Xero opens the door for fintech banks to become SME advisors


Rod Drury, CEO of cloud accounting platform Xero, penned a blog last week discussing the impact Xero’s financial web is, and will continue to have on the small business community. For those of you who aren’t in the know, Xero’s financial web provides banks with access to Xero customer data via a suite of APIs. Use cases include direct bank feeds into Xero, payment instructions initiated out of Xero for AP, payment buttons on invoices for AR and sharing of financial data for lending decisions.

These are only a few financial use cases. The opportunity for banks to innovate around how this data is used is endless. In my opinion, the big opportunity for banks is in tapping into this data to become true advisors to small business, beyond the financials.

Banks realise this, the execution is just extremely difficult. In Australia, CBA is the only bank who has come close to implementing a business analytics function for its customers, as an advisory conversation starter. The product, known as Daily IQ, delivers ‘unique insights about your business and customers, helping stimulate ideas that can enhance success.’

Xero’s success is built for the most part on the back of the accountant and advisory community. So Rod naturally sees accountants and bookkeepers as the natural conduits for SME banking advisory as well. Helping SMEs move from that ‘now what’ moment that occurs once business insights are revealed, to taking action. He sees banks partnering with this advisory channel to deliver the goods, as per the extract below.

“Accountants are an amazing channel for banks. In the majority of situations, a small business owner who is a cloud accounting platform user is connected to an accountant. Across all these accountants and small business owners, there are hundreds of thousands of conversations about financial services happening every month. Banks need to educate accountants on their services, and accountants are open to this training. Accountants want to know how they can take banking services and add value to small businesses.”

He’s not wrong. But it’s also not necessarily the only option all banks have at their disposal. Thank’s to the emergence of fintech, banking is swiftly moving to being more than just a numbers conversation with an SME. Banking is now a technology + numbers conversation.

What will be interesting is if very focused, tech first, SME only banks emerge as advisors in their own right, not necessarily removing the need for a traditional advisor, but plugging a niche hole that exists to day – namely advisors lack of knowledge about fintech services. This will be an extremely natural place for tech banks to play, as given the nature of their business model, forming relationships with tech vendors embedded in the SME community has been critical to their success from day one. They’ve been advising on tech and banking since their inception.

Understanding how technology knits together with banking is not a natural space for an accountant to enter, yet. But for a tech bank to understand the best practice way banking should and can work with cloud accounting is not a stretch at all. So when a business owner calls into to discuss best practice AP and AR practices for their 4 hospitality venues, the tech bank expert can quickly map out the tech add ons and banking plug ins they need to make everything work.

Legacy banks will struggle with this for years to come. It’s just not in their DNA. It’s not impossible an SME could easily equate tech advisor with bank in the near future. Xero has made this possible. It’s up to tech first banks to now grab the opportunity at hand.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

No score, no problem. The lenders opening up access to SME credit in China


Many of us in the West like to romanticise about our respective ‘underserved and overcharged’ SME markets as being ripe for fintech disruption. The reality is, when compared to their small business peers in China, they have a well-stocked buffet of banking options at their disposal.

Consider for a moment the following. Only 300 million entries exist in China’s centralised credit scoring database. That’s a mere 22 percent of the country’s 1.38 billion inhabitants who can potentially access credit. Now take the US, where some sources have the percentage of the population with some credit history at 86 percent. The difference tells us a lot about the propensity of the market for disruption.

In a market like the US, the motivation remains low for incumbents to innovate for the masses, who for the most part can be adequately assessed. This drives alternative credit scoring to the fringes of the financial system, to smaller fintech’s servicing niche parts of the market. Disruption therefore remains low.

However not so in China. A lack of good quality data on individuals and businesses is just one of the many dilemmas giving rise to a technology driven upheaval across the financial sector. And in today’s data rich environment, China is taking full advantage of the tools at their disposal to build a world first score that maps both financial and social behaviour – the Social Credit System (SCS). For those of you who have watched Black Mirror on Netflix, you might have an idea of what this could ultimately look like.

