Fintech Pioneer Has Faith Firm Can Weather The Storm

| August 7, 2020

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The managing director of AutoRek is speaking from the 8,000 square foot premises in Glasgow’s Garment Factory that the fintech company moved into two years ago to accommodate its continuing growth. A similar move to upgrade its presence in Edinburgh took place at the end of 2019. Forecasts of growth for this year, however, have been ripped up by disruption caused by the coronavirus. But Mr McHarg, who co-founded the business in 1994, remains confident it will still make a profit.

Spotlight

Finance Factors, Ltd.

Finance Factors has been providing financial services in Hawaii for more than 60 years. Established in 1952 by several island families, the company has grown from a small local enterprise that pioneered personal loans for Hawaii’s working class, into Hawaii’s largest locally-owned depository financial services loan company.

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The Post-pandemic Market Infrastructure Growth Opportunity

Article | August 17, 2021

The current global pandemic has changed our mindset and habits, as we are forced to revaluate the current ways we do things by thinking further outside the box. Over the last 12-18 months there has been a complete contrast of fortunes in the capital markets technology sector, with some firms flourishing, some struggling to survive, and others having to reinvent themselves to do so. Here at GMEX Group it has presented a substantial opportunity for innovation, which continues to accelerate on the back of the momentum already built. One such opportunity centres on digital market infrastructure-enabled digital assets which, despite near-term market-driven volatility, will continue to experience increasing demand for solutions and services from institutional capital markets firms. Market Infrastructure Evolution GMEX Group started as a FinTech company over 9 years ago and focused on supplying technology to traditional exchanges and post trade operators based on a partnership-driven approach. Over the last few years, as a growth-stage company, we have focused on both digital market infrastructure solutions (including issuance, exchange trading, clearing, settlement and digital custody for digital assets), as well as continuing with traditional market infrastructure enablement. Our hybrid market infrastructure approach has enabled us to deliver technologically advanced, institutional grade, future-proofed solutions that take advantage of the inherently positive characteristics of both traditional and digital market infrastructure. In today’s environment, exchange matching engines, digital trading platforms and post trade systems need to embrace a hybrid ecosystem approach. Bridging the gap between traditional and digital capital markets, whilst effectively mapping to evolving regulatory frameworks, is essential. This requires an approach which encompasses traditional and digital assets, digital currencies, security tokens and digital securitisation of traditional assets including derivatives and commodities. The increasing regulatory requirements for digital asset infrastructure and the resultant demand for solutions that are fit for purpose has played into our core strengths. We’ve worked to provide a complete hybrid market infrastructure product suite called GMEX Fusion, which is ideally suited for regulated exchanges, trading venues, custodians and banks focused on both traditional and digital assets of all kinds. Our solution set has been designed to support the latest technology and business challenges that are impacting the way traditional exchanges are looking to operate as they look to embrace digital transformation. GMEX Fusion also addresses the demands from the cryptocurrency exchanges, digital asset trading venues, Non Fungible Token (NFT) marketplaces and emerging markets looking to start-up or enhance their exchange ecosystem and support digital assets. GMEX is working with many of these entities across multiple jurisdictions as our footprint is very much global, with clients and partners all over the world. Exchange 4.0 The Fourth Industrial Revolution (4IR) is driving technological innovation in many spheres, and with it comes the need to move from analogue to digital - and embrace Exchange 4.0. The industry-changing network will see exchanges, trading venues, post trade operators, custodians, and other services interconnect more seamlessly, with the ability to swap services and assets across jurisdictions and across different types of users. This transformational solution will necessitate digital exchange trading systems, order matching engines and post trade platforms to transition from the legacy solutions that have been around for decades. We are now moving past the second and third generation of blockchain in financial services towards Exchange 4.0 at an accelerated pace. As an industry, we’re in a state of flux which has merely been exacerbated by the crisis. If we look at FinTech firms now, I would argue it’s the most exciting time ever because so many new technologies are emerging. With blockchain on the one hand, and AI, Internet of Things (IoT) and quantum computing on the other. From being nascent, many of these are now starting to grow as well as integrate. With all this technology around, the opportunity for innovation is immense. But that’s counter-balanced by the inertia of existing legacy platforms, processes and mindsets. We know how the smartphone revolutionised the way we communicate, online and in every other fashion. Even 10 years ago, we couldn’t have envisioned where we are now and the extent to which it’s developed. We are now in the same place in financial markets. We don’t necessarily see it and despite the innovation there are many silos which don’t talk to each other effectively. There is strong client demand for the full spectrum of digital and hybrid services. However interoperability and time to market remain a challenge, with traditional and multiple types of blockchain-enabled digital market infrastructure being severely fragmented. The team at GMEX group firmly believe that digital market infrastructure and related services need to integrate with existing market infrastructure and technologies to foster interoperability. By doing so there is an opportunity to interconnect the whole capital markets value chain of participants across international nodes (jurisdictions), to more easily trade, clear and settle traditional assets and digital assets and eradicate the age-old exchange silos. The immense opportunities As unfortunate as the current crisis is, it will end and immense opportunities will follow once normality resumes. There is expected to be exponential growth in digital assets over the next five years, with a continued uptick in institutional demand. This is not only a huge opportunity for FinTech firms, but also a big opportunity for financial markets firms and those that provide financial services. To GMEX, this presents an opportunity where the right answer isn’t the traditional status quo and it isn’t the decentralised Wild West. The right answer is somewhere in between, and that presents an opportunity to create new products, new asset classes and new revenue streams. The ability to harness hybrid market infrastructure will be essential in the capital markets sector, irrespective of whether the underlying asset class is traditional or digital. And to achieve the winning position, innovation now is key!

