As December winds down, we naturally reflect on the year that was. In now its third edition, here’s my top five fintech stories from 2019.
There’s no methodology to this. The list is based on what I perceived to have garnered the most attention so admittedly it’s a little bias. It’s also safe to bet that a few of these will continue to make news next year.
1. Libra Debacle
The crown for top fintech story goes to Libra, but for all the wrong reasons. In June, Facebook took the covers off a cryptocurrency along with a supporting digital wallet named Calibra. The announcement made a big splash partly for the launch partners which included tech giants such as Ebay, Stripe and Uber.
Initial reactions were less than positive with many voicing concerns. Perhaps the greatest indictment came from Facebook co-founder Chris Hughes who captured the major issue with Libra in an op-ed in The Financial Times:
“Vital decisions about Libra’s administration, security and underlying assets will be made by the Switzerland-based Libra Association — essentially Facebook and its largely corporate partners. […] This currency would insert a powerful new corporate layer of monetary control between central banks and individuals. Inevitably, these companies will put their private interests — profits and influence — ahead of public ones.”
To say the social media giant underestimated the political backlash would be putting it mildly. The resistance was swift and severe, with both France and Germany vowing to block Libra. Senators in the US encouraged Visa and MasterCard to steer clear which the companies smartly did. Eventually a quarter of the initial partners recused themselves, including all payment processors.
What’s more, David Marcus, Facebook’s Calibra head, was called to testify before the Senate Committee on Banking, Housing and Urban Affairs. Though most remarked that Mr. Marcus held his own against a barrage of questions, it was clear that powerful politicians did not view the project positively.
By October, Marcus was in damage control mode and managing expectations. “You really have to, as a member, have passion and energy and fortitude to go through this because it’s hard,” he said in an interview. “And it’s going to continue being hard. If anything, it’s going to get harder before it gets easier.”
It remains to be seen whether the project launches in 2020. Many skeptics, myself included, see no future in Libra at all.
2 - Upheaval in Wealth Management
The threat of fintech displacing incumbents has been discussed ad nauseum. Though retail bankers have been the focus of the warnings, if the past year was any indication, the wealth management industry was the first to bear the brunt of the storm.
Robinhood was one of the pioneers of commission-free trading. The company made news in 2018 for supposedly offering insured deposits when no such insurance existed. Despite this snafu and a technical glitch allowing traders to borrow infinite amounts, it nevertheless had an impact on its competitors as the zero-commission trading feature spread across the industry.
The change came early in September with Interactive Brokers. Though it was one of the first to eliminate commissions, many soon followed. Charles Schwab did the same for US-listed trades, which in turn forced the hands of TD Ameritrade, E-Trade, Ally Invest and Fidelity. Eventually Wells Fargo and Bank of America joined the fray.
Not resting on its laurels, Charles Schwab agreed to purchase TD Ameritrade. This may eventually be viewed as a catalyst for consolidation among the big players. What’s more, Goldman Sach’s rumoured interest in allowing customers to invest as little as $5,000 will further pressure incumbents as the legendary bank has shown deftness in digital with Marcus and the Apple card.
3 - Apple Card
The tech company partnered with Goldman Sachs and Mastercard to launch its first credit card to much fanfare. Users were able to sign up with their phones and load the card to Apple Pay in minutes. Features included up to 3% daily cash back, spending insights and interest free installment payments on new iPhone purchases. A slick titanium engraved physical card also generated lots of hype though with warnings to avoid contact with other materials.
While Goldman CEO David Solomon called it “the most successful credit card launch ever", it later came under a dark spotlight from accusations of gender discrimination in issuing credit limits. Even Apple co-founder Steve Wozniak corroborated the story with his wife’s own experiences.
4- Virtual Banking in Hong Kong and Singapore
Hong Kong captured the attention of retail bankers in 2018 with the announcement of guidelines for purely digital branchless banks. The press reported heavy interest from potential applicants, with rumors of global tech giants ready to pounce on the opportunity; even renown investor Jim Rogers made a cameo.
When the dust settled in late March 2019, only eight candidates were awarded a license. This piece of news carries personal weight as I was in charge of Standard Chartered’s application and was proud when ours was one of the first licenses to be granted.
Not to be left out, Singapore followed suit by announcing its own regime in late June. The precepts of the approach adopted by the Monetary Authority of Singapore (“MAS”) were similar to Hong Kong’s, be it promoting financial inclusion and innovation, demonstrating a sustainable business model, a prohibition against minimum account balances and aggressive business practices. But as I discussed, the guidelines differed, notably with respect to the larger capital requirements imposed by the MAS which have discouraged some from applying.
Applications are due by the last day of the year with licenses to be granted by mid-2020.
5 - Finn Flops
While momentum for virtual banking grew in Southeast Asia, it came crashing down for one major US bank. Only a year into its own digital banking experiment, JP Morgan Chase shut down Finn in June 2019. What seemed like an acknowledgement of the potential for serving millennials in a purely digital manner quickly fizzled. Customer accounts were transferred to the parent bank’s and all Finn accounts were eventually closed.
The reasons behind the failure ranged from meager demand to a lack of distinguishing functions. CEO Jamie Dimon however saw the experiment differently, qualifying it as a learning opportunity as opposed to a failure. Though opinions may differ, it’s disappointing that the project was so quick to fold.