A Digital Yuan?

A few weeks ago, media outlets – especially tech-oriented organs – became agitated about an announcement from China’s central bank, the People’s Bank of China (PBOC).  Its spokespeople told the world that the PBOC intends to launch the world’s first central-bank-directed digital currency, CBDC. Many western commentators in response followed the lead of tech CEO Jeremy Allaire, who described the planned currency move as a breakthrough and speculated that the CBDC would “internationalize” the yuan and perhaps allow it to gain global dominance over the dollar.  This is all hype. China has done something considerably less momentous with the CBDC than popular descriptions imply. The digital yuan embodies little new and appears to aim less at unseating the dollar as the world’s premier international currency than in securing domestic control.

First on the list of things that are not new is the structure of this digital unit.  Unlike bitcoin and other cyber currencies, China’s CBDC will be tied to the yuan. Spokespeople for the new unit claim, correctly, that it will make this digital currency more stable than others.  It will also make it exactly like other national currencies. The man in charge of the project, Central Bank Deputy Director Mu Changchun, also described a two-tiered system for the distribution of the digital unit.  The central bank, he explained, would issue the currency but it would channel the unit to the public through licensed commercial banks and what he described as “operating institutions.”

Rather than something new, this is precisely how every country in the world channels money and liquidity into their financial systems. 

The Federal Reserve, the European Central Bank, the Banks of England and Japan, and all others issue reserves and license commercial banks to decimate money to the public as a strict multiple of those reserves. All monies are tied to central bank reserves, just as Deputy Director Mu proudly claimed for the CBDC.

If the PBOC’s system for distributing the digital unit is conventional in the extreme, neither is its digital nature especially revolutionary.  Most currencies in the world have long been mostly digital for decades. Reserves at all major central banks are digital as are people’s accounts at commercial banks and other financial institutions.  Account holders have the option of using paper checks and paper money, but debit cards have long made transactions entirely digital, everywhere in the world, increasingly through electronic wallets at which the PBOC aims with its CBDC.

Nor do the claims – or perhaps it is fears – of the imminent “internationalization” of the yuan seem realistic, on the basis of the CBDC or otherwise.  Jeremy Allaire and the columnists who echo him point out that a digital unit could transact business anywhere in the world and so presumably steal a march on other, less digital currencies.  Of course, the capabilities of the technology are irrefutable and have been for years, as most major currencies have been digital for years. Any digitized unit could be used for transactions anywhere in the world, at least as long as there is an Internet connection.  Even though the dollar, the euro, sterling, the yen, are not wholly digital they could have accomplished such an “internationalization” decades ago within the long-established system, if, that is, it were a matter of technology only. But technology is far from the whole story.  Law, convention, and convenience matter too.

Several countries, including the United States, have laws about what currency can be used to settle transactions domestically.  Legislation allows people to barter and settle transactions in bitcoin and the like, but not in a foreign currency. Most wholesalers and retailers in this country and nations with similar laws would resist any push to settle in any currency but their own.  Even where such laws do not interfere, producers and merchants across the globe will hesitate to adopt the yuan (or any other foreign currency) however digitally convenient it is. They, after all, have recurring liabilities in their local currency – rent, payroll, inventory costs, that sort of thing.  Even if they were bullied into yuan-based transactions, they would, if they were prudent, quickly convert the yuan into local currency, effectively doing the conversion for their customer after the sale rather that the customary practice of asking the buyer to convert currency before the sale.

Since China’s leadership in Beijing knows all this, it clearly has purposes other than global dominance for the CBDC.  History says that its objective is domestic control. The Communist Party objects to Chinese people and businesses doing any transaction over which it lacks control or, at the very least, oversight.  It has banned bitcoin and similar cyber currencies because they would thwart that desire for complete oversight and control. Paper currency, however, remains a problem for the authorities in this regard.  It enables people and businesses to make anonymous transactions and also allows them to move money out of the country without the knowledge of the PBOC or the Communist Party. No doubt China’s leadership believes (hopes?) that the CBDC will tempt the Chinese to give up on paper currency and go digital.  Once that is done, the authorities will indeed have complete control and oversight. It is this rather mundane but significant police matter, more than hopes of global dominance that lies behind the CBDC.

