Apple Pay Fees Vex Credit-Card Issuers

Banks are nudging Visa to change the way it processes some Apple Pay transactions, according to people familiar with the matter.

According to people familiar with the matter, banks are pressing Visa to change the way some Apple Pay transactions are processed. Some banks are pushing back, weakening the card network Visa Inc.

To change the way some Apple Pay transactions are processed, according to some. This change will reduce the fees that banks pay to Apple.

According to people familiar with the matter and a document seen by Businesshala, Visa plans to implement the change next year. Apple executives have told Visa officials they oppose the change, the people said. The two companies are in discussion and it is possible that the planned change will not start.

Currently, banks pay the fee to Apple when their cardholders use Apple Pay. Under the new process planned, the fee will not apply to automatic recurring payments such as gym memberships and streaming services.

The dispute reflects a long-running tension between the tech and finance giants. Companies like Apple and Amazon.com Inc.

Consumer payments have been expanding over the years. Banks often bargain with them for fear of being left behind. But deals don’t always work out: Alphabet Inc. NS

For example, Google is dropping plans to introduce bank accounts to users. Apple said in a statement that “our banking partners are an important part of the growth of Apple Pay.”

The company said, “Our bank partners continue to see the benefits of providing Apple Pay and invest in new ways to implement and promote Apple Pay for our customers for secure and private in-store and online purchases. “

Major networks including Visa and MasterCard Inc.

There are effective gateways between banks and Apple Pay, as they help to load banks’ cards into mobile wallets. The change will apply to Visa-branded cards, though other networks may follow suit.

Mobile wallets are smartphone apps on which people can load their debit or credit-card credentials and use their phones instead of tangible cards to make payments. The transaction fee is charged to the buyer’s card.

When Apple introduced Apple Pay in 2014, the iPhone had already discontinued the music player, camera, and GPS system. Banks and card networks are worried it will displace card payments as well.

Banks agreed to pay 0.15% to Apple for every purchase made by their credit cardholders. (They pay a separate fee on debit-card transactions.) Those charges account for most of the revenue Apple makes from its digital wallet, according to people familiar with the matter.

The terms had the potential to be uniquely attractive to Apple. Banks do not charge Google for its Wallet.

Visa and MasterCard also agreed to make an unusual concession to Apple: Apple will be able to choose which issuers it will allow on Apple Pay and which issuers will accept cards, according to people familiar with the matter. Visa and MasterCard generally require that all entities that accept their credit cards must accept them. Apple agreed not to develop the card network to compete against Visa and MasterCard, the people said.

But since then, customers have been slower to adopt Apple Pay than bank and card network executives expected. And some bank executives were outraged when Apple launched its own credit card with Goldman Sachs Group in 2019 Inc.,

People familiar with the matter said, because it made Apple a direct competitor.

Apple said in a statement that it “works closely with approximately 9,000 banking partners to offer Apple Pay to customers in approximately 60 countries and territories.”

Visa has shared its planned technological change with at least a few banks in recent months. A document reviewed by the Journal explains the new process that doesn’t mention fees, but details a change to so-called tokens issued by Visa for mobile-wallet payments.

When consumers load their credit cards on Apple Pay, Visa issues a special token that replaces the card number. This allows the card to work on Apple Pay and also helps protect the card in a potential data breach, among other benefits.

Visa is planning to start using a separate token on recurring automatic payments. This effectively means that after making the first payment on the subscription, Apple will not receive a fee on the following transactions.

According to people familiar with the matter, some of the larger banks first tried to lower their Apple Pay fees around 2017, but were not successful.

By: AnnaMaria Andriotis

AnnaMaria Andriotis reports on credit cards for The Wall Street Journal. She covers Visa, Mastercard, American Express and Discover as well as the big banks’ credit-card divisions. She also writes about consumer credit broadly, with a focus on issues that have a big impact on U.S. borrowers. She has been a reporter with The Wall Street Journal since 2014 and got her start at Dow Jones more than 10 years ago. You can email AnnaMaria at annamaria.andriotis@wsj.com and follow her on Twitter @AAndriotis.

Source: Businesshala News Exclusive | Apple Pay Fees Vex Credit-Card Issuers

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Bank Mergers Are On Track to Hit Their Highest Level Since the Financial Crisis

It took less than three months for a deal to be reached between Columbia Banking System and the smaller Bank of Commerce Holdings. Banks are on pace this year to merge at a level not seen since the 2008 financial crisis. It is a sharp turnaround from last year, when the economy spiraled and many regional and community banks put merger plans on the shelf. Now, bank executives are feeling more certain about what the future holds, but some are finding it hard to make it on their own. Though the economy has in many ways recovered from 2020, loan demand is still low and profits from lending are slim.

Banks have announced more than $54 billion in deals through late September, according to Dealogic. That puts industry mergers and acquisitions on pace for their biggest year since 2008, when some big banks had to sell themselves to stave off collapse. At this time last year, banks had announced just $17 billion in mergers.

Banks typically spend weeks or months turning a potential target’s loan book upside down, searching for risky loans or other red flags, before agreeing to acquire it. But the Covid-19 pandemic muddied that process. For months, lenders struggled to assess the creditworthiness of their own customers, much less those of their competitors.

“Neither potential sellers nor buyers really wanted to do a transaction last year because of the uncertainty that could be on folks’ balance sheets,” said Kevin Riley, chief executive of First Interstate BancSystem Inc. FIBK -0.17% in Billings, Mont.

But the expected wave of loan defaults never materialized, and by the end of last year, serious merger conversations resumed, according to executives and regulatory filings. This month, First Interstate FIBK -0.17% agreed to buy regional lender Great Western Bancorp Inc. in a deal that will boost its assets to more than $32 billion.

