Traditional banks see online payment and financial services providers as their biggest threat, but they can still be a part of the shift to digital banking because of their status as regulated institutions that have the trust of customers and authorities, according to banking software provider Temenos.
SWIFT, the global messaging system has been in the spotlight in recent months for some breaches, both in domestic as well as international markets. Its chief executive Gottfried Leibbrandt talks about how experience is teaching it to improve and how there’s no stopping India’s digital journey, though it may appear to be faltering. Edited excerpts:
Recently we had the biggest banking fraud involving Punjab National Bank and a lot of commentary involved SWIFT systems as well. What do you think of it?
We don’t comment on individual cases. What I can say is that in addition to what we saw in the Bangladesh case which was a cyberfraud… the core business of banks at the end of the day is keeping money safe and that relies on a lot of controls. One of the things that banks have to ensure is that they don’t have insider fraud and a lot of what banks do today is trying to prevent that. Globally, there are still cases of insider fraud and they will continue. And many of those are traceable to a lack of internal controls to make sure that if one or two persons collude or go rogue, they cannot take away major resources from the bank.
So would removing human intervention in payments work?
The controls that we put in the SWIFT environment are not all technology. So the controls are IT, process and people… it always has to be these three things. Part of the controls may be vetting of your employee, another control maybe just reconciling the books, yet another control can be automation of flows and individuals cannot interfere with it or securing and signing transactions. The lesson has always been that you should never rely on a single control. There has to be a system of controls. If one of them fails, there is another one that captures a discrepancy.
As far as payments security is concerned, how do you see India versus the rest of the world?
The Indian landscape is changing as fast as anywhere in the world. I am seeing that the banking system as a whole is taking this very seriously and wanting to digitise payments. After the Bangladesh breach two years ago, we launched a massive Customer Security Programme (CSP) that has met with very good success and I don’t see much difference there between India and rest of the world. Banks have taken the security challenge seriously and they are putting in a lot of efforts to bring in additional controls and checks, selfattest it and share it with their trade partners and counterparties.
Are Indian banks warming up to the idea of CSP, are they willing to adhere to all the protocols?
These controls put a high bar. We don’t expect everybody to be compliant on day 1, and we see banks working towards it. Globally, we had 93% banks self-attest against these controls. India was at 85% and the same goes for linking SWIFT system to their back offices. We are engaged with the banks to help them get this integration in place.
As far as RBI goes, a lot of regulations have been reactive than proactive in both the PNB and City Union Bank cases. How are other regulators?
You can accuse the global regulatory committee of being reactive; it was only after the global financial crisis that a lot of checks and balances were brought in. To some extent, regulators are by nature reactive. You can say SWIFT community reacted only after the Bangladesh bank fraud happened. So, I won’t hold that totally against the regulator. But we have seen regulators engaging with banks in many cases. They have mandated the controls in their own jurisdiction. We are also in dialogue with all these regulators and I don’t think India is an exception to what we see globally.
What are the best in other markets when it comes to cyber security? What can we learn?
I do see that regulators are more and more concerned about cyber, not just related to SWIFT but in general cyber security of banks. In Europe, we see fairly significant testing programmes where they mandate the banks to go outside and find hackers and test systems. All of that is at various stages.
As far as Asia is concerned, where do China and India stack up in terms of markets with huge business potential?
I look at China in admiration, especially their infrastructure prowess in both physical and digital space. I would say financial infrastructure is no exception, it’s sometimes more organised than in my own country in Europe. I think they have cyber high on the agenda as all the other countries; they also have the ability to take technical skills at the banking levels and bring these to bear. But again I don’t see why India will not have the same skills at the end of the day. Both countries are very different in terms of their political systems; India should learn from everybody but at the same time plot its own course.
Digital payments growth in India looked promising after demonetisation. But it appears to be tapering?
I think the future is digital. My favourite comparison is Germany to China. In Germany, still two-thirds of the payments in shops are cash and that is a western country. In China, one-third of payments in shops are cash and rest is Alipay and WeChat. Don’t pin me down on timing, but I think India will get to a point where it will be 50:50 digital and cash. You cannot wish away cash but look at the Chinese, it happened fairly quickly. If you have the technology, that is a very compelling proposition for consumers. The advantage that India has is scale. If you do everything at the scale of 1.3 billion people, the payments industry is bound to leap-frog.
