What Do Obama and Citibank Have in Common?

Answer: The effective use of technology will determine their triumph or defeat.

That’s at least one conclusion that we can draw from the recent Finovate Asia 2012, an event in Singapore focused on the intersection of tech brains and banking. Not surprisingly, a whole lot of bankers are paying attention to what startups and innovators are coming up with.

Here are some noteworthy observations:

• More than 70 percent of demos were done on a mobile or tablet device.
• All but five of the Finovate Asia startups sell to banks as their business models.
• At least 12 of 35 companies are Personal Finance Management (PFM) related. Only one of the 12, PocketSmith, has a direct consumer model.
• A handful are trying to short-circuit the banks: Ayondo (Follow Traders), CurrencyFair (P2P FX), SocietyOne and Pandai (P2P Lending).
• Singapore’s OCBC has sent the greatest number of attendees (32 people) among all the banks, including senior staff CMO Madeline O’Connor. It is no accident that they are probably the most innovative bank in Singapore with initiatives like Frank and PlayMoolah.

Personally, I am mildly disappointed that the majority of companies sell to banks rather than try to disrupt them, but I can empathize that this may be the only viable model for now. The scene reminds me of the telco world circa 2005 – the finance world is still very much a walled garden created by the major banks. Banks are the only ones with infrastructure and data access, distribution, and regulatory compliance – all components needed for real financial innovation.

And it begs the question – if and when will we see an iPhone of the banking world bring down the dam and open the floodgates? Is there going to be an “App Store” that will bring direct distribution of financial innovation? Will banks become basic infrastructure that offer nothing more than commoditized accounts, payments, and transfers (the ‘dumb pipes’ as we call the telcos today) that other innovators will simply build on top of? How would the banks stay relevant? All of these remain to be seen in the years to come.

3 finance startups to watch

In the meantime, here are three of the most interesting companies from the Finovate Asia 2012 event:

1. Entrepreneurial Finance Lab (EFL)

Did you know your answer to an attitude question like “Is a big part of success dependent on luck?” can influence your loan default rate by 2 percent? EFL is a fascinating company that uses a set of psychometric tests to help banks assess the credit score for those who do not have enough traditional data. By helping banks ask potential borrowers questions that would reveal their attitude, ethics, and business skills – or even intelligence – it can help banks enhance their ability to predict the default rate so much that they can afford to give out twice as many loans while maintaining performance.

EFL is founded by Harvard professors and MBAs with deep experience consulting for the World Bank and the United Nations. Having processed 44,000 loan applications across Latin America, and starting work in Indonesia, EFL is looking to help banks “bank the unbankable.”

2. BankBazaar