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Warning: PayPal will kill cash within 5 years

Article | August 17, 2021

You heard that right. It’s not “if” PayPal will replace cash — but “when”. But, where’s this coming from? Well, we already know 73% spend money via apps. So, it was time to speak with 200 PayPal and Venmo consumers to understand their shift to mobile app payments. After watching them leave these apps, we sent a survey. And, I can tell you…they think cash is a thing of the past. Here are 3 reasons why. Reason #1: It’s familiar. Branding is the foundation of familiarity. And PayPal is comin’ in hot — even if 6% of this group isn’t familiar with PayPal. Now, that’s interesting, huh? It may be that Venmo users aren’t aware PayPal owns them. Either way, it’s not stopping PayPal. Think about Bandaid and Kleenex for a sec. When was the last time you asked for a bandage or tissue? Exactly. Their brands are so strong, they’re actually nouns now. If PayPal can reach that level…cash has no chance. They’ve already got a following…Right now, 66% of the people we spoke to prefer their mobile app payment to cash or credit card. This isn’t a phase either, 8 in 10 people have used a mobile payment app for at least two years. So, it’s not a trend. Electronic payment apps are very top of mind for these users. In fact, 43% use a mobile payment app weekly. They’re in such high demand, 34% say it’s very important to have multiple payment apps – an option for every scenario. Payment at the push of a button. Speed at its finest. Reason #2: It’s instant. This isn’t business, it’s personal. You love instant gratification, so do I. And everyone loves speed when it comes to money. So, with 94% of the people we spoke to on PayPal for personal use, instant access comes in handy — 49% are here to pay back friends. Here’s what else they’re doing… Why are there so many use cases? Well, it’s simple. Yes, 72% use PayPal because it’s easy. Think of it this way. You spy a beautiful red sweater online, a must-have. You’re going to buy it. But first, you have to make a choice. You can walk to your purse… and fumble through gum, cough drops, and kid toys until you find a credit card… Or, you can just log into PayPal. It’s easier. Maybe that’s why 43% of PayPal users hand over the app at grocery stores, and 42% use it at restaurants and retailers. With more places adding app payments each day, it’s easy to see why the group we surveyed loves it. Already, 52% use it in lieu of cash or credit. Imagine what will happen when all merchants accept it… We’ll see the death of cash and credit. Here’s why. Reason #3: It’s secure. That matters. 73% of PayPal users say it’s their go-to payment app. They’re relying on the safety of the app and that’s important. Why? Well, because 15% choose to use a mobile app payment for its security. If you’ve ever lost a lot of cash or had your credit card stolen, you know how valuable that is. Peace of mind. Not only are mobile payment apps familiar, easy and instant — 37% use them because they’re secure. At this point, you may wonder, “if everything is so positive, why hasn’t PayPal already replaced cash?” Timing. Those we talked to, who don’t use PayPal — or other app payment options — as often, can’t because it’s not as widespread. Yet. Give it time and you’ll soon see buyers getting rid of credit cards and killing cash. It’s a matter of time. Now what? This is what your buyers want. 61% of PayPal and Venmo users believe mobile payment apps will soon replace cash/credit cards. Now is the time to prepare, as cash may not last another 5 years.1 Do the work now, so you’re ahead of the game. This is market research. You can actually survey the same group of people we spoke to here. Or, grab a whole new group of consumers to dive in deeper, based on the app behaviors you need to understand. Stay on top. Use consumer behavior to stay a step ahead of your competition.