The company has reportedly been quietly rolling out traditional-bank features to certain groups of customers over the past few months.
The online payments company has good reason to keep this new offer mum: it doesn’t have a U.S. banking license. That means all these services are the result of a series of bilateral agreements between PayPal and small banks that remain anonymous. These agreements help PayPal avoid FDIC regulations on whose deposits it will insure and Visa and MasterCard rules about what kinds of institutions the credit card companies will run cards for. So maybe it’s not quite a bank account, but it sure walks and talks like one.
PayPal COO Bill Ready is pretty clear about who this “bank account” is and is not for: if you already have a bank account, it’s not for you. He told the Wall Street Journal that the new service was driven by the necessity of a bank account in order to participate in the modern economy. “If you don’t have a bank account, you can’t take an Uber ride, can’t stay in a room on Airbnb,” he said.
This focus on serving unbanked communities may also shed light on a deal announced today between PayPal and M-Pesa, a mobile money service based in Kenya. The deal will allow M-Pesa users to link their accounts to PayPal in order to buy goods and services outside of Kenya more easily.
But PayPal is far from the only non-traditional bank trying to enter the banking sector. Square and Amazon have both explored bank-like offerings. Last year TransferWise started offering banking services to select users that would allow them to convert currencies for free. Monzo, a digital pre-paid debit card company in the UK, recently converted all its users to full bank accounts.
With non-traditional entrants into the banking field multiplying and some traditional banks reducing their services, the PayPal bank account may be a sign of things to come.
A spokesperson for PayPal was not immediately available for comment.
Several key mortgage rates dropped today. The average rates on 30-year fixed and 15-year fixed mortgages both tapered off. The average rate on 5/1 adjustable-rate mortgages, or ARMs, the most popular type of variable rate mortgage, also declined.
Mortgage rates change daily, but, overall, they are very low by historical standards. If you’re in the market for a mortgage, it could make sense to go ahead and lock if you see a rate you like. Just make sure you shop around first.
30-year fixed mortgages
The average rate for a 30-year fixed mortgage is 4.27 percent, down 3 basis points over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was higher, at 4.35 percent.
At the current average rate, you’ll pay principal and interest of $493.11 for every $100,000 you borrow. That represents a decline of $1.76 over what it would have been last week.
You can use Bankrate’s mortgage calculator to estimate your monthly payments and see how much you’ll save by adding extra payments. It will also help you calculate how much interest you’ll pay over the life of the loan.
15-year fixed mortgages
The average 15-year fixed-mortgage rate is 3.69 percent, down 3 basis points from a week ago.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $724 per $100,000 borrowed. That may squeeze your monthly budget than a 30-year mortgage would, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more quickly.
The average rate on a 5/1 ARM is 3.98 percent, falling 7 basis points over the last week.
These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
Monthly payments on a 5/1 ARM at 3.98 percent would cost about $476 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
Conventional wisdom in the financial world is that large incumbent banks need to partner with smaller startup and scale-up companies for a mutually beneficial relationship that aims to foster innovation and ultimately improve services.
Recent regulatory mandates, based on the European Union’s second iteration of the Payments Services Directive as well as from the Competitions and Markets Authority (CMA) in the UK, have pushed traditional banks to open up their data and platforms, in the form of application programing interface (API) toolkits.
These APIs, mostly focused on retail current accounts, create an avenue for financial services startups to integrate their products with existing bank infrastructure more easily. The aim is to create a more competitive environment and hopefully offer increased options for consumers. All of this is known by the umbrella term “open banking”.
The CMA directive is aimed at the top nine banks in Britain and Northern Ireland, banks such as Barclays, RBS and Lloyds Banking Group. Despite not being governed by the CMA mandate, Starling Bank, a year-old mobile-only bank in the UK is taking an aggressive approach to open banking.
According to Megan Caywood, Starling’s chief platform officer: “Starling is taking that a step further with its API and marketplace. The API goes beyond the CMA requirements and looks to surface every Starling feature via the API, such as an API for savings goals even though that isn’t mandated, and enabling accessibility tools like webhooks to make integration easier.