“[Banks] are no longer fearful of the bottom falling out,” said Nathan Stovall, an analyst at S&P Global Market Intelligence. “They are no longer looking at a deal like trying to catch a falling knife.”2019 was also a big year for bank mergers, but more of the major regionals are in play this year. So while there are fewer deals this year than at this point in 2019, the overall value is higher than it was two years ago.

Minneapolis-based U.S. Bancorp last week said it plans to buy MUFG Union Bank’s core retail-banking operations, boosting its presence on the West Coast. Another major regional, Citizens Financial Group Inc., said in July that it plans to buy Investors Bancorp Inc. Investors Bank had shelved merger talks with another bank when the pandemic hit in 2020, according to regulatory filings.

The Federal Reserve cut interest rates to near zero when the pandemic hit, and low rates have made it more difficult for banks to profit from their bread-and-butter business of lending. The average net interest margin, a measure of lending profitability, reached a record low of 2.5% in the second quarter, according to the Federal Deposit Insurance Corp.

Smaller banks have also struggled to compete with the high-end digital offerings and technology of the megabanks.

Sacramento, Calif.-based Bank of Commerce Holdings began courting potential merger partners in the spring of 2021. The board and management of the $1.9-billion-assets bank had for years considered different options to overcome ever-narrowing industry margins, including being acquired by a larger bank, CEO Randy Eslick said. It took less than three months to iron out a deal with $18 billion Columbia Banking System Inc. of Tacoma, Wash.

The deal was announced in June, and the combined bank will have the resources to invest in technology and other areas—trust departments, wealth management, specialty lending—that the smaller Bank of Commerce wouldn’t have been able to fund on its own.

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“Those types of things bring technology to the table that we could not afford to,” Mr. Eslick said. “At the end of the day, we have more arrows in our quiver.”

The pressure to scale up has only grown more intense in recent years, said Scott Wylie, CEO of the $2 billion First Western Financial Inc. in Denver. In July, First Western said it would buy the parent company of a smaller bank, the nearby Rocky Mountain Bank.

“For a $300- or $500- or $700-million bank, it used to be you could have a nice little business that could go for a long time,” Mr. Wylie said. “These days, that’s really hard.” Conway, Ark.-based Home BancShares Inc. said this month it would buy Happy Bancshares for more than $900 million. Within weeks, CEO John Allison got pitched another deal.

“Someone said to me, ‘Johnny, the body hasn’t even gotten cold yet…and they’re bringing all these other deals,’” Mr. Allison said.

By: Orla McCaffrey at orla.mccaffrey@wsj.com

Source: Bank Mergers Are On Track to Hit Their Highest Level Since the Financial Crisis – WSJ

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4 Missteps For Banks To Avoid When Migrating Payment Services To The Cloud

Banks and financial services providers can realize the efficiency and cost savings of cloud-based payments by taking proactive steps to guard against these common mistakes, notes Rustin Carpenter, a Global Payments Solution Leader for Cognizant’s Banking & Financial Services Industry Services Group.

The cloud’s lure of simplification is a powerful incentive for payment providers, as its role enabling modernization and permanently switching off legacy applications. Where banks struggle, however, is in shaping a strategy to get their payment services to the cloud. By understanding the common missteps, banks can create a plan for payment migration that maximizes benefits while minimizing risks.

The pandemic was a digital tipping point for banks, forcing them to implement in just a few months capabilities that otherwise would have taken several years. Research published in 2019 found that financial services firms lagged in adoption of public cloud infrastructure as a service (IaaS), with just 18% broadly implementing IaaS for production applications, compared to 25% of businesses overall.

Now many banking leaders we talk with are taking a serious look at cloud-based payment services, motivated by the age and complexity of their core payment applications as well as their business’s growing confidence in the security of cloud platforms such as Google Cloud, Microsoft Azure and Amazon Web Services (AWS). As banks contemplate migrating payment services to the cloud, here are some common mistakes to avoid that will ensure a smoother journey:

1. Assuming the cloud is cheaper.

Cloud-based services are indeed less expensive to run — once applications and services have been migrated. To manage a successful payments migration, be aware of the costs along the journey. The cloud can be a heavy lift. While banks and financial services providers often consider themselves proficient at consolidation and rationalization, the extensiveness required for cloud migration frequently far exceeds the effort of previous initiatives. For example, we helped a bank reduce its infrastructure footprint by 25% and lower its total cost of ownership by migrating its applications to the cloud.

That outcome, however, required careful analysis of the bank’s application source code and development of a migration strategy and cloud deployment architecture, as well as assessing and migrating more than 800 applications over three years. Cloud-based services are more streamlined and less expensive to operate, but accurately budgeting for the upfront time and resources of a cloud payment migration is challenging due to the many unknowns. Careful attention to planning is critical for a realistic cost assessment.

2. Underestimating the amount of prework.

The cloud promises to reduce complexity but getting to that point takes a thoughtful migration plan that’s complete and doesn’t skimp on details. What steps will be taken to ensure there’s no disruption to clients? Which applications make sense to retain and manage in-house, and which can be leveraged as payments as a service? For instance, fund disbursements for a retail consumer bank that administers 529 plans are typically a low-volume service for which cloud automation is a great fit, replacing paper checks with significantly less costly cloud-based payments.

But when it comes to payments as a service, managing risk and ensuring value also come into play. Wire transfers might appear to be good candidates for migration to cloud payments, but if most of the bank’s transfers are for high net worth individuals with equally high customer lifetime value, then the transfers may require levels of personalized service best handled with an on-premise platform rather than in the cloud. A well thought out strategy that addresses all impacts and value opportunities helps bank leaders avoid the unintended consequences that keep them awake at night.