In the interim, companies like PINTEC spinoff Dumiao are taking scoring into their own hands. At Next Money in Hong Kong, CEO Jing Zhou highlighted the company’s ability to leverage 40 independent data sources to process an SME loan application in under 15 minutes, with finance available in half a day. The company receives over 1 million applications per month. This type of scale is only possible in China, or possibly India. With Zhou’s Chinese bank competitors struggling to turn around a like for like application in under 2 weeks, then it’s relatively clear who has the upper hand.

Alongside Dumiao, the so called ‘Lending Club of China’, Dianrong, is one to put on your radar. In 2014 it struck up a partnership with The Bank of Suzhou targeting small enterprises.

It’s not just speed where fintech startups like these are winning. Innovation and better experiences are translating into small business trusting tech providers over and above traditional institutions. A recent EY report, The Rise of Fintech in China, co-authored by James Lloyd, EY’s Asia Pacific Fintech Leader and Sachin Mittal from DBS pointed to the rapid explosion of users trusting non-banks to manage their finances, up from 35.1 percent of the population in 2007 to 54.5 percent in 2015. As a point of reference, another EY survey found that only 20% of customers globally plan to use non-bank providers in the future.

The market opportunity in China for SME lending and banking solutions is unquestionably huge. With SMEs receiving only 20-25 percent of bank disbursed loans, there will continue to be expansion in the non-banking sector for years to come. Whether non-Chinese originated companies will be able to penetrate this market and take advantage of this is the great unknown. Other non-Chinese tech companies seeking to establish footholds outside of the financial services space have not been great success stories. It seems far more likely that Chinese firms will come to displace incumbent services in the West. And that is when things will certainly get interesting.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Gazing into the crystal ball of Australian fintech


As I write this I’m working out of the Brinc co-working space in Hong Kong, in the heart of the trendy SoHo district. The guys very kindly offered me a hot desk for the day,

One side bonus is that when you work out of a hub there is no shortage of people to chat to.

This morning I met Antoine Cote, co-founder of Enuma Technologies, who showed me an early stage prototype for a credit card that could display your latest transactions via a small screen on the card itself.

The company is also working on an app based digital identity solution for consumers that allows users to only release the identity points they want to when requesting access to services.

Exciting and distracting stuff, and not helpful when I’m supposed to be putting the final touches on my presentation on Australian fintech for tomorrow’s Next Money event. In the final slides I’ve been asked to gaze into my crystal ball and try and envisage what the local market will look like in 2020. No pressure.

EY FinTech Australia Census 2016

While past performance is not indicative of future results (excuse the pun), there really is no better place to start than to recap where the local fintech scene has landed after an incredibly active few years. And the EY Fintech Australia Census 2016 is the perfect place to begin.

Late last year the FinTech Australia, the peak body established in 2015 canvassed the sector and compiled a number of great statistics and insights on the local fintech scene. The infographic below is perfect for a quick overview, otherwise you can read the full report here.



It’s heartening to see that out of the 57 percent of companies who claim they are post-revenue, 27 percent have a customer base larger than 500.

However only 9 percent of companies post-revenue generate over $1M per month. The majority, 41 percent to be exact, generate $50K or less on a monthly basis. And only 14 percent of fintech companies are profitable.

It’s interesting to note the average age of fintech founders is 41 – only 10 percent are under 30. Innovating in financial services is not for the faint of heart, and a deep, intuitive understanding of the complexity of the problems in finance, garnered from experiencing them first hand, is no doubt a huge advantage.

Where to next

37 percent of companies surveyed have less than a year to go until cash reserves dry up, so unless the money fairy visits them over the next 12 months, or they crack the biggest external problem listed by startups in the survey – customer acquisition – my crystal ball tells me, as it would most, a few will fold. However this is a short term prediction, and hardly that insightful.

However what could significantly shape the market over a 3 year horizon are a number of legislative and policy interventions by the Australian Government, who have already made a firm commitment to want to position the country as an APAC fintech leader.