“The Starling marketplace goes beyond simply enabling third parties to access bank data; it enables those parties to be visible and available to customers within the Starling Bank app – it integrates the partners’ APIs as well. That’s appealing to third parties as it gives them a new customer-acquisition channel and a way to make it easier for Starling customers to access their products.”
Last month, global professional services firm Capgemini launched its World FinTech Report, along with LinkedIn and in collaboration with Efma. The overarching theme was that global fintech – financial technology startups – and traditional financial institutions and banks need to partner and collaborate. While that goal sounds good on conference panels and in blog posts, the reality is much harder to actualise.
Nektarios Liolios, founder and chief executive of Startupbootcamp FinTech, an accelerator programme for global fintech startups funded by partner banks and financial services firms, sheds some light on the lofty goal of startup-bank partnerships.
Speaking as part of a transatlantic debate, hosted by Capgemini, in association with 11.FS Media, Mr Liolios says the problem lies in the chasm between an appetite for innovation and a capacity to achieve it on the part of traditional financial services firms. Conversations on how to bridge that chasm are not happening, he says.
“How do you measure success, how do you measure what works and what doesn’t work? How do you get the business excited enough to put money towards it when the innovation budget is actually shrinking?” Mr Liolios asks.
According to Carrie Osman, founder and chief executive at CRUXY & CO, a strategic UK consultancy, many banks are now overwhelmed by the possibilities opened up by the regulations fuelling open banking. “You would think, with these regulations coming out, it would make it easier for banks. What is happening is it has made the space more crowded,” she says. “Startups are not standing out from the crowd.”
However, startups need to focus on exactly what value they will bring to a large firm and how their offering will interact with vast, enterprise-wide technology “from day one”, Ms Osman adds.
Despite the hype and noise around bank-fintech collaboration, and past struggles to make these partnerships happen, there are bright spots appearing within the financial services sector. Late last year, HSBC and their subsidiary First Direct announced a partnership with London-based fintech startup Bud. Most recently, Barclays signed a banking deal with cryptocurrency exchange Coinbase and, as part of the deal, Coinbase now has an e-money licence and access to the Faster Payments Scheme.
What is Peer-to-Peer Lending –
With peer-to-peer lending, borrowers take loans from individual investors who are willing to lend their own money for an agreed upon interest rate. Peer to Peer lending is already a hugely successful model for alternate financing across the globe.
With P2P lenders coming under RBI purview, there will be better transparency in the system and higher confidence amongst participating lenders and borrowers. In the global space, P2P lending has been growing year on year in terms of both volume and number of players. Globally, USA, UK and China markets have been dominant in terms of P2P lending. In India, the industry is at very nascent stage and has limited operating history. Various reports mentioned that P2P lending will continue to grow given its current nascent stage.
In India, more than 70 percent people are rejected from availing a personal loan from bank or NBFC due to risk portfolio and most of the time loans are available only to salaried employees with annual gross salary of Rs 3 lakh or higher. However, P2P lending market place works differently, it uses multiple parameters to determine creditworthiness of borrowers and they do not decline a loan application even if the borrower’s salary is considerably low. Technology has made the process of lending and borrowing simpler to get quick cash or earn great returns. The process is initiated when the borrower applies online for a loan and post application approval, the lenders fund the loan amount.
What’s new for Borrowers & Lenders?
For borrowers, the P2P market place enables a swift application process with little documentation, faster decision-making compared to traditional financing institutions, and they also get competitive interest rates and repayment flexibility. Similarly, lenders get better return on their investment, specify risk aversion/return and get quick returns on investment.
Sweden’s mortgage industry is today worth around 3 trillion krona ($370 bn), according to Statistics Sweden, and most of the interest on these loans end up in the pockets of big banks.
A new fintech venture called enkla.com has today launched a potentially game-changing service. The Swedish online lender offers consumers a 0.95% fixed mortgage rate for three years, which is considerably less than the 1,6% average for similar loans among Sweden’s major banks, according to Di Digital.
Enkla.com doesn’t issue any new mortgages, but only targets borrowers who are willing to transfer their existing loans onto its platform. Anyone with a Swedish bank-issued mortgage of up to 5 million krona ($610 k) and a maximum loan-to-value ratio of 85% is eligible for the service.
