A weekly five-point roundup of critical events in fintech, the future of finance and the next wave of banking industry transformation.
Is Fintech a House of Cards?
What happened: A business model built almost entirely on interchange fees and spending whatever it takes to acquire customers is running into some serious headwinds.
Why it matters: Giving away rebates or otherwise eating into revenue in an attempt to gain a larger customer base was a winning formula for fintech start-ups. Until it wasn’t. The resulting closures, consolidations, and buyouts are the result. It also means there’s only one path left for any new fintech: build some amazing piece of software people will actually pay to use.
What’s next: Every big bank that was going to be disrupted is now just going to get the benefit of buying customers and nice consumer-friendly software in a firesale. (By Michael Sindicich, Techcrunch)
Almost No One Is Lending Right Now
What happened: “As of the latest Federal Reserve weekly tally, overall loan growth at U.S. banks has been 3.6% on an annualized, seasonally adjusted basis so far in the third quarter—well below the long-term average of 7%.”
Why it matters: It’s more expensive to buy or borrow right now. That’s clearly having an impact. But so too are new rules from regulators (and increased anxiety from investors) about adequate deposits. In short, “almost all loans are bad now.”
What’s next: The right people with the right credit will still get attractive loans. But there aren’t enough of those people (or companies) to keep banks growing. (By Telis Demos, Wall Street Journal)
Why Congress Might Decide Which Chinese Companies Americans Can Invest In
What happened: “Rep. Mike Gallagher, the chair of the U.S. House committee on competition with China, said he might widen the panel’s investigation into Wall Street’s ties to China’s military sector and its human-rights abuses, which has so far focused on BlackRock and index provider MSCI.”
Why it matters: Because we’re currently involved in a trade Cold War, you just don’t know it yet. See China’s latest crackdown on government employees buying Apple products and the simultaneous nationalistic fervor for Huawei’s products? That’s the end of the spear. This is the tip.
What’s next: Whatever it is, it will have a major impact on the global economy. (By Liz Hoffman, Semafor)
Chinese Divorces Are Market Moving Events
What happened: Eight major holders of Chinese companies got divorced this year, resulting in the possible sale of nearly $4 billion in assets, enough to worry the country’s regulators about what might happen next.
Why it matters: “China will see the biggest outflow of millionaires globally this year as the nation’s wealth growth slows, Henley & Partners estimates. Many wealthy Chinese have made backup plans to emigrate in recent years after the country’s crackdowns and Xi Jinping’s push for ‘common prosperity’ spooked the rich.”
What’s next: Pre-nups come to a new land. (By Venus Feng, Bloomberg)
Bankers Will Keep Doing Illegal Stuff If It Remains Wildly Profitable
What happened: Deutsche Bank bankers sold small companies in Spain some wildly exotic financial instruments they knew they didn’t need, at a time they knew it was illegal to sell them, and are still asking their customers to pay up on the large losses they caused.
Why it matters: The bank that wants to be the “Housbank” of European commercial powers is having a hard time explaining why the guy who was in charge of this derivatives department has now been promoted to a management board seat.
What’s next: Hopefully a lot of cases settled in favor of the poor mom-and-pops who got sold something that could put them out of business. (By Olaf Storbeck, The Financial Times)