JJ Hornblass
Hi, everyone. I’m JJ Hornblass and welcome to FinTech unfiltered the podcast from Bank innovation, the leading digital news service on banking and FinTech. This is our weekly wrap for what’s happening in banking innovation this week and before beginning I want to thank our bank innovation, advertisers, mambu, card Lynx, and onespan for their support, so thank you so much to them. And I am happy to be joined by Bianca Chan, the deputy editor of bank innovation. Welcome Bianca. It is Thursday, November 19 2020. This week, early data showed that Madonna’s coronavirus vaccine recorded a 94.5% effective rate, which means that both the Madonna and the Pfizer vaccines have efficacy rates above 90%. President Trump continued to try to unwind the Election Day vote. We also saw us home sale numbers. for October they hit a 14 year high. The CDC this week urged Americans to avoid Thanksgiving travel next week. And finally an Indonesian man turned an unusual bit of property damage into a fortune when he sold the meteorite that crashed through his roof for over $1 million. He was working outside his home in Sumatra, Indonesia, when the meteorite crashed through the roof of his house and then landed outside. When he picked it up. It was still hot. And he’s sold it for over a million dollars. That is not the news out of the FinTech world, the end the FinTech world, one of the big news stories was AWS, Amazon, web services, winning the cloud computing contract a five year deal from Standard Chartered Bank. Bianca, give us some background on this deal. And explain, please Why Standard Chartered should have such significant cloud computing contracts with both AWS and Microsoft Azure.

Bianca Chan
Yeah, well, it’s the idea that a bank doesn’t want to get locked into a single cloud provider. That just sounds way too risky in terms of you know, having at least a portion of your processing go, you know, tied into a single provider. So the background on this deal here is yes, a five year deal, as you mentioned between Standard Chartered and AWS. Standard Chartered was already using AWS tools to build out some of its new digital banking initiatives like banking as a service, and also its virtual bank mocks in Hong Kong. And this is basically just part of their multi cloud strategy or a goal to have almost every single application running on the cloud by 2025. The systems that will make it to the cloud are those connected to the mainframe, those will remain on premises till the end of life. me if you have redundancy like this, across the cloud applications, where you have every single application in redundant format.

JJ Hornblass
I mean, we’re at what point does it not become cost beneficial to a Standard Chartered Bank at the scope of standard charter? I mean, what they have over 700 billion of assets. So, you know, one of the largest banks in the world. So, you know, at what point does this sort of, you know, the, the benefits kind of get outweighed by the financial costs,

Bianca Chan
I think it’s pretty cost efficient for to achieve this idea of fault tolerance, which is maintaining performance, you know, in the face of error. So you see that in the way that standard charter has kind of laid out. You know, it’s decentralization of applications across on premises, and then across AWS, and Microsoft desert, but also within AWS. Let’s just say they’ve actually split split by region, so they have four regions where they’re tapping AWS technologies and data centers. That’s an interesting because they’ve paired up two geographically close locations. So you have, you’ve got Hong Kong and Singapore. And then you also have the UK and Ireland. So the idea with this is between within each region, cloud providers have several availability zones. So Standard Chartered, is using a couple of availability zones within one region. So that let’s say if, you know, availability zone, one in three go down, they still have to up and running. But then also, the idea of coupling geographically close locations is let’s just say all of AWS, Singapore goes down AWS, Hong Kong should be able to pick up that load. So that Sarah chart can maintain, you know, its own operations, even in the face of something horrible happening, like, yeah,

JJ Hornblass
Would you expect this sort of cloud based, full end to end application global redundancy to become the norm in banking?

Bianca Chan
I don’t know, as far as how close we can actually get to end to end. But I do, I do see a ton of banks, you know, putting a lot of investment into, you know, this migration to cloud. So I do think that it’s definitely top of mind. I mean, you hear cap one regions also has a goal in this regard. So it’s just it’s interesting to see, I think it’s a lot more cost efficient in terms of state, like being able to innovate more quickly set up new applications using the tools that the cloud providers offer.

JJ Hornblass
N26, the German challenger bank this week, disclose that they have some plans for a credit card product in the US what’s driving, and 26. Two, and first of all, is this is it confirmed that they’re going to be launching this credit card product, and if so, like what is driving them to launch this product.

