It’s no secret that investment in FinTech companies has gone parabolic in recent years—jumping more than 3x between 2013 and 2014 to surpass $12 billion—transforming not only the back office functions of the financial services industry, but reinventing how the rest of us interact with our money on a daily basis.
Accenture has called FinTech—particularly those startups that deal in consumer lending, payments processing, and commercial lending—one of the most promising industries of 2015, and Goldman Sachs has estimated that startups in the space could eventually siphon off as much as $4.7 billion in annual revenue from the traditional financial services players. Venture investment in the sector grew by more than 200% globally in 2014, compared just 60% in the venture funding space overall, with the size of those first-round checks jumping by an impressive 48% in just one years’ time.
The FinTech sector currently enjoys a lighter level of regulation than more traditional financial services providers, in part because the oversight agencies are still trying to sort out just what makes a “FinTech” company a “financial services provider” and how, if at all, they should be handled differently than banks, brokerages and all the rest. This will have implications for not only the established banks, but also online brokers like TD Ameritrade and E*Trade, which straddle the line between traditional financial services firms and FinTech. Even though they’re tech trading platforms, they’re still registered U.S. broker dealers and are, as such, subject to the Securities Exchange Act of 1934 and all of the various rules set out by the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
The concern for many in the larger financial services industry is that FinTech start-ups still aren’t playing by the same rules that the rest of the traditional banking sector has to deal with. That’s given the tech upstarts an effective advantage against their entrenched (and well-funded) competition that has helped them get established, but as the market matures it is starting to look and feel like an unfair advantage.
“We want to make sure we have a level playing field,” Rob Nichols, the president and chief executive of the American Banking Association told CNBC when asked about the potential for FinTech regulation in 2016. “This is a rapidly growing area where people are going to receive their financial products and tools in a very different way. We want it to be more efficient and effective. We need it to be safe and secure … there are cyber implications and security implications.”
For regulators, these new startups are a different animal in large part because they are using technology to beat the banks at their own game, taking their products and services directly to consumers. The questions now are “who should be able to provide financial services or products?” “Can the low start-up costs that have lead to these new businesses exist with compliance costs?” And, “can regulation even keep up with the speed and agility of these new business models?”
“These future issues impacting (the) banking sector are really big and important,” Nichols said. “One is this issue of FinTech and rapid convergence of banking and technology products. You know, I know, that my children are going to receive banking products in a way very differently from the way (we do now). I don’t know exactly what that will look like, but there will be regulatory implications there that we need to think about. This whole issue of mobile, you know there is so much that is going to the phone and to the smartphone. What will that look like in five or 10 years? What impact will that have on the banking sector?”
And with new compliance standards come new risks for all involved, too.
Writing in The Washington Post, author Larry Downes said that many of the traditional financial services companies that he works with have been openly complaining about start-ups in the industry that don’t have to play by the same rules as the rest.
“But as we’ve seen in industries as different as transportation (Uber) and hospitality (Airbnb), it’s a short step from envying the start-ups to applying pressure on the regulators to throw the book at them — even when doing so kills innovation consumers want,” he writes. “Banking incumbents have likewise become adept at turning regulations that slow their own innovation into effective barriers blocking FinTech startups from launching new products and services.”
Of course, not all regulations are bad. They exist for good reasons, are usually drafted with the best of intentions, and, love them or hate them, are simply a fact of life in the financial services industry. FinTech is no exception. (In fact, many FinTech companies have been pushing for increased government oversight of their activities for years, if for no other reason than to remove any potential ambiguity about what changes might be coming.)
What to expect
Like it or not, increased regulation is on the way.
And the industry knows it. According to a November 2015 survey by Silicon Valley Bank, pending regulation is the number-one concern on the mind of FinTech executives, accounting for 43% of responses.
What they don’t yet know is what those regulations are going to look like or how they will be enforced. The only thing that is clear is that change is coming. There are some educated guesses out there, though.
