Bank

Corporate vs. Startups: Are big banks better at managing our money?

This week has brought us the two significant headlines which revive the old dispute in financial technology circles: are FinTech startups indeed better than legacy banks in servicing our day-to-day financial needs?

The first story is about TSB Bank, a relatively recent spin-off from Lloyds TSB banking empire brought to life by the Great Recession of 2008. After a few years of trying to find its place on the British retail market, TSB has promptly sold itself Sabadell, a Barcelona-based Spanish concern.

As it happens, between those M&A deals the newly minted British bank has been in IT limbo. And since, as we all know, a nowadays bank is pretty much equals its IT system, it doesn’t look too good. TSB has been ‘gifted’ its IT from Lloyds during the spin-off and managed to support it until the Sabadell deal. Now, the time has come to migrate 1.3Bn customer records to Sabadell’s systems, and this is when the fun has begun. In short, millions of customers are locked out of their accounts since the last Friday. It means almost six days as of the writing of this story. Wow. Just wow.

Another #fail story of the week is about a widely trumpeted P2P money transfer service called Zelle.

Zelle was launched in 2016 by a consortium of big-name American retail banks, including Bank of America, JP Morgan Chase, and Wells Fargo who wanted fight off PayPal and Venmo on what they saw as a crucial P2P remittance market for millennials. I’ll talk about this market segment on another occasion though.

This weak it was revealed that Zelle severely lacks in the cyber-security department. The banks were so keen to launch it sooner so a few of them apparently just plugged it into their mobile apps without any compartmentation, fraud controls or even user notifications. According to Genevieve Gimbert, a partner in PwS financial crimes unit, they “…just implemented it without any protection”.

As a consequence, Zelle is vulnerable to all kinds of security problems, including hacking, social fraud, and money laundering. Is must be great news for Wells Fargo, who has just settled a lending-related fine worth $1Bn with the Office of the Comptroller of the Currency and Consumer Financial Protection Bureau last week and still struggling to meet its 2015 consent order related to money-laundering controls

You may ask, ok Andrey, what is your case to prove that FinTech startups, in fact, run a financial business better? Well, my argument would be, naturally, the lack of any headlines this week.

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