Meanwhile, businesses in the West continue to digitize their practices, a subject that next month’s paper will highlight with a discussion for new ventures by Google and Facebook (no, not Libra).

More on the Vested blog:
Why economists need English majors
When it comes to ESG, it’s all about ownership and engagement
The rise of contactless: a penny for your thoughts?

Recent Case Studies

From Classroom to Campaign: A Vested Workshop

A few weeks ago, I returned to my alma mater to run a workshop for this year’s cohort of M.Sc. Strategic Communication students at the University of Liverpool in London, with our UK CEO, Elspeth Rothwell.

I participated in the same session last year and it played a really important role in my decision to join an agency after graduating, so I knew first hand how valuable the session would be for all the students and their future careers.


vested campaign classroom

We started the session with introductions, before we talked through the process of taking on a client or prospect brief, including brainstorming, environmental analyses, campaign timeline projecting and budgeting. The class was then divided into five groups and given a short brief to work on a ‘quick’ campaign. Each brief included an issue and cause and the students had 45 minutes to develop a creative campaign concept and think about the activations.

During the workshopping, we were able to get up-close and personal with each group, answering questions and helping them develop their ideas.

After the 45 minutes were up, a few of the groups presented their ideas and campaigns to the class. As expected, each came up with different ideas from the last; sociology research teaches us that individuals with different backgrounds and experiences will always contribute different ideas even if given the same problem to solve.


vested campaign classroom

Giving communications students the opportunity to think creatively and strategically, and then present their ideas to their peers will always be valuable. Our industry is fuelled by different perspectives and ideas from individuals from different backgrounds, and we’re regularly presenting to clients, prospects, and colleagues. So those seeking careers in PR and marketing will find themselves exercising and building these skills on a regular basis,

As with most industries, entry-level communications jobs are competitive and there are hundreds of graduates and school leavers looking to secure placements every year. We spend time with strategic communications students at the University of Liverpool to help them prepare for life in an agency or as part of a comms team and help them build the skills needed to thrive. Taking the time to give back and help those that are just starting out is really important to us; we were all one of these budding graduates at one time!

By Kris Lam, Account Assistant

More blogs from our UK team:
When it comes to ESG, it’s all about ownership and engagement
The rise of contactless: a penny for your thoughts?
A new home for the UK team

Recent Case Studies

The Money Hackers take Vegas!

The Vested team recently headed to Las Vegas to celebrate the launch of our CEO Dan Simon’s upcoming book, The Money Hackers (HarperCollins 2020). Strategically timed with this year’s Money2020 conference, The Money Hackers’ party at CHICA drew a line through the casino and an impressive c-suite crowd including folks from American Express, HSBC, Synchrony, Nova Credit, Mastercard, The Financial Health Network, Broadridge, and more.

These CCOs and CMOs also had the opportunity to share their perspective on the fintech marcomms industry and its future with MEDICI, the No. 1 online fintech content hub.

Host Shannon Rosic and team interviewed more than 20 influential guests on their thoughts. Don’t miss some highlights below:



Recent Case Studies

When it comes to ESG, it’s all about ownership and engagement

Earlier this week I had the great privilege to join 400 investment management professionals at the CFA ESG Investing Conference in London. This was the opportunity for the investment community to meet and hear from some of the leading voices on ESG, with a succession of insightful perspectives from investment managers, asset owners, associations and even the Governor of the Bank of England, Mark Carney. It was also an opportunity to assess the current industry thinking and get an idea of the direction responsible investment is likely to take in the next 5 to 10 years.

First of all, it is worth noting that the great majority of these attendees were traditional investment management professionals rather than the ESG experts and enthusiasts usually encountered at this type of industry gathering.

This unusual crowd is certainly indicative of the great momentum behind responsible investment and also perhaps one of the reasons why conversations seemed to go one step further than the slightly repetitive ESG narrative of the past couple of years. It would be impossible for me to cover all aspects of yesterday’s event but here are a few observations on some of the challenges and opportunities for the investment industry.

