ING is investing in fintech companies and deploying their capabilities to enter spaces that are lateral to traditional banking, says Paul Spronk, head of ING Labs Singapore.
“We invest where digital has a big impact,” he said, citing trade, regulation and real estate as areas where the bank is using technology to extend its reach.
Some fintech partnerships are relevant to both core banking and serving clients beyond banking. For example, ING is backing San Francisco-based Flowcast, which uses artificial intelligence to help make credit decisions for financial institutions and companies.
Flowcast
Its software is targeted at trade finance and lending to small- and medium-sized enterprises (SMEs), which buttresses ING’s focus on trade-fin solutions.
Flowcast sources alternative data from companies’ invoices, payments, payment histories and disputes, and other transaction data, says Ken So, the company’s founder and CEO. It combines this with macro data (like foreign-exchange rates or commodities prices) and micro data (freight and logistics data).
This data is fed into Flowcasts’s algorithms to run scenario analyses on questions like a company’s likeliness to pay or a lender’s performance risks.
“Their models work well, so we can use them,” Spronk said. “But our investments aren’t just for the benefit of ING. We are bringing solutions to our clients,” notably to help companies to optimize their working capital in sectors such as mining, commodities trading, and retail.
Blockchain for trade
Although ING invests in a range of solutions, Spronk says companies have developed technologies such as blockchain into practical uses. ING is now rolling out partnerships with several blockchain companies to support trade finance.
The nature of blockchain is that it relies on a network to be of any use. And in trade finance, the paper-based inefficiencies involve a vast number of players. This has made it difficult for consortia of banks to make headway in blockchain-based trade.
It’s adjacent to what we do as a bank
Paul Spronk, ING Labs
ING is part of consortia such as, Project Voltron, which is based on R3’s Corda distributed-ledger technology – it was one of two banks involved in Voltron’s pilot transaction – and Komgo. (Spronk declined to comment on specifics around work in these groups.)
But it has also invested in other DLT-based companies, apart from consortia, to take it deeper into the trade-fin world.
Vakt and Kapsool
One is Vakt, a DLT financing platform that attaches to trade-finance platforms.
Another is Kapsool, which ING Labs is building as a digital agency to serve various users in harbors, such as shippers.
Kapsool does not address a traditional bank activity. Instead it provides services to ships in harbor, including minutia such as ensuring ships are stocked with sundries. Kapsool doesn’t address the entirety of trade finance, but provides a digital workflow to digitize one aspect of trade (the life of a ship in port).
“We see the flows of transactions,” Spronk said of Kapsool. “It makes everyone more efficient, and we can potentially add other API-connected ventures in our portfolio to provide financing on top.”
New income models
ING is now building a business around these platforms and working with other players. “It’s adjacent to what we do as a bank, it’s something relevant to our shipping clients and beyond,” Spronk said.
Such projects get the green light when they demonstrate value to clients, which means if clients are willing to subscribe to these software-as-a-service models. And for ING, these create fee (non-interest) income, which helps tilt the balance sheet away from dependence on interest income.
The bank welcomes this not only to diversify its sources of revenues but to offset the pain of ultra low interest rates (or even negative interest rates, in some European markets).
Looking to 2020, Sprong says cashflow forecasting is one area ING Labs is keen to develop.