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How Banks Should Use Buy Now Pay Later To Increase Their Customer Base

Article | August 17, 2021

The Buy Now Pay Later (BNPL) phenomenon is gaining momentum around the world. BNPL services give consumers who do not have access to credit the ability to purchase goods and services with no deposit and to pay for goods and services over time. However, while banks, consumer credit providers and alternative credit providers will benefit from BNPL services, they also introduce challenges for financial regulators, existing providers in related markets and banks themselves. Banks need to make sure that they are ready for a new type of competition. Larger retail banks seem to have added BNPL business to their portfolio already. Smaller banks will be forced to enter the market, either by acquiring a BNPL provider or rolling up the sleeves internally. In any case, it’s time that banks get rid of their prejudices and get on board with this consumer-friendly innovation that will ultimately benefit them by providing an influx of new customers, at least in the long run. For a complete understanding of buy now pay later, we should first look at the traditional financing models that banks and fintechs use to lend credits. These financing technique is known as point-of-sale or POS. Let’s take a look on POS below. How POS (Point-of-sale) Financing services work: Traditional POS financing is a model that has been around for decades. Most consumers are familiar with its most basic form: pay now, pay later. With POS financing, a customer signs up for credit to buy a product, typically for a portion of its full price. Some POS financing programs require no down payment. Once the customer has made all payments, they become the owner of the goods. POS financing works by financing the full price of the product, not a portion of the price. This means the customer pays the full purchase price of the item, plus interest. While POS financing has been popular for decades, it has faced some challenges. The payment model doesn't cater to customers who can't afford to pay the full purchase price upfront — these shoppers are often low-income or first-time-buyer customers. POS financing also requires shoppers to make large payments right away, which can be difficult for them. “The banking “industry” is changing rapidly – almost on a daily basis. However, those changes are not affecting people as much as we may think, particularly the underserved and unbanked.” -Steven Rosamilia, CEO at IMEX USA How BNPL helps customers: BNPL, or "buy now, pay later," payments enables customers to pay for their purchases over time, interest-free. BNPL payments don't appear on a customer's credit profile, so it doesn't affect their credit score. Here are some of the major points where BNPL helps customers: BNPL payments give customers the ability to buy now and pay later without accruing interest. BNPL payments are typically not fixed and fluctuate based on a customer's ability to pay over time. BNPL payments often appear in the form of layaway, credit extensions or installment loans. BNPL payments may attract customers who want to own products but don't have the money upfront. BNPL payments also work well for customers who want to spread out payments over time. How BNPL is different than other POS lending services: BNPL is an alternative payment technique offered by the payment service provider to businesses. Payment service providers use credit lines provided by banks and credit card companies to offer installment loans to customers. Unlike conventional POS financing, BNPL focuses on consumers' ability to purchase a product rather than their ability to repay their loan. This is achieved by classifying consumers into different groups based on their creditworthiness and offering consumers an installment loan with payment periods that vary based on their creditworthiness. As a result, payment service providers use BNPL as a risk-based financing technique. The payment service provider considers consumers' creditworthiness by classifying them into different consumer groups, such as "prime" consumers, "sub-prime" consumers, and "near-prime" consumers. These consumer groups are similar to credit profiles used by conventional credit card companies. With BNPL, businesses can request a payment profile classification from their business service provider. The payment profile classification determines the installment loan payment schedule that the consumer