These apps have eyes on your work emails

Hey Fintech Fam!

Everyone in the fintech space is laser focused on identifying the winners and losers in a rising interest rate environment. Historically, we know that rising interest rates typically increase loyalty to large incumbent banks with the capacity to cross-sell financial services, for example offering a lower mortgage rate to customers who carry a large current account balance. In this week’s issue we look at two corners of the industry looking to ride out choppy markets by catering to the world’s largest banks.

First, Owen Walker talks to the chief executive of the app that investment banks are using to keep a closer eye on staff. Further down I profile a payments software-as-a-service provider that has chosen to cater to traditional banks over fintech challengers — SaaS companies usually tout their ability to play both sides as a business advantage.

As always, reach out to me (imani.moise@ft.com) or Sid (sid.v@ft.com) to share your feedback on today’s newsletter. Happy reading!

Banks turn to regtech

At the height of the coronavirus lockdowns, several of the world’s biggest banks turned to a relatively unknown app called Movius to ensure their traders stayed legally compliant while working from home.

Now, even as most banks force staff back to the office, so called regtech, or regulation technology, is becoming more popular than ever. The regtech market is expected to grow 20-25 per cent each year over the next decade, according to various analyst reports, as companies in heavily regulated industries search for technology to help them avoid hefty fines.

Most banks have policies in place that mandate employees to communicate with clients through official channels, such as company email or recorded phone lines, which can be monitored by the compliance department. But bankers often find their clients prefer to communicate on apps on their personal mobile phones.

The renewed interest in regtech follows a spate of regulatory investigations in Europe and North America into how bankers communicate with their clients and the resulting departure of individuals.

In December, JPMorgan Chase agreed to pay $200mn in fines to the US Securities and Exchange Commission and the Commodity Futures Trading Commission for failing to keep records of staff communications on personal devices, in an action that spooked many Wall Street banks.

Credit Suisse removed a prominent investment banker from his role this year after he was found to have used unapproved messaging apps with clients. 

HSBC’s London-based compliance team carried out an investigation of personal messaging this year, which resulted in an unnamed foreign exchange trader being dismissed.

Movius has become one of the most successful tools for bank compliance teams to monitor their colleagues’ discussions with clients. JPMorgan Chase, UBS, Julius Baer, Jefferies, Cantor Fitzgerald and (most recently) Deutsche Bank have turned to Movius to keep track of calls, text messages and WhatsApp conversations.

Others popular apps in the space include Qomply, Performline and Txtsmarter.

Movius works by running all communication tools — such as calls, texts and emails — through the app and sharing the data with the individual’s employer. Users can also run personal apps through their own non-work phone number on the same device. These personal apps are not tracked by their employers.

Movius chief executive Ananth Siva told FintechFT that the app not only helps companies monitor the work-based communication of employees with regulatory-sensitive roles, but also enables them to protect client data when staff move to competitors.

“When people leave companies, they seldom leave the industry,” he said. “When they leave the firm, they often take their phones and all their contacts with them.”

While regtech apps such as Movius allow staff to maintain personal and professional profiles — and prevents companies being accused of prying into their employees’ private affairs — they still leave open the opportunity for improper communication.

“If people really want to contact their clients without their bosses knowing, they will find a way,” said an investment banker. “They will use their personal apps, burner phones or whatever. Where there’s a will there’s a way.” (Owen Walker)

Deal Tracker

M&A activity across the fintech sector continued to slow in June according to the latest research from S&P Global Market Intelligence.

Fintech fascination

Amazon goes live Ecommerce giant Amazon is stepping up investment in one of the few corners of online retail it does not already dominate: QVC-style livestream shopping. However, livestream shopping has not yet taken off in western markets as it has in China. TikTok scrapped plans to expand its live shopping project in the Europe and the US after its UK launch was plagued with internal issues, the FT’s Cristina Criddle reported last week.

Head in the clouds The Bank of International Settlements — the central banker’s central bank — published a report last week highlighting the risks of the world’s largest financial institutions increasing their reliance on cloud technology. Much of the most sensitive financial data is housed with just four providers. Though cloud computing is thought to increase data security at the firm-level, reliance on a few providers increases the risk of financial instability.

Will Web3 survive the crypto crash? As investors abandon cryptocurrencies in droves, the FT’s Richard Waters, Hannah Murphy and Scott Chipolina ask some of the smartest minds in the industry what will become of the blockchain enabled infrastructure that even some of Bitcoin’s biggest cynics have poured money into over the past few years. The arguments from both sides are worth reading.

Quick Fire Q&A

Every week we ask the founders of fast-growing fintechs to introduce themselves and explain what makes them stand out in a crowded industry. Our conversation, lightly edited, appears below.

Last week I spoke with former American Express executive Andrew Jamison about his company Extend, which looks to help traditional banks offer modern payment technology to commercial clients through APIs. Extend’s technology allows banks to offer competing products to fintech commercial card issuers like Brex, which have surged in popularity in recent years. Since its founding in 2017, the company has raised $54mn from investors including Point72, B Capital, March Capital, Reciprocal Ventures and FinTech Collective, and is on track to more than double the $1.1bn in spending volume it processed last year.

Why have you focused on serving traditional banks? Our view is pretty simple: no one actually wants to change banks. I moved to the US and I was at HSBC, and here I am 16 years later — despite their service level being really poor in the US — still with HSBC. And if it’s hard for consumers to change, it’s even harder for businesses to change. We felt we could best serve customers by providing our technology as a layer over the top of the traditional banking capabilities so that we can now create modern user experiences that allow small businesses to interact and gain access to different technologies like virtual cards.

Why do you think traditional banks win in a rising rate environment? As you go into a high interest rate environment, suddenly cost capital becomes really important. The reality of these established banks is that they have very, very deep balance sheets, and they have the lowest cost of capital. People were able to overcome that in fintech because they were able to raise money so cheaply. But now they have to service that debt when essentially that debt number keeps climbing and that becomes a real concern for companies that don’t kick off enough revenues and margin to be able to pay down those costs. So, by definition, when we go into this cycle, the established financial institutions with a low cost of debt are able to provide capital to consumers, small businesses, large businesses at a much more economic level.

Do you serve any fintech challengers? No, we don’t. We very much believe it dilutes the message if you try and do both at once because you’re talking out both sides of your mouth. So we’re very focused on saying no, we are going to help the established institutions promote these more modern experiences. Do we leave short-term revenue on the table [by not serving fintechs]? Absolutely, but it’s short-term revenue. I’m all about the long term and the longevity of the business.

Do you have plans to facilitate account-to-account payments? We’ve started off focused on cards because the economics of commercial card payments make a lot of sense. Account-to-account payments, unfortunately, today are something that a lot of people have a lot of volume on, but not many of them make money off it. The reality is, in this environment, fintechs need to stand up on our own two legs and have a real business.