Finance goes online and mobile

July 14th, 2014 by · Leave a Comment

This article was authored by Jouko Ahvenainen, and was originally posted on

Five top VC’s in California were asked to pick the ten biggest tech trends over the next five years (Forbes article). #2 on their list was digital disintermediation of banks and #10 was that credit cards are the new app platform. I wrote in my Vision 2014 that finance services are finally going mobile. We see more evidence all the time that the internet and mobile are finally going to disrupt finance structures.

It is expensive to set up a bank, have enough money in the balance sheet and fulfill all regulatory requirements. Entry barriers to the banking business have been high. It has been the same for many other finance services like investment banking, broker dealer business, payment and international money transfer services. Nowadays it would be easy to offer many of these services over the internet. But regulation, capital requirements and conservative attitudes have retarded this development.

Now people have really started to ask, why does it take two days to transfer money from a bank account to another? Why do you have to pay $50 for international money transfer? Why do you need several middlemen in your investments who charge high commissions even if they often do quite routine work?

At the same time we have seen services like M-Pesa, that enables people to transfer money from one mobile to another one. PayPal (although it is not officially a bank) is a more important payment account to young people than any bank account. People have started to invest their money through crowdfunding and p2p lending services. Some companies already plan, how an automated platform can replace a fund and its expensive managers. Starbucks handles millions of mobile payments in their stores. And we have a lot of other innovate companies in the industry, like Fidor Bank in Germany offers a pure web bank, Bancbox combines net payments and banking, GBGroup offers identity intelligence to internet finance services and Crowd Valley offers the full platform and back office for crowdfunding or p2p finance services.

Nothing is easy with financial services. It is about people’s money, it is heavily regulated, and the financial crisis has brought pressure to increase regulation. There will be new regulation for new internet and mobile based services, as we have seen with crowdfunding in the US and UK. Regulators are also starting to recognize how technology, internet services and mobile are an opportunity to make the economy more effective and help normal consumers. Laws and regulations always follow business and tech trends.

Startups are active in this area. Now VCs and traditional finance sector companies have also seen that they cannot only trust in old models anymore. We will see a lot of structural changes in the finance sector;  its value chains and many middlemen will lose their role.

This all has an impact on mobile and telecom companies too. Some carriers have started to dip their toes into financial services – an example is Isis by US carriers, banks and a credit card company. It is basically a mobile payment solution that uses a contactless solution (as some debit and credit cards) in the point of sale. In the UK the Payment Council has worked with banks to develop a new mobile payment model, Paym. But at the same time Visa and Master Card have announced they support Host Card Emulation (HCE) where they don’t need carriers in the service. So there is no guarantee that carriers will have any role in the business.

If telcos want to have a role in this business, they must start to act now and look for the right partners. It is also important to remember that users need a well working ecosystem and smooth user experience, not specific technology like NFC. The good first step for telco’s new business development people is to go to talk to finance startups, banks and credit card companies, p2p finance services and local regulators and have an open mind to learn how telcos can make these new ecosystems to work better. And it is better to do this before Apple publishes its mobile payments, and following Google, Amazon and credit card companies, takes the operator’s role in the mobile payment and finance market.

Jouko Ahvenainen is co-founder of Grow VC Group. Full disclosure: He has interests in Crowd Valley Inc.

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