A deep-dive into BaaS, Open Banking and Embedded Finance; Apple’s fintech strategy; Understanding PSD3: Anticipated Market Impact And Preparing for Changes;
In this edition:
1️⃣ Short sellers target Metro Bank ahead of crucial shareholder vote
2️⃣ Allianz suing Revolut for £10.4m over axed travel insurance deal
3️⃣ Walmart-Backed PhonePe Likely To Enter Consumer Lending Space By Jan
4️⃣ A deep-dive into BaaS, Open Banking and Embedded Finance
5️⃣ U.S. card companies Visa, Mastercard and AMEX to seek licenses to operate in China in months
6️⃣ Apple’s fintech strategy
7️⃣ Understanding PSD3: Anticipated Market Impact And Preparing for Changes
News
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Short sellers target Metro Bank ahead of crucial shareholder vote
Short sellers are targeting Metro Bank ahead of a decisive shareholder vote on a major refinancing plan agreed just over a month ago.
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Allianz suing Revolut for £10.4m over axed travel insurance deal
Allianz is suing Revolut for £10.4m, alleging that the neobank breached its obligations under a deal it struck in 2021 for Allianz to provide travel insurance to Revolut customers.
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Walmart-Backed PhonePe Likely To Enter Consumer Lending Space By Jan
Marking its foray into the consumer lending space, Walmart-backed PhonePe is likely to operate initially as a distributor for personal loans. The fintech firm is currently in the last phases of integrating with five lenders, including both traditional banks and non-banking finance companies, according to an ET report.
Insights
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A deep-dive into BaaS, Open Banking and Embedded Finance
What is BaaS? BaaS is the business model where banks offer their banking products and services to non-bank companies with open interfaces. It is transforming the financial industry by redefining the traditional roles of banks in the digital age. BaaS empowers banks to securely distribute their banking products and services through partnerships with ecosystem players such as e-wallet providers, e-commerce platforms, and fintechs.
Under this framework, traditional banking institutions, which typically hold banking licences extend their capabilities to a broader network of ecosystem players such as non-bank entities or e-commerce platforms. In turn, these non-bank entities leverage the established banking infrastructure to offer services including payments, deposit accounts and lending to their direct customers. It is important to note that BaaS enables these ecosystem partners to provide financial services legitimately, without the need to acquire their own banking licences; a process that can be both time-consuming and resource intensive.
How Open Banking complements BaaS
In markets where there are Open Banking frameworks present, Open Banking plays a pivotal role in advancing BaaS by establishing a secure channel for sharing critical financial information. Utilising Open Banking frameworks, BaaS platforms can authenticate users, initiate payments, determine partner entitlements, and request access to essential bank information and services. While the extent of Open Banking’s capabilities may vary based on market regulations, it provides a versatile foundation for BaaS platforms to deliver seamless and innovative financial solutions to customers.
How BaaS enables Embedded Finance
BaaS facilitates Embedded Finance by allowing financial institutions to integrate with non-bank platforms and applications, broadening their traditional remit and unlocking further revenue streams and touchpoints.
Embedded Finance: The integration of financial services, such as payments, lending, insurance, and savings, into various customer touchpoints and digital ecosystems, beyond traditional banking channels.
Open Banking: A regulatory framework that facilitates third-party financial service providers in accessing and utilising customer banking data and services through Application Programming Interfaces (APIs). This empowers customers to grant these providers access to their financial data, such as account information and transaction history.
Source Audax & Thought Machine
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U.S. card companies Visa, Mastercard and AMEX to seek licenses to operate in China in months
Although the process, which includes having to clear regulatory banking hurdles and security scrutiny, could take two years or longer, these card networks clearly see the massive opportunity in China.
The long wait for the U.S. companies is, though, unlikely to end soon. It may take as long as two years or more for the companies to clear all official scrutiny, including from banking regulators, and for them to pass a security review, as well as meeting other conditions, the sources said.
The move comes against a backdrop of growing economic friction between China and the United States, after the two countries failed on Wednesday to agree on major new steps to reduce the U.S. trade deficit with China.
U.S. payment network operators have been waiting for more than a decade to get access to China. It is set to become the world’s largest bank card market by 2020, when the number of cards in circulation is forecast to rise to 9 billion from 6 billion in 2016, according to research firm GlobalData Plc.
