In the second article in a series on the arrival of the fintech industries in Bermuda, we will look at rise of fintech banks and their potential impact on the legacy banking industry.

What is fintech?

Fintech, or financial technology, is transforming the way we engage with traditional finance: from credit and loans, to saving, transferring and spending money, fintech has birthed innovative new technologies to deliver the services in ways never before imagined. From blockchain to virtual currencies and beyond, the world of finance is undergoing a revolution. The recent Bermuda Banks and Deposit Companies Amendment Act 2018, enabling the creation, operation and regulation of fintech banks in Bermuda, engendered great curiosity locally, along with overwhelming media coverage, globally.

Truly a masterful public relations feat, our government put the business world on notice that, once again, our tiny island of Bermuda is an innovative global finance jurisdiction.

What are fintech banks?

They are the digital application hosts, and the conduits of this new methodology in finance offerings to the general public, commercial entities and the like.

They can offer, articulated loud and clear across the fintech spectrum, the utilisation of new technologies: enhanced user experience, speed, financial freedom and control, anonymity, elimination of line-waiting frustration, alternative financing for consumers not eligible to access conventional lending, more competitive rates, self-help digital applications for managing money, simplified foreign exchange, money transfers, and more.

Who are the prospective audience (clients) in Bermuda?

The Banking Amendment in the third schedule cites under specified persons banking activities criteria: “An institution licensed under section 14(5)(c) may provide services to a person that — has submitted a Form No 1 application to the Authority, in accordance with the Companies (Forms) Rules 1982, to be registered under the Companies Act 1981; and has indicated on such form the intention to conduct digital-asset business or undertake an initial coin offering in Bermuda ...”

It appears that the intent of the Act is to facilitate fintech banks that service just companies in the digital-assets business in Bermuda, or will fintech banks serving the general public be included as well?

More clarification down the road would be helpful.

Nevertheless, we take a brief look at two fintech banks in operation: one a start-up of two years and the second with a decade of financial experience.

Atom — UK

The UK’s first bank built exclusively for the customer smartphone or tablet and touting a real UK banking licence. Launched in 2016 with fixed saver accounts and mortgages, Atom is now recognised as one of the fastest-growing banking start-ups in Europe. Very competitive rates, ease of application, and marketing low overheads, not even using conventional physical real estate banking facilities, with higher savings rates, Atom Bank is classified as a challenger to legacy banks — and entirely online.

Atom’s branding story is very much focused on individuality, millennials and younger customers, those with complete digital financial lives, while enhancing the whole financial experience — all via mobile, touch technology and on-the-go lifestyles.

The website seems playful, featuring prominent social media stars and their financial tips, and at the same time serious, focusing on financial awareness and education, for the many, as reported in the media, who have never used, or intend to use, conventional banking sources.

Atom has raised significant venture capital investments to finance its start-up while increasing its asset base to more than £2 billion, but, as Nicholas Megaw reported in the Financial Times on July 31, 2018: “Pre-tax losses now stand at £53 million. The ‘financial’ results highlight the challenges facing would-be disrupters to traditional branch-based banks, which have made strong progress in gaining users, but have yet to transfer the growth into profits.”

Fidor Bank — Germany

Founded in 2009 in the turmoil of the financial crisis, the multi-award winning Fidor Bank focuses on openness, fairness and the involvement of its clients in decision-making processes, including communication with the Fidor Bank YouTube channel.

Fidor Bank’s own community is aimed at users who seek dialogue with the bank at eye level. In some cases, they are even asked to determine what type of financial services should be offered.

The Fidor Smart Community is one of the most active financial communities in Germany, enabling around-the-clock interaction with users, employees or the bank’s board of directors, completely redefining the banking relationship with the private digital and business customers.

This digitally global innovative company, now also with presences in France, the UK and the US, not only operates Fidor Bank, but also Fidor Solutions in a developed proven open banking platform product that helps businesses build and run an entire digital bank where a distinct social and human touch gives a distinct competitive advantage.

The technology encompasses a hassle-free platform that quickly and easily brings a fintech digital banking project to life with APIs (application programming interfaces) for banking, payment, credit, card management, user management, community, scoring, integrated services and third-party services.

Scrolling through the Fidor website is illuminating and fascinating, this is a mature well-established global business with significant clientele numbers and offerings: accounts, cards, loans, payments, prepaid phones, precious metals, foreign currency, crowd finance, social tradings, community and cash, while business customers have access to start-ups, small and medium-sized businesses and e-commerce. Hmm — Bermuda?

Questions for next time?

Are these new banks generating profits? Venture capital can last only so long.

Will the competition hurt legacy banks? Answer is unknown at this time, but one clear message to the entire financial-services sector is succinct: innovate or fade away — eventually.

What career skills will be needed for employment in the sector? There is so much to be learnt about these new, exciting ventures. How should you get your job skills up-to-date. We know that confident adaptation to change and problem-solving attributes are prerequisites.

The first article in the fintech series can be found at https://tinyurl.com/ya9kffy5.

Sources

Bermuda: The Future of Fintech, https://fintech.bm/#about

Investopedia: What is fintech? https://www.investopedia.com/terms/f/fintech.asp

What is fintech? And how is it changing the financial services industry? https://tinyurl.com/y6uo4xud

Atom Bank, https://www.atombank.co.uk/

Fidor Bank AG: Fidor Solutions, The Fidor Smart Community,

https://www.fidor.de/about-fidor/about-us

• Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com