Shadow banking: a platform for innovative financial services

Shadow banking has become a focus of media in the last years, with many headlines on its growing size, its supposed incomprehensible structure and how it was superseding the existing banking system . This view has often been biased toward rejection and misunderstanding. After all, one can argue an independent hedge fund has a better aligned risk-reward structure vs a tax payer propped up bank. (yes, this is an extremely pro-biased view, yes there is a question of size and systemic / structural impact)

Interestingly, the development of shadow banking (broadly) is one of the fundamentals in the development of innovative financial services. A very good example is LendingClub in the US. Structurally, Lending Club is an important securitisation company in the US. Each of the p2p loan is an unsecured obligation from LendingClub with the lenders being the pool of investors. Structurally, it fits very closely the definition of shadow banking.


Other models are being explored, receivables based lending companies are structured using multi compartiments funds, crowdfunding platforms use multiple limited partnerships to simplify the impact of many shareholders on startups (see Fundersclub)

The development of prepaid products as a replacement of banking products can also be seen in the same light. In Europe, for example, the emoney licence is one of the leading platform for innovative financial services. The recent announcement of the Mangopay platform by Leetchi, on the back of of their acquisition of an emoney licence in Luxembourg proves it. In no way this would have been possible if they had pursued a full banking licence.

What is next? There is a risk that the regulator (under various pressure) will want to further restrict these structures (in the name of protecting the consumer). We may see this happening in the US where bank charters have become harder to acquire (Acquiring a bank charter is way harder in most European countries – ask Metrobank)

On the surface, the regulators might be satisfied with this, because the fewer the banks, the more healthy the remaining financial institutions. But this is a fallacy of epic proportions. The lack of bank charters is creating a myopic ecosystem, whereby existing banks — whether they are qualified or not — have an ever-reducing impetus to innovative or improve their service to  customers. Why regulators would want that is beyond me.

I think it is in the best interest of the market if regulators where trying to open the bank market, making it easier to acquire a bank charter (even if limited in some forms in the beginning). Its already fascinating to see the services born out of shadow banking structure, it would be even more interesting how entrepreneurs would leverage a bank charter.



Bank hacking: power to the financial services makers

With the Maker Faire movement growing over the last few years, Hardware hacking has finally been making the headlines. It is one of the root causes of the recent startup hardware trends that are also fueled by platforms such as Kickstarter. What is interesting to me is that independent, smart  and techno savy people put the same effort in building hacks around financial services to make them fit. It’s not always pretty, but it gives strong indication of where things could be going.

Hacking hardware. For people living in a card contactless environment, getting to one platform via mobile can’t happen soon enough. The solution? Cutting and soldering.

From this post on RFID transplantation in Singapore.


Rooting Android to support more NFC scenarios. Cherian Abraham has an excellent post on the limitation of NFC in native Android (linked to a controlled Secure Element) and how a rooted Android Environment can help make NFC more open for payment for example with SimplyTapp

SimplyTapp appealed to an early segment of Android enthusiasts who abhorred having been told as to what functionality they are allowed to enable on their phones – by Google, Carriers or anyone else. And to any who dared to root an NFC phone (supported by CyanogenMod) and install the Cyanogenmod firmware, they were rewarded by being able to use both SimplyTapp as well as GoogleWallet to pay via NFC – the former where credentials were stored on the cloud and the latter – within the embedded SE.

Scrapping Personal Banking Data. Truth is, it’s not easy to acces your own banking data. Most of the bank websites have an average to bad UI, non-existing archiving functionalities (being upgraded to 9 months archive is considered amazing) and API access does not exist in 99% of the cases. If you want to automate movements between your bank accounts, get your bank account balanced pushed by email to you every morning then start by building your own scraper: . You can also find wrappers to access swedish banks: and many more.

Bank account simulation I was looking for more of these examples and I am sure they exist as this is an area where I expect an increase in interesting work. Accounts management is currently a very manual activity and there is no reasons it will not become automated in the future. 

In my view the financial services industry should keep a close eye on the fringe of banking personal hacking. These are early signs and indicators of major trends and innovative services. Hacking challenges, idea crowdsourcing, clients on-boarding are essential tools for the future bank.



2013 – First Notes

2013 starts very strong and time is already a precious resource. Some notes on what I am interested in:

– Redefinition of Employment: 
Crisis may recede, but long term changes to employment structure will not. Rise of the Robot Economy.…
Information employment less stable (as detrimental to knowledge expansion)

Possible impacts: Underwriting, Lending Structure

Robots distrupt music (courtesy of parkparadigm)

– Redefinition of Ownership: 
As employment is less stable, alternative source of revenue in leveraging existing assets. Compounded with diminution of Marketplace costs. Implies rise of the Sharing Economy / Collaborative Consumption:…

Possible impacts: Underwriting, Lending Structure, Redefinition of Merchants and their Financial Services, Increase importance of Insurance

– Redefinition of Commerce
Physical Goods becoming Digital (books as best example), Distribution of remaining Physical Goods becoming mostly Digital. Physical distribution frictions reduced for Advice to compete.

Death of the existing physical retail structure:…

Possible impacts: Acquiring and POS systems, Risk Management, Payment Pricing Structure, Digital Pricing, Real Estate Financing, Currencies

– Redefinition of Production
3D printing, direct sourcing in Asia, lowered production costs (?). Will we see same change in hardware startups as in digital startups?