  1. Whether you are an active or a passive manager, the expectations from end-investors and other key stakeholders will be for you to demonstrate active ownership and a successful engagement strategy. Beyond the ESG expertise, taking a position on key issues impacting businesses you invest in but also your ongoing engagement with these businesses will be critical to remaining relevant in an ever more competitive industry. If divestment or exclusion is still an accepted tool, engagement is seen a more compatible with fulfilling fiduciary duties and more supportive of responsible investment. This is true for both public and private markets.
  2. But engaging with businesses you invest in is not enough. There is also a great opportunity in having important conversations with investee companies’ key stakeholders such as industry bodies, regulators and policymakers. This is particularly relevant for passive managers as understanding and contributing to shaping a sustainable economic environment is seen as one of the best ways to mitigate any potential risks and ensure that the index you track continues to perform. From an asset owner and investment consultant perspective, managers able to demonstrate that they regularly speak to the regulator and policymakers will score valuable brownie points.
  3. Which brings us to engage with clients. The days of “tell me what you want and we’ll do it for you” are over in the institutional space. Asset owners will increasingly demand managers act before being asked to and will expect them to proactively provide ideas and recommendations on ESG investing. They are hiring you for your unique investment expertise and philosophy after all.  Beyond reporting requirements, ESG provides your team of communications consultants with an opportunity to get creative. Infographics and comparisons seem to be appreciated by trustees who prefer to know “how many cars off the streets” your strategy represents rather than an intangible CO2 metric.
  4. ESG integration to a firm’s overall investment decision making process is critical to its success. That doesn’t mean that it should take precedent but if you’re going to have analysts or even an in-house ESG specialist doing the work, it is essential that it is fully integrated into your process rather than being just another theme to consider. This suggests a cultural shift and the need for managers to embed elements of ESG investing in their core investment strategy. It also suggests that we’ll be moving from isolated ESG investment products to ESG is an integral part of the investment strategy.
  5. We’re stronger together. In the UK, the fragmented pension industry means that it has been more difficult for asset owners and their managers to have a significant impact compared to markets like the Netherlands for example. While industry consolidation is a route towards greater leverage, there is hope that collaboration and a coordinated approach between participants can deliver success (think UNPRI). Putting competition aside and leveraging technology to create a joint approach with like-minded entities should also be a focus in the coming years.

ESG tools and solutions are being built, standards being established and, while there is still huge room for improvement, the focus seems to be there. But to be credible in the eyes of asset owners and end-investors, investment managers need to develop new strategies and demonstrate successful engagement with a wide range of stakeholders impacting their investment. Only then will they be able to capture a market eager to drive positive change.

Recent Case Studies

How To Create A Marketing Persona In 5 Simple Steps

Marketing personas are the foundation of any solid inbound marketing strategy. They help you find your ideal clients—the ones you absolutely love to work with. They stop you from pursuing uninterested leads, and they’re the most efficient way to grow your business.

Don’t believe me? Here are three jaw-dropping stats about marketing personas:

  1. 3-4 personas usually account for over 90% of a company’s sales
  2. 82% of companies using personas have seen an improved value proposition
  3. 72% of consumers are more likely to believe a brand is relevant when it delivers highly personalized content

Now that you’re convinced, let’s talk about how to create a marketing persona in 5 easy steps.

Step 1: Identify Your Marketing Goals

How do you want these personas to improve your marketing? Do you want them to drive sales revenue? Increase email click-through rates or web traffic? Build customer loyalty? Whatever it is, identify your goals so you can create your marketing personas to match.

Having these goals laid out in front of you allows you to pinpoint the information you need to gather in Step 2. If one of your marketing goals is to increase web traffic, for example, you can collect data on how your target audience interacts with brands online.

Laying these goals out ahead of time ensures both you and your customers benefit from these personas. You reach your KPIs and your customers feel connected to your brand.

Step 2: Do Research & Get To Know Your Customer

This step is all about the nitty-gritty. It’s where you roll up your sleeves, do the research, and get to know who your customers really are (not just who you think they are).

