editions

The rapid influx of regulatory documents and enforcement actions has swamped compliance teams; regtech software like ING’s can restore efficiency. 

ING just spun out and sold its regulatory change-monitoring tool, SparQ, to risk intelligence firm Corlytics.  

SparQ’s software helps identify new regulations or threats, construct robust controls around monitoring and oversight, and ensure appropriate policies are in place. 

The Dutch bank started building the technology in 2017 to help it manage the “increasingly complex regulatory landscape,” and began partnering with Corlytics several years ago. The tools now have 550 users across ING, including in its risk, compliance, finance, regulatory affairs, and legal departments.  

When the platform finds a new, actionable regulatory development, it can also autogenerate a first draft policy for the bank in real-time, “something that can take up to six months using a conventional method,” Corlytics CEO John Byrne told Insights Distilled.  

ING estimates that SparQ has led to around 20% efficiency gains and has bolstered its relationships with regulators by contributing to its “efforts of demonstrating being in control,” ING chief compliance officer Rein Graat said. The bank will continue to use the software and “provide input on functionality and ongoing development” to Corlytics, ING spokesperson Marc Smulders told Distilled.

This is the third tech solution ING has spun out, following Stemly and Pyctor, and only the latest example of a big bank transitioning its homegrown tech for public consumption. For example, Banco Santander is partnering with Google to sell technology it created to help move mainframes to the cloud, while Capital One productized Slingshot, software it originally created to manage its own use of the cloud data tool Snowflake.   

“ING combines corporate innovation and entrepreneurial experience,” Smulders said. The bank creates “minimal viable businesses that are adjacent and disruptive and are ready to scale further,” and then either spins them into existing business units, continues to scale them up at arm’s length, or spins them out into separate companies.  

With high interest rates bolstering banks’ top-line growth at the same time as fintech valuations flounder, FinServs have a unique opportunity for M&A this year. But careful due diligence and a specialized approach to retaining talent are crucial to making a purchase successful instead of a flop, according to Bain analysts. 

While banking M&A activity stalled in 2022, Bain predicts in a new report that it will rachet back up this year, as healthy institutions look to “buy new capabilities to deliver their portfolio strategy faster, cheaper, and more effectively than they could on their own.”  

These so-called “growth engine” deals can drive real success: For example, JPMorgan bought Nutmeg in 2021 to complement its brand in the UK and was subsequently recognized last year as the region’s fastest growing fintech app. For such acquisitions to work out – unlike another recent JPMorgan tie-up with now-defunct startup Frank – banks need to focus on two key factors, according to Bain:

First, their due diligence should focus on ensuring “the quality and distinctiveness of digital components,” as well as planning for how the acquired firm will be integrated. Poor integration plans can be a killer: A 2019 BCG survey found that the top reason acquisitions failed to deliver value was a poor integration approach.  

The biggest risk is when “the acquirer lacks a clear view of what to integrate versus what to keep separate,” Bain partner Katrina Cuthell told Insights Distilled. Successful acquirers should have a “clear integration thesis linked to the sources of value” which “guides their decision making from day one,” she added.  

Second, they need a specialized approach to retaining talent after the acquisition closes. For example, they should treat key acquired workers like entrepreneurs, “with independence and tailored compensation.” If banks aren’t deliberate about creating the right environment, top tier talent could get a taste of big-company bureaucracy and fly the coop. 

Read the full Bain report.   

A swathe of startups are trying to inject artificial intelligence and privacy-preserving data sharing into outdated and shockingly ineffective know-your-customer and anti-money laundering processes. 

Three young startups just announced a cumulative ~$27 million in fresh funding in the past week to tackle financial fraud: Hawk AI, Sandbar, and Salv. 

While they all have slightly different approaches, they share the goal of using machine learning to flag anomalies that could indicate suspicious behavior or emerging threats, reduce false positives, and cut down on manual work.  

Ultimately, they also lower the risk of penalties and fines that have become all too common: ComplyAdvantage’s recent Financial Crime survey found that that a stunning 79% of respondents said that their firms choose to make AML violations and incur related fines as a cost of doing business. That’s up from 61% in 2020.  

The startups boast backers from the likes of Wise, Stripe, and Square, as well as clients like Visa. In the same vein, Insight Partners’ portfolio company Featurespace recently won government funding to use artificial intelligence to catch money laundering while protecting data privacy, while Standard Chartered is using tools from Chekk for real-time risk assessment and anti-money laundering. 

Banks are linking up with earned wage access firms, which let businesses pay their employees in real-time versus on a set schedule, as inflation and the labor market make it a “highly desirable” benefit.

