Can Challenger Banks break the massive bank concentration in the UK?


The UK has one of the most concentrated/ consolidated banking markets in the world with the top 5 banks accounting for 85%market share.

By contrast, the big banks only account for about 44% in America and 25% in Germany.

The question is, does this level of concentration & consolidation make it harder or easier for challenger banks? This post seeks to find out which of these two theories is correct:

  • Theory 1: Big banks will remain dominant. Their size enables them to crush any attacker
  • Theory 2: The digital only challenger banks will win because the game has changed.

We segment the market into:

The Big 5 universal banks

The big traditional challengers

The new digital only challengers

The challenge from retail players

Current account innovators

Altfi Lenders moving into Deposits

SME Banks

Niche challengers

The Big 5 universal banks in their castles

Everybody knows them – a walk down any UK high street shows their dominance. These are the barons in their big castles, with huge moats populated with crocodiles and plenty of boiling oil to pour on attackers. They seem impregnable. Consumers may grumble, but maybe they will always need a big solid bank to fall back upon.

Approximately 27% market share goes to Lloyds and a further 18% each to Barclays and RBS with HSBC and Santander taking 12% and 10% respectively.

The other narrative goes like this –  the barons in their castles have lost the plot and suffer from bunker mentality and are “too big to manage”.  Their innovation teams report back from sponsored hackathons and innovation challenges to business units that then get back to business as usual. Their business reality is about managing dividend cover ratios, buybacks and stress tests, not delighting customers.

Investors also know these Big 5 very well. Apart from crashes around various crises, such as the Global Financial Crisis in 2008, the Eurozone Debt Crisis in 2011 and Brexit in 2016, their stock holds up as long as they keep paying high dividends and passing stress tests. There is no sign as yet of investors viewing the challengers as a serious threat.

The big traditional challengers

These are the landed gentry in their manor houses. They are minor compared to the Big 5 but 3 of them have meaningful market share, more than 1%:

  • Nationwide
  • TSB
  • Coop Bank

Virgin Money has the new brand, but is really Northern Rock under the skin. Clydesdale and Yorkshire are innovating with the B account, but this article in the Telegraph shows how hard it is to win over new customers.

They all seem like smaller versions of the big guys, which is not a game-changer.

In this category, Metro Bank is the one to watch. When Metro Bank opened for business in spring 2010, created by a US entrepreneur called Vernon Hill, it became Britain’s first new high street bank in over 150 years. It has retail branches – called stores – open 7 days a week and outside normal banking hours. The model was largely based on a similar venture created by Hill in the US, Commerce Bancorp (acquired by TD Bank in 2007), which gained the nickname of “McBank” as Hill applied his knowledge of the fast-food chain business to the bank. Metro Bank has also been a talent incubator; Metro Bank’s co-founder Anthony Thomson left in 2012 to set up rival Atom Bank.

During 2015 it looked like the game was turning to the challengers as per this report from KPMG:

“Britain’s challenger banks outperformed the Big Five lenders by notching up an 18% hike in profits in 2015, but new research warned the “tide is turning” in a tougher year for smaller players.

Total pre-tax profits for so-called challenger banks – such as – rose by £194 million to £1.28 billion in 2015, while the Big Five were left nursing a combined profits drop of £5.6 billion.”

The new digital only challengers

These are the insurgent “neobanks” using ladders & tunnel & battering rams to break into the mighty castles.

In 2013, the Bank of England created a simplified two-step process with lower capital requirements, in order to introduce more competition.

The digital challenger strategy is mostly to appeal to mainstream but younger consumers – the Millennial strategy.

We sorted these challengers by amount raised:

Bank Total ($m)
Atom 166
Starling 70
Tandem 35
Monzo 18

Atom’s last round was from BBVA which pioneered buying Fintech Neobanks with Simple. So we can expect a big challenge into the top 5 from “the other big Spanish bank in the UK”.

We see two distinct strategies. One is to build a new tech stack from scratch. The idea is to be able to offer a genuinely new service rather than a new UX on top of an old core banking system.

The other is to outsource the back end to proven banking software vendors. The idea is to focus on the UX layer, so that they can innovate faster. Most digital only banks adopt this approach; you see surprisingly Traditional Fintech below the hood.

Monzo is the biggest proponent of the DIY from scratch strategy.  The technology used is classic for a digital startup. It is mainly open source: Linux, Apache Cassandra, Golang and PostgreSQL relational database. There is a team of 16 people working on this.

The challenge from retailers

Asda, Tesco, Marks & Spencer and Sainsbury’s have all launched banks. The logic makes sense as they have brand recognition and physical high street coverage, yet without a major presence they don’t suffer from innovators dilemma.

Like all banks, they suffer from cyber attacks.

The Post Office also has the brand recognition and physical high street coverage.

These retail store challengers use traditional old school technology. Their advantage is simply being able to monetize their real estate in multiple ways – and that is a big deal.

