Tag Archives: Fintech

Fintech Jurisdiction Shopping

Hardware, software, capital and regulations are the key challenges for most of the fintech startups and regulation remains the most important external factor that could potentially lead the whole idea to be stillborn if not correctly assessed and addressed.

When the regulators are not very cooperative and do not want to take any risk, then it is almost impossible for the fintech startups such as SmartDeposit to operate and acquire clients.

The selection of the right jurisdiction for your startup will affect the performance of your company tremendously, especially at the beginning.

Imagine a regulatory environment that bans you from operating without a licence and treats you as a proper financial institution. As soon as you are treated as a financial institution rather than a fintech company, capital requirements and red tape will kick in, which will not only increase the cost of your doing business tremendously, but also disadvantage you in the competition from the very start since you must now act like a proper bank whilst you do not have millions of customers and you don’t have any capital nowhere near as any bank.

In this respect, Singapore is a great place to set up the venture since the regulator is willing to help innovative companies and they are willing to regulate only when they reach a critical mass for the industry. In addition, regulators in Singapore are communicative and have specific employees assigned to the fintech industry. I would think the only and very important disadvantage is the size of the market since it is a small city state country. Regardless, it is a great and the best option for SmartDeposit to take off due to its regulatory environment.

Since Singapore is a gateway to South-East and South Asia, a good reputable take-off could enable the company to benefit from accessing other mass markets such as Indonesia, Malaysia, Thailand from Singapore. Moreover, access to capital and VCs in Singapore is relatively easy and the region is booming not only economically, but also in many other aspects.

London is a good alternative with an established ecosystem. In contrast, New York would be difficult in terms of licensing issues and other regulatory hurdles.

The regulator in the UK, FCA, is also supportive of the fintech industry and the establishment of Level 39 in the financial hub of London, Canary Wharf, is an advantage.

When you acquire the critical mass in terms of clients and deposits, you will need to leave your home country (e.g. Singapore) to find new customers to exponentially grow and this will ensure you cooperate with more than one regulator. But since you now have a critical mass from your home country, it would be much easier to go out and try to look for new markets, and most importantly, you have more negotiation power now than at the start.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

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Fintech & KYC (Know Your Customer)

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Each thematic area of the fintech ecosystem is important, but I believe that infrastructure will determine the fintech industry’s future.

Data is becoming more important every day, as is privacy. In addition, it is not possible to build a system and expect people to use it without proper security measures in place. Enhanced encryption and speed of execution is key for infrastructure.

The most challenging part of the job is getting through the ‘know your customer’ (KYC) process.

According to a recent Thomas Reuter survey, the average bank spends GBP 40 million a year on KYC compliance and customer due diligence 

Requests for an excessive number of documents and a lack of understanding of the client background from the KYC team gives out the wrong messages to new clients and means they are frustrated in their business relationship with the bank from the very start.

Fintech, with the help of blockchain technology, is a great opportunity for clients and financial institutions.

It currently takes a considerable amount of time and money to perform the necessary due diligence on people and companies.

An open source ledger, where data on HNW individuals and companies can be collected, verified and constantly updated will not only help financial institutions but also the client, as they will not have to give the same documents to each bank in which they want to have an account.

It will increase efficiency, reduce costs and make the client’s experience smoother. The idea is not particularly new and there are some companies which are already working in this space.

During the recent Singapore Fintech Festival in November 2016, IBM announced a blockchain project with Singapore fintech startup KYCK! to help enable financial institutions to have a more rapid on-boarding process

Another company, Slimpay, is also exploring opportunities in this space. It has broken down the process into steps, such as as ‘Paper KYC’ and ‘Internet KYC’ to help financial institutions.

In addition, a group of entrepreneurs have founded ComplyAdvantage in the United Kingdom with the aim of gathering better anti money laundering insights and helping banks to deal with the due diligence of customers.

All the best from Singapore.
Sukru Haskan
Twitter: @sukru_haskan

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Lattice80 – Largest Fintech Space

The world’s largest fintech hub opened in Singapore on 10 November and I was honoured to be at the launch.

Singapore’s deputy prime minister and chairman of the Monetary Authority of Singapore, Tharman Shanmugaratnam, was the guest of honour at the opening ceremony. His speech was full of insights regarding the stance of the Singaporean government and the regulator towards fintechs.

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The Singapore government fully supports the fintech industry and sees fintech as complementary to the banks in the financial industry, rather than a direct competitor.

Besides that, the Singapore government fully acknowledges that there will be a lot of fintech startups going bust, but it is vital to create the right ecosystem to create a fintech unicorn from Singapore.

Lattice80 is located at the centre of the central business district of Singapore and occupies two floors at the moment and plans to host 350 people in the coming week/months.

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Compared with its peers The Floor in Israel and Level 39 in the UK, it is now officially the largest fintech startup space.

Singapore Fintech Association and Finlab are already in the space, which shows the strong commitment to create the right ecosystem.

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It was established by the Marvelstone group founded by a Korean entrepreneur and hedge fund manager, Joe Cho.

It is a great step for Singapore to fully leverage its well established common law system with its highly skilled labour force. There is no doubt that Singapore will be playing a key role in fintech space.

Personally, I am thrilled to enrol on the MIT Fintech Course, which will take place during the next 12 weeks. It will kick off on 21 November.  It is not only a regular academic education, but importantly the course will need students to participate in business planning of a fintech idea to pitch to venture capitalists.

I look forward to sharing my experience about the course within the next weeks.