Backing Australian Fintech

In what it claims to be a world first, the Australian Securities and Investments Commission (ASIC) announced in late December of last year that it would begin to exempt fintech businesses from requiring an Australian Financial Services Licence (AFSL) before launching their product. Fintech companies now have a grace period of 12 months and the ability to service up to 100 customers. This will go a long way to helping startups validate their business model before an inordinate amount of money is committed to an idea.

Just prior to this, in September the Australian Government also amended the Anti-Money Laundering and Counter-Terrorism Financing Rules to allow for reporting entities to now gather Know Your Customer (KYC) data on their customers rather than directly from. The distinction is significant, as sourcing information on is easier and cheaper than from, and can possibly be done relatively indirectly.

Finally the biggest event on the fintech horizon will be to what degree fintech companies can access an indviduals banking data. A draft report released by Australia’s Productivity Commission has recommended 3rd parties be given access to financial data, and that a future API framework be developed. If the government ultimately supports this recommendation then the game could significantly change.

My crystal ball is pretty clear – policy changes and government support are now required to really drive the fintech agenda forward. While inroads have been made, there is significant opportunity for improvement. Government procurement of fintech services is a great start, and something they have publicly committed to. But that’s a topic for another post altogether.

Amazon Go and the unstoppable automation train


My mother likes to tell me a story about how when she finished school, the sum total of her mother’s aspirations was for my mother to get a job in the local can factory.

As a post WWII baby, a woman, and one of nine children from a working class Catholic family, a respectable and dependable job in a can factory was solidly within the boundaries of her mother’s expectations.

Sadly for my grandmother, her aspirations were never fulfilled. Instead my mother took herself off to university, gained a science degree and then completed teachers college. She was the first in her family to gain a degree, benefitting from a period of New Zealand history during which the government subsidized tertiary education for those who gained university entrance.

Of course life could have been considerably different for my mother (and her subsequent three offspring) had she not had the gumption to attend university. Had she taken that can factory job then right she would no doubt be suffering from severe automation anxiety, nervously waiting, like millions of manufacturing and unskilled workers, for the day her job became obsolete, to be replaced by a robot. That day, many would argue, has already arrived.

Robots aren’t the only actor in the automation story. Fintech advancements are also key. In early 2017 Amazon will publicly launch Amazon Go, a grocery store in Seattle that will showcase its pioneering Walk Out Technology. Shoppers will simply take items from the shelves and walk out of the store, their Amazon account pinged in the process. There is no questioning that this is the frictionless payment experience we have all been waiting for.

As is often the case with the Yin and Yang of technological advancement, consumers will win while blue-collar workers will lose. Should this sort of technology become widespread across the US retail landscape – which is highly probable – some 3.4 million cashiers stand to lose their jobs.

If being a cashier or a can factory worker is all you have ever known, then these sorts of developments must be pretty frightening. And society (as yet) doesn’t seem to have a reasonable countermeasure for these job losses other than the dubious idea of universal basic income.

While the unskilled workers of my mother’s generation may just be able to eke out their days on production lines, in bank teller jobs, or at supermarket check outs, their children and children’s children won’t.

The finance industry won’t be spared from automation either – the robots have been after brokers and financial analysts for some time now. Kensho is one of the poster children of the ‘dehumanization’ of Wall Street. Automation, as many have realised, is a problem no social class other than possibly the 1% are immune to.

There is no simple or elegant answer to the social problems facing the world as a result of mass unemployment. But I can’t help but wonder if we ought to press harder for the Amazons and Ubers of this world to explain how they will contribute to ameliorate the problems they are leaving in their profit-generating wake.

Fifty years ago it was unthinkable that mining companies in western nations like Australia would need to consider, and make financial provision for, the environmental damage caused by extraction.

While still not a perfect mechanism, these measures have gone someway to protecting our natural capital. More importantly, they have become the social norm. Externalising costs to the environment now come, for the most part, with a price tag.

Should we expect technology companies to make similar provisions for the impacts their innovations have on the labour force at large? Perhaps a tripartite solution involving government, educational bodies and the technology industry is the only way to solve this sort of messy, complex problem.