Current account innovators

While most challenger banks focus on deposits and loans, which is highly regulated, many other ventures focus on the current account (checking account for American readers). This is a big area for innovation and there is no reason why in the digital realm a current account must be bundled with deposits and loans. The innovators we see in this category are:

  • Tide. Tide focusses on SMEs. They offer a fully featured current account and business MasterCard, plus SME-oriented finance apps, accounting capabilities and and online community.
  • Think money. They also offer MasterCard as part of their current account. They differentiate via tools to help  customers manage cash flow (ego tracking incoming like salary, benefits, pension so that there is enough pay all the regular bills. Once the bills are taken care of, the rest of the money is moved over to the customer’s “card account” for discretionary spending.
  • Soldo. They also offer prepaid debit card (MasterCard) and a mobile app. They focus on family spending, budgets and cash flow. The company says it does not intend to compete with banks, but will rather complement their services. It plans to seek formal partnerships with banks and co-branded arrangements. Soldo holds an electronic money licence and is regulated by the FCA.
  • Loot. Loot is a  mobile banking service aimed at students or what it calls “generation Snapchat”. They also offer a prepaid Mastercard account. The card is linked to a money management app that lets people track their spending and gives them insight into where their money is going.
  • Pockit. They also offer a prepaid MasterCard and focus on the underbanked, who rely on cash in the absence of bank accounts.  Pocket says it takes two minutes to open an account – without any credit checks.
  • Ffrees. It offers a no-frills account (and a debit card) and does not carry out credit checks. Ffrees describes itself as an “Unbank”, with their November 2016 launch of their new U Account. They claim to have opened 10,000 accounts in 3 months from a young demographic. We covered them in their earlier incarnation here.
  • Lintel Bank. They do position as a full service bank and are still waiting for a licence. They focus on migrant workers and students via prepaid current accounts, money transfers, personal and SME loans, and mortgages.

AltFi Lenders moving into Deposits

Our thesis at Daily Fintech is that the P2P Lending is the new Deposit Account. As an investor, you put in more work, take a bit more risk (less if you put in the work) and get a much higher return than you would from a deposit account. This is still only for early adopters – such as Hector Nunez who we profiled here – so there is still a lot of room for intermediaries to package it up for consumers in a way that is easily accessible.

Funding Circle raising $100m signals that P2P Lending is alive and well.

Zopa, which claims to be the world’s first P2P Lender is taking this thesis to a logical conclusion by applying to become a bank. This gives them a big interest rate arbitrage opportunity. They can borrow via deposit accounts from investors and lend via overdraft alternatives, while laying off most of the balance sheet risk to the market. This will be worth watching.

Other AltFi Lenders moving into Deposits include:

  • Together Money. This was created by Jerrold Holdings Group, which unites Auction Finance, Blemain Finance, Cheshire Mortgage Corporation and Lancashire Mortgage Corporation.Their focus is on residential and commercial mortgage loans to niche market segments underserved by mainstream lenders. They have applied for a banking license.
  • Paragon Bank. This banking subsidiary of a well-established specialist finance provider, Paragon Group, was launched in early 2014.
  • OneSavings Bank. This is a rollup and rebranding of a number of financial services businesses owned by US-based private equity firm JC Flowers. Constituent companies include Kent Reliance (residential mortgages and savings products), Interbay Commercial (commercial mortgages), Prestige Finance (secured loans), Reliance Property Loans (property financing) and Heritable Partners (development finance).
  • Masthaven. This mortgage specialist recently received a banking licence.
  • Hampshire Trust Bank. They were founded in 1977, but moved into the banking space in 2014, following the arrival of new owners.
  • Coombs Bank. They are still waiting for a licence (site is “coming soon”. It is backed by S&U plc, a provider of consumer credit and motor finance created by Derek Coombs.

SME Banks

Our thesis at Daily Fintech is that SMEs have been like the middle child – neither Consumer nor Enterprise, so Banks did not serve them well. This leaves a big window for new ventures such as:

  • Shawbrook Bank. Formed in 2011 via the merger of Whiteaway Laidlaw Bank, Link Loans and Commercial First, Shawbrook is a publicly traded specialist lending and savings bank that focuses primarily on SMEs. You could also put them in the Altfi moving into Deposits category.
  • OakNorth. They focus on the needs of high growth ventures.
  • British Business Bank. This government entity is active in encouraging lending to UK SME and has done a lot for P2P Lending.
  • CivilisedBank. They go to the SME rather than asking the SME to go to them (as they don’t have any branches). A network of local bankers working in their local communities come iPad equipped to your office. CivilisedBank hopes that this differentiated strategy will lead to a lower Customer Acquisition Costs than either retail branches or hoping for automated inbound conversion.
  • Aldermore. The company was founded in 2009 with backing from private equity company, Anacap, and did an IPO in March 2015.
  • Wyelands Bank. They were previously known as Tungsten Bank and before that as FIBI Bank. This is an example of buy & repurpose rather than build. Instead of building a bank and applying for a new license, you buy an existing bank and change it to suit your needs. The site is in coming soon status. The investor behind Wyelands Bank is Sanjeev Gupta and at the time of the acquisition from Tungsten, the planned focus was to provide funding to supply chain and trade financing firms (i.e. similar to Tungsten focus).

Niche challengers

  • Hampden & Co claims to be the first private bank to launch in the UK in the last 30 years.
  • Templewood Bank wants to be a new independent merchant bank (awaiting a banking licence).
  • Lintel Bank targets migrant workers and students (awaiting a banking licence).
  • Monese targets expatriates and immigrants. It is also in the current account innovators category, claiming a 3 minute mobile account opening and a simple a monthly charge of £4.95.
  • Monizo targets freelancers. They clain to offer real-time insight into how much tax freelancers need to pay (which is critical to financial planning for freelancers).

Daily Fintech analysis.

The two theories are:

Theory 1: Big banks will remain dominant. Their size enables them to crush any attacker

Theory 2: The digital only challenger banks will win because the game has changed.

We incline to Theory 2, but with a twist.  Consumers know they lack for choice and they lack engagement with the big banks. The traditional analog scale of the Big 5 does not help them win the digital scale game – which is about UX and network effects. Their scale makes them slow and hard to manage.

