by splitting bills in a restaurant via WeChat Wallet or reconnecting families millions of kilometers apart during Chinese New Year simply by digitizing red packets

Each of these FinTech layers within their products is incredibly valuable and valuated, and this is what the most recent numbers are reporting. Therefore, we need to distinguish that from the activity we see in Europe and the US. Imagine if the GAFA (Google, Amazon, Facebook, Apple) were to raise to create a FinTech spin-offs. Wouldn’t they also raise US$50m+ in the process? Most likely.

The good news is that while so far the FinTech activity has been biased and driven by large pre-existing tech conglomerates, there is still space for smaller players to benefit from the regional fragmentation at the regulatory, infrastructure and behavioral level. FinTech in Asia has arguably started 5 to 7 years after the USA and Europe, and therefore we are just at the very beginning of a broader ten year cycle for the Industry. This is very healthy provided that we can maintain the speed at which capital, technology, and people are deployed. During this period we will, as in all new industries, witness a concentration of players and bankruptcy of start-ups.

This should be celebrated as second time entrepreneurs are typically ten times better than their first venture. It is fair to assume that across the region, at least two fintech companies go bust every week. By extension, this means that if we accept a typical company size of five employees, there are ten talented, trained and smart people that can be re-hired by companies with a better focus, traction and business model. In practice, this means over 1,040 people that investors, start-ups, and banks should look out for each year to keep pushing FinTech in Asia forward.

Asia can leapfrog the world regarding FinTech and do so for the next decade ahead, but this is because Asia is not bringing efficiency in markets but thoroughly reforming how financial market operate and interact in the first place. The later point raises a broader and more pressing question, what regulatory framework is needed to spur the stable growth of a booming industry.

While defining the regulatory perimeter of the current eco-system is clearly a work in progress, one can use some rule of thumbs. Digitizing a process, or streamlining it using technology is not a fundamental change in business model justifying the creation of new rules and regulation. At most, we may ask for a proportionate application so that the cost saved by using technology is not offset by the regulatory burden.

What is new is what we see at the junction between Digital Identity, Data Protection, and Financial Regulation. Practically the ownership of credit score means that people should not only be able to get a loan but even get a hotel room and benefit from an express checking without putting on a deposit thanks to your credit worthiness. However, this is a new application of credit scoring that goes outside of the financial services industry. This example, which is happening in China, is breaking the current siloed regulatory approach that is taken by most jurisdiction. If this is not resolved, it will create an opportunity for regulatory arbitrage that ultimately will be detrimental.

This is the next regulatory frontier that needs to be considered if Asia not only wants to lead regarding nominal FinTech investment but also expand its standards beyond its region and suggest a new regulatory model for the 21st century to another part of the world such as Europe or the USA.

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The good news is that while so far the FinTech activity has been biased and driven by large pre-existing tech conglomerates, there is still space for smaller players to benefit from the regional fragmentation at the regulatory, infrastructure and behavioral level. FinTech in Asia has arguably started 5 to 7 years after the USA and Europe, and therefore we are just at the very beginning of a broader ten year cycle for the Industry. This is very healthy provided that we can maintain the speed at which capital, technology, and people are deployed. During this period we will, as in all new industries, witness a concentration of players and bankruptcy of start-ups.
Singapore Snags Another Insurtech Hub

Singapore is now recognised as having one of the most developed fintech environments in the Asia-Pacific which includes an expanding «Insurtech» scene.

Insurance Australia Group (IAG) is the parent company of a general insurance group with controlled operations in Australia, New Zealand, Thailand, Vietnam and Indonesia. Its businesses underwrite over $11.4 billion of premium per annum, selling insurance under many leading brands.

IAG has announced it will launch an Insurtech innovation hub in Singapore, in a move that will connect the insurer to Singapore's global innovation network and vibrant entrepreneurial community.

The hub will be called «Firemark Labs», and acts as an incubator for IAG to work with top talent, start-up, research and technology partners to co-create new products and services that will improve customer experience across Australia, New Zealand and Asia.

MAS Support

The opening of the new hub is supported by the Monetary Authority of Singapore (MAS), as part of its broader efforts to promote a culture of innovation in the financial sector. The partnership with MAS will help IAG create new roles in Singapore and establish the insurer as part of its world-class innovation community.