We are possibly witnessing the first time in history when the number of jobs we are destroying through innovation will not be replaced by new ones. While some of those jobs perhaps ought to be destroyed, we should try not to destroy the lives of the people that hold them in the process.

Indifi & the rise of the Indian SME lending matchmaker


As someone who has been in the B2B lending game for just on a year, there is one thing that has become evident to me. It’s not the lending that’s hard, it’s the deciding whether to lend or not that creates the biggest headaches.

For those of you who are a bit longer in the credit assessment tooth than me, this wide-eyed observation will hardly come as a surprise. It’s why fintech startups are so keen to impress on the sophisticated investor the ‘dynamic credit assessment technology’, ‘data driven underwriting model’, and ‘automated decision making’ features of their businesses.

Assessing a SME online and in just a few minutes – the new attention span of would be borrowers thanks to companies like Iwoca and PayPal – compounds the challenge of lending to the small business sector even further. It’s possible to do but also complicated, potentially expensive and high risk. And with margins already slim, wouldn’t it be great to outsource that to someone who can do it better, and for less?

Indifi, one of the latest lending matchmakers to emerge out of the Indian subcontinent, seems to want to help lenders to do exactly that. And it was that promise that looks to have helped the company recently raise $10 million, with former ebay founder Pierre Omidyar a notable backer of the startup.

By partnering with supply chain businesses in the travel, ecommerce and hospitality sector, Indifi allows SMEs affiliated with those chains to apply for working capital loans of between 1 lakh rupees and 50 lakh rupees (~US$1500 to US$70,000).

To assess the business, Indifi accesses proprietary SME data from supply chain platforms, which it then uses to assess and match the business to one of its partner lenders. The startup’s recent tie up with hotel booking platform Djubo is an example of the model in action.

Companies like Indifi herald a new way for businesses to be ‘understood’ by would be lenders. Instead of being put through a rudimentary matching wizard online (like many online brokers are guilty of doing), Inidfi can use the right data to make the right lending decision, delivering insights about complex business models to lenders and reducing the risk all round. The ‘trust me, we know what a healthy hospitality business looks like’ is a strong draw card for a lender looking to diversify its lending book in a safe way, without building in-house knowledge.

Business models are changing far more rapidly than what they did ten, even five years ago. Banks are struggling to keep up while basic fintech lenders who take the one-size fits all approach will no doubt find themselves in a similar position soon.

My bet is that companies like Indifi, or ApplePie Capital, who offer franchise financing, will establish foot holds in quality, well understood niche markets. The learnings they establish here will help underpin expansion.

The only question left is the ethical one. Can a business with no direct exposure to a loan create problems in a lending ecosystem? One would hope the symbiotic nature of the partnerships created would mean the answer to this one is a no. But we are in new territory every month in the world of alternative finance, and anything could happen. And that is, after all, what makes the fintech sector so fascinating.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Where’s the Watson of credit risk?

If the number of memes on Facebook are anything to go by, most of us are hanging out for 2016 to be over. It’s been a chaotic year across the globe – we’ve seen political upheaval in two of the world’s biggest economies, lamented the deaths of creative geniuses David Bowie and Leonard Cohen and witnessed mass displacement of civilians as a result of escalating conflict in the middle east.

As if that wasn’t enough, it hasn’t been a great year for small business online lenders either, or their backers. LendingClub’s stock is down 51 percent on the year, while On Deck Capital has fallen nearly 60 percent since January. Prominent merchant cash advance provider CAN Capital was also reported to have run into trouble with its repayment collections process, as growth in originations outstripped the ability for internal processes to keep up.

In other news, reports are surfacing that mid-prime lender DealStruck has potentially closed its doors on new business.  Crowdfund Insider reported the closure followed a failed acquisition by an unnamed ‘Utah based bank’. Ex Chief Strategy Officer Candace Klein provides an interesting autopsy here on some of the possible industry drivers for the closure, touching on the increasing competition amongst new lenders and banks for prime and super-prime borrowers, leaving the ‘too hard basket’ of the mid-prime borrowers out in the cold.