So the Big 5 are ripe for disruption by smaller and more agile competitors, but not by the current challengers. 

Our analysis is that the challenger banks will be acquired by non-bank players and new foreign entrants. They will have the deep pockets and balance sheet to enable them to win. The challenger banks will find it hard to compete as standalone entities, but via the M&A route they will be a success for investors and founders.

What could trigger a tipping point?

For all this Cambrian explosion of activity described above, all these ventures together are still a rounding error compared to the Big 5.

Most of the ventures profiled are quite happy with a small piece of the pie, as it is such a large pie. However, a tipping point matters because it is about Customer Acquisition Cost (CAC). Despite the oft repeated data about how much Millennials distrust traditional banks, it still costs a lot of money to persuade them to part with hard-earned money.

There is no magic silver bullet functionally. Everybody offers a frictionless mobile UX with personalization based on big data. That is the price of entry.

The trigger will be another catastrophic event like the Global Financial Crisis of 2008. As catastrophic event usually don’t follow the last one, the next one will be something new; the best guess currently is some form of mass cyber attack.

N26 and the German small banks

The digital challenger bank to watch in Europe is N26, from Berlin.

The German banking market is much less consolidated or concentrated than the UK.

The Grossbanken – Deutsche Bank, Commerzbank & HypoVereinsbank – mostly focus on Corporate banking and are publicly traded. Then there are about 500 independent, local “Sparkassen” or “savings banks”, with a market share around 50%. There are also about 1,450 independent, local  “Volksbanken” or “Raiffeisenbanken” (translation = Cooperative Bank) with a market share of 25%.

Yes, in Germany about 75% is from small banks, which is almost a mirror image of the UK.

The question is, does this make it harder or easier for N26?

These tiny banks must rely on outside firms for technology. The Daily Fintech prediction is that at least one digital challenger bank will switch from B2C to B2B or B2B2C and offer their capability via these locally dominant small banks. That company can come from anywhere. So our take is the N26 will have a hard time competing against lots of small local banks partnering with new neobanks that pivot to B2B or B2B2C.

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The dabbawalas in India point to future e-commerce and payments


If you spend any time in India, you will often be told that home-cooked food is far better than restaurant food. As the restaurant food is so delicious, this is hard to believe, but it is true.

In Mumbai, India, 200,000 workers get fresh home cooked food every day. In this relatively impoverished city, workers get better food that is totally customized to their individual needs than the most pampered workers in Silicon Valley and other wealth hubs.

Investors and entrepreneurs who have spent $billions on food and grocery ecommerce should take serious note of how this is done.

Policy makers might also pay attention as this is good for the environment and for jobs.

The future of e-commerce is mobile. The future of payments is also mobile. So these two worlds of e-commerce and payments are converging around mobile phones and Internet Of Things devices. We see this convergence in companies such as Uber, Amazon, Alibaba and Paytm.

 In short, it is time to take note of what Mumbai’s dabbawalas are doing.

Once again this illustrates our theme of First The Rest then the West – that countries formerly known as emerging aka the rest of the world are leapfrogging the West thanks to not being invested in legacy technologies, processes and models.

Dabbawala 101

A dabbawala (aka tiffin wallah) is a person in Mumbai, India, who collects hot food from the homes of workers in the late morning, delivers the lunches to the workplace and returns the empty boxes to the worker’s residence that afternoon. They are also used by meal suppliers in Mumbai, where they deliver cooked meals from central kitchens to the customers and back.

Dabbawala translates to lunch box delivery person. “Dabba” means a box (usually a cylindrical tin or aluminium container aka tiffin) while “wala” is a suffix, denoting a doer.

These tiffins have become fun gifts in the West. Some parents use them for their kids lunch box.

Hot VC sector

The food and grocery delivery space has been hot. For a good analysis in 2015, read this post on Techcrunch by a VC. VCs put in more than $1 billion in 2014 with a big acceleration in 2015. A few successful IPOs such as Just Eat and Grubhub/Seamless led to a rash of similar ventures.

There has been a cooling in 2016 as some ventures inevitably failed and VCs focused on a few late stage deals. However, the window is still wide open with the online penetration % in low single digits.

The first generation was simply an online ordering layer (replacing phone orders with online orders). The second generation of restaurant marketplaces includes behemoths such as Uber and Amazon that compete on logistics through a network of independent couriers. The logistics network creates a powerful moat and a correspondingly higher commission around 25%.

It is this second generation, competing on logistics, that should be studying the dabbawala network. Actually they probably already know about it and understand its disruptive power (and would prefer if it stays in Mumbai). It is the third generation that will use the ideas behind the dabbawala network to create a new wave of digital cooperative network.

Indian frugal innovation

The dabbawala network is a good example of what has been termed “jugaad” in India which translates to “frugal innovation”. This became fashionable to study in the West around 2011 when big companies and universities (such as Santa Clara and Stanford) strove to understand how to reduce the complexity of a process by removing nonessential features. This becomes critical in serving mass market consumers at razor-thin margins without reducing quality.

Also in rich countries

Switzerland could not be more different from India – a tiny country with a high GDP per person.  Yet we see a dabbawala network operating here.

The appeal of fresh, delicious, nutritious food cooked with love and care is universal.

Better for the environment

The packaging wastage around today’s e-commerce (big disposable cartons) upsets a lot of people. If this upsets wealthy people who are influential this can damage the bottom line of the e-commerce marketplace. The dabbawala tiffins are reused every day.