Fintech DailyPay just announced $260 million in financing (a mix of credit facilities and loans) as earned wage access gains ground as a must-have benefit for workers in industries like retail, healthcare, or food services.  

DailyPay provides technology to both TD Bank and PNC and has “more partners to announce in the coming weeks,” head of communications David Schwarz told Insights Distilled, as relationships with financial institutions becomes one of its “pillars of growth.”  

Other banks have announced fintech partnerships to help their business clients buck traditional two-week pay cycles, too: US Bank works with Payactiv, JPMorgan works with Even, and Citizens Bank works with an unnamed provider.  

“The benefits of earned wage access are tremendous,” TD Bank’s head of commercial digital platforms, Paul Margarites, previously told Insights Distilled. “The operational impact to the employers is low overall. However, to the employee, it is potentially life changing.” 

Ultimately, DailyPay’s bank tie-ups align with the larger trend of financial institutions working with startups to launch unique or improved tools for their business clients.  

Always prepare for the worst: An attack on technology-plumbing provider ION underscores how crucial it is to have systems in place to keep markets whirring regardless of partner issues. Make sure your firm has preparation, documentation, and a path forward from disruption.  

The derivatives trading market was teleported back to the 1980s in the past week as London-based ION Trading succumbed to a ransomware cyberattack from extortion group LockBit. With ION’s software locked up, traders and brokers around the world were forced to manually process deals using spreadsheets, telephone calls, and their own ad-hoc software. 

The interconnectedness of the markets and the many partnerships involved means that firms must have backup plans and fallbacks in case of outages like ION’s, to avoid dramatic ripple effects. While the incident has caused difficulties and delays, it has not turned into a major contagion or systemic risk for the entire financial system, thanks to people’s quick adjustments.  

The moral of the story? Companies need to take the position that they (or their partners) will inevitably be attacked and form a plan for continuity and recovery that avoids significant damage. 

“Cybersecurity is a means to an end, but really, what you need is your business to keep going following a cyber incident,” James Hadley, CEO of Insight Partners’ portfolio company Immersive Labs, previously told Insights Distilled. After all, financial services is the most targeted industry for cyberattacks, according to recent research. 

“Many large financial firms may think they are immune from ransomware because of all the resources they have invested in security. But, even if your organization is well-protected, your partners and vendors may not be,” intelligence analyst Allan Liska at Insight Partners’ portfolio company Recorded Future told Distilled.   

LockBit said over the weekend that it received a ransom and unlocked ION’s files, but ION is planning to rebuild new infrastructure for its derivatives platform instead of returning to the previous system, according to The Trade News. 

While it’s still unclear how LockBit first gained access to ION, the group has used attacks like “spear phishing” or other “malware-as-a-service” tools in the past, senior security expert for Kaspersky’s global research and analysis team, Marc Rivero, told Insights Distilled. Firms should “ensure employees are aware of phishing attacks, malware in general, and other basics of cybersecurity” to protect themselves.  

ChatGPT – the AI-powered tool that can respond to prompts and queries in a human-like way – can help make vast proprietary datasets more accessible: Non-techies can get quick answers without relying on data scientists.  

Sweden-based EQT, which invests in technology, healthcare, real estate, and infrastructure businesses, is using ChatGPT to streamline the use of its extensive data platform, dubbed Motherbrain.  

The platform launched in 2016 and contains hundreds of millions of data points on companies, people, and their connections. Deal makers previously relied on the ~30 engineers and data scientists managing Motherbrain to access it and identify potential opportunities, but ChatGPT streamlines the process. Now, investors (and EQT’s portfolio companies) can query the platform directly and ask more open-ended questions. 

“Founders, for example, could ask ChatGPT to create a list of chief revenue officers who scaled their company to $50 million in revenue in London,” reports Insider.  

By making it easy for investors to benefit from Motherbrain’s extraordinary amounts of data, EQT is “trying to make cyborgs,” executive Alexandra Lutz told Insider. Combining workers’ instincts and connections with data access makes them better at their jobs.    

ChatGPT will likely play a key role for financial firms in the future, whether through collecting and analyzing client data, super-charging existing customer service chatbots, generating personalized financial management features, or aiding cybersecurity and fraud prevention. For now, EQT’s application of the technology is a great example of how it can create an impact in the near-term. 

US Bank wants to make it dead-simple for new customers to deposit their paychecks into its checking accounts, as FinServs vie for loyalty and people pick up new gigs.   

US Bank is partnering with payroll startup Atomic to save time for new customers (or those with a fresh side hustle).   

Instead of manually filling out routing and account numbers to set up a direct deposit, US Bank clients will be able to automate the process from within the bank’s website and app by searching for and logging in with their payroll provider. This speeds up an otherwise tedious routine, according to the bank.  