Here’s what is keeping FinTech leaders up at night:
One of the key advantages that many FinTech companies enjoy is an ability to reach a global customer base and not be limited regionally like a brick-and-mortar bank would have been. This is simply a fact of life on the Internet; your reach is worldwide.
For financial services firms, however, global operations can be an extra headache, introducing differing (and in some case, conflicting) standards between countries and jurisdictions. For years, the answer has been to establish operations in some areas and not in others, simply avoiding the issue.
But FinTech doesn’t have this option, for the most part. Since it can effectively be everywhere it faces tougher hurdles in NOT being everywhere. That’s why many in the industry expect to see new, global standards that apply to financial technology firms in the near future. This would not only clarify what FinTech firms can offer and where, but how regulators across countries deal with these new technologies.
New licensing requirements:
As it stands right now, establishing a new bank or financial services firm in the U.S. is a fairly straightforward process. You identify your market, gather the necessary capital, apply to the necessary regulatory agency and, once approved, open your doors for business.
The trouble for FinTech companies and other nontraditional lenders is that the regulatory step still is not very clear for them. Not only do they know how to shoehorn them into compliance with rules that were not designed with their business models in mind, the regulators don’t know what to do with them when they cross their desks. These new providers don’t fit the traditional mold of what a “bank” or a “financial services provider” should look like, so they can be difficult to regulate under existing rules. This isn’t working for anyone.
The best-case scenario is that this confusion simply delays a FinTech start-up’s application with the agency. Worst case, regulators shut them down before they can even get to work, simply because they do not have a way to understand or rate their business. New, FinTech-specific requirement should help alleviate this hurdle.
Capital levels first came to wide public attention following the 2008 market crash, when government regulators began calling for stricter capital controls and tighter cash-on-hand requirements for the so-called “too big to fail” players. For FinTech companies, however, these requirements don’t exactly make sense.
For example, a bank may be required to hold a certain percentage of its capital in reserves by its regulators in order to prevent it from taking on too much leverage and putting its deposit accounts at risk. But how would these regulations work with a peer-to-peer provider like Lending Club, whose “capital” only really exists in the form of the loans it facilitates between individual lenders and borrowers. Is Lending Club a bank or simply a platform or digital service? Expect clarity on these issues soon.
And of course there are always taxes to think about. In the U.S., banks and financial services firms pay taxes on any income just like any other corporation. The same holds true for FinTech firms—in fact, taxation is one area where fintech is pretty much on the same level as the rest of the industry—which are taxed on their corporate profits.
But, again, the technological business models being created by FinTech firms introduces some confusion. By facilitating loans between private individuals and borrowers, should Lending Club be taxed solely on the fee income it generates (as it is now) or should the investment returns on its platform come into play? Is it a bank or simply a platform?
The FinTech sector will most certainly continue growing in 2016—likely at the same breakneck pace—but what the regulatory landscape surrounding the industry will look like a year from now remains to be seen.
What do you think? What potential regulatory changes do you see for the FinTech sector in 2016 and beyond, and which, if any, concern you the most?
We are proud to annonce that our very own ETNA Trader has been selected among the top FinTech firms for ALPHA Class at the Web Summit 2015 in Dublin, Ireland. Meet the ETNA Team at stand number Downtown in the D196 Area on Day 1 of the event, Tuesday, November 3 (A map of the venue can be viewed here)
Web Summit is called “the best technology conference on the planet”. It is also one the biggest tech events of the year, “where the Tech world meets”.
22,000 attendees from Fortune 500 companies to the world’s most exciting startups
800 world renowned speakers
200+ satellite events,
800 of the best tech journalists.
The ALPHA class is a prestigious program giving a chance to the most innovative startups to exhibit at the 3-days event and to meet the best international media, investors and corporates.
The who’s who of the tech world will be attending and we’re thrilled to join the global community of innovators. Along with the live demos of the ETNA Trader, we will be providing onsite consultations on using ETNA’s API for FinTech startups.