While I’m not privy to the inner workings of DealStruck, or necessarily why they decided to shut up shop, I can’t help but wonder if, like the famous Greek Sirens, the lure of lending to the underserved mid-prime business market is a shortcut to shipwreck for many? It seems even the biggest non-bank lenders with arguably the deepest pockets are still struggling to develop scalable, repeatable and dependable credit risk models that can help them scale safely and price effectively. Maybe it really isn’t as easy as everyone had hoped to turn shades of grey into black and white decisions, without human input.

Can the art of credit ever be turned into a science? Scores of fintech lenders depend on the answer to this question being an emphatic yes. But this relies on credit risk models being able to learn more adaptively, as humans would. Finding the sweet spot between the push and pull of quantitative computerised models and qualitative human based decision making is the nut that many online lenders are yet to adequately crack. We need a machine learning approach here, that moves beyond a reliance on inputs only, but learns from the mistakes and the successes to build lookalike credit decisions.

Supposedly many online lenders use machine learning today.  I’m sure there are also a large number that still rely on classical, human driven decision making, hidden beneath a slick mobile interface. While poorly executed machine learning could be worse than human driven decision making, well executed machine learning is certainly a winner on the scalability front – and that is the prize in mid-prime lending.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Banking on a virtual and augmented future

This week I attended a talk by Robert Scoble and Shel Israel, the authors of The Fourth Transformation. Their latest book charts the rise of virtual and augmented reality (VR & AR), haptic technology, and the devices that will transform our experience of the world we know, not to mention those worlds we are yet to discover…

Of course, it’s hard not to put your banking and fintech hat on (or should we say techfin now, thanks to Jack Ma) and consider what viable applications of the technology would be in this space. Especially use cases that move beyond pure gimmick and add real value to everyday people like you and me.

Investment banks are dipping their toes into VR and AR as we speak. Fidelity Labs have developed StockCity, possibly the first investment app for Oculus Rift.  The app allows investors to visualise their investment portfolio as a collection of buildings. Red or green roofs indicate if stocks are down or up for the day’s trade. This video is a handy demo.

In other news, The Wall Street Journal has released a VR app on Google Daydream that allows users to visualise live market trends. While First Gulf Bank in the UAE has launched what it is claiming to be the first virtual bank branch in the world.

But where could we really go with VR and AR applications if you were trying to help consumers and business owners make better financial decisions?

Make wealth tangible for savers

One of the things that makes saving difficult is how intangible a number on a statement is. Wouldn’t it be great if you could walk into your own personal money vault and see your investments in the coin or paper denomination of your choice? With haptic technology, you could even touch and feel them!

Help people visualise the effects of wealth (or lack thereof)

While some of us have vivid and rich imaginations, for many it’s hard to understand what a future state looks and feels like. This can leave people trapped in the hamster wheel of today’s financial behaviour. Immersive experiences that help an individual experience what life would be like in various future financial positions could help someone to take action now rather than later. In the spirit of Christmas, I’m naming this the ‘Scrooge Effect’.

Getting more personal

Chatbots are great, but what about a personal banker who can visit you in your living room? Someone who remembers the last conversation you had and is on hand for a chat whenever you need it?

Benchmarking your financial health

Today it’s hard to know how you stand compared to your peers when it comes to wealth. Tangible assets like owning a house tend to be the easiest but possibly most misleading physical sign of wealth. Visualising how you stack up against your peers could help you either feel more comfortable about your progress, or could give you the insights you need to see how you are falling behind.

Banking is prime ground for VR and AR. Why? Because it’s complex, intangible, messy and difficult to navigate. So the more tools we have like these, the sooner we’ll be able to help everyday people make sense of it all. So my question is this – will the bank of the future lure new customers away from the incumbents with Oculus Rift headsets? Very possibly, and it may not be a bad acquisition strategy at all. Follow the conversation here on the Fintech Genome.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.