3. Failure to prioritize.

A payments migration needs to be phased in a way that provides strategic competitive advantage. Setting priorities is key. For example, a bank may choose to align its payments migration with a specific strategy, such as a planned de-emphasis on branch offices. Another approach is to migrate the costliest payment applications first. Some banks may reserve cloud adoption for when they’re ready to add new payments capabilities.

Each bank’s path to cloud payments is nuanced, yet there’s often a feeling among banking leaders that moving to the cloud is an all-or-nothing proposition. That is, payments are either entirely cloud-based or all on premise. A more realistic goal is to craft a migration roadmap for a hybrid environment that accommodates both types of infrastructure for the near future, and to then prioritize and phase the payments migration in a way that makes strategic sense.

4. Testing in a dissimilar environment.

Replicating legacy operating environments for testing is expensive, so it’s not uncommon for banks to settle on environments that are similar but not identical — though the variation often leads to production environment errors that can derail cloud migration efforts. Performance falls short of expectations, typically due to the tangle of payment applications resulting from years of mergers and acquisitions.

For example, post-merger banking platforms often utilize more than one legacy payment hub, and there’s little chance that a bank’s current IT staff fully understands or can predict the unintended consequences for the hubs when making changes to the platform. Don’t fret over creating the perfect testing environment. Rather, build an environment that’s as close as possible.

By avoiding these common missteps, payment providers can reap the benefits of a simplified, modern infrastructure and application environment and minimize the risks.

To learn more, please visit the digital payments section of our website or contact us.

Rustin “Rusty” Carpenter leads payments solutions within Cognizant’s Banking & Financial Services’ Commercial Industry Solutions Group (ISG). In this role, he works with group leaders and client-facing teams to elevate Cognizant’s client relevance, industry expertise and challenge-solving capabilities. Over his career, he has developed deep and broad expertise in payments and the emerging alternative and digital/mobile payments arenas. He is a frequent speaker on these topics at conferences worldwide and serves as a board advisor to fin-techs in all areas of payments and fraud prevention/mitigation.

Carpenter most recently was Head of Sales & Service, NA for ABCorp. Previously, he ran the Instant Issuance business for North America at Entrust Datacard; served as COO for Certegy Check Services, N.A.; was General Manager, NA for American Express Corporate Services; and completed multiple assignments at Andersen Worldwide and Dun & Bradstreet. Rustin has a Bachelor of Arts degree from Denison University and an MBA in finance from Rutgers Graduate School of Management. He can be reached at Rustin.Carpenter@cognizant.com

Source: 4 Missteps For Banks To Avoid When Migrating Payment Services To The Cloud

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CBA To Automate Least Cost Routing For SME Merchants; Lower Merchant Fees

The Commonwealth Bank of Australia (CBA) announced that transactions between Eftpos and international schemes like Mastercard and Visa would be automated using the least-cost routing method (LCR), making it one of the first major banks to commit to automatically routing transactions for small business merchants.

“CBA will centrally route transactions in the most cost-effective and competitive way, so businesses don’t have to spend their valuable time managing their routing options, CBA said in a statement.

“CBA will also take the hassle out of payments by automatically routing transactions between eftpos and international schemes for eligible small business customers.”

Treasurer Josh Frydenberg pressed the Reserve Bank of Australia earlier in September to lower expenses for small businesses by requiring commercial banks to provide cheaper debit card solutions to consumers making tap-and-go payments in stores. Frydenberg wrote to the Payments System Board, urging it to require major and medium-sized financial institutions to issue dual-network debit cards.

Debit card costs for Mastercard/Visa are on average 0.5 per cent, compared to 0.3 per cent for eftpos. According to official statistics, small businesses suffer greater fees on average.

Commenting on the significance of LCR for newsagents and lottery agents, Australian Lottery and Newsagents Association (ALNA) CEO Ben Kearney said: “The substantially growing costs of accepting payments for newsagents and lottery agents is one of their top daily concerns.

“They do not have the same level of control over commercial levers in different parts of their business as some other retailers. They are characterised by modest margins on volume products with fixed pricing.”

As an example, the cost of acceptance of card payments for lottery tickets – one of ALNA members’ largest categories – can be as much as 9% of their total commission for the sale of these products.

“The most important mechanism for doing this recently, when customers increasingly want to use contactless payments, has been LCR.

“This generally increases the number of debit transactions that occur, saving hundreds of dollars a month for many of our members,” Kearney continued.

Meanwhile, the government has said that it aims to implement least cost routing for tap-and-go debit transactions so that commercial merchants can avoid paying higher fees by using the relatively cheaper domestic eftpos system instead of the services of US card giants Visa and Mastercard.

According to James Fowle, CBA’s Executive General Manager, Everyday Business Banking, the announcement follows feedback from its merchant customers on Least Cost Routing (LCR) in recent months

“The overwhelming feedback from our small business customers is that they want simple competitive pricing without the hassle. They want the benefit from least cost routing without having to manage the routing themselves,” Mr Fowle said.

“Our new flat rates are designed to offer that by removing complex pricing structures and managing the routing of transactions for them. We’ll automatically and centrally route transactions in the most cost-effective and competitive way, saving businesses a lot of time and money.”

Lower rates

In addition to automating transaction routing, the bank said that all in-store card transactions will be charged a flat rate of 1.1 per cent, and all online payment transactions will be charged a flat rate of 1.5 per cent, irrespective of interchange rate or card type.

“To lower the cost of doing business, CBA will be offering 1.1 per cent for all in-store card transactions, and 1.5 per cent for online transactions, regardless of the interchange rate or the type of card (debit, credit or Amex),” CBA said.

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To provide a further cash injection in the lead up to Christmas, CBA will automatically waive three months of merchant fees for small businesses that have been hardest hit by the latest COVID lockdowns. This equates to more than $7 million dollars back into the pockets of merchant customers.