We are looking forward to meeting you at the Web Summit. To schedule a conversation or an interview, send us a message and we’ll get back to you shortly.
ETNA is proud to see 2 our partners Tradier and qbeats among demoing companies at a recent FinTech Startups Meetup on September 2,2015.
Tradier is a financial services cloud provider that offers the first brokerage API to serve platform providers. The Tradier solution features an innovative set of fully hosted API’s, modules and “out of the box” tools that are leveraged by a growing list of providers.
ETNA and Tradier has been partners since early 2013 when ETNA provided key software components to accelerate Tradier’s product launch.
We are impressed with Tradier’s success and excited to watch their client base growing daily.
qbeats is a content valuation system that dynamically prices information and provides robust tools for monetization. Its flagship product Winqs is a content delivery solution that enables traders to access a wide array of premium news and research, on a pay-2-read basis with no subscription required.
Joel Kandy, VP of Business Development at qbeats shows winqs widget in ETNA Trader
Winqs was one of the first widgets integrated into ETNA Trader platform, making it possible for ETNA clients and prospects to purchase relevant pieces of premium financial content without a subscription.
Other demoing companies were:
Inovance – cloud-based, big data analytics platform, TRAIDE, allowing retail and professional traders to easily discover profitable entry and exit signals
Polly Portfolio – personal wealth management platform which empowers individual investors with institutional-grade investment technology.
yhat – data science technology company that provides tools and systems that allows enterprises to turn data insights into data-driven products.
ETNA will be making its way to Charlotte, North Carolina for the FinCon 2015 expo and we’re inviting you to join us! The event will span September 17th-18th and will attract the likes of FinTech companies, media outlets, brokers, traders, and anyone interested in Finance or Media.
You can find ETNA booth at the Expo Hall open on Sept 17 from 1 pm to 4 pm and Sept 18 from 10 am to 4 pm. ETNA Team will be doing live demos of the ETNA Trader Application Suite, giving free personal consultations for anyone looking to enhance their business by offering the cutting edge in web based trading technologies.
To schedule a meeting while we’re there, send us a message and we’ll get back to you shortly.
ETNA is the creator of ETNA Trader, a white label and web based trading platform used by brokers, developers, and trading firms. Along with an HTML5 based front end, we have iOS and Android mobile apps that accelerate our clients time to market and enable new business opportunities.
FinCon is a peer conference for the money media community. At the annual event each Fall, attendees connect with others in the community, learn to create, promote, and profit from compelling online content, and discover new trends in personal finance and investing. Originally called the Financial Blogger Conference, the event was shortened to simply “FinCon” to reflect changes to the scope of the attendees.
Meet us at Booth #231 for onsite demos of ETNA Trader, a next gen white label online trading and brokerage platform for broker dealers and FinTech firms.
ETNA Trader features customizable HTML5 front end, mobile trading apps, OMS and cloud back office with user accounts management, risk and regulatory compliance.
ETNA’s affordable leasing plans help brokers to attract new users, increase users retention and stay competitive by offering best online trading experience available on the market.
FinTech, companies launching new software products, use ETNA Trader both as an all-in-one HTML5 trading platform or as a foundation for new products. Our partners rebrand the platform and build their unique offerings on top of it, focusing on their main idea rather than the underlying technology.
Stop by and take a look at the future of online trading technology. ETNA booth #231 will be open on June 3 from 10:00 am to 5:30 pm and June 4 from 8:00 am to 3:15 pm at the Navy Pier, Chicago, IL. For more information about ETNA’s product and services, please visit www.etnasoft.com
Share and stay connected with us for industry news and company updates
Add To Calendar06/03/2015 10:00 AM06/03/2015 05:30 PMAmerica/ChicagoThe Trading Show Chicago 2015The Trading Show Chicago 2015, ETNA booth #231, June 3-4, 2015 at the Navy Pier, Chicago, IL.Navy Pier, Chicago, ILfalseMM/DD/YYYY
ETNA will be exhibiting at the upcoming Benzinga Fintech Awards Gala on Wednesday, April 8, 2015 at Tribeca Three Sixty, New York. This is a FinTech event hosted by Benzinga to honor the best companies within the industry.
