Anyone still doubting whether fintech is disrupting
Chicago’s financial services industry only needs to look at a handful of recent
partnerships to see that innovative technology is necessary for large
enterprises to stay competitive in an ever-evolving market, lest they become
obsolete.
Take the following inked deals, for example.
Amount — a digital credit solution provider — partnered with
TD Bank and HSBC last year to help the two large institutions streamline their
personal loan services, reflecting a marketplace that grew by $21 billion in
2018 to a record high of $138 billion, according to credit reporting agency
TransUnion. Meanwhile, AI-powered financial compliance solution Ascent recently
partnered with global information tech company IBM to help banks and other
financial entities meet changing regulatory requirements.
These types of partnerships help banks and financial
institutions react to market changes and prepare for the future of finance;
namely, by giving consumers more of the seamless user experiences they’re used
to and leveraging AI to streamline manual regulatory processes, saving valuable
time and resources. More on the fintech startups making waves in Chicago tech,
below.
Company background: Amount helps financial institutions
transition their products and services to customizable, digital and
mobile-friendly infrastructure. Founded in 2018, the company was originally a
tech arm of parent company Avant, a digital consumer lending company. According
to the Chicago Tribune, Amount focused on providing technology solutions to
banks, powering their lending activity and running online fraud prevention,
along with other services. Amount officially spun off of Avant in early 2020.
Amount’s partnerships in detail: In 2019, Amount partnered
with TD Bank and HSBC — the 10th and 14th largest U.S. banks, according to the
Federal Deposit Insurance Corporation — to power their online personal loan
infrastructure. With Amount’s functionality, these two banks were able to help
users both inside and outside their customer network to digitally apply for
personal loans between $30,000 and $35,000. After a soft credit pull, Amount’s
technology quickly generates a credit decision, and funds are delivered as soon
as the next day for approved users.
What this means for finance: Consumers are requesting more
personal loans than ever, and the aforementioned partnerships mark two large
banks investing in innovative technology to power a growing financial sector. A
record of $138 billion in personal loans was taken out by over 19 million
consumers as of Q4 2018, an increase of 2 million people from 2017.
“Fintechs have helped make personal loans a credit product
that is recognized as both a convenient and simple way to obtain funding
online,” Jason Laky, TransUnion’s executive vice president of financial
services, said in a company press release. “Strong consumer interest in
personal loans has prompted banks and credit unions to revisit their own offerings,
leading to more innovation and choice for borrowers from all risk tiers.”
Consumers are accustomed to fast and convenient user
experiences in every aspect of their digital lives, and many feel getting a
personal loan should be no different. Leaders at TD Bank and HSBC are using
their partnership with Amount to keep up with consumer demands and take a
foothold in that marketplace. Wells Fargo and PNC bank — two of the top 10
largest U.S. banks — both have virtually identical personal loan infrastructure.
As these loans grow in popularity, it’s likely that more banks will also
broaden their personal loan efforts and partner with fintech startups.
Company background: Founded in 2015, Ascent uses AI to
automate compliance programs for customers in financial services. According to
the company, its algorithms scan a business’s regulatory documents for areas
that require attention and action, saving its customers time and money, as well
as ensuring greater accuracy and reduced risk. The company services international
tier-one and tier-two banks and raised a $19.3 million Series B late last year.
Ascent’s partnership in detail: In July 2020, Ascent and IBM
announced a joint effort to help banks and financial services companies stay
compliant. IBM’s AI-enabled governance, risk and compliance solution, OpenPages
with Watson, helps organizations stay compliant to changing regulations within
their business sectors. Ascent is also integrating its automated register of
regulation and rule changes with OpenPages to lower the financial risks
associated with non-compliance.
The formal partnership was born from the success of a stress
test. Ascent and IBM’s combined compliance algorithms analyzed over 1.5 million
paragraphs of regulatory text for the Commonwealth Bank of Australia. The test
successfully identified regulatory terms that required review and action, and
saved the bank days of manual work.
What it means for finance: The banking regulatory
environment is marked by profound change in 2020, with a focus on financial
firms ability to navigate trends like technological innovation, as well as
adapt to social and political concerns, according to Deloitte. Keeping up with
frequent regulation amendments can require time and resources that aren’t
readily available to all financial organizations.
“If you can make it cheaper to follow the rules, people will
just follow the rules instead of trying to get around them,” Brian Clark,
Ascent’s CEO, said in an interview with Crain’s Chicago.
Breaking compliance rules — whether intentionally or by
accidental — can lead to costly outcomes and tarnished reputations; over the
last decade, financial institutions have racked up $36 billion in fines for
non-compliance with Anti-Money Laundering (AML), Know your Customer (KYC) and sanctions
regulations.
To better serve consumers and operate more efficiently,
financial institutions are placing a high value on regtech, especially as the
regulatory landscape grows more complex. Partnerships like Ascent and IBM’s, as
well as institutions’ other investments in improving regtech, can reduce the
cost and effort associated with compliance and can help financial institutions
thrive in an increasingly digital world.
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