Pave the cow paths with proven digital innovation

The dabbawala network started in 1890 with 100 delivery people (it now has about 5,000). So this was hardly a tech startup. Yet one Silicon Valley mantra is to “pave the cow paths”. This means adding innovation to whatever is already working.

There are 5 tech innovations that are already proven which would add a digital layer to a dabbawala network to make it massively scalable:

– QR code to replace the unique ID stamped into the tiffin.The current system is well thought-through and would translate easily to a QR code.


– ChatBot UI for service inquiries and exception handling. Lets say you want to change the the location to your friend’s office or cancel for a few days next week when you are travelling.

– Mobile payment at delivery time (with auto routing of payments to the cook and the delivery person).

– RFID sensors in the tiffin so that the whereabouts can be tracked automatically (your phone pings you to say that lunch is in the lobby and getting into the elevator).

– fully electric cheap cars and scooters for delivery (cannot rely on trains in many countries and many delivery people will object to pedal powered bycicles).

Delegate don’t micro manage

Ordering takeaway food online rather than by phone increases efficiency, but adds to the tyranny of choice. What shall I eat for lunch today that is a) delicious b) nutritious c) avoids any dietary or religious prohibitions? How much nicer to have somebody who really understands all those needs decide for you and occasionally surprise you within those constraints.

For a lovely movie about the romance of this, watch The Lunchbox.

Put in more MBA terms, it is surely better to delegate this task rather than to micro manage it.

Digital Cooperative Future

The dabbawala network grew in an era and culture where/when men worked for pay and women cooked at home. Today, those roles could be reversed or both could be working and the cooking is done by somebody else.

The Gig Economy is the new normal for a large % of the population. The only question is, do we have a power law society (with the lion’s share of the economic value of these networks going to the network operator) or a bell curve society where the broad mass of people get most of the benefits of these digital networks? The latter is the vision of a digital cooperative future. Many of the blockchain startups envisage a future like this, but the beauty of the dabbawala network is that it does not require any technological breakthrough.

Look at the dabbawala network in the context of recent digital innovation compared to Uber:

  • Each dabbawala is required to contribute a minimum capital in kind, in the form of two bicycles and a wooden crate for the tiffins. This is like an Uber driver owning their own car.
  • Each dabbawala is required to wear white cotton kurta-pyjamas, and the white Gandhi cap. Rich people will pay more if their Uber driver looks like a chauffeur and that branding also helps the network operator.

Here is the fundamental difference with sharing economy network. Each month there is a division of the earnings of each unit. This is a cooperative, not simply individuals using a common system and brand.

At a human level, this enables the connection that people make with their postman or Fedex or UPS driver (or going really far back, the guy delivering milk). The same person comes every day. For humans who like humans, this is more appealing than drone delivery.

Doorstep services is not just for food

This is why Uber got into food delivery. If you have a logistics network, you can use it for anything. This is simply a networked, free agent model of Fedex and UPS. Entrepreneurs in India have figured this out. For example, Anulom uses the Aaadhar unique ID and the dabbawala network for the paperwork around rental service agreements. This earned them a tweet from the Prime Minster, Narendra Modi.

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Fintech moves of the cloud computing providers


The cloud computing providers are going center stage in financial services in 2017. Some are public (all apps and data on the cloud), some are hybrid (some apps and data on private centers). We will be monitoring how these giants grab share from the financial sector as it grows (Fintech startups) and as it transforms (incumbents and their suppliers).

Our watch list includes (not limited to) the cloud computing providers below that are global and are no longer under the radar screen in terms of their strategic moves in the financial industry.

Google Cloud, Amazon Web Services, Microsoft Azure, IBM Bluemix, Aliyun

Salesforce, Accenture, Oracle, CSC, Rackspace

AWS strikes

Amazon Web services are 100% public. Pay as you go outsourced services from AWS are growing (total 100,000 customers, 10,000 new in 2016). Once you are onboard, you can shop on their marketplace for all sorts of apps and additional services. International data centers (to address data security concerns) are being planted globally as we speak.

Singapore’s DBS bank partnered with AWS as they accelerate their digitization journey (Pirates with Ties interview with Olivier Crespin of DBS Digital Bank).

What caught my attention is their recent launch of AWS Financial Services Competency which will certify technology and consulting partners that specialize in the financial industry. The current certified list of AWS Partners is:

  • Core Systems: Avoka (digital sales), Calypso (capital markets on demand), Corezoid (process mgt), EIS Group & Guidewire (cloud insurance), Mambu (cloud deposit taking & loan offering), Moven (mobile banking)
  • Risk Management: FICO, FIS-Prophet, NICE Systems
  • Data Management: IHS Markit
  • Consulting Partners: 2nd Watch, Accenture, Capgemini, Cloud Technology Partners, Cloudreach, Cognizant, Infosys, REAN Cloud, Sopra Steria, Wipro

The rest

Google Cloud has been mainly focused on consumer banking and the retail experience. Unless I have missed some enterprise level collaboration, Google Cloud is last on the Western cloud computing financial sector penetration (for now).

Microsoft Azure, a hybrid provider (i.e. clients can keep some data in their own data centers), has announced new UK data centers as part of its move to grab a share of the Fintech market. Startupbootcamp, the international accelerator with a significant Fintech component, offers its members access to a variety of cloud providers (e.g. Amazon Web Services, Microsoft Azure, and Google Cloud etc).

Cross River Bank, a leader in the digitization of banking (see post) and the first incumbent bank to be funded by a VC much like a startup, is being built on Microsoft Azure.

