FinTech, open banking and the future of investing. In episode 4 of season 2 of Digital Waves Marcel Bamberg discusses these themes and interviews Mark Leenards, investment expert and Country Manager Netherlands of NEO Finance. In this article we summarize the most important topics from the 50-minute interview.
At the beginning of August 2019 Mark Leenards was interviewed for this. Mark is Country Manager Netherlands for NEO Finance, a company that facilitates peer-to-peer loans. He has a background in finance and is experienced in investment and innovation. In the beginning of his investment period he often ran into "the power of banks", which was his inspiration to start working on alternatives.
In the interview several terms emerge, which can be interpreted differently by different people. Below is an overview of the terms and definitions used in the interview.
- FinTech: Financial Technology. FinTech is a sector of the market for technological developments in the financial sector.
- Open banking: Open banking is the phenomenon whereby parties without a banking licence take over tasks from banks.
- Peer-to-peer lending: Lending money from one individual to another, from private or corporate assets.
- Crowdfunding: The provision of a loan by multiple parties to a single party.
- Cryptocurrencies: Digital currency with which payments can be made, issued by a single party.
The guiding principle of the interview is open banking. Mark discusses the traditional role of banks, which mainly consists of providing liquidity in the market and offering a payment function.
NEO Finance is essentially a company that tries to take over the payment function, i.e. transactions, from banks. Borrowing money was a logical consequence of this. However, there are several parties in the market that offer payment functionality, such as Adyen and iDEAL. Marcel then asked whether iDeal would be replaced in the long term by NEO Finance, and how the latter would implement this. Mark responded:
I think there are two relevant aspects. You obviously have name recognition. iDEAL is by far the biggest name in the field. Everyone knows where to find the party. Finally, it becomes a cost assessment, and for an iDEAL transaction you pay, among other things, through parties offering it, just 30 cents per transaction. Based on the new legislation, PSD2, there will be more entrants, including NEO Finance, and then you will at least see that that price goes down. We would be able to offer it from 6 cents per transaction, which will reduce your costs by a factor of 5. For large webshops this is of course very interesting.
A logical next topic is the vision of banks. How do banks view the new developments? According to Mark, there are plenty of banks that invest in FinTech, but no one really knows whether banks will play a role in the new way of banking or whether the future lies more with FinTech start-ups and scale-ups. Mark expects that there will be a mixture, where banks will have to adapt to innovative players.
Of course, loans are a lot less easy in practice than was intended in theory. Loans cannot be repaid, which is difficult for the investor to estimate in advance. In the Netherlands, many students have a study debt of several tens of thousands of euros. In America, however, the situation in the field of credit has got a lot more out of hand. Students there run up debts of 1 or 2 tons for their studies, and consumers often borrow more money than they can repay. Marcel asked if peer-to-peer lending is a solution for this, or if borrowing too much money plays into the hand.
The beauty of peer-to-peer lending is that it's tech-based. With technology you have the possibility to use algorithms. Big data is a subject that will play a role of course. And in the end, as long as you have enough data, I believe that there is an optimal point to be reached in terms of terms and conditions of a loan and consumer borrowing capacity, so you can be sure that there is a good enough chance that it will be repaid.
With the expectation of repayments we come to trust. Mark proposes a kind of "trust score", from which the investor can read the confidentiality of a credit recipient. Both the lender and the receiver remain anonymous, but it is not clear from the interview exactly which data of the receiver is transparent to the provider.
In addition to open banking, loans and confidence, cryptocurrencies were also discussed, as can be expected at FinTech in 2019. With a previous company, Mark laid its own foundation for its own currency of trust. With this currency of trust, which can be exchanged between parties, trust can be given and removed. Removing trust also affects your own trust score, making manipulation a lot more difficult.
I understand.