To gather this information, start by collecting real data about your ideal customers. Identify their:

  • Demographic information (age, gender, location, ethnicity, income, occupation, education level, marital status, and so on).
  • Psychographic information (their hobbies, interests, attitudes, and beliefs)
  • Social media activity (what platform they use most, why, how often, etc.)
  • Buying habits (are they impulse shoppers or habitual researchers? How much discretionary income do they spend each month?)
  • Pain points (identify how your product improves their lives and where it falls short)

So, by now you’re probably wondering, “How do I collect this information?” If you have a customer-facing team, start there. Have team members compile a list of common user pain points, needs, and characteristics.

Other data collecting methods include:

  • Hosting focus groups (invite your most loyal customers to an intimate gathering where you can ask them questions one-on-one)
  • Distributing multiple-choice surveys (you can do this via email, social media, or old-school snail mail)
  • Examining existing current data (look at your CRM database, past sales, returns, user profiles, and so on)

Step 3: Create Multiple Marketing Personas

Now that you’ve collected all the data, it’s time to create your personas. For this step, we recommend creating a graphical profile you can share with your marketing team. There are dozens of free marketing persona templates online. Some popular ones include HubspotSocialbakers, and IMPACT.

As a general rule, we recommend creating 3-4 marketing personas. Unless you’re a small company with one product or service, one persona won’t be enough. 3-4 personas are broad enough to cover your core ideal clients but specific enough to speak directly to them.

It may sound silly, but give every persona a name and a profile picture. This gives your marketing team a crystal clear picture of who you’re marketing to.

Next, list out their demographic information (refer to Step 3 for a list of items to include). Finally, move into their psychographic information (this includes their technographic information, social media activity, buying habits, and pain points).

Step 4: Use These Marketing Personas In Your Campaigns

Here’s where we tie everything back into Step 1 and take action. Now that you have your personas in hand, use them in your marketing campaigns. You may even want to share these personas with other departments in your company that may benefit from these profiles.

Your customer service team, for example, can use these personas as a guide when communicating with customers via phone or email.

sales department can use these personas to drive home potential sales.

The copywriting team can use these personas to tell stories that connect with your audience, speak to customers using language they understand, and create originality.

Step 5: Update Your Persona Twice A Year

Over 74% of customers feel frustrated when marketing content isn’t personalized. To keep your personas relevant, update them every six months.

This may seem like overkill, but people aren’t static and your personas shouldn’t be either. Trends come and go, technology advances, and buying habits change as a result. Your customers may be using Instagram today, but a year from now they may be using an app that hasn’t even been released yet.

Think of your personas as actual living, breathing people. Their beliefs and journeys change over time. Take note as these changes happen and make sure your content reflects them.

The Bottom Line

Marketing personas, if used correctly, allow you to see the world through your customers’ eyes. It gives you a way to speak to them with laser focus and make them feel like you designed your products specifically for them. When your customers feel loved, heard, and appreciated, everyone wins.

Creating personas involves a lot of work upfront, but it more than pays off in the long-run. “If only 1 out of 10 people in your target audience needs your solution, and 9 of them aren’t prospects, you’re wasting 90% of your time and resources,” writes Eric Siu, CEO and marketing guru of Single Grain.

How has your company leveraged marketing personas to connect with customers? Let us know on social.

Recent Case Studies

5 Myths About Working for a Small Agency: Debunked

Close your eyes for a moment and imagine your ideal work environment. What does it look like? Is it buzzing with people who mega-appreciate you and push you to do your best? Does it have killer benefits and a stellar work-life balance? Is it a place you picture yourself staying at… well, forever… simply because, no other place could beat it?

Yeah, that’s what we envision too.

Now let me ask you this… how big is this perfect work environment? Is it a large corporate firm, a small agency, or somewhere in the middle?

You may think you need to work at a Fortune 500 to have this coveted ideal work environment, but that’s not true.

We’re here to tell you that you can have all that (and more) at a small agency like Vested.

Curious to know more? Read on to find out how Vested is debunking 5 common myths about working at a small agency.

