Hello and welcome to Insights Distilled, a weekly email briefing that curates tactical technology news for financial services execs. Every Tuesday morning, we send you the top five stories you need to know – and explain why they matter. Our tech news roundup helps you stay on top of the innovations driving business agility in your industry. To get next week’s edition in your inbox, sign up here.
This week’s edition deals with the past, present, and future.
We’re bringing you advice and predictions as we dive into the history of Deutsche Bank’s fumbled tech integration, the latest news from Q2 earnings calls, an analysis of FedNow’s potential, and more.
Let’s dive in:
Newly launched instant payments service FedNow could eventually threaten credit cards’ dominance in the US.
The evolution of Brazil’s own instant payments system, Pix, shows how FedNow could ultimately create new opportunities for banks to make money in payments and encroach on credit cards.
FedNow, the US payments system that enables instant money transfers, 24/7, is finally here.
The US has lagged woefully behind other countries on instant payments and, even now, FedNow will likely take years to gain widespread adoption. However, as a parallel case study, prescient experts are looking towards Brazil for an understanding of FedNow’s wider potential impacts.
Launched in 2020, Brazil’s Pix service has gained such popularity that its usage has overtaken the volume of credit and debit card transactions, leading the country’s central bank chief to predict the impending end of credit cards.
Instant payments allow merchants to avoid lengthy reconciliations, credit risk, and interchange fees, so businesses want customers to use Pix, and incentivize it by offering discounts or rewards that are better than what credit cards offer.
Meanwhile, banks in Brazil are rolling out their own “Pix Credit” programs to offer their customers credit lines, giving them additional earnings opportunities by pushing into the territory of traditional credit cards. This model could play out in the US as well, driving greater competition and allowing banks to rethink how they position credit cards.
For more on how Brazil’s example could translate to the US and why “Pix Credit shows that the race for dominance in financial services is open,” check out a recent column in American Banker.
Other credit card threats abound as well: “Swipe fee” legislation, dubbed the Credit Card Competition Act, is currently attracting fierce lobbying as it gains backing in Washington, while pay-by-bank features are gaining steam, too.
The team responsible for helping Morgan Stanley work with tech companies has slashed its timelines from months to days.
Working with fintechs can help FinServs quickly launch new features and improve operational efficiency, so they need a streamlined framework for building those relationships and testing products.
Sean Manahan has helped Morgan Stanley make huge strides in how it partners with innovative tech firms.
As head of technology business development, Manahan is responsible for leading the team that sources and integrates tech vendors to drive change at the bank.
His group has become much more efficient while also doubling to 30 people in the past 5 years, he told Insider. Overall, the team slashed the matchmaking process – which includes due diligence and pilots – from months to days.
To drive that improvement, the team abides by three key tenets, according to Manahan: Do a lot of pre-work to identify internal business problems and find the tech firms that can best solve those issues, set the expectations early on about the bank’s compliance requirements and processes, and have a streamlined strategy for launching light-weight proof of concepts.
Ultimately, Manahan’s team has a lot of work to do: Morgan Stanley’s strategy for tech tools is about 80% buy and 20% build in-house.
For more tips on working with fintechs, read our report on building better partnerships. Also, Insight’s IGNITE network offers enterprise executives unparalleled access to next-gen tech, investment and market perspectives, and a network of peers driving digital change – learn more here or reach out to Zak Sheer for more information.
Deutsche Bank’s long, painful IT integration reveals some important lessons for other FinServs.
The messy realities of tech migrations were on full display during the final phases of Deutsche Bank’s efforts to transfer customer records from one system to another. The org learned some key lessons along the way, including to expect the unexpected.
For more than a decade, Deutsche Bank has operated two IT platforms: One for its retail banking business and another for Postbank, the German lender it acquired in 2010.
“It was like having two banks in one: The systems generated twice the costs,” Lars Stoy, Deutsche’s head of retail banking in Germany, told the Financial Times, as part of a profile of its recent data migration.
The team just completed the final transfer, dubbed Project Unity, after several missed targets and failed attempts. While it now expects to reap €300 million in cost savings by 2025, it originally had more ambitious goals.