“From next week, we’ll be letting more than 50,000 customers know we are automatically waiving their standard merchant fees for three months from September through to November.

This translates into approximately $7 million back into their pockets leading up to Christmas,” said Mr Fowle.

Additionally, CBA said that an additional $3 million has been returned to retailers who have been facing financial difficulties since the outbreak began. Customers who are having financial difficulties can contact CBA for a refund on a variety of applicable fees for a period of up to 90 days.

Yajush Gupta

By: Yajush Gupta

 

Source: CBA to automate least cost routing for SME merchants; lower merchant fees

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How Digital Makes Banks Flexible, Responsive And Intimate

While making digital the main channel of customer engagement, banks are also looking to move beyond business as usual, says Amit Anand, a Vice President in Cognizant Consulting’s Banking and Financial Services.

COVID-19 made online channels indispensable for bank customers, including those who preferred in-person banking. This accelerated their digital strategies and created an opportunity to go beyond the basics and become partners in their customers’ pursuit of financial wellness.

As banks bet big on digital, they are looking at technologies such as AI, advanced analytics, and automation to provide personalization, prediction and speed in creating powerful customer experiences. Banks are also increasingly relying on machines to automate repetitive tasks and make complex decisions, creating demand for human skillsets that complement intelligent machines.

Cognizant’s Center for the Future of Work (CFoW), working with Oxford Economics, recently surveyed 4,000 C-level executives globally, including 287 senior banking and financial services executives to understand how banks are adapting to fast and dramatic changes.

The earliest forms of digital banking trace back to the advent of ATMs and cards launched in the 1960s. As the internet emerged in the 1980s with early broadband, digital networks began to connect retailers with suppliers and consumers to develop needs for early online catalogues and inventory software systems.

By the 1990s the Internet became widely available and online banking started becoming the norm. The improvement of broadband and ecommerce systems in the early 2000s led to what resembled the modern digital banking world today. The proliferation of smartphones through the next decade opened the door for transactions on the go beyond ATM machines. Over 60% of consumers now use their smartphones as the preferred method for digital banking.

The challenge for banks is now to facilitate demands that connect vendors with money through channels determined by the consumer. This dynamic shapes the basis of customer satisfaction, which can be nurtured with Customer Relationship Management (CRM) software. Therefore, CRM must be integrated into a digital banking system, since it provides means for banks to directly communicate with their customers.

There is a demand for end-to-end consistency and for services, optimized on convenience and user experience. The market provides cross platform front ends, enabling purchase decisions based on available technology such as mobile devices, with a desktop or Smart TV at home. In order for banks to meet consumer demands, they need to keep focusing on improving digital technology that provides agility, scalability and efficiency.

Seven Ways to Capitalize on Digital

  1. Institute front-to-back digitization. Banks can effectively compete with fintech competitors by becoming digital institutions.
  2. Explore new customer segments and business paradigms. Digital makes it easier than ever for banks to explore small business segments, even as they pursue existing markets.
  3. Emphasize platform centricity and smart aggregation. Open banking standards can help banks to provide personalized products to customers in collaboration with third-party providers and fintechs.
  4. Invest in personalizing the customer relationship. Banks should use personalized experiences to make customers’ lives as frictionless as possible.
  5. Focus on re-building trust and resiliency. Banks need to eliminate any biases in decisions made by machines.
  6. Enshrine inclusivity into your digital strategy. Banks should use digital to reach customers who are left out by being physically and cognitively challenged.
  7. Balance machine-driven and human-centric work. Create sturdy human-machine collaboration by reevaluating jobs for a shared environment.

For more, read our paper “The Work Ahead in Banking: The Digital Road to Financial Wellness”.

Amit Anand is Vice President and North American Practice Leader for Cognizant Consulting’s Banking and Financial Services. Amit has 20 years of experience with firms such as Accenture, Infosys and Cognizant. He has successfully led and managed large business transformation, digital and IT transformation, and associated organizational change management for several financial services clients. Amit is a recognized thought leader with more than 15 publications on topics such as Open Banking, Digital 2.0 and new-age operating models. He can be reached at Amit.Anand@cognizant.com

Manish Bahl leads the Cognizant Center for the Future of Work in Asia-Pacific and the Middle East. A respected speaker and thinker, Manish has guided many Fortune 500 companies into the future of their business with his thought-provoking research and advisory skills. Within Cognizant’s Center for the Future of Work, he helps ensure that the unit’s original research and analysis jibes with emerging business-technology trends and dynamics in APAC, and collaborates with a wide range of leading thinkers to understand and predict how the future of work will take shape. He most recently served as Vice President, Country Manager with Forrester Research in India. He can be reached at Manish.Bahl@cognizant.com

Source: How Digital Makes Banks Flexible, Responsive And Intimate

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These Are The Top Ten Boutique Investment Banks

Boutique investment banks are very different from regular investment banks. The former are smaller in size and don’t offer all investment banking services. Boutique investment banks usually specialize in one or more aspects of investment banking. Moreover, such banks are generally regional or local, but some boutique investment banks operate globally. Let’s take a look at the top ten boutique investment banks.

Top Ten Boutique Investment Banks

We have used a combination of factors, such as the size, area of operations, service quality and more, to come up with the top ten boutique investment banks. Following are the top ten boutique investment banks:

  1. Houlihan Lokey

Founded in 1972, this financial firm specializes in capital markets, valuation, mergers and acquisitions, and financial restructuring. According to the data from Refinitiv, Houlihan Lokey is the top M&A advisor in the U.S., top global restructuring advisor and the top global M&A fairness opinion advisor. Houlihan Lokey has its headquarters in Los Angeles and has offices in the Middle East, the Asia-Pacific region, the United States, and Europe.