Myth 1: They Don’t Work With Big-Name Brands

False. Vested works with some of the biggest financial brands in the industry, from established global institutions all the way down to disruptive fintech startups.

We do speechwriting for the CMO of American Express and the CEO of Bloomberg. We created an award-winning website for Citadel. Morgan Stanley hired us to help launch their new robo-advisory service (along with a host of other digital products).

As the fastest-growing PR agency in the world, we work with big names like Morningstar, Bloomberg, and Goldman Sachs, and we couldn’t be more proud.

Technology is transforming the way people think about financial services. We’re focused on helping the financial services industry transition seamlessly into today’s digital age.

Myth 2: There’s No Work-Life Balance

This is false, too. Vested offers unlimited vacation time, unlimited sick time and a totally, no-questions-asked work from home policy.

We know you want control over the things that matter most to you—your time, your health, and your emotional well-being.

We know you have dreams that extend far beyond what you do at work. You want to travel. You want to explore, create, and try new things. We want you to do all that too (and more).

That’s why every full-time employee gets a paid 3-month sabbatical every 4 years. (I can tell you that’s something most companies don’t do—not even the bigger guys.) Not to toot our own horn, but Vested was even named Top Place to Work by PR News.

Myth 3: There’s No Diversity Or Company Culture

Vested was founded by three immigrants and second generation-ers, each from different parts of the globe. From top to bottom, diversity is a part of our DNA.

We’re diverse in citizenship—60 percent of Vested employees are dual citizens.

Our team is diverse in religion—we have seven different religions represented in our office.

The Vested team is diverse in background—we don’t just hire people with finance degrees. Collectively, our employees cover 25 different areas of study, from business and accounting all the way down to film and women’s studies.

We’re just as diverse in thoughts and opinions as we are in race, genders, and socioeconomic backgrounds.

We know that a lack of diversity and inclusion is at the foundation of many problems we see today. The financial services industry has a reputation for being homogeneous, and we’re working hard to change that.

Our rapid success is directly related to our intentional and obsessive commitment to diversity and inclusion. We couldn’t help our widely diverse range of clients if we ourselves weren’t diverse too.

Myth 4: They Don’t Have Great Benefits Or Pay

Remember the 3-month sabbatical and the unlimited out-of-office policies we mentioned in Myth #2? Well, wait… there’s more.

At Vested, we believe our employees should feel like bonafide rock stars (because you definitely are one). That’s why every Vested employee gets a Vested Uber account, free Starbucks and Bluestone account. Not to mention we have a killer snack selection featuring beer and cold brew on tap (need I say more?).

We’re growing at lightning speed. When you join #TeamVested, you get to grow at lightning speed too. Our bonuses and equity programs mean there’s no ceiling to what you can earn. When we win, you win too. On top of our awesome benefits, we also offer a competitive salary. And when someone graduates from our Vested Graduate Program, they’re immediately given a $5,000 signing bonus and a full-time job.

Myth 5: They Lack Transparency

At Vested, we believe the only way to attract and retain the best is by sharing the most. You want to own a piece of what you work for. You want to have a stake in its success.

That’s why every full-time employee at Vested is a dividend-yielding shareholder. As Vested grows, so do you. We have a quarterly profit share pool, and we pay commissions on new business and candidate referrals. That’s just our way of saying thanks for helping our firm grow.

Many people think working for a small agency means no job security, and we disagree.

In the name of transparency, every Vested employee gets a quarterly financial performance report from our CFO. We even break down how each performance maps back to employee bonuses and our profit share pool. We want you to know exactly how our company is doing—for better or for worse.

Why We’re In-Vested In You

Our business model is grounded in three things: hiring great people, investing in them, and giving them the tools to succeed. We actually call this our Manivesto because we’re committed to investing in our employees and keeping them around for the long haul.

You want to flex your creative muscles and build something greater than yourself. We know that. That’s why Vested uses an integrated approach to communications. We apply a mix of marketing, PR, social, and paid media techniques to help businesses raise their profile, improve their reputation, and drive sales.