«As the first Australian insurer-backed lab, IAG’s Firemark Labs will add to the diversity of our vibrant FinTech ecosystem,» commented Sopnendu Mohanty, Chief FinTech Officer for MAS.

IAG’s initiative presents an exciting platform for both the insurance and innovation community to come together and co-create innovative InsurTech solutions across retail and reinsurance applications for the region, and will further bolster Singapore’s development as the global insurance hub.”

The Expansion of Insurtech 

Firemark Labs is part of IAG’s wider business strategy to create great customer experiences through data, innovation and digital technologies. It will be supported by IAG’s $ 75 million venture fund which was set-up in December last year to invest in, and partner with start-ups and emerging growth businesses.

Earlier this week one of the largest global insurers MetLife, announced its Singapore-based innovation center, LumenLab, had shortlisted 8 finalists for its inaugural tech matchmaking program, Collab.

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IAG has announced it will launch an Insurtech innovation hub in Singapore, in a move that will connect the insurer to Singapore's global innovation network and vibrant entrepreneurial community
An ex-Deutsche Bank MD who made $1 billion for clients built an app to teach students to invest

Kerim Derhalli likes to joke that he spent most of his career at banks that "have either gone bust, almost gone bust, or should have gone bust.""JPMorgan merged with Chase. Bankers Trust got brought out of Deutsche Bank. Lehman Brothers went bust. Bank of America bought Merrill Lynch and then Deutsche Bank is Deutsche Bank — who knows!" Derhalli told Business Insider recently.

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Derhalli spent 35-years in investment banking and spent his final 11 as a managing director at Deutsche, which is now struggling to deal with historic conduct issues and balance sheet woes.

"I wasn’t aware of any of the things that were going on," said Derhalli, who left in 2012. "What I always tell people is don’t leave a job for negative reasons, always do something positively. There was a lot that was wrong in the industry but, actually, I thought there’s just this massive opportunity."

Fintech players need to build bridges, not walls

Nice header! Feels the industry is heading in this directions, while at the same time several disruptive models may be replace old bridges with new bridges:)

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At a time where in certain parts of the world there is a desire to build walls, brick by brick, to keep people out, it’s ironic that elsewhere -- not least in the global fintech space -- the mantra is all about sharing, partnering, competitive innovation and freedom of movement within a well-governed environment.

That said, a number of the early digital advisory (or "robo") propositions have -- surprisingly -- been slow to recognize this sentiment, instead aiming to recreate a faster version of the conventional advice (or investment) experience -- "faster horses" syndrome. Hardly the stuff to make the big incumbents shake in their boots or lose any sleep.

SolarisBank raises €30m in funding round

Berlin based API-accessible banking platform SolarisBank has raised €30m in Series B funding led by Index Ventures. The company will use the funds to target European expansion.

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Berlin-based SolarisBank has raised €30 million in its series B funding round as it targets European expansion, according to a “confidential source that’s close with the company”.

Funds raised came from German and UK venture capital firms.

The official press release is expected in the next two weeks, where Solaris will announce its new partners, as well as the products available for these partner companies.

Banking Technology contacted Solaris about the source’s comments and received the standard reply.

Amazon looking to buy Capital One?

Would be a great move! Amazon is rumored to have an interest in acquiring Capital One.  The acquisition would enable cost savings by owning a greater swathe of the payments value chain, in addition to gaining Capital One's customer base and their spending data.  Additionally regulators may classify cash held in e-commerce apps as "deposits," making it beneficial to acquire Capital One's regulatory expertise

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Amazon is rumoured to be pondering the acquisition of Capital One. Banking Technology contacted both parties for a comment but received no response.

Capital One, which pioneered the mass marketing of credit cards in the 1990s, is among the top ten bank holding companies in the US ranked by assets and deposits.

The bank has 800+ domestic branches, including around ten Capital One Café locations (coffee-shop style), and over 2,000 ATMs. It also conducts business in Canada and the UK.

In 2015, 62% of the company’s revenues were from credit cards, 28% was from consumer banking, and 10% was from commercial banking. Its total assets in 2015 stood at $334 billion.

Capital One is also one of the largest users of Amazon’s AWS cloud in the financial services space.

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