  1. Moelis & Company

Founded in 2007, this company offers strategic advice and solutions to companies, financial sponsors and governments. Moelis & Company primarily helps its customers to hit their strategic goals by giving them integrated financial advisory services. The company is headquartered in New York, but serves its clients from offices in 19 geographic locations, including the Middle East, Australia, Europe, Asia, and America.

  1. Lazard

Founded in 1848, it is a leading financial advisory and asset management firm. Lazard advices its clients on restructuring and capital structure, mergers and acquisitions, capital raising and corporate finance, strategic matters, as well as provides asset management services to firms, governments, individuals, partnerships, and institutions. Lazard has its headquarters in New York and serves clients from over 40 cities across 25 countries in Asia, South America, North America, Australia, Central America and Europe.

  1. Guggenheim Partners

Founded in 1999, it is a diversified financial services firm that provides banking, investment management and insurance services. The company’s history dates back to the late 1800s with Guggenheim Brothers, which was Guggenheim’s family business. Guggenheim Partners’ mission is to provide unparalleled service and performance. It has over $315 billion in assets under management (as of March 2021). Guggenheim Partners is headquartered in New York.

  1. Greenhill & Co.

Founded in 1996, it is a leading investment bank that assists clients on mergers, capital raising, acquisitions, restructurings, and more. Robert F. Greenhill, who is the founder of Greenhill & Co., is the former president of Morgan Stanley and former chairman and chief executive officer of Smith Barney. Greenhill & Co. has its headquarters in New York, and has offices in many crucial financial centers, including Melbourne, Paris, Hong Kong, Houston, Sydney, Tokyo and more.

  1. Evercore

Founded in 1995, it is a leading investment banking advisory firm. The company advises its clients on mergers, restructurings, public offerings, divestitures, private placements and other strategic transactions. It also offers wealth management, institutional asset management and private equity investing services. Evercore is headquartered in New York and has offices in many major financial centers, such as the Middle East, Asia, North America, and Europe.

  1. Centerview Partners

Founded in 2006, it is a financial advisory and private equity boutique firm. The company assists companies on valuation, mergers and acquisitions and financial restructurings. Centerview, so far, has assisted in about $3 trillion of transactions. Its clients include 20% of the 50 biggest companies on the basis of market cap. Centerview Partners has its headquarters in New York and has offices in London, San Francisco, Los Angeles and Palo Alto.

  1. Cowen

Founded in 1918, it is a diversified financial services firm. Cowen, along with its subsidiaries, offers investment banking, sales and trading services, alternative investment management, and research services. The company operates through two business segments – investment management and broker dealer division. It is known for identifying emerging industries earlier than others. Cowen is headquartered in New York and has offices in major financial centers around the globe.

  1. Cantor Fitzgerald

Founded in 1945, it is a leading global financial services firm. It started as a securities brokerage and investment bank, and pioneered computer-based bond trading. Fitzgerald now is known for a diverse array of businesses, including commercial real estate finance and services, asset management and wealth management, equity and fixed income capital markets and more. Cantor Fitzgerald has its headquarters in New York.

  1. Blackstone Group

Founded in 1985, it is among the biggest investment firms in the world. This company provides investment and advisory services to investors and clients. Its asset management business includes investment vehicles that focus on public debt and equity, non-investment grade credit, real assets, private equity, secondary funds, real estate and growth equity. Blackstone’s total assets under management were about $619 billion as of 2020. Blackstone is headquartered in New York.

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Source: These Are The Top Ten Boutique Investment Banks

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Fintechs Are Zeroing in on Everything Big Banks Aren’t

My north star(s) for philosophy, management, and politics are Star Wars, The Sopranos, and Game of Thrones, respectively. The Iron Bank (GoT) is a metaphor for today’s financial institutions, if present-day banks didn’t need bailouts or to invent fake accounts to juice compensation. Regardless, it was well known throughout Braavos that The Iron Bank will have its due.

If you failed to repay, they’d fund your enemies. So today’s Iron Bankers are the venture capitalists funding (any) incumbents’ enemies. If this makes VCs sound interesting/cool, don’t trust your instincts.

Lately, I’ve spent a decent amount of time on the phone with my bank in an attempt to get a home equity line, as I want to load up on Dogecoin. (Note: kidding.) (Note: mostly.) If Opendoor and Zillow can use algorithms and Google Maps to get an offer on my house in 24 hours, why does it take my bank — which underwrote the original mortgage — so much longer?

How ripe a sector is for disruption is a function of several factors. One (relatively) easy proxy is the delta between price increases and inflation, and if the innovation in the sector justifies the delta. Think of the $200 cable bill, or a $5.6 million 60-second Super Bowl spot, as canaries in the ad-supported media coal mine.

Another, easier (and more fun) indicator of ripeness is the eighties test. Put yourself smack dab in the center of the store/product/service, close your eyes, spin around three times, open your eyes, and ask if you’d know within 5 seconds that you were not in 1985. Theaters, grocery stores, gas stations, dry cleaners, university classes, doctor’s offices, and banks still feel as if you could run into Ally Sheedy or The Bangles.

It’s hard to imagine an industry more ripe for disruption than the business of money.

Let’s start with this: 25% of U.S. households are either unbanked or underbanked. Half of the nation’s unbanked households say they don’t have enough money to meet the minimum balance requirements. 34% say bank fees are too high. And, if you’re trying to get a mortgage, you’d better hope the house isn’t cheap.

Inequity is a breeding ground for disruption, leaving underserved markets for insurgents to seize and launch an attack on incumbents from below. We have good reason to believe that’s happening in banking.

Insurgents

A herd of unicorns is at the stable door, looking to trample Wells Fargo and Chase. Fintech is responsible for roughly one in five (17%) of the world’s unicorns, more than any other sector. In addition, there are already several megalodons worth more than financial institutions that have spent generations building (mis)trust.