China first agreed in 2015 to open the card market to local and foreign businesses, a move triggered by a 2012 World Trade Organization ruling. However, foreign card companies have been unable to set up local operations in the absence of a clear roadmap from Chinese authorities.
In May, Beijing and Washington agreed to a July 16 deadline for China to issue “necessary guidelines” for the launch of local operations by U.S. payment network operators, leading to “full and prompt market access”.
The expected entry of foreign card companies will challenge the dominance of state-backed China UnionPay Co Ltd, which currently is the sole operator in a yuan bank card payment network worth more than $8 trillion in China.
The market has long been dominated by a single player, which could narrow the focus of challengers that hope to attract partners. UnionPay, the Chinese card network, has a complete hold on the market — it has a 90% market share of China’s card industry, according to Nilson data cited by Fox Business. As a result of the region having a clear-cut leader in the space, US card networks only have to focus on rivaling the offerings of UnionPay, rather than the entire industry.
The U.S. payments ecosystem is in the midst of a shift toward mobile, and countless new and old stakeholders are attempting to accelerate this migration, which is moving at a glacial pace relative to other markets globally. But mobile payments can rise to the mainstream. For companies seeking to build out a robust mobile payments product, China’s thriving mobile payments ecosystem offers some insight — and some lessons.
Source Reuters / Business Insider
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Apple’s fintech strategy
Apple‘s high-yield savings account, unveiled in April through a partnership with Goldman Sachs, reached almost $1B in deposits in the first 4 days alone and 240,000 accounts in the first week.
This wasn’t the first time Apple has sent waves across the fintech landscape. Since Apple’s foray into the space almost a decade ago, the company has been gradually shaping itself into a fintech giant.
While products like Apple Pay and Apple Card laid the foundation for Apple’s fintech strategy, it has relied heavily on partnerships to drive growth in the adoption and scope of its offerings. The company has inked deals with banks, buy now, pay later (BNPL) players, card issuers, payment gateways, and spend management platforms to reach further into the sector.
Source CB Insights
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Understanding PSD3: Anticipated Market Impact And Preparing for Changes
In the realm of financial regulation, PSD3 emerges as a pivotal framework that reshapes the landscape of payment services, further advancing the foundational groundwork laid by its predecessor, PSD2.
At its core, PSD3 seeks to adapt to the evolving financial landscape by accommodating innovative players such as TPPs and fintech companies. This inclusion paves the way for enhanced competition and innovation, while also establishing stringent regulatory guidelines to ensure consumer protection and data security. The directive’s split into the PSR and the revised PSD3 provides a refined structure that addresses varying aspects of payment services, offering a more nuanced approach to regulation.
The PSR and PSD3 proposals can be summarized into a few core topics addressing fraud mitigation, simplification and standardization of the regulatory framework, open banking improvements, creating a level playing field between banks and non-banking PSPs and facilitating the availability of cash.
One of the most pressing concerns addressed by PSD3 and PSR is the triad of cybersecurity, data protection, and operational resilience. Recognizing the digital nature of modern transactions, the directive emphasizes the establishment of robust cybersecurity measures, safeguarding sensitive data and fortifying the ecosystem against potential threats.
Implications and Challenges of PSD3
As the effects of PSD3 spread far and wide, various stakeholders experience a significant transformation. This includes PSPs, TPPs, merchants, and consumers, all of whom are directly impacted by the directive. For PSPs, it marks a crucial moment, requiring them to adapt to heightened security measures while also presenting chances to offer innovative services. TPPs are in a similar position, balancing compliance requirements with the potential of exploring new opportunities in a broader market environment. As for merchants, who benefit from more efficient payment processes and consumer empowerment, they must now adjust their systems to align with the updated regulatory landscape.
The Implementation and Oversight of PSD3: A Timeline and Transposition Process
The implementation of PSD3 is expected to follow a structured timeline, like previous directives. The European Commission will publish the final text of PSD3, specifying its provisions and requirements. Following this, EU member states will have a set period to transpose the directive into their national legislation. The timeline for transposition can vary, but it typically ranges from one to two years after the publication of the final text. During this period, each member state will need to adapt its existing laws and regulations to align with PSD3’s provisions, ensuring uniformity and consistency across the EU.
Source Sia Partners
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Reports
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