We’re growing at lightning speed and there’s no end in sight. The small agency you start with today may very well be a large agency a decade from now. If you’re an innovative problem solver who wants an active role in building something greater than yourself, then we want to talk to you.   Want to join #TeamVested? Check out our job openings at https://fullyvested.com/careers/.

Recent Case Studies

10 Reasons Why Your Company Needs A Blog (With Statistics!)

You may be on the fence about whether your company needs a blog. But, what if I told you blogs are the most cost-effective ways to reach your audience?

It’s true! Over 50% of marketers say blogs have increased their brand visibility, thought leadership, SEO, and web traffic. They add value to your company and turn your website into a priceless hub of information.

Still need convincing? Here are 10 reasons why your company needs a blog. Plus, we’ve backed all 10 reasons with statistics. Go ahead, take a look!

1. Drives Traffic To Your Website

Blogs are a tried and true way of driving traffic back to your website. And because it’s a long-term strategy, website traffic actually improves the longer your blog sticks around. Here’s why. For every 10 blog posts you write, one has the potential to compound—meaning website traffic increases over time due to organic searches. Once a blog post has compounded, it generates as much traffic as six regular posts.

2. Gives Your Brand a Voice

Your brand’s voice plays a huge role in your ability to connect with consumers. In a recent study, 80% of consumers said “authenticity of content” was the most influential factor in their decision to follow a brand.


Brands often lack personality—especially in the financial services space. Add in ever-changing regulation and compliance issues, and it makes it even harder.

Blogs give you the ability to tell your company’s story in a way that resonates with readers. You get to add emotion, develop your brand’s tone, and use storytelling to explain your products and services in a way that empowers your audience to take action.

3. Builds Trust With Your Audience

Trying to build trust with your audience is no easy feat—especially now when most businesses are online. A recent study shows 47% of buyers consume 3 to 5 pieces of content before taking the first step towards making a purchase.

Blogs are at the top of the sales funnel, so they’re a great way to raise awareness about your company. As visitors come back to your website for help, they begin to trust you. That trust moves them one step further down your sales funnel.

4. Generates Leads

Companies with blogs get 67% more leads than those without. Blogs can be used to showcase products and services, establish your online presence, and improve your credibility. All these forces work together to generate leads.

Once you’ve hooked a potential customer with a valuable blog post, a strong call to action—such as a discount code or a free downloadable—can be all it takes to get them to share their email address. Once you have that, you can follow-up and close the sale. 5. Improves Social Media Presence

Quality content and a strong social media presence are two of the four highest factors consumers use when determining the credibility of a blog. If you have a strong social media presence but no blog, you’re missing out on the opportunity to engage readers by asking them to share content they like, leave comments, and spark conversation.

6. Boosts SEO Have you ever googled something, then gone to the second or third page of the search results to find your answer? For 75% of us, the answer is no. All the info we need on a topic is usually right there on the first page.

But, how do you get your company’s content to rank there? Through writing blog posts that are search engine optimized. Google’s search engines are always on the hunt for new content. The websites that rank the highest are typically those who produce invaluable information on a regular basis.

7. Costs Less Than Paid Advertising

Did you know 70% of consumers learn about a company through articles rather than ads? This is good news for marketers as ads generally cost more than blogs. In fact, businesses who nurture leads (through blog posts, for example) make 50% more sales at 33% less cost than non-nurtured leads. Blogs are one of the best ways to walk your readers through every step of the buyer’s journey.

8. Stays Online Forever Blogs are around for virtually forever. The post you write today will still be online 10+ years from now. And as long as the content is evergreen, your audience will still find the information valuable. That’s why 28% of marketers have reduced their advertising budget and allocated those funds towards content marketing. 9. Makes Great Email Marketing Content Do you have a long list of emails you’ve collected over the years? If so, a blog can be a great way to keep those users active and engaged with your brand. Businesses that link to their blog experience 2x the email traffic than those who don’t. Every time you write a blog post, send your email list a link to it. This builds customer loyalty and keeps your company top-of-mind.