‘’Ten years ago, someone would fill out an application at home and post it the next day. Now it’s click, click, move,’’ said Alexander Widegren, CEO of enkla.com. ‘’We have digitized and streamlined the application process and made it easier than ever for customers to take control over their mortgages.’’
Enkla’s self-stated goal is to borrow 100 billion SEK ($12,2 billion) worth of mortgages in the next 18 months by issuing mortgage bonds on the international markets, Di Digital writes. If the target is met, Enkla.com would be looking at a 3 percent share of the Swedish mortgage market.
The service is an instant hit among Swedish homeowners, according to Alexander Widegren: “We are receiving one billion krona worth of applications per hour,” he says to tech publication Breakit.
The service enters a market where Sweden’s household debt has exploded from 66 percent to 87 percent of GDP in the past decade, driven by soaring housing prices. Consumers are evidently hungry for a cheaper deal than what banks can offer. Currently, Sweden’s four biggest banks – Swedbank, Nordea, Handelsbanken and SEB – have 75 percent of the country’s mortgage market, Breakit reports.
Enkla.com takes a 0,35% cut on the mortgages. The modest fee is enabled through an automated service that screens applicants hundreds of times faster than a bank clerk would, the company says. Seeing that the borrower will already have passed a credit assessment with a bank, the burden on Enkla’s due diligence is smaller.
Alexander Widegren, a software engineer, started the service together with his brother Marcus Widegren, an ex-Lehman trader and banking industry veteran. The two are hoping to grow their service by tapping into the 20,000 homeowners who currently use Lånbyte.se, a loan restructuring service they ran prior to founding Enkla.com.
Both Lånbyte and Enkla are part of Simplex, which was founded in 2012 by Alexander Widegren and counts Collector Ventures and NFT Partners – both fintech industry specialists – as investors.
Enkla.com’s launch comes as the Swedish mortgage market is getting disrupted by new online players that undercut bank rates. Two other companies – Stabelo, backed by online broker Avanza, and Hypoteket, owned by publishing house Schibsted – have recently launched their online lending platforms, which are financed by pension- and insurance giants instead of banks.
When it comes to having good credit, some cities outshine others, according to financial website WalletHub, which compared the median credit scores of residents in 2,572 U.S. cities of all sizes to determine where residents have the best — and the worst — credit ratings.
An “excellent” credit score ranges from 750 to 850, according to the two major scoring systems FICO and VantageScore, which rate credit on a scale of 300 to 850. A score from 700 to 749 is considered “good”; a score from 650 to 700 is “fair”; and a score from 300 to 649 is “bad.”
The average U.S. adult has a “fair” score of 675, according to Experian’s 2017 State of Credit report. But WalletHub, which pulled data from TransUnion, found that residents of the following 10 cities enjoyed a median score in the 99th percentile:
The Villages, Florida
Median credit score: 807
Sun City Center, Florida
Median credit score: 789
Sun City West, Arizona
Median credit score: 787
Green Valley, Arizona
Median credit score: 781
Median credit score: 780
Los Altos, California
Median credit score: 779
Median credit score: 778
Median credit score: 778
Laguna Woods, California
Median credit score: 777
Pittsford, New York
Median credit score: 773
These are primarily smaller, affluent cities, but some big cities perform well, too, WalletHub reports, including San Francisco (98th percentile), Seattle (97th percentile), Honolulu (95th percentile), San Jose (94th percentile) and Boston (92nd percentile).
A credit score is an important measure of your financial health: It signifies your trustworthiness to financial institutions. The better your score, the more likely you are to get a good deal on a home or a car, or to be able to rent an apartment. So it’s important to take steps to improve your credit where you can. Here are four things to prioritize if you’re shooting for a better score.
Home prices increased in January, moving even faster than the levels of increase seen at the end of 2017, according to the latest House Price Index from the Federal Housing Finance Agency.
Home prices increased by 0.8% from December to January, the index showed. And December’s increase of 0.3% was upwardly revised to 0.4%.
The chart below showed January’s increase in home prices was the highest monthly increase since February 2017, when home prices also rose 0.8%. August came close with an monthly increase of 0.7%.
Home prices saw the most monthly increases on the coasts, both the East and West Coast.