As a leading technology provider for the financial services industry, the ETNA team will be showcasing its cutting edge technologies for capital markets. Meet us at booth #7 for the live demos of ETNA Trader, a white label, HTML5 web and mobile trading platform that features customizable front end, mobile trading apps, OMS and cloud back office. The platform is designed to be easily customized for broker dealers, trading firms, FinTech software vendors and services providers.
For companies looking to launch new financial software products or upgrade their existing trading environment, ETNA’s team will be speaking on how ETNA Trader can be utilized to shorten their route to market and save precious time and money.
Let’s talk! Join us at the Benzinga Fintech Awards Gala on April 8, 2015, 4 to 9 pm at Tribeca Three Sixty, New York. For more information about ETNA’s product and services, please visit ETNA.
Share and stay connected with us for industry news and company updates
Aside from the blessedly lucky and those who are fortunate enough to have a mentor, becoming a successful trader requires going out of your way to get educated. Trading without a plan has another name: it’s called gambling. Luckily there is an entire industry dedicated to helping beginners learn the art of investing. Trading education can be expensive and there are many different options to choose from, but the latest trend in virtual trading that goes above and beyond the “demo account” may be the most promising and exciting.
Forget about blindly trusting the latest technical indicators or putting your money on the line based on some fancy algorithm/system that takes all the thinking out trading. There’s no substitute for experience in trading and learning from an experienced trader is a great way to master the basics and learn more advanced techniques. In order to trade successfully, you have to truly understand how markets and trading works. Real traders know there’s only one way to learn how to trade successfully, and that is to actually make trades; “The game teaches you the game.”
Where are people learning today?
A quick Google search reveals thousands of websites offering trading education. Websites such as TradingAcademy.com have thousands of graduates successfully trading the markets. Even the most high quality investing conventions, such as MoneyShow, have no shortage of trading experts with proven track records offering their services as coaches. Everywhere you look, each offering claims to be the best choice, so how can you actually differentiate one offer from another in this large market? One thing to consider is what is unique about their offering.
One way to get experience without risking money before you’re ready is paper trading. In the beginning, novice traders would literally write down their hypothetical trades on paper and calculate how they would’ve done if it was a real trade. Today, most online brokers offer “demo accounts” that allow you to use the actual trading platform but with virtual “monopoly money.” Most trading courses will teach you their way of trading and then tell you to try it out on a demo account if you’re not comfortable using real money.
But as we all know, successful demo trading rarely materializes into actual trading success. Without something at stake it just doesn’t give you a feel for real trading. Demo accounts do a great job of teaching you to use a trading platform, and for a long time they were as close as you could get to making real trades without putting down money; but there’s something missing. It’s too easy to click buy or sell and just “see how it goes” – something we all know you should never do when trading real money.
That’s the beauty of today’s constantly advancing technology. Three innovative companies have figured out their own unique ways using the latest web and trading technology available to come even closer to creating the feel of making real trades without risking actual money to do so.
A Look at Some Innovative Trading Education Software
TradingView.com is a web-based charting platform with real time data and powerful tools for drawing charts and using indicators. Their software is top notch, but what makes it stand out is that they have turned trading social. Traders are able to share their predictions, charts and even custom indicators with the public. After publishing a chart, you can press a button to see how the market has moved since it was published. Just like on Twitter or LinkedIn, you can “follow” your favorite traders to stay up to date on their actions. Instead of telling long tales of how you predicted the big move in the S&P 500, you can prove it by linking to the chart you published. Or you can feel the shame of making a big prediction and having it go horribly wrong. The addition of published charts that your peers (and the general public) can view make you think twice before fooling around. Your money may be safe, but your reputation is at stake!