Bianca Chan
So at this stage is it’s still just exploration. It’s something that they’re thinking about launching is what the CFO said at the future FinTech event hosted by CB insights this week. And what’s driving it is so it’s interesting. So 26, operates in 25 different markets. And obviously, you know, the needs across all these demographics are the same in that, you know, they need somewhere to move money, they need somewhere to place money, these these very basic sort of things, but there’s nuances among the different demographics and what they’re learning since coming to the US. August 2019. Is that it the US population is a credit hungry, right. And so I think that they’re seeing that learning that sort of behavior is driving this decision. But it’s a really competitive field in the US like, of course, there’s there’s a ton of opportunity, but how much of that opportunity and 26 can actually grab is questionable. So they’ve they’ve gained 500,000. us accounts in the first year, they haven’t released figures sooner than August 2020. So so in in this past year, they’ve you know, they’ve more than doubled, I guess, from January time, but looking at chime chimes reached 10 million customers as of September 2020. And that’s doubled year over year. China’s also also already offers a credit product. In terms of like cash advances, I was looking into a couple of other different challenger banks in the US to get a scope of the competitive landscape. So chime current Dave money line, they all offer cash advance products, as far as credit cards chime. So fi money line, which has 6 million customers is, you know, ramping up a point of sale one day operation to hit the market first quarter 2021. So, I think I mean, it makes sense to launch your credit card product in the US, but how much market share, you know, that’s gonna Garner and 26 when it’s playing with these really, you know, big challenger banks is up for debate.

JJ Hornblass
There’s not much differentiation there is what you’re saying. I you know, what’s interesting, there was a line in a in your story. This was the CFO who said we have a profitable customer base in Europe. In the US, it’s a very different thing. And he added that the main focus for the US is growing the customer base and improving the user experience, meaning to the exclusion of profitability, at least for now. This seems like it’s going to be a very you know Well, let’s say it this way, a credit card product is not going to be a panacea in this regard. We have there plenty of credit card providers in the United States, there is no dearth of credit card providers in the United States. So I mean, to what degree is this really going to work? And is your sense from kind of the overall challenger, bank market that profitability is going to be elusive? For most of these providers?

Bianca Chan
Yeah, so it’s interesting, profitability among challenger banks. I’ll tackle that one first. A lot of analysts have said that that kind of hinges on having their customers use the challenger bank account as the primary account. So we’ve seen challenger banks like chime, who say, Who says that half of their customer base does use the time bank account as their primary account, but you see them incentivize this. So they say, you know, you can have your paycheck two days early, if you link us to your direct deposit. So we’re seeing, I think, some signs where maybe this is working like chime, but I really think that it’s a hard, it’s a hard thing to sell as a challenger bank, when you have these incumbents that are so well entrenched in the consumers mind, you know, so I really think that there’s like this trust factor. Sorry, what was the first part of your question?

JJ Hornblass
Is the product gonna really make a significant difference in difference in their profitability?

Bianca Chan
Right? Um, well, I think, I don’t think so. But I think in order to kind of keep up with the rest of the more well established competition that they’re playing with in the US, it makes sense that they would want to add that it’s almost becoming like table stakes. It might look, it might look a little suspicious, or funny if they weren’t offering, you know, or if they weren’t kind of expanding more further into banking services.

JJ Hornblass
You know, yet the, the the market, I’m saying sort of the general startup market, or has in the United States has rewarded companies that have been able to secure a notable customer base with high valuations and we’ve seen this repeatedly. So it might not be an issue around profitability immediately, but just valuation and continuing to pursue venture funding that improves that that valuation metric for these companies. Um, yes, that’s my Yeah. I Bianca so what what what do you have a plan for next week?

Bianca Chan
Next week, we’re gonna be running our on November edition of five questions with I’m going to keep my mouth shut on who, who that’s with. And we’re also going to be looking at how banks are revamping their their mobile platforms, taking a page on social media platforms and how how banks are trying to maintain or capitalize on that, that mobile traction that we’ve seen over the pandemic.

JJ Hornblass
And I want to encourage everyone to check out the emerging FinTech directory on bank innovation, which has over 200 really cool FinTech startups in the directory that are worth checking out. And of course, visit with us on Twitter and LinkedIn and and have an on bank innovation dotnet to get all our coverage. Thank you all so much for joining us for this edition of FinTech unfiltered. We will see you next time