Across the U.S., changes in home prices from December to January ranged from a decrease of 0.7% in the West South Central division to an increase of 1.2% in the New England and Pacific divisions.
Annually, all home price changes were positive, ranging from an increase of 5.1% in the West South Central division to an increase in the double digits of 10% in the Mountain division.
West South Central: Oklahoma, Arkansas, Texas and Louisiana
New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut
Pacific: Hawaii, Alaska, Washington, Oregon and California
Mountain: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico
Mortgage rates forecast for April 2018
Just months into the year, mortgage rates have already met 2018 predictions.
In late 2017, when thirty-year fixed rates were still in the high-3s, economists put rates in the mid-4s this year.
It didn’t take long.
Rates approached 4.4% by mid-February and shot past 4-year highs.
Fortunately, rates are still low by historical standards, and today’s rateshave not deterred home buyers. Home sales are up 1.1 percent from a year ago according to the National Association of Realtors.
Still, it’s no time to sit by and hope for a massive rate drop, the chances of which are slim to none. Rates available now are likely the best we’ll see in 2018, despite the recent push upward.
Freddie Mac: Mortgage rates at highest levels in more than 4 years
Mortgage rates just broke a barrier not surpassed in 220 weeks.
Since January 2014, rates had remained below 4.45%, that is, until the late stages of March, according to mortgage agency Freddie Mac.
The 30-year fixed rate average is up 67 basis points, or 0.67%, compared to lows reached in September.
What does that mean for the home buyer or refinancing homeowner? A lot.
Home buyers will pay over $100 more per month for a $350,000 home with 10% down
A homeowner looking to refinance may discover that the new loan may not yield any savings at all.
Wall Street has plunged over fears of a US-China trade war, after the Trump administration moved to impose tariffs on up to $US60 billion ($77 billion) worth of Chinese imports.
Markets at 7:05am (AEDT):
ASX SPI 200 futures -1.5pc, ASX 200 (Thursday’s close) -0.2pc at 5,937
AUD: 77.06 US cents, 54.6 British pence, 62.6 Euro cents, 81.2 Japanese yen, $NZ1.07
US: Dow Jones -2.9pc at 23,958, S&P 500 -2.5pc at 2,644, Nasdaq -2.4pc at 7,167
Europe: FTSE -1.2pc at 6,943, DAX -1.7pc at 12,100, Euro Stoxx 50 -1.7pc at 3,342
Commodities: Brent crude -0.8pc at $US68.90/barrel, spot gold -0.2pc at $US1,328.81/ounce
Mr Trump signed a presidential memorandum that will target the Chinese imports but only after a consultation period.
China will have space to respond, reducing the risk of immediate retaliation from Beijing.
Mr Trump said the move was intended to punish China for alleged intellectual property theft.
Worst day in six weeks
The Dow Jones index has tumbled by 724 points, or 2.9 per cent, to 23,960.
This was its biggest fall since the February 8 sell-off, during which it shed 1,175 points.
As for the S&P 500 and Nasdaq, they also fell by a hefty 2.5 and 2.4 per cent respectively.
European stock markets also suffered massive losses in reaction to the tariff announcement — with steep falls for London (-1.2pc), Frankfurt (-1.7pc) and Paris (-1.4pc).
Industrial stocks were among the weakest performers, with Boeing and Caterpillar sliding by 5.2 and 5.7 per cent respectively.
Technology stocks also fared poorly, with Facebook shares dropping by another 2.7 per cent overnight.
The S&P technology sector was dragged down as well over fears there might be tighter regulation on how these companies use people’s data.
“There’s too much negative sentiment right now,” John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston, said.
“I don’t see anything on the horizon that will reassure people that things are just great.”
Australian market to sink
Following the negative lead from global markets, the Australian share market is likely to fall sharply at the open.
In currencies, the Australian dollar has fallen sharply to 77.06 US cents, 54.6 British pence, 62.6 Euro cents, and 81.2 Japanese yen.
As for how the ASX would fare if a trade war erupted, CMC Markets’ Michael McCarthy told the ABC: “Australia’s resource-heavy share market is likely to suffer more than most other share markets.”
“Industrials and commodities are likely to slump if this continues, so the materials and energy sectors will be hit hard.”