How did this happen? The fintechs are zeroing in on everything big banks aren’t.

Example #1: Innovation. Over the past five years, PayPal has issued 26x more patents than Goldman Sachs.

Example #2: Cost-cutting. “Neobanks” offer the basic services of a bank, with one less expensive and cumbersome feature: the branch. A traditional bank branch needs $50 million in deposits to generate an adequate return. Yet nearly half (48%) of branches in the U.S. are below that threshold. Neobanks don’t have that problem, and there are now at least 177 of them. Founders frame these offerings as more progressive, less corporate. Dave, a new banking app, offers a Founding Story on its website (illustrated with cartoon bears) about three friends “fed up” with their banking experience, often incurring $38 overdraft fees. Fed up no longer: Dave provides free overdraft protection and has 10 million customers.

Example #3: Less inequity. NYU Professor of Finance Sabrina Howell’s research found fintech lenders gave 18% of PPP loans to Black-owned businesses, while small to medium-sized banks provided just 2%. Among all loans to Black-owned firms, Professor Howell found 54% were from fintech startups. Racial discrimination is the most likely explanation, as lenders faced zero credit risk.

Example #4: Serving the underserved. Unequal access to banking is a global botheration. Almost a third of the world’s adults, 1.7 billion, are unbanked. In Argentina, Colombia, Nigeria, and other countries, more than 50% of adults are unbanked.

But innovation is already on the horizon: Take Argentine fintech Ualá, whose CEO Pierpaolo Barbieri I spoke with on the Pod last week. In just 4 years, more than 3 million people have opened an account with his company — about 9% of the country — and over 25% of 18 to 25-year-olds now have a tarjeta Ualá (online wallet). Ualá recently launched in Mexico, where, as of 2017, only 2.6% of the poorest 40% had a credit card. This is more than an economic issue — it’s a societal issue, as financial inclusion bolsters the middle class and forms a solid base for democracy.

Interest(ed)

Chase savings accounts are offering, no joke, 0.01% interest. Wells Fargo? The same, though if you keep your investment portfolio with Wells, they’ll double that rate to 0.02%. Meanwhile, neobanks including Ally and Chime offer 0.5% — 50 times the competition.

There is also blood in the water for fintech unicorns that have created a debit, vs. credit, generation: The buy-now-pay-later fintech Afterpay has more than 5 million U.S. customers — just two years after launching in the country. As of February, its competitor Affirm has 4.5 million customers.

Unicorns are also coming for payments. The megasaurus in this space is PayPal, which has built the first global payments platform outside the credit card model and is second only to Visa in payment volume and revenue. Square’s Cash app is capturing share, and Apple Cash is also a player, as it’s … Apple.

Square, Apple, and a host of other companies are taking the “partnership” approach, bolting new services onto the existing transaction infrastructure. Square’s little white box is a low-upfront-cost way for a small merchant to accept credit cards. It’s particularly interesting that Apple teamed up with Goldman Sachs instead of a traditional bank. Goldman is looking to get into the consumer space (see Marcus), and Apple is looking to get into the payments space — this alliance could be the unsullied fighting with air cover from dragons. It should make Wells and BofA anxious.

The Big Four credit card system operators (Visa, MasterCard, Discover, and American Express) are still the dominant payment players, and they have deep moats. Their brands are global, their networks robust. Visa can handle 76,000 transactions per second in 160 currencies, and as of this week it had settled $1 billion in cryptocurrency transactions.

Still, even the king of payments sees dead people. In 2020, Visa tried to buy Plaid for $5.3 billion. Plaid currently helps connect existing payments providers (i.e. banks) to finance software such as Quicken and Mint. But it plans to expand from that beachhead into offering a full-fledged payments system. Visa CEO Al Kelly initially described the deal as an “insurance policy” to neutralize a “threat to our important U.S. debit business.” In an encouraging sign that American antitrust authorities are stirring, the Department of Justice filed suit to block the merger, and Visa walked.

Beyond Banking

Fintech is also coming for investing with online trading apps (Robinhood, Webull, Public, and several of the neobanks) and through the crypto side door (Coinbase, Gemini, Binance). Insurance is under threat from companies like Lemonade (home), Ladder (life), and Root (auto).

In sum, fintech is likely as underhyped as space is overhyped. Why? The ROI on your professional efforts and investing are inversely proportional to how sexy the industry/investment is, and fintech is … boring. Except for the immense opportunity and value creation — for multiple stakeholders. “Half the world is unbanked, but we need to colonize Mars,” said no rational investor ever.

Re: investing in fintech: What has, and will always be, a good rap? The guy/gal who owns the bank.

Life is so rich,

By: Scott Galloway

Source: Fintechs Are Zeroing in on Everything Big Banks Aren’t | by Scott Galloway | Jul, 2021 | Marker

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Why Wall Street Is Afraid of Government-Backed Digital Dollar

Imagine Imagine logging on to your own account with the U.S. Federal Reserve. With your laptop or phone, you could zap cash anywhere instantly. There’d be no middlemen, no fees, no waiting for deposits or payments to clear.

That vision sums up the appeal of the digital dollar, the dream of futurists and the bane of bankers. It’s not the Bitcoin bros and other cryptocurrency fans pushing the disruptive idea but America’s financial and political elite. Fed Chair Jerome Powell promises fresh research and a set of policy questions for Congress to ponder this summer. J. Christopher Giancarlo, a former chairman of the Commodity Futures Trading Commission, is rallying support through the nonprofit Digital Dollar Project, a partnership with consulting giant Accenture Plc. To perpetuate American values such as free enterprise and the rule of law, “we should modernize the dollar,” he recently told a U.S. Senate banking subcommittee.