Investopedia.com, the go-to source for a crash course on all things finance, has their own take on “enhanced” demo-trading. They make trading into a competition. Their Stock Simulator platform allows you to pit your trading skills against hundreds of thousands of other Investopedia users using a virtual trading account. Not only is there a leaderboard for the best performing traders, you can create private challenges between your trading peers. The winners may only get bragging rights, but that is still higher stakes than nothing.
The last company we’re going to look at is possibly the most interesting of them all. Kapitall is a broker that does something very unique: they gamify trading. Gamification is the application of game mechanics in non-game contexts. In other words, Kapitall’s trading platform gives you goals and achievements to work on that feel like you’re progressing in a game but are actually teaching you how to be a successful trader. Rather than learning the old “textbook” way, traders can learn or brush up on their skills in an environment that challenges them the way a good video game does – but still on a broker’s platform. Take a look at their video below to get a better idea of what I mean:
The world of trading education is constantly evolving. Some will stick with tried and true methods like webinar based lectures and one-on-one coaching but there are definitely companies out there leveraging the latest in software technology. We took a brief look at some examples of such innovative products, but there is no doubt that someone out there is thinking up the next big idea.
If you’re a trading coach or student, feel free to use our paper trading demo platform to learn, teach and practice. ETNA Trader is a white label online trading platform that’s used by brokers, developers, educators and trading firms. The platform features a HTML5 widget based web frontend and native iOS and Android mobile trading terminals, along with a back office. Some features include real time streaming quotes, level 2 quotes, advanced charting tools with drawing capabilities and indicators. Feel free to contact us with any questions you may have or to discuss your ideas.
It may sound contradictory, but the Ripple network is going to be making a big splash in the financial world. Some would argue it already has, with the Fed releasing a research paper praising the technology and banks beginning to use it. So what exactly is Ripple?
Ripple is an open source protocol for sending money that takes the logistical benefits of a digital currency like Bitcoin but is able to be an almost drop-in replacement for the current value transfer systems we use today. Rather than banks using their domestic Central Bank to clear transfers, they can use the lightning fast (3-5 second settlement) and incredibly cheap (< a penny) Ripple network.
Ripple is able to do this because it’s purpose is not to create a new currency like Bitcoin but rather to simply modernize the way we settle the movement of our existing currencies — using similar technology to Bitcoin. The Ripple network connects different gateways together. Gateways are the on/off ramps of the Ripple network; they can be a bank, organization, or even loaded individual that you trust to actually possess the money you are sending/receiving on the Ripple network. Ripple’s network works a lot like the current banking system. What the Ripple network is doing is keeping track of who owes who money and gateways continue to operate as trusted members of the Ripple network as long as they honor their obligations.
Technically, money doesn’t physically leave a gateway when it is sent using Ripple, rather Ripple keeps track of the gateways’ debits and credits using a distributed consensus system and immutable ledger of transactions similar to the way Bitcoin does.
But remember, while Ripple is an open network that can be used between two individuals, it is intended to replace the low level systems banks and other money transferors currently use. These institutions can begin using Ripple between themselves and the customer never has to know how their money went from Point A to Point B.
In other words, when a Wells Fargo customer wants to wire transfer money to a Bank of America customer, rather than going through the FedWire system and trusting the Fed as a third party, Bank of America will gain a credit (kept as a record on the Ripple network’s ledger) at Wells Fargo for the amount the customer transferred and the customer is none-the-wiser. They simply used their normal online banking app and enjoyed lower fees and a faster transfer. It’s up to Wells Fargo and Bank of America to decide if they want to physically move cash between each other, or hope that a similar transfer will go through in the opposite direction and effectively cancel out the first transfer.
That’s the beauty of Ripple — everybody can continue to use their existing apps and services, the fees just magically get lower when third parties drop out of the equation.
Ripple Labs, the company that created the open source Ripple software, has released an excellent video with graphics to help bette understand how it all works.
If you’re interested in creating your own Ripple trading platform, contact us and we can show you how our customizable trading platform, ETNA Trader, can be applied towards any asset class.