10. Encourages Inbound Links

Companies that blog receive 97% more inbound links to their website than companies that don’t. Let that sink in. If a credible website reads your content and decides to link to it in one of their posts, it boosts your SEO and credibility with Google. The more inbound links you have, the higher your content will rank in search results.

The Bottom Line

Blogging is one of the most cost-effective ways to connect with your audience. You reap the benefits of increased sales, website traffic, and customer retention while customers learn to trust you and the products and services you offer. What more could you ask for?

Has your company created a blog yet? If so, how is it paying off? Let us know on social!<

Recent Case Studies

A new home for the UK team

Home sweet home – a highly emotive phrase – and as a serial property renovator, one which I apply as much at work as I do at home. While at home, three properties in 10 years seemed like a lot, doing things the Vested way makes this our fifth office in less than two years.

Why? Well office number one was where it all started, with space for four and no natural light, then we graduated to a window. Our next office, by comparison, seemed luxurious, with space for eight and a prime view. Then this time last year we moved location to an office in the heart of the city that could accommodate our growing team. A full year on and time for a change, we have made it to office number five.

Vested London is now based in the aptly named Treasure House in Hatton Garden. We have a Vested green wall, plenty of plants, views of the jewelry district, a great event space and a place that feels more like home. A home with creativity at its heart, with personal service, with lovely neighbours and space to grow – a place that feels just a little more us.

So this blog is really a big thank you to the team for weathering the move, for the box packing and unpacking, and for their commitment to relentless change. Hopefully, office number five will be a keeper for a little while, and in the meantime, may it be home sweet home!

Recent Case Studies

Big Banks Have Acquired A Passionate Interest in Fintech

A recent news item noted – rather breathlessly, too – that big banks are pouring money into fintech. Goldman Sachs, Citibank, and J.P Morgan seem to have become great fountains of venture capital for the whole area. They are not alone either. Morgan Stanley, Wells Fargo, Bank of America, and PNC Financial have also done buying and investing in fintech. This particular article suggested that the banks are searching for investments because low interest rates have made their traditional business lines less profitable. There may be some truth to that claim, but the real reason goes to something more basic, as smaller regional banks have long-since demonstrated.

The clear fundamental in all this, whether with the big banks or the smaller regionals, as they are called, is that fintech and established finance need each other. Each has advantages that the other lacks, making some kind of symbiotic arrangement hugely appealing. That symbiosis might emerge for acquisitions of one kind or another or through contracted business partnerships or broader associations. The picture has changed remarkable from some years ago when established finance and fintech competed head to head. Now the scene has become one of alliance.

The transition began with smaller regional banks. Until the 2008-09 crisis, these regionals had a lock on local consumer and small business lending. After the crisis, both prudence and tightened banking regulations limited how much the banks could lend to riskier credits and made the whole process of borrowing and lending more time consuming and cumbersome than in earlier years.

Frustration with this situation left a perfect opportunity for the then brand new and unregulated fintech operations.

Early on, crowd-financing operations filled the lending need the banks could not. They attracted borrowers who otherwise only heard the word, “no” from established sources of credit, even as they attracted lenders who hungered for the higher interest rates that lesser credits would pay and that they could not get through established financial institutions. The cumbersome and protracted application process at legacy banks also opened the field to tech-driven screening techniques that not only hurried the process for borrowers and made it less burdensome but also ferreted out the banks most likely to lend. These are only some of the dizzying (sometimes dazzling) array of fintech solutions that took a large proportion of the business that regional banks previously had all to themselves.

While the process remained young, it began to look as though fintech would replace regional banks. In time, however, limits to the process became apparent. The regional banks quickly saw that the old ways would no longer work and that fintech was onto something valuable. The banks coveted the speed and flexibility of their new, more tech-savvy rivals. At the same time, some fintech firms realized that they faced limits on their ability to raise lending capital. It seems that even in the cyber age, collecting deposits and administrating transactions remain the most effective way to raise large pools of money. Such complementary needs have resulted in some acquisitions but mostly networking arrangements in which a given bank gains the data, screening, and intelligence resources of several fintech companies, while each fintech firm gains the financial resources of several banks. This process continues to build.