For now the dollar remains the premier global reserve currency and preferred legal tender for international trade and financial transactions. But a new flavor of cryptocurrency could pose a threat to that dominance, which is part of the reason the Federal Reserve Bank of Boston has been working with the Massachusetts Institute of Technology on developing prototypes for a digital-dollar platform.

Other governments, notably China’s, are ahead in digitizing their currencies. In these nations, regulators worry that the possibilities for fraud are multiplying as more individuals embrace cryptocurrency. Steven Mnuchin, former President Donald Trump’s treasury secretary, said he saw no immediate need for a digital dollar. His successor, Janet Yellen, has expressed interest in studying it. Support for a virtual greenback cuts across party lines in Congress, which will have a say on whether it becomes reality.

At a hearing in June, Senators Elizabeth Warren, a Massachusetts Democrat, and John Kennedy, a Louisiana Republican, signaled openness to the idea. Warren and other Democrats stressed the potential of the digital dollar to offer free services to low-income families who now pay high banking fees or are shut out of the system altogether.

Kennedy and fellow Republicans see a financial equivalent of the space race that pitted the U.S. against the Soviet Union—a battle for prestige, power, and first-mover advantage. This time the adversary is China, which announced this month that more than 10 million citizens are now eligible to participate in ongoing trials.

The strongest opposition to a virtual dollar will come from U.S. banks. They rely on $17 trillion in deposits to fund much of their core business, profiting from the difference between what they pay in interest to account holders and what they charge for loans. Banks also earn billions of dollars annually from overdraft, ATM, and account maintenance fees. By creating a digital currency, the Federal Reserve would in effect be competing with banks for customers.

In a recent blog post, Greg Baer, president of the Bank Policy Institute, which represents the industry, warned that homebuyers, businesses, and other customers would find it harder and more expensive to borrow money if the Fed were to infringe on the private sector’s historical central role in finance. “The Federal Reserve would gain extraordinary power,” wrote Baer, a former assistant treasury secretary in the Clinton administration.

Some economists warn that a digital dollar could destabilize the banking system. The federal government offers bank depositors $250,0000 in insurance, a program that’s successfully prevented bank runs since the Great Depression. But in a 2008-style financial panic, depositors might with a single click pull all their savings out of banks and convert them into direct obligations of the U.S. government.

“In a crisis, this may actually make matters worse,” says Eswar Prasad, a professor at Cornell University and the author of a book on digital currencies that will be published in September. Whether a virtual dollar is even necessary remains up for debate. For large companies, cross-border interbank payments are already fast, limiting the appeal of digital currencies. Early adopters of Bitcoin may have won an investment windfall as its value soared, but its volatility makes it a poor substitute for a reliable government-backed currency such as the dollar.

Yet there’s a new kind of crypto, called stablecoin, that could pose a threat to the dollar’s dominance. Similar to the other digital currencies, it’s essentially a string of code tracked and authenticated via an online ledger. But it has a crucial difference from Bitcoin and its ilk: Its value is pegged to a sovereign currency like the dollar, so it offers stability as well as privacy.

In June 2019, Facebook Inc. announced it was developing a stablecoin called Libra ( since renamed Diem). The social media giant’s 2.85 billion active users worldwide represent a huge test market. “That was a game changer,” Prasad says. “That served as a catalyst for a lot of central banks.”

Regulators also have concerns about consumer protection. Stablecoin is only as stable as the network of private participants who manage it on the web. Should something go wrong, holders could find themselves empty-handed. That prospect places pressure on governments to come up with their own alternatives.

Although the Fed has been studying the idea of a digital dollar since at least 2017, crucial details, including what role private institutions will play, remain unresolved. In the Bahamas, the only country with a central bank digital currency, authorized financial institutions are allowed to offer e-wallets for handling sand dollars, the virtual counterpart to the Bahamian dollar.

If depositors flocked to the virtual dollar, banks would need to find another way to fund their loans. Advocates of a digital dollar float the possibility of the Fed lending to banks so they could write loans. To help banks preserve deposits, the government could also set a ceiling on how much digital currency citizens can hold. In the Bahamas the amount is capped at $8,000.

Lev Menand, an Obama administration treasury adviser, cautions against such compromises, saying the priority should be offering unfettered access to a central bank digital currency, or CBDC. Menand, who now lectures at Columbia Law School, says that because this idea would likely require the passage of legislation, Congress faces a big decision: to create “a robust CBDC or a skim milk sort of product that has been watered down as a favor to big banks.”

By: Christopher Condon

Source: Cryptocurrency: Why Wall Street Is Afraid of Government-Backed Digital Dollar – Bloomberg

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Critics:

Wall Street is warming up to the idea that the next big disruptive force on the horizon is central bank digital currencies, even though the Federal Reserve likely remains a few years away from developing its own.

Led by countries as large as China and as small as the Bahamas, digital money is drawing stronger interest as the future of an increasingly cashless society. A digital dollar would resemble cryptocurrencies such as bitcoin or ethereum in some limited respects, but differ in important ways.

Rather than be a tradable asset with wildly fluctuating prices and limited use, the central bank digital currency would function more like dollars and have widespread acceptance. It also would be fully regulated and under a central authority.

Myriad questions remain before an institution as large as the Fed will wade in. But the momentum is building around the world. As the Fed and other central banks work through those logistical issues, Wall Street is growing in anticipation over what the future will hold.

“The race towards Digital Money 2.0 is on,” Citigroup said in a report. “Some have framed it as a new Space Race or Digital Currency Cold War. In our view, it doesn’t have to be a zero sum game — there’s a lot of room for the overall digital pie to grow.”

There, however, has been at least the semblance of a race, and China is perceived as taking the early lead. With the launch of a digital yuan last year, some fear that the edge China has ultimately could undermine the dollar’s status as the world’s reserve currency. Though China said that is not its objective, a Bank of America report notes that issuing digital dollars would let the U.S. currency “remain highly competitive … relative to other currencies.”