Bank of America Merrill Lynch and Microsoft Azure announced a collaboration at SIBOS on blockchain technology to host the Bofa transformation of trade finance transacting. The R3 consortium, hosts its lab and research center on Microsoft Azure. Seems like Microsoft Azure is the preferred provider for blockchain related projects?

IBM Bluemix is being used by incumbent banks to interact with the startups (seems like they are the preferred provider for the accelerators run by banks, for now). The largest deal is with ANZ, which has a 5year development contract with IBM Bluemix. Citi is also using the IBM Bluemix cloud services to interact with startups, Nordea Bank in the Nordica, Tangerine bank in Canada, Adelaide Bank in Australia, and Bank Sohar in Oman.

Alibaba strikes


Aliyun, the cloud computing arm of Alibaba (hybrid), continues to open data centers in Japan, Germany and Australia. The opening of the second US data center caught my attention. 2017 will be the year that Aliyun will strike international partnerships (beyond Intel, the Singaporean Telco, and Equinix, US data center provider) and grow further in Asia as the digitization of financial services continues.

Kapronasia reports that in 2013, Alibaba verticalized their cloud with the announcement of Ali Cloud for financial services. Aliyun is the only cloud provider that developed industry specific applications in the cloud (more like Salesforce). Ant Financial developed a cloud based core banking solution, of course on Aliyun that they used and then sold to other banks. Kapronasia’s estimate is that around 40 organizations in China are using the Ali Financial Cloud including, banks, payment providers and even P2P platforms.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.




The $14 trillion mortgage market disruption game is about to start


At $14 trillion (total debt outstanding, USA only), the mortgage market is about 14x bigger than either Auto Loans or Student Loans (each about $1 trillion). Yet the mortgage market has so far remained relatively immune to disruption and has been a mainstay of bank profits. We believe this is about to change. 

 In this post we look at the players in the market and the forces driving disruption, plus one wildcard disrupter. Our analysis mostly focusses on USA, but we touch on other markets such as China.

Mortgage players

We see 6 types of player – Banks, Altfi/MarketPlace Lenders, Technology Enablers, GAFA & BAT, Quicken, StartUps.


Wells Fargo dominates, with JP Morgan Chase, Bank of America and US Bank all having major market share.  This is changing as big banks flee the market after all the troubles caused by the Sub Prime mortgage blowup in 2007/8. Look at this chart from the Mortgage Bankers Association:


Between 2007 and 2014 the commercial banks share went from 74% to 52%. Out of that 22% drop, 2% went to Credit Unions (i.e. small banks), but 20% went to Non-Banks.

TL:DR, this market is opening up and big banks losing 22% is a disaster for them.

Altfi and MarketPlace Lenders

So far, this has been the dog that did not bark yet story. SOFI has been the most aggressive about moving into adjacent lending segments, but they have not yet been big players in mortgages. Lending Club recently moved into Auto Loans but has so far steered clear of Mortgage Lending. So the 20% that went to Non-Banks came from somewhere else.

Technology Enablers

National Mortgage News has a great article on what it took to make a fully paperless mortgage transaction. The technology enabler, DocMagic, is worth keeping an eye on and there will be other tech enablers. Mortgage processing going paperless is one of the key drivers for disruption that we look at below. 


GAFA (Google Amazon Facebook Apple) and BAT (Baidu Alibaba TenCent) like massive markets that are ripe for disruption. Mortgage lending qualifies. So what are they up to?

So far, this is another dog that did not bark yet story. However, anybody entering this market must figure out how they will play with them when they do enter the market.

  • Amazon. This is not an adjacent market for them and there are no signs yet, but given the famous Bezos line – “your fat margin is my opportunity” – it must be on their radar screen.
  • Facebook. They are a natural for P2P Mortgage Lending (see below) but no sign of them entering the market yet.
  • Apple. “Siri, get me a mortgage” is still in the realm of science fiction.
  • BAT are all in the Finance business, but with no clear focus on mortgages.

In China, the one to watch in mortgage lending is Pinganfang. This is a real estate e-commerce platform, helping home buyers to get mortgages. It is a collaboration between PingAn (a financial holding company with a historical focus on Insurance) with a major property developer in China called Shum Yip Group. They pitch it as “Real Estate + Internet + Financing”.


Quicken Loans is already a major player in mortgage lending and as a tech-centric player we expect them to benefit a lot from the coming disruption. This is a leading tool that the family uses to plan and manage finances, so it is natural for consumers and business owners to turn to them when the biggest financial decision that a family makes comes up, it is natural to turn to Quicken.


This thread on Fintech Genome has some interesting ventures and a great discussion of the issues. Please go there to comment.

Its more about Fin than Tech

Big players such as GAFA may be waiting for clarity on three things all of which have some political risk (aka “what will Trump do”):

  • Interest rate policy
  • What happens to Fannie & Freddy?
  • Bank deregulation

Three Forces driving Disruption

  • Going Paperless. This enablers new entrants without a lot of back office processing capability. Look at the company doing the mortgage in theNational Mortgage News has a great article on what it took to make a fully paperless mortgage transaction. They are small. Going paperless will eradicate one of the benefits of scale. New entrants can come in and Community Banks can compete better with Big Banks.
  • Big Banks exiting after SubPrime blow up and nervous of more big fines. This is where Bank deregulation could reverse the trend.
  • Consumer rejection of brand loyalty to big banks. Even if Big Banks jump back in if they don’t fear regulation so much, there is a whole generation of consumers who have never had a close relationship with a bank and if they think of them at all they have a negative brand connotation.