“Our new DIY direct deposit feature is yet another way we are helping our clients save time and simplify banking,” said vice chair of consumer and business banking Tim Welsh. 

Beyond new US Bank clients, the tool is particularly useful for existing customers who are picking up gig work or have just landed a new job, and early data shows that it’s already a popular feature.  

The bank evaluated several options before deciding to collaborate with Atomic, according to SVP and head of digital sales Jonathan Burns.  

“We were confident from the beginning that our combined team talents, backgrounds, and agile culture would power us to jointly succeed in breaking down customer friction and barriers when it comes to payroll deposit switching,” he told Insights Distilled. The feature builds on US Bank’s larger account opening initiatives, which allow people to digitally apply for checking accounts in minutes.  

Atomic is “actively working” with other large financial institutions on similar offerings, Atomic CEO Jordan Wright told Distilled, adding that there are clear benefits for banks of making deposit switching easy.   

Lower friction can lead to “higher direct deposit conversion rates, cost savings from maintaining unfunded accounts, and increased active usage and product engagement across bill pay and auto-payment,” Wright said. “All leading to deeper customer relationships and higher life-time value.” 

Small businesses have historically felt underserved by their financial institutions, which has led to an increase in efforts to offer tools like personalized analytics and business projections.

American Express just launched a new digital cashflow-management hub for its small business customers – called Business Blueprint – that builds off its 2020 acquisition of SMB lender Kabbage.  

The tool includes cashflow analysis, two years of historical transaction data, expense alerts notifying customers of increased spend, 30-day cash-balance projections, and an easy way to apply for products like credit lines. 

The tools originated with Kabbage, but have received enhancements and additional features since the acquisition.  

“Many of the core Kabbage team members continue to build this within Amex,” a spokesperson told Insights Distilled. 

The new hub fits with Amex’s “vision of becoming a digital one-stop shop for small businesses’ financial needs,” according to exec Anna Marrs. Trying to win over the SMB market has become a priority for a host of other banks as of late, sparking an influx of innovative digital tools and partnerships.  

For example, Westpac is working with Rich Data Co on AI-powered business loans, Standard Chartered has partnered with upSWOT on personalized tools for SMBs, US Bank has worked with an unnamed fintech to help SMBs predict their future cashflow, and Barclays is partnering with UK fintech Liberis to make cash advances faster and easier. 

Although quantum computing is still in its early innings, canny financial institutions are finding low-intensity outlets for experimentation and skills-building.

Credit Agricole’s corporate and investment banking arm has successfully completed two experiments that found that it could achieve “faster valuations and more accurate risk assessments” using quantum computing techniques. Quantum is an emerging computing paradigm that promises to perform calculations at blistering speeds.  

The bank initiated the two experiments – around valuing derivatives and anticipating the downgrades of financial ratings – in June 2021 alongside partners Pasqal and Multiverse Computing. It just released the results that it found the experiments to be “very successful.”  

“These two proofs-of-concept demonstrated the potential and reality of quantum computing for finance, despite these technologies still being in their infancy,” Credit Agricole exec Ali El Hamidi said. “We took advantage of this initiative to start developing the internal skills to prepare for a technological breakthrough which, if it happens, will have a direct and decisive impact on competitiveness in our sector.” 

Meanwhile, the likes of HSBC, JPMorgan, and Ally are also experimenting with ways to use quantum computing technology for their benefit, like improving speed and precision of risk analysis, while Banque de France is preparing to protect itself against encryption-breaking quantum tactics.  

Learn more about Credit Agricole’s experiments. 

The lack of trust and verification around carbon markets has historically sidelined big banks from allowing their clients (and themselves) to use carbon credits to achieve ambitious ESG goals, so a group of banks is providing $45 million to build better infrastructure. 

Banks need a better carbon credit transaction network, so they’re building it themselves.  

BBVA, BNP Paribas, CIBC, Itaú Unibanco, National Australia Bank, NatWest, Standard Chartered, SMBC, and UBS formed and have now funded Carbonplace in order to make carbon markets more transparent, secure, and accessible.  

The platform, which will launch publicly later this year, will connect buyers, sellers, registries, and exchanges with real-time information sharing, due diligence tools, and simplified reporting. The banks liken it to the ubiquitous bank-to-bank messaging platform SWIFT, and say that it’s already successfully piloted trades. 

Carbonplace represents a major push by a handful of big banks to have a hand in the future of carbon credit trading and, ultimately, corporations’ transition to net zero greenhouse gas emissions, as sustainability continues to be a hot topic for regulators and corporate boards alike. Similarly, Bank of America and Goldman Sachs just joined a funding round for environmental markets platform Xpansiv.