References:

Say Goodbye To Bitcoin And Say Hello To The Digital Dollar

https://img.particlenews.com/img/id/2mPBQk_0aeawgZp00?type=thumbnail_1600x1200

Yesterday we talked about the prospects of a digital dollar coming down the pike. It seems clear that global governments will not allow non-sovereign forms of money to continue to proliferate.

The Senate Banking committee’s hearing on the digital dollar two weeks ago was not only a public exploration and introduction to the concept a central bank-backed digital currency, the hearing was also used as a platform to publicly assassinate the viability of the private (“bogus” in the words of Senator Warren) cryptocurrency market (bitcoin, stablecoins, etc.).

With this in mind, the Chinese government has continually tightened control over the crypto market in China, most recently cracking down on cryptocurrency mining in the country. The U.S. Justice Department announced a few weeks ago that it “recovered” $2.3 million in cryptocurrency of the ransom collected from the Colonial Pipeline hack. And today, it was reported that South Korea seized almost $50 million of crypto assets from citizens accused of tax evasion.

So the benefits of the private cryptocurrency market are being deconstructed by governments. Add to that, even after gaining traction, the private crypto market continues to be used primarily as a tool of corruption and speculation. With that, this chart set up argues for a typical bubble outcome (crash).

I founded billionairesportfolio.com — an online investment advisory site that gives the average investor access to sophisticated hedge fund analysis and strategies, all in an easy to understand format. I am also CEO of Logic Fund Management. I started my career with a London-based family office hedge fund that managed money for a French billionaire.

Source: Say Goodbye To Bitcoin And Say Hello To The Digital Dollar

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Critics:

A pair of U.S. congressmen have introduced a bill that would require the Treasury Department to evaluate the digital yuan, digital dollar and the actual dollar’s role in the global economy.

The bipartisan bill, introduced by Reps. French Hill (R-Ark.) and Jim Himes (D-Conn.), seeks to ensure the U.S. dollar remains the world’s reserve currency and directs the Treasury Department to publish a report that evaluates current policy and governance around the currency. This report would include details around central bank digital currencies (CBDC), among other issues.

Under the terms of the bill, dubbed the “21st Century Dollar Act,” the Treasury secretary (currently Janet Yellen) would submit a report to the Senate Banking and House Financial Services committees that includes “a description of efforts by major foreign central banks, including the People’s Bank of China, to create an official digital currency, as well as any risks to the national interest of the United States posed by such efforts.”

The report would update these committees on the Federal Reserve’s current status in researching a digital dollar. The bill would also require the Treasury Department to develop a strategy for boosting the dollar’s reserve status.

The report would detail “any implications for the strategy established by the secretary pursuant to subsection (a) arising from the relative state of development of an official digital currency by the United States and other nations, including the People’s Republic of China,” the bill said.

Keeping the dollar as the world’s reserve currency would be “good for American companies and workers as well as U.S. global influence,” Hill said in a statement.

USD Coin (USDC) is a digital stablecoin that is pegged to the United States dollar and runs on the Ethereum, Stellar, Algorand, and Solana blockchains. USD Coin is managed by a consortium called Centre,which was founded by Circle and includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain, an investor in Circle.

Circle claims that each USDC is backed by a dollar held in reserve. USDC reserves are regularly attested (but not audited) by Grant Thornton, LLP, and the monthly attestations can be found on the Centre Consortium’s website. USDC was first announced on the 15th of May 2018 by Circle, and was launched in September of 2018.

On March 29, 2021, Visa announced that it would allow the use of USDC to settle transactions on its payment network. As of June 2021 there are 24.1 billion USDC in circulation.

See also

Barclays Sees £900m Growth Opportunity In Payments

Barclays has identified payments as a key growth opportunity worth £900 million over three years thank to areas such as merchant acquiring and the BNPL market.

On an analyst conference call about the bank’s first quarter results, CEO Jes Staley revealed that payment now account for eight per cent of Barclays’ total income – £1.7 billion last year.

Staley says this number can grow by around £900 million over the next three years, with double digit growth in three areas: unified payments, “next-gen” commerce, and wholesale payment fees.

In November last year the bank moved into the buy now, pay later sector through a partnership with Amazon in Germany, offering customers a rolling credit line for future purchases from the e-commerce giant. The initiative is now being extended to the UK.

“This will grow our presence in e-commerce in two of the largest markets in Europe,” says Staley. “Our partnership with Amazon reflects our growing focus on payments.”
Barclays is the only major bank-owned acquirer in the UK and has managed to slash on-boarding times in the last couple of years from 14 days to two days through digitisation.

However, Staley says “we still have a long way to go,” adding that: “Perhaps the most important investment Barclays will make in the next five years is to connect our small business banking and our merchant acquiring business, particularly as it relates to e-commerce.”

Meanwhile, the bank is working on an initiative called Barclays Cubed to better connect merchants and customers.

Staley offers up a scenario: “A merchant is able to connect with a consumer digitally by offering a discount via their Barclays mobile banking app. That consumer can then make a purchase on the merchant’s website and, if they choose to, we can instantly approve them to pay for their shopping using instalments.

“Finally, the digital receipt and the loyalty points are automatically added to their Barclays wallet.”

Source: Barclays sees £900m growth opportunity in payments

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Jul.29 — Jes Staley, chief executive officer of Barclays Plc, discusses recent volatility in financial markets, investment banking market share, and efforts to improve diversity. He speaks on “Bloomberg Markets: European Open” after the London-based bank’s securities division reported a 60% gain in foreign-exchange, rates and credit trading revenue as the aftermath of the coronavirus pandemic whipsawed markets.
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