The P2P disrupter

In May 2000, a venture called CircleLending was founded and went through the normal VC rounds, but failed as a business after briefly being branded Virgin Money. It was a classic “idea ahead of its time”. The idea was simply to service loans between friends and family. This is fundamentally different from loans between strangers, because a relationship of trust exists. I financed my first property this way and it was a good result for me and for my sister as the investor. It is a fundamentally disruptive idea, because no external lender is involved. The intermediary only handles the back office part. The idea was reborn in 2010, when a former Virgin Money US employee launched a new venture, National Family Mortgage. The average interest rate is 2.96% as I write and they take zero points. The numbers loaned to date are a drop in the proverbial bucket, but this has the potential to scale fast.

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If you want to comment, please go to this thread on Fintech Genome.

Fintech solutions to problems of #GAFA people


Happy New year to all. We are all #GAFA (Google Amazon Facebook Apple) people with different passports and IDs.

Our predictions “2017 Tech, Strategic, and Investment trends in WealthTech” are already out there for testing. In this first post of the year, I want to focus on a complicated topic that concerns all #GAFA people (and please stand out, if you are from another planet).

Personal data monetization is the GAFA business backbone and I foresee that in 2017 we will be hearing more about the ethics of monetizing our data in Fintech too.

I also have a wish list that includes seeing more Fintechs focused on “gating” our data, empowering us with a choice, and sharing subsequently revenues with us.

Three picks for a 2017 watch list

I picked three companies that are worth watching because they recongize our problems as #GAFA people and intend to help us.

A Telco

In September 2016, Spain’s Telefonica announced that in 2017 they will roll out a platform to enable their users to manage the use of their personal data from Google and Facebook and WhatsApp. Users will be able to block or require compensation through the OTT platform.

The Spanish carrier Telefonica is involved in many ways in the 4th industrial revolution. Telefonica owns a startup incubator based in the UK, Wayra, focused on digital business ventures since 2012 and offering the potential to access the 300million Telefónica customers globally.

Telefonica Germany (a subsidiary of the Spanish Telco) is launching O2 Bank, a digital bank, in partnership with Fidor Bank. This will allow German clients in a few minutes to open an O2 bank account (Fidor has the banking license which is valid all over Europe). The identity check will be done via a video on the customer’s smartphone. To transfer money, customers have to enter the mobile phone number of the recipient in the address book and select it for a transaction. The O2 Banking MasterCard can be activated or deactivated directly at any time via the app, and the card details can be presented for online shopping, without having the physical card in hand. A financial planning tool provides an overview of their spending and on request they can be notified in real-time of transactions and events by app push messages sent to their smartphone. Smaller consumer loans will be available directly via the app. O2 banking phone contract holders will “also benefit from a variety of perks and add-ons” when using O2 Banking, such as increased 3G or 4G data allowances (Source).  

In 2017 we all need to watch how the OTT platform that empowers users with the monetization of their personal data, will be combined with the O2 Banking services.

A true digital bank

September 2016 was also when SeccoAura started accepting registrations on their alternative way of monetizing personal data. SeccoAura launched in the fashion industry, allowing customers, to earn Tokens if other users “Like” what they are wearing. If “Likes” on SeccoAura lead to a “Buy”, then the SeccoAura customer who wore the “Liked” item, will earn a referral bonus. The concept could be applied to any retail purchase and wealth can be created through these tokens.

We covered the concepts behind this breakthrough business model in Secco Bank and the Future World of MyDigitalAssets.

A chatbot Fintech

Novastone Media is a UK-based tech firm in the space of information security (similar in a way to the space that Symphony, the Wall Street darling, operates in). Novastone Media’s financial services offerings are targeting private banks, financials advisors, robo-advisors, retail banking and corporate banking.

Solutions include secure messaging platforms that empower conversations, increase engagement, offer security and compliance accountability. Novastone Media prospect clients can choose to use their messaging, chatbot, WhatsApp-like solutions, in a more conventional way. That would result in simply offering finserv end-customers protection from #GAFA using personal data.

In 2017, we will be watching whether any Novastone Media finserv client will choose to monetize their customer data securely collected through these solutions and share revenue with the end users.

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Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Mobile Wallet Sumo wrestlers face off in India


We are mixing our cultural metaphors here. Yes, Sumo wrestling is from Japan and this post is about mobile payments reaching a tipping point in India. Yet the Sumo analogy fits when we are talking about the mobile payment giants of India such as Paytm, Chillr and Mobikwik. Without regulation, this would be a winner takes (almost) all market based on network effects. However, India has some Tech Smart Regulation called Unified Payments Interface that levels the playing field so that the whole economy benefits. 

Paytm – aggressive growth

There is a a fierce battle for market share in mobile payments in India. This is where the winners emerge and those winners use a mix of aggression and smarts enabled by plenty of capital. We start with Paytm because they were the first Fintech Unicorn in India to hit our radar screen; we expect to see more Fintech Unicorns emerge in India during 2017.

Paytm is a kludgy name that stands for Pay Through Mobile. Who cares about kludgy names if it is so successful? They claim 120 million users, up from 12 million only 2 years ago and having been founded only in 2010. Post demonetization, Paytm was processing more than 7 million transactions per day.

That is phenomenal growth by any standards.

This growth upsets people, including some global players. Paypal accuses Paytm of Trademark infringement. There is also a battle with Uber. Within India we see criticism from rival Mobikwik about what they describe as capital dumping via China.