Possible impacts: Alternative forms of financing, Embedding of id and payments, International Payments and FX, Escrow services

– Rise of Alternative currencies
Gap between existing currencies, underlying payment/compensation systems and digital age potential is becoming too important to remain for a long time. While existing and imperfect payment methods are commoditized, alternative currencies will strive on their capacity to challenge existing status quo of imperfect payment.…

Possible impacts: Payment, Merchants, Risk Management, FX, …

Fortune 2.0 – small assets management

I have highlighted in the past several major trends affecting financial services :

– Digitization of transactions, especially receipts from purchases.

– Improvement and democratization of marketplaces, lowering the cost of liquidity on transactions

– Improved leverage of assets from the emergence of collaborative consumption (Airbnb, Getaround)

Private Banking is sometimes offering to their high net worth clients the management of both their financial and non-financial assets. Is a similar approach possible for retail clients?

Continue reading Fortune 2.0 – small assets management

World Usability Day 2012 – Financial Services

I had the opportunity to present in Geneva for World Usability Day. Here is the Prezi of my talk, unfortunately not recorded. This is a summary of some of my previous posts in Usability in online banking and why using Accounting design as the framework for usability is wrong.



The second presentation was a summary of a study made by Telono on the Mortgage Calculators in various Swiss Bank websites. Here is a quick video extract. The person on the left is tasked with finding the Mortgage Calculator. 0:11 is priceless.

Apologizes for the really bad framing

Square: from Dongle to Domination

I had the opportunity to write an opinion/profile of Square for the SIBOS edition of Informilo:

Here is the introduction and link to the full piece:

“In 2008, glass blower James McKelvey was unable to complete a $2,ooo sale of his glassware because a customer could only pay by credit card. Frustrated, he discussed this with a friend, Jack Dorsey, the founder of Twitter. By the summer of 2009, Dorsey had prototyped a dongle and soon after, Square launched as a payments start-up targeting mainly the unservied micro-merchant space.

Fast forward to 2012. Square’s recent capital raise of $200 million implies a $3.25 billion valuation. Its valuation quadrupled between January and June 2011 and then doubled over the past year. This latest capital raise implies around 30x – 40x estimated revenue. In contrast, payment companies tend to be valued between 3x and 5x revenue multiples. What does this mean for the industry?” …

Full content here  Let me know your feedback in the comments.

Should people manage their bank accounts? No!

One of the points raised many times at Next Bank Europe is that banks should give better tools for people to manage their accounts and finance. Actually, when asked, most people want to be able to better manage their bank accounts.

However, maybe this is looking at this problem through the wrong lens. Actively managing my own finance is a social holy grail. Amazon has at least 14,000 references for Personal Finance Management. TV shows are devoted to educating people on better personal finance management.



What is more surprising is that personal finance, accounting are rarely taught to children and studied in school. Society sets proper personal finance management as a key life goal but does little to equip people with this taskIt’s no surprise that people’s finances range from well-managed to sub-optimal (too much cash on checking account for example) to catastrophic.

But the focus put on Finance Management has another consequence. It constrains the problem of building a better bank to a very specific framework. For people to better manage their finance, banking innovators believe they should make their various products more transparent and easy to use. What if the question was: should people even use these tools? Continue reading Should people manage their bank accounts? No!

Alternative currencies: as good as their entry/exit points?

With the lasting economic crisis, in Europe and the rest of the world, the focus on alternative currencies seems to have increased. For example the Wall Street Journal has covered extensively the development of such currencies in Spain:

Another famous example is the Brixton pound.



At the same the dramatic reduction in IT development and infrastructure costs powered by open source technology and cloud services has allowed an explosion of alternative digital currencies. From Time Banks to Reputation Currencies to new currency systems such as Bitcoin, via other solutions like Clearbon, Kurrenci. The lowering base cost of the digital economy is affecting digital currencies as well. Continue reading Alternative currencies: as good as their entry/exit points?

Swiss New Finance Conference – Bern 08/23/2012

Time to dust off my German and start learning Swiss-German (not that similar … at all). I have the opportunity to attend the Swiss New Finance Conference which covers the following:


A lot of the topics cover funding innovation, notably via Crowdfunding. I am looking forward to learn more from C-Crowd, which as developed a legal crowdfunding solution in Switzerland. Now that they have several projects funded, I am curious to learn more how the companies manage large shareholders base.

I am also interested to learn more from the Open Bank Project. An API standard for bank connection is definitely an integral part of Banking as a Service. Whether individual solutions (such as the one created by Credit Agricole, Axa Bank for example) or standard project such as Open Bank will ultimately succeed is not sure (in my view), but they contribute in pushing this agenda.

Also interesting is the presentation from Pelle Braendgaard. I have followed Pelle on Twitter for a long time ( @PelleB ), if you are interested in innovation in financial services, this is definitely an account to add.

Finally, I am keen to get the latest update from the guys of Shareleap , they are trying to reinvent shareholders’ relations, a rather big and important problem.

Might never know, maybe some of you will be here  (… Bern …. in August …. ) > happy to meet if this is the case!



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