editions

As investors ride the wave of index-linked funds and increasingly demand more sophisticated and customizable investment indices, MerQube’s technology is gaining attention.  

Indexing technology firm MerQube just raised a $22 million Series B funding round led by Intel Capital, with participation from Allianz Life Ventures, Citi, JPMorgan, and UBS.  

The company’s data processing abilities allow it to deliver rules-based investment products – based on strategies like defined outcome, risk control, or themes like ESG – more quickly and cost-effectively than traditional players.  

“Today’s legacy systems struggle to keep up,” MerQube’s chief commercial officer, Roby Muntoni, told Insights Distilled. The firm “fills that fintech gap with a building block-based architecture and cloud-based platform that enables these next generation indices,” she added.  

The new investment from and partnership with Allianz will help MerQube tailor its solutions for the insurance space (for example, by launching financial products to help manage retirement risk).

Ultimately, having FinServ investors helps MerQube align with the necessary requirements to woo investment banks, according to Muntoni: “The MerQube team is grateful that the majority of its investors are also clients.” 

Repurchase agreement (repo) post-trade services are currently fragmented, complex, and inefficient. Barclays wants to push the industry to come together on better tech solutions for all.

Barclays is hosting a “RepoHack” event in London this fall to prod the industry to collaborate on better data and technology architecture for repurchase agreement (repo) post-trade services.  

Right now, market participants each build, operate, and maintain their own individual repo trade management infrastructure, but Barclays is pushing adoption of the Fintech Open Source Foundation’s common domain model (CDM) standards.  

The hackathon will bring banks, fintechs, and infrastructure firms together to prototype solutions for consistent, accurate data exchange. Applications are now open, and the event will take place at Barclays’ London office in September.  

“This will be an opportunity to transform the industry by using and improving standards that the entire industry can get behind,” Barclays executive Lee Braine told Finextra. “Something like this enables participants to experiment and discuss with peers what is happening at the cutting edge of the space.”  

Not engaging is not an option: Financial institutions have realized that the best way to approach a still-developing technology like quantum computing is through lightweight tests and building internal expertise. 

Another week, another quantum computing announcement: Truist and IBM just launched a new partnership to help the bank prepare for the future of quantum computing.  

The accelerator program will help Truist train internal experts and start running tests that will eventually help it “leverage these new technologies to the fullest potential,” according to bank CIO Scott Case.  

This announcement comes hot on the heels of a similar initiative from HSBC. While quantum technology is still at least several years away from being ready for primetime, the overarching strategy for banks is simple: Prepare now or suffer the consequences later.  

The biggest risk of ignoring quantum computing is the security threat. Experts expect bad actors to wield quantum to break existing encryption, so FinServs will need to use the same tech to defend themselves. Meanwhile, banks are also eyeing the benefits it could bring for risk assessments, portfolio optimization, or rewards programs.  

As JPMorgan executive Marco Pistoia put it to American Banker last year: “We realize that if a company doesn’t do anything about the market right now, and just waits for quantum advantage to become a reality, when quantum advantage becomes real, it might be too late.” 

Read more of Insight Partners’ perspectives on the challenges of quantum computing and how firms are approaching it. 

Creating teachable moments in virtual reality can lead to immersive, focused, and memorable training programs for bank employees, which are ultimately more effective than the status quo of boring instructionals. 

Bank of America has ditched written guidelines and online videos for some of its most crucial employee trainings. 

Instead, the bank uses virtual reality technology to immerse employees in 3D environments where they can practice skills and build knowledge in real-time. A new Bloomberg feature highlights how the trainings are more effective and memorable for workers.  

For example, one of the bank’s training modules mimics a bank robbery, where employees must respond to having a gun pointed at them or being passed a threatening note demanding money. They’re coached and then given the opportunity to act out the scenario in VR.  

“When you’re in VR and you’ve got someone pointing a weapon at you or screaming at you, asking you to do something, it’s somewhat duplicating that feeling that you would have in real life, because of the level of immersion,” Bank of America SVP Mike Wynn previously told Insights Distilled. “I want someone to feel a little anxious or a little nervous in a fake environment, because I don’t want them to feel that way for the first time if it ever happens to them. That’s why VR is so powerful as a modality, because it gets you to feel as if you’re in that moment, so that you can develop some level of muscle memory.” 

Other banks have crafted their own experiments with VR and the metaverse, too: Sociéte Générale and Deutsche Bank host client presentations in virtual reality, while BNP Paribas lets its users check their account activity and transaction records in VR.  

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. 

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.

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. 

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 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.

Investing in young fintechs can help FinServs in both tangible and intangible ways: It can drive incremental efficiencies and allow them to imagine the evolution of banking.   

New research from benchmarking firm Evident AI shows how banks’ corporate venture funds are making waves in artificial intelligence investing. 

Of the 60 largest North American and European banks, five US banking giants – Wells Fargo, Goldman Sachs, First Citizen, Citigroup, and JPMorgan Chase – were responsible for almost 50% of industry deals between 2017 and 2022. These heavy-hitters are building themselves a significant advantage, according to Evident.  

“Pulling the different levers of AI innovation not only helps to drive efficiencies in day-to-day banking operations, but it offers a map to the future of the industry and the opportunity to fundamentally reimagine what it means to be a bank,” according to Evident AI cofounder Alexandra Mousavizadeh. 

A previous Evident AI study found that JPMorgan has snapped up more AI-focused talent than 22 other big banks. 

For more on banks’ AI patents, open source projects, and partnerships find the full report here.