All those critiques come with being a leader. However, it is possible that, like some people say about Uber, Paytm could be buying a dollar for 99 cents through incentives. This is the norm in market share battles and the prize is big enough, but entrepreneurs have to know when to pivot when capital starts demanding profits. I suspect Alibaba, a big shareholder, takes the long view as does the big Indian shareholder, Tata. However, growth through incentives is a bit like steroids for an athlete – dangerous if you come to rely upon them.

Paytm has become a Payment Bank. The way they present their mobile wallet it is like a current/checking account – you can Add Money, look at your Passbook and Redeem loyalty points.

Then you can pay bills for everyday items. This is where you see the original driver which is paying your mobile operator. You simply enter your number, the Operator, the Amount and whether it is Prepaid or Postpaid. You can choose Fast Forward to pay directly from your Paytm balance. Paying your mobile operator may not seem like a big deal, but this is a mobile leapfrogging story. Indians spend 45% of their incomes on mobile technologies and platforms (vs only 11% in America). because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).

Then you can pay for your DTH Satellite TV and Electricity. In a uniquely Indian spin, you can use it to buy Gold.

However, then you see an e-commerce service. In the West we grew used to payments (Visa, Mastercard, Amex, Paypal etc) being different from ecommerce (Amazon, eBay, Uber etc). China and India do it differently. Alibaba is Amazon + Paypal. Paytm is Paypal + Amazon; the placing of the + makes very little difference but the combination is game-changing. It is no coincidence that Alibaba is a big investor in Paytm.

Just after phone recharging and utilities, Paytm offers a lot of services that are part of everyday life in India – movies, bus, flights, trains. Buying these does not entail any supply chain logistics.

To put that in context, that would be like Amazon selling your air flights or train tickets.

Below that you can see a conventional online shopping mall. This could be Amazon or Alibaba or Flipkart. The key is that Paytm is an online shopping mall offered by a payment company.

This would be like Visa or Paypal offering an online shopping mall. This is ecommerce merged with payments. This is likely to be the future of both ecommerce and payments. This may drive mega mergers in America, but it is more likely that the real innovation will come from China, India and Africa (a leapfrogging First the Rest then the West story).


Mobikwik is another major contender with serious traction and plenty of capital. It looks like a bruising street fight between Paytm and Mobikwik. Literally, the action is on the street as both ventures win by signing up merchants. Merchants can accept more than one – this can be a Visa vs Mastercard story. Or the UPI standard could commoditize the whole Consumer To Merchant (C2M) business; when we use physical cash there is no transaction fee.

Mobikwik is also taking hard shots at Paytm for their ties to China via Alibaba.

“We must be sensitive to companies, especially those that have massive foreign investments,” said Singh. “They can come into the country, dump capital and gain access to data.”


Chillr has a different strategy to Paytm and Mobikwik. They don’t go after the Consumer To Merchant (C2M) market (apart from the ubiquitous phone recharging), but stay focused on Consumer To Consumer (C2C) payments.

Their lead investor is Sequoia Capital. Their massive win was Whatsapp and the assumption of many has been that Whatsapp will monetize through C2C payments, so this will be interesting to watch.

Chillr are getting distribution through partnerships with Banks. All transactions on Chillr are initiated directly from the users’ bank accounts and authenticated by a secure PIN provided by their banks.

Examples of Bank partners include HDFC and Federal Bank.


OxigenWallet competes with Paytm and Mobikwik. Like Paytm, they have received in-principle approval from the Reserve Bank of India to operate under the Bharat Bill Payment System (BBPS), which will allow people to pay utility bills from anywhere at any time.

Oxigen expects BBPS to help more than double the company’s wallet user base to 50 million by December next year.

UPI Commoditizing the payment layer for the banked

The bad news about Mobile wallets is that if network effects rule – and they usually do – we might miss the credit card networks as we end up dealing with one or two behemoths that control cash, credit and e-commerce. The alternative scenario is that we all have mobile wallets that work with every other mobile wallet (just like physical wallets). That will be good for consumers, but it will force mobile wallet ventures to add value elsewhere.

There is a lot at stake in the geeky subject of mobile wallet interoperability.

So the Reserve Bank of India (RBI) was farsighted when they launched the Unified Payment Interface (UPI) in April 2016.

In the scenario where one or two behemoths rule, our wallets will be determined by our mobile phone operating system. Merchants will accept both Apple and Android/Google like they accept Visa & Mastercard today.

That scenario is unlikely in India, thanks to UPI. We believe that India leads the way on this Tech Smart Regulation front and other countries will follow.

Dominance by Apple and Android/Google is also unlikely because the other Global Big Techs – Facebook and Amazon in GAFA and BAT (Baidu Alibaba TenCent) – won’t sit still for dominance over something as critical as payments. Neither will Visa & MasterCard and the banks.

India does not want payments & ecommerce dominated by a few global players. India is sensitive to “digital colonialism”. They don’t want their digital life – which now has such a huge impact on the economy – controlled by companies based in America or China (i.e. GAFA and BAT).

There is as yet no GAFA or BAT equivalent acronym for India. We have had various incarnations of acronyms for the outsourcing giants such as SWITCH Satyam Wipro Infosys TCS HCL. However, the new Digital India behemoths are companies like Flipkart, Paytm, Snapdeal and Mobikwik. Somebody who is good with crossword puzzles will put them into an acronym.

The point of lumping Flipkart, Paytm, Snapdeal and Mobikwik into one category is that payments and ecommerce is converging, thanks to Alibaba.