receives. Businesses can request a payment profile classification from their business service provider. The payment profile classification determines the installment loan payment schedule that the consumer receives. For checking your credit-worthiness before lending you BNPL, service providers may check consumer’s payment history, income, job stability, and other major factors. The financial service provider then use these factors to determine the installment loan payment schedule that the consumer receives. What features BNPL brings to the table for Merchants: Buy Now Pay Later is a new way to process payments. It's for young adults with shaky credit. The option lets merchants accept credit or debit cards but defer the payments. It lets merchants offer customers a low payment schedule, typically 6 to 24 months. But it's different than payment plans. With BNPL, there's no interest, no hidden fees, and no penalties for not paying all at once. BNPL works with all credit cards, not just Visa or MasterCard, and payments are processed securely through Authorized pages. BNPL increases conversion and sales by 20% for merchants while boosting average order value by 60%. For customers, BNPL gives them access to the credit they otherwise wouldn't have. And for merchants, BNPL means more conversions, more sales and more repeat customers. BNPL is offered by a handful of digital storefronts, including Best Buy, Kohl's, and Walmart. But it's a new way of doing business that allows both parties to benefit from the deal (compared to 2.5 percent for a credit card transaction). Why should Financial Institutions accept BNPL: Amazon's Buy Now Pay Later (BNPL) program is both a blessing and a curse for retailers — a blessing as it offers them a way to boost sales by attracting shoppers who are price sensitive, and a curse because it threatens to erode bank's main business. Amazon's BNPL program has only been around for two years, but it has already become a crucial part of the site's business model. The program gives people the option to buy products on Amazon with deferred payment terms. Customers purchase the product, but they aren't charged to agree to a 90-day payment plan until later. While that's far less than the average credit card payment period — 25% of Americans carry credit card debt — BNPL has become popular enough with Amazon shoppers that it has shrunk Amazon's average purchase amount by $7.77, according to one report. That's a significant hit. Amazon's BNPL program may be taking Amazon's main business, online sales, down a notch, but the banks that have issued BNPL cards aren't worried. That's because BNPL cards, like credit cards, are financing. And financing today looks different than financing did even five years ago. Many consumers, especially Gen Z, prefer to buy with credit and postpone payments. This shift in consumer preferences has major implications for banks. Banks issued financing to safe, creditworthy customers who wanted to buy now and pay later when credit cards were first introduced. But bank lending practices have changed over the years, and today many consumers use credit cards to finance products they might otherwise buy with cash. How can Banks integrate BNPL in their lending services BNPL is a fast-growing segment of the lending market. In 2015, BNPL made up 15.2% of all consumer credit originations and grew to $12.1 billion, according to the Federal Reserve Bank of New York. BNPL's share grew from 8.4% in 2014 to 14.7% in 2015, according to Experian. A BNPL strategy allows banks to ride the wave of increased consumer debt by managing their balance sheet more aggressively. This helps stabilize revenues and boosts the profitability of loans as banks can charge higher interest rates. While BNPL loans often come with hefty price tags, lenders can minimize their losses by structuring BNPL loans as an asset purchase rather than a loan sale. First, banks have to make sure they can fund the loans, either with their balance sheet or with funding from a non-bank lender. Second, banks have to decide whether the loan will be purchased directly or indirectly. Cross River Bank is currently riding the BNPL trend with this model by providing Affirm with funding capacity. The model is safe as BNPL firms often purchase those loans after origination, but it also caps the potential gains banks can earn as the fee is often a small percentage of the total origination. How can banks initiate marketing their buy now pay later services? First, banks