The key lessons from the long, hard integration journey are to streamline decision-making where possible, lean on existing systems that work well versus trying to build everything from scratch, and to over-prepare for key moments.
That final point helped DB handle the unexpected: The migration almost went off the rails when steam from an errantly-opened dishwasher set off a smoke detector and forced migration teams to evacuate the building at a crucial moment. Luckily, employees had rehearsed the plan multiple times in recent months, which allowed them to make up the lost time.
DB’s learnings from that process are especially prevalent now, as the recent consolidation (spurred from the spring’s banking crisis, and with the potential for more M&A to come) necessitates other banking giants to embark on integration journeys. You can read the full story in The Financial Times.
Karat just raised fresh funding – and launched a partnership with Visa – to build financial tools for content creators.
Most financial institutions don’t cater to the hundreds of millions of content creators, despite their enormous industry which could swell to $181 billion by 2032. Karat and Visa want to change that.
Fintech Karat Financial just raised $40 million in equity financing and $30 million in debt to increase financial access for content creators, or people who make money on their videos, social feeds, or personal brands.
The startup’s credit cards rely on social stats and financial statements instead of FICO scores to determine customers’ credit card limits, and it offers accounting tools tailored to creators as well. It’s also launching a new partnership with Visa to improve access to capital.
“When it comes to their financial lives, creators are underserved,” according to Visa’s head of fintech, Marie-Elise Droga. “They’re running a business and have the needs of a business, yet, for the most part, they are treated as individual consumers.”
While other FinServs target startup founders – for example, JPMorgan – Karat and Visa hope that they can carve out a lucrative market by catering to this growing segment.
As Will Kim, Karat cofounder, put it: “Creators are eating the world, and Karat is in a great position to be the financial system that powers them.”
Capital One touts its brand as helping it hire top-notch technologists and cut costs.
Capital One has put a recent emphasis on building its reputation as a tech powerhouse, which has given it a leg up in Wall Street’s race for talent.
Capital One talks about itself like a tech company and that status is starting to stick.
In the bank’s Q2 earnings call, chief financial officer Andrew Young highlighted how Captial One has cut down on tech consultants and their related costs: “We brought that down as we’ve been able to use our recruiting brand to bring incredible talent into the organization,” he said.
To build its reputation, the bank is active in open source, publishes extensive tech-related content, focuses on reducing engineer burnout, hires execs from top tech companies, and even sells its own software product, Slingshot, externally.
Similarly, Citi said during its own recent earnings call that it’s shifting from third-party consultants to full-time hires as its tech transformation helps it become more efficient, resilient, and secure: It added 7,000 tech-related jobs in Q2.
The battle for top tech talent has continued to ratchet up as artificial intelligence – specifically GenAI – has become the hottest new focus for Wall Street. Meanwhile, an in-depth report from earlier this year showed that JPMorgan has snapped up more AI talent than 22 other big banks.
On the topic of artificial intelligence, we’re offering Distilled readers 50% off digital tickets to ScaleUp:AI, our premier event in October, which will feature Goldman Sachs’ CIO and PayPal’s VP of data science, among many other execs.
Personnel news: HSBC hired Martijn Stoker from JPMorgan to lead its global payment solutions and Melissa Tuozzolo from Bank of America to lead GPS client service.
On the fintech side of things, Weavr.io just hired Visa alum Mark Pettit as its new chief product officer, while AccessFintech poached Goldman Sachs veteran Christopher Daur to lead buy-side sales and relationships.
Money moves: Bowery Valuation, a tech-powered real estate appraisal firm, raised a Series B extension from Goldman Sachs Asset Management, Capital One Ventures, and others. Meanwhile, insurance automation firm Tractable AI raised a $65 million Series E round led by SoftBank, with participation from existing investors Insight Partners and Georgian, and Thunes extended its Series C with backing from Visa.
Industry insights: Arjuna Capital’s Natasha Lamb is putting pressure on big tech companies and banks to make disclosures on responsible AI and FinServs are prepping to shorten the trade settlement cycle.
Upcoming event: Our second annual ScaleUp:AI conference will take place October 27, in-person in New York City and streaming live online. Get digital tickets for 50% off with promo code Distilled.
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