How Alibaba changed the game

The lazy way to describe Alibaba was the “Amazon of China”. However, it would be more accurate to describe them as the Amazon + eBay + PayPal of China. It is not just that Jack Ma is hugely ambitious – he clearly is – but also that digitization erodes barriers between previously distinct categories. Payments and e-commerce are inextricably linked. Actually, to really describe Alibaba’s ambition, you would have to talk about the Amazon + eBay + PayPal of the world. In that game, India is the arena. The Indian government understands this and has been tech savvy and proactive.

This merging of payments and e-commerce has already played out in India.

An early mobile wallet pioneer was FreeCharge, which started out, like Paytm, enabling you to recharge any prepaid mobile phone, postpaid mobile, electricity bill payments, DTH and data card in India. Paytm moved into e-commerce and then Snapdeal Acquired FreeCharge in April 2015.

Moving upstream post UPI

If the payment layer is commoditised, which is what consumers want, mobile wallet ventures need to move upstream to become either banks or e-commerce portals or both.

Paytm has already become one of the 11 new licensed Payment Banks and a quick look at their site reveals an e-commerce portal.

UPI is about bank payments and millions Indians are still unbanked (233 million as per a PwC India report). Plus, cash is still king & queen. Yet India’s 150 million smartphone users is expected to grow to 500 million in the next few years.

Upasana Taku, co-founder of MobiKwik, which has 30 million wallet users cites Reserve Bank of India data showing mobile wallet growth to be four times more than mobile banking.

The on-ramp to financial services for the unbanked will clearly be mobile wallets. The future maybe less about adding a mobile layer to banking than adding a banking layer to mobile. India is where this will play out first.

UPI also makes mobile wallets work better, because it works quicker than the Immediate Payment Service (IMPS) that banks use for instant money transfers. UPI will make it faster to get cash to  merchants and to load cash into consumer wallets.

Who will be the Alibaba of India?

In China we talk of the Google of China, the Facebook of China, the Amazon of China and so on.

In India, the Google of India is Google, the Facebook of India is Facebook, the Amazon of India is – maybe Flipkart and maybe Amazon and maybe Alibaba.

Flipkart understood that Cash On Delivery (COD) was essential in India. You could not simply replicate Amazon in India. Flipkart grew huge by innovating on the logistics front.

However, what happens when that cash at the door is a guy with a mobile phone and a mobile wallet? That is where the race to get consumers to sign up for a mobile wallet is so key. The mobile wallet is the key to the e-commerce universe.

You can see why Alibaba invested in Paytm and why Mobikwik is playing the made in India card (i.e saying that Paytm is too close to China).

It is a sign of the changing times in the Asian Century that we ask who will be the Alibaba of India?

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The Daily Fintech Top 10 Consumer Fintech Predictions for 2017


#1 Challenger Banks challenged

Big banks getting traction with their digital only services make investors nervous about the thesis that being digital only is enough to create sustainable competitive advantage. A few challenger banks (aka neobanks or full stack Fintech) will do well based on great execution (Nubank in Brazil is an example), but we will see high profile blowups as many fail to get follow-on financing.

#2 Bitcoin-first payment moves from Darknet to Clearnet

Bitcoin got early traction for illegal online transactions, made (in)famous by Silk Road. This got media attention and confirms the old saying that, “there is no such thing as bad press”. In 2017, we will see more of the transition to Clearnet, legal transactions where Bitcoin is not just one more payment option, but is the primary payment option (Bitcoin-first payment), as it is on the Darknet. This will happen first with micromultinationals (who cannot afford expensive multicurrency solutions), selling digital services (no charge backs needed) to customers who are already comfortable with Bitcoin.

#3 Mobile cash tipping point in India

Mobile payment was already getting a lot of traction in India, but demonetization just gave that a huge boost. It is still early days, with paper being at least 95% of transactions, but this can change fast once we hit the tipping point which we expect in 2017.

#4 Bank licenses become easier globally

This is already happening in America and Switzerland. The question is who will want to be licensed? Many companies will prefer to stay as Tech that enables Fin. But TechFin – tech driven financial services – is the end result of the Great Convergence between Tech and Fin that started in 2016. Consumers get comfort from a regulated entity. So we expect a big take up of these easer licenses.

#5 Rebundling on top of PSD2

This started in Europe in 2016 and will pick up steam in 2017 and we may see similar regulation in America and Asia.

#6 Cross selling in the spotlight

Wells Fargo proves a) that good cross selling is a grear driver of growth and b) bad cross selling (fake accounts) can destroy value very fast.

#7 Branch closures reach tipping point

We will see this first in high cost countries such as Switzerland and urban centers with both high costs and a large millennial population. This will reach a tipping point as consumers and merchants grow accustomed to doing their daily business without having a bank in the neighborhood.

#8 Refugee banking starts to emerge

From a conceptual dream a few years ago, we will see entrepreneurs, banks and regulators grapple with both the challenges and the opportunities of doing this right.

#9 Next generation ATMs

This is a consequence of branch closures reaching a tipping point. Banks will offer next generation ATMs that can do a lot more than deliver cash. They will be real Teller Machines and not just Cash Machines. This will be a transitional phase to a cashless society, but a transitional phases are critical and usually last longer than futurists think.

#10 New guards against cyber thieves

Keeping money safe from Butch Cassidy and the Sundance Kid was the original job description of a banker. As the thieves now use hacking scripts more than guns, the job description changes, but the objective remains the same. The key driver for change is convenient multi-factor authentication via FIDO Alliance.

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