need to be agile and go after merchants that already have relationships with customers. Fintechs, on the other hand, must convince merchants that their service, regardless of its costs, is worth paying. There are obviously some similarities. Both must win over merchants. But they also have different advantages. Fintechs don't have existing relationships or established customer bases, so they must build both from scratch. Fintechs, however, have an advantage over banks in that they have the technology. In addition, fintechs can integrate their solutions into existing e-commerce systems, giving merchants an out-of-the-box, easy-to-deploy solution. This, in turn, makes fintech more attractive to merchants. Fintechs can also target specific markets. For example, some banks sell online merchant accounts, but their service is often limited to larger merchants with more established distribution networks. Fintechs, on the other hand, can target smaller merchants, giving them an approach that's better suited to the needs of smaller businesses. Fintechs can also target specific niches. A fintech that targets small businesses, for example, could focus on those that sell high-priced goods online. Fintechs don't have to build their distribution networks, either. Instead, they can use existing online channels like Amazon, eBay and Alibaba. Of course, fintechs can also sell directly to merchants, but this approach requires additional sales and marketing efforts. Fintechs can also build their distribution networks. They can use a direct-to-consumer model, selling directly to their customers. This approach is best suited for fintech that is sells online merchant accounts and works for fintech that targets specific markets. The Takeaway BNPL programs have a critical role in financing trade and industry and financing small and medium-sized enterprises (SMEs). For this reason, BNPL programs should be an integral part of banks’ lending portfolios. Banks should optimize the utilization of BNPL programs. At the same time, the regulatory framework for BNPL programs needs to be revised. The business models of BNPL programs should be standardized and standardized products should be available. At the same time, the regulatory framework for BNPL programs needs to be revised. FAQs What is buy now pay later? Buy now pay later, as the name suggest, is an option Fintechs give you to purchase a product and pay for it after a certain amount of time. It works like a credit card payment, but it doesn’t charge you interest. Does buy now pay later affect credit score? No. Buy now pay later does not affect your credit score as long as you pay your dues timely. It is constructed in a way that you won’t have to worry about your credit score. However, banks may see your credit score before giving you BNPL service. Why was I not eligible for buy now pay later? Financial services or banks check your credit-worthiness before lending you the services of buy now pay later. They may check your payment history, income, job stability, etc. So before applying for BNPL, make sure you have a strong credit-worthiness. What are the alternatives to buy now pay later? You can use your credit card the same way as buy now pay later, but your interest-free days would only last till they bill you. You can also opt for interest free deals on purchases from e-commerce store.

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5 FinTech Companies Disrupting Banking And Finance

Article | August 17, 2021

You may think of ATM workings as a revolutionary experience but since the advent of Fintech, the entire financial services domain has entered a new era. Whether you purchase a cup of coffee or manage your finances, fintech is everywhere. From payments via apps such as Payoneer or Paypal to getting reports, or even using cryptocurrency, fintech is everywhere. This decade — 2020 — is bringing along loads of useful technological developments and therefore, you need to implement these updates to stay ahead in the industry and offer better services.

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Spotlight

Finance Factors, Ltd.

Finance Factors has been providing financial services in Hawaii for more than 60 years. Established in 1952 by several island families, the company has grown from a small local enterprise that pioneered personal loans for Hawaii’s working class, into Hawaii’s largest locally-owned depository financial services loan company.

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