Now the big banks have gotten into the act. Unlike their smaller regional cousins, these big players are using their greater financial resources to gather benefit from direct acquisitions and venture capital arrangements that give them more control. In some cases, they gain ownership or what amounts to ownership in arrangement that seem to keep the fintech firm separate. In other cases, they fold newly acquired fintech operations into something that resembles an internal department. J.P. Morgan, for instance is building a new fintech company in Palo Alto for its own development and its acquisitions. Others are using acquisitions simply to get the technical and imaginative talent on board. Such “acqui-hires,” as they are called, have become a popular way for Goldman Sachs, for instance, to populate its Marcus fintech area. If the more monied interests are going about this in a more aggressive way then their poorer, regional cousins, they are effectively trying to accomplish the same thing. In these cases, however, the fintech firms involved are looking less for growth opportunities than simply a way to cash out.

The growth in deals between money center banks and fintech firms is impressive. Their number has risen as much as 180% over the last year, albeit from a low member. Fintechs specializing in payments and settlements have taken the most money so far, followed by specialists in capital markets and data analytics. Surprisingly given the media focus, blockchain deals so far have had only a minor presence. No doubt as understanding in this promising area increases and people feel more secure, acquisitions and investments in distributed ledger will increase, especially given the huge applications blockchain promises to have in real estate and insurance. Unlike their smaller banking cousins, and small-to-mid-sized business generally, the big banks have shown less interest in systems for regulatory compliance, what those in the area refer to as “regtech.”

Given recent trends, some might have a temptation to reverse the takeover forecasts of some years ago. They might project that legacy finance will take over fintech some day soon. That would be a mistake. Such a projection would miss the clear potential, long-since demonstrated, that there is no end to the potential for new applications (new startups) that can improve on existing arrangements, no matter how new or revolutionary yesterday’s acquisition or partner looked.

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Challenger banks: The end of an era?

Every Monday morning, the Vested team holds an editorial meeting to discuss the weekend’s papers and the themes we expect to see driving the news agenda for the week ahead. Challenger banks were the main topic of discussion this week, with the Financial Times reporting that new entrants are failing to make the impact they promised.

This isn’t the first time an article of this tone has been published; 2019 has been a pretty challenging year for ‘the challengers’, to say the least. Metro Bank’s shares recently fell 30 percent after plans for a bond sale were scrapped, while CYBG lost a fifth of its market value in September after announcing mis-sold PPI would wipe £300-450m off its profits.

When so much was promised from the challenger banks, why are we seeing so many of them struggling?

Once again, many have singled out regulation as the issue. Despite the Bank of England offering more than a dozen new banking licenses, challenger banks claim there is a contradiction in policy, meaning it is difficult for them to grow. Others say “ring-fencing” is the issue, which is particularly difficult for the larger challenger banks.

We could look at the ins and outs of each piece of regulation, but Metro Bank’s current issues can be attributed to unforced errors. Earlier in the year the bank revealed that it had made an error when classifying its loan book, instantly wiping £800m off the value of the company. With shares currently hovering at around £2, after falling from £22 at the start of the year, it seems that a takeover is looking most likely; this will result in a complete restructure of the business.

If Metro Bank and CYBG are more focused on their balance sheets at this moment in time, does this mean neobanks are in the best position to challenge the big four? The likes of Monzo and Revolut certainly have the investment in place to make the big four stand up and take notice, but as soon as they grow any bigger, it’s likely they will meet the same regulatory issues that the bigger challenger brands are currently facing.

Aside from regulation, growing a business so rapidly brings a completely different set of challenges for the neobanks. Revolut has already faced criticism earlier in the year around banking licenses and advertisements. With the firm looking to expand the team from 1,500 to 5,000 and launch in 23 more countries, it will face more scrutiny than ever before. If Revolut can successfully implement this strategy, it will then become a lot clearer as to who is really going to challenge the big four.

By George Pitt

More on the blog:
Thomas Cook’s reputation in turbulence: what can we learn from it?
Breakfast & Brainfood: SME Finance Discussion
London: The next fintech hub?

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