All the best from Singapore.
Sukru Haskan

Twitter: @sukru_haskan

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Fintech idea #2: SmartBonds

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Last week, I published the deposit shifting fintech idea and I got quite a lot of positive and negative feedback as to why it would work or not.

It is always great to get some feedback.

This week, I will publish another fintech idea which specifically targets retail and low end HNW clients.

As many of you know, USD denominated international bonds have been quite popular for the last few decades as interest rates were declining steadily and these bonds were a great source of income for investors.

Although with interest hikes in the coming years, the trend will not be that sexy anymore, there will always be an interest in the bond market since it provides a fixed income, unlike the uncertain and highly volatile equity and commodity markets.

These markets are not easily accessible by retail investors since many of new issue require a minimal nominal investment of USD 200K. This is a substantial amount of money and it keeps many investors out of this market.

SmartBond can solve this problem by aggregating demand and it can help retail investors to have access to international bonds.

Since there are many bonds in the market, SmartBonds can market bonds in a Groupon fashion (an e-commerce site which aggregates demand for specific products for a certain period with some discounts to its customer by achieving economics of scale). SmartBond can collect bond orders from retail clients and, once the minimum order amount is reached, it can trade in the market and allocate accordingly after the trade.

SmartBond will be a full pledged technology company like Groupon and it will not recommend any specific bonds to buy or sell. From this point of view like SmartDeposit, it should not be regulated as a financial institution.

Clients may choose to keep their bond holdings in any bank available through the SmartBond platform or in an institution of their own choice.

One may ask what would happen when the client wants to sell their holding since they will again need a minimum order amount of a nominal 200K. The same logic will apply and there will be sell platform along with a buy platform and once the order is aggregated, it will be executed.

In the beginning phase, it will not be possible to include all the bonds available for trading. According to the demand from clients, the platform can be enhanced and this could be a very profitable business if it reaches enough volume quickly.

Please continue to post your positive/negative feedback through my blog, twitter or email.

I will continue to write my ideas in the coming weeks.

All the best from Singapore.

Sukru Haskan
Twitter: @sukru_haskan

 

 

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Fintech business idea: SmartDeposit

I have a fintech idea ‒ actually I have more than one, but I will publish only this one as a start.

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The environment of low interest rates has pushed many investors to hunt for a yield, and this has led many super-risky asset prices to skyrocket.

Especially, the extended period of ultra-low interest rates has hit pension funds and insurance companies hard, since they have to generate a certain level of income to ensure their sustainability and the ability to pay their liabilities.

High-net-worth individuals and retail clients are not happy either, since their capital is not working for them for the first time in history. Some of them are even paying banks to deposit currencies such as the euro, yen and Swiss franc, since banks are demanding that these investors are charged interest instead of receiving interest from them.

There is nothing new until now …

Everybody who follows the financial markets knows these facts very well.

What if these investors still want to invest simply in plain vanilla deposits but are happy to take higher credit risks in countries such as Brazil, Turkey, Russia or India?

Because of their counterparts’ risk parameters, these pension funds and insurance companies are mainly stuck with high-credit banks, such as all tier 1 global banks, and tier 1 global banks cannot offer any sexy interest rates.

Here, my idea kicks in ‒ what if they could place their deposits with low-investment-grade banks or even banks with junk credit quality that pay a much higher level of interest if they are happy with the risk?

The reams of paperwork for all different types of different banks and the regulatory requirements are a big hassle at the moment.

What if we could create a platform that can place deposits with many different banks without opening an account in each bank and simply shift the deposits from one to another when another bank in the world becomes more attractive?

It may be hard to attract institutional money in the first instance, but I believe high-net-worth (HNW) individuals and retail clients would be happy to test the proposition.

To visualize the idea, let us say that we open an account with ICICI in India, Garantibank in Turkey, VTB in Russia and BTG in Brazil. Assuming that ICICI offers 2.5% p.a., Garanti offers 3% p.a., VTB offers 3.25% p.a. and BTG offers 4% p.a., we can compare these with a tier 1 bank’s 0.30% p.a. deposit rate.

The investor can choose to place his deposit with any institution on the platform, so the availability of different institutions is an important factor to be attractive to investors. Clients will be able to place a deposit in India for a month and then shift it to Brazil in the next month.

The platform would enable emerging market banks to have a diversified deposit base and access to non-conventional HNW and retail investors from all around the world.

Since we are not advising clients and the deposits are held in segregated accounts for the tech company, how should our fintech be regulated? Just like banks or differently? I believe we should be much more lightly regulated.

It is a kind of UBER of finance ‒ simply a technology company facilitating a service rather than a bank.

The main challenge for this fintech would be the KYC (know your customer). It should be possible to know who is placing deposits and that the funds are coming from legitimate sources. We can overcome this hurdle with the help of blockchain technology, which will enable each investor’s details and transactions to be stored safely.

In addition, there is a new business opportunity here to create a global KYC company in which the banks are also stakeholders so that a verified KYC could be used between different banks instead of providing each different bank with thick sets of paper.

Regulators are really the key in this business idea, and they will be the key in any fintech ideas. They will decide whether to kill the fintechs in favour of conventional banks or help them to thrive. Many regulators, such as those in Singapore, the UK and Switzerland, are really helping this industry to excel, so I am quite optimistic.

I will publish another fintech idea for retail clients next week. If you would like to exchange ideas and/or simply discuss matters, please keep in touch through my blog, twitter or email.

All the best from Singapore,

Sukru Haskan
Twitter: sukru_haskan

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