High Five! The five fintech stories we’re following this week

5 trends we're tracking in finance

Not a great year for incumbent share prices

2016 hasn’t been kind to big bank share prices, which have plummeted by nearly half a trillion dollars since January. A number of issues are at play here – the Chinese economy, U.S. interest rates, oil prices, and yes, Brexit (more on that below). The concern is that these losses could trigger a cycle of bank executive inaction and bank employees selling their stock. 

Yes, we still need to talk about Brexit

Britain’s decision to leave the EU is still reverberating through the finance industry. The long-term impact of the Leave vote on UK finance/fintech is largely uncertain, though this has not stopped finance experts and reporters from adopting the dystopian lexicon of a young adult novel to describe Britain’s impending financial doom.

Whatever the gloomy short-term effects of the referendum, long-term the future doesn’t look so bleak: the $30b mega-merger between the London Stock Exchange and Deutsche Börse is still going ahead, and the two companies still expect to deliver cost savings and revenue synergies worth a combined $780m a year after five years.

New and improved

Thanks to the explosion of fintech, incumbents are no longer the only financial service providers in the economic pond. As a result, banks are being forced to deal with a new reality in which owning the entire value chain isn’t really such a good thing.

Some incumbents are rolling with the changes, not only by rebranding but by transforming the products they offer and the way in which they communicate with their clients. Travelex, a 40 year old foreign exchange company that realized that whatever the future of payments is, it ain’t cash, went through a massive redesign to make digital its core. Its first product, Supercard, frees its users from foreign transaction fess and unfavorable forex rates.

Stateside, national bank TCF Bank rolled out ZEO, a suite of services that partners with Western Union to provide quick and efficient access to and transfer of funds. For the unbanked, ZEO is a godsend – you don’t have to bank with TCF to use ZEO, but you still get the security of the bank and can get expert advice from a banker. 

Professional investors are tooling up

Professional investors are using new technology to make themselves relevant (and cool) once again. Point72 Asset Managements’s marketing weapon of choice is social media, and it’s using LinkedIn, Facebook, Google+, Glassdoor and soon Twitter to aggressively pursue traders.

Meanwhile, legendary hedge fund Renaissance Technology is taking on high speed traders through the patented the use of atomic clocks, which will sync orders to within a few billionths of a second. Talk about radioactive.

Alternative SMB financing solutions are becoming mainstream

The SMB online lending marketplace is heating up, with old and new players aiming for a piece of the SMB loan provision pie. On July 7th, online payment lead PayPal announced that it had provided $2 billion of funding to 90,000 SMBs globally through PayPal Working Capital – its small business finance program.

Though $2b and 90,000 SMBs might seem paltry compared to Wells Fargo’s $40b (of a 5-year $500b lending goal), these numbers show that PayPal is serious about entering the SMB loan market. What differentiates PayPal’s SMB loan model is that repayments are applied automatically as a fixed percentage of daily sales that the business owner selects in advance; thanks to this proportionate system, business owners don’t have to live in dread of their loans.

PayPal isn’t the only innovator trying to make itself heard in a space that’s becoming increasingly crowded. Credit mogul American Express will be rolling out a new online loan platform later this year, and from the release it sounds like they’re aiming to win the marketing battle with supply chain financing.

Orchard’s eagle-eye take on the online SMB/consumer loan market is that it’s an attractive and stable yield opportunity – no doubt we’ll see more incumbents jumping on this loan wagon in the near future.

TCF Bank is reimagining the value chain with ZEO

In a world of changing customer tastes, incumbents have to keep their financial services menu fresh in order to ensure that their customers stay loyal and bring their friends (“You must try this budget management tool. It’s simply divine”). This is especially the case with retail banking, a crowded space that is populated not only with traditional banks but with a slew of alternative banking solutions such as online banks, digital wallets, and peer-to-peer payment apps, all of whom are clamoring for bank customers’ attention by making it oh so easy to bank and pay on the go.

TCF Bank, a national bank holding company based in Wayzata, MN, wanted to devise a centralized platform that would make it simple for customers to manage their money. It wasn’t a matter of being threatened by upstarts – TCF has approximately $21.3 billion in total assets and 376 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, South Dakota and Indiana which provide commercial and retail banking services.

Rather, TCF listened to its customers, who felt that they were sometimes forced to look elsewhere – say retailers – to access and transfer money quickly and efficiently. TCF’s answer to this problem was ZEO.

Meet ZEO

ZEO is a suite of financial services, which include cash checking, savings account, money transfer, bill payment, and money order. Like Greendot and Card.com which make the card the hero (and not the bank account), a salient feature of ZEO is in fact its prepaid debit card. However, you don’t need the prepaid card in order to take advantage of ZEO’s other services. If you sign up for ZEO, you can do everything else in the suite without needing to get the card.

ZEO is a convenient one-stop shop for customer money-management, but it’s also a bold statement. Two unique product attributes indicate that with ZEO, TCF is distancing itself from traditional vertical integration (owning the entire value chain) towards a model which facilitates multiple service providers collaborating on a single value chain.

ZEO doesn’t own the customer

In a bold move, TCF doesn’t require ZEO holders to bank with TCF. With ZEO’s debit card, for example, after a one-time $4 purchase fee, an additional $4 monthly fee, and at least $25 deposited onto the card, customers – from the unbanked to those who bank elsewhere – are good to go.

“A strong, stable retail bank is an important component of our business strategy,” says Geoff Thomas, Managing Director of Customer Segments and Alternative Channels for TCF. “ZEO helps us maximize our retail branch footprint and increase revenue from this real estate … Core deposit growth in the retail bank, like we’re receiving with ZEO, helps to fund lending growth.”

However, Thomas is convinced that ZEO’s critical transactional products will be a catalyst for cross-selling TCF’s other money management services.

ZEO is about collaboration

A partnership with money transfer leader Western Union means that ZEO users can transfer money and pay bills in the flashiest of flashes. At the outset, this partnership seems puzzling, since Western Union competes with banks to provide money transfer services.

However, Thomas concedes that as far as TCF is concerned, Western Union is still the most effective way to send money internationally. “Our customers are getting these services elsewhere,” Thomas admits. Thanks to this collaboration with Western Union, “ZEO ensures [that customers] can complete all of their transactions at a branch in a simple, quick way.”

For unbanked individuals, TCF’s inclusion of Western Union in the ZEO package has significant benefits. With ZEO, the unbanked can manage and access their money in the safety and security of a bank without needing a bank account, and have the option of consulting with banking experts to boot.

Yes, ZEO is very much about millennials

It should come as no surprise that ZEO targets millennials. After all, millennials are increasingly turning towards non-bank solutions to manage their money. To TCF’s credit, ZEO shows that the financial institution is adapting to millennial expectations.

“More than half of our total transaction accounts are opened by millennials,” says Thomas. “They grew up in the ‘gift card era’ and they are very comfortable using prepaid cards, in some cases, preferring them to traditional banking accounts.”

Though alternative banking services abound and general purpose reloadable cards are becoming mainstream, ZEO is proving itself to be a worthwhile investment for TCF. According to Thomas, the market has responded favorably towards ZEO. For existing customers, the service has certainly been a boon: “Many of our customers share that it now is easier with ZEO because they can conduct all of their banking transactions in one location with the expertise of a banker.”

Photo credit: markus spiske via VisualHunt.com / CC BY