FinTech in Focus
Brexit: Kryptonite to UK FinTech?
That’s a Superman reference for all of you who never read the comics or who have been spared the recent (and horrid) Superman movies (Man of Steelranks as one of the worst of the franchise). Anyway, back to FinTech and last week’s results in the UK, which saw Britain vote to leave the European Union. Market reaction and negative currency swings aside, what does Britain’s exit from the EU mean for the self-anointed FinTech capital of the world? The single-market mechanism and the passport regime, crucial to FinTech firms domiciled in the UK but looking to operate throughout the EU, and vice-versa, are in jeopardy. Similarly, efforts at the EU level on the digital single market, data protection, payments, and other policy and regulatory initiatives may lack UK influence going forward and leave UK-domiciled firms stranded. FinTech firms have warned in the past (here and here, for instance) that a vote to leave the EU would be “hugely damaging” to innovative startups headquartered in the UK, though it remains to be seen what the actual toll will look like and to what extent other EU FinTech hotspots will benefit from the UK’s decision.
Blockchain & Virtual Currency Developments
One of the arguably positive results from the Brexit vote last week was Bitcoin’s price movement, which climbed back to nearly $700 after a decline last week that followed suspended trading at one of the largest bitcoin exchanges. In other news, a U.S.-based bitcoin exchange founded by the Winklevoss brothers opened trading in the UK — the exchange’s second international foray following Canada — allowing UK citizens to trade bitcoin and ether on the exchange. Separately, PayPal has partnered with virtual currency wallet and exchange Coinbase, though the partnership does not include the ability for PayPal users to buy bitcoin.
We also saw a few groups focused on distributed ledger technology grow their memberships last week. For instance, Ripple announced that seven financial institutions joined its global network; R3 added its first automotive financial services firm after partnering with Toyota Financial Services; the Linux Foundation-led Hyperledger Project now has 44 members; and in China, 31 financial and technology companies formed the Financial Blockchain Shenzhen Consortium. These developments come at a time when the financial services industry is expected to invest upwards of $1 billion this year in blockchain technology.
FSOC Highlights Marketplace Lending, Blockchain as Potential Risks
Last week, the Financial Stability Oversight Council, comprised of top financial regulatory bodies in the U.S., released its annual report, providing an overview of current financial and regulatory developments and concerns. Of interest, the report focused on the potential risks from marketplace lending and distributed ledger technology. According to the report, roughly $5 billion of asset-backed securities (ABS) "backed by loans originated by marketplace lenders were issued in 2015, contributing to a cumulative $7.2 billion of such ABS to date." FSOC stated its concerns regarding untested underwriting models, erosion in lending standards, institutional flight and potential spill over into other market segments. On blockchain technology, the FSOC stated that while the technology has the "potential to change the way some asset classes are traded and settled," some distributed ledger systems "may be vulnerable to fraud executed through collusion among a significant fraction of participants in the system."
Noteworthy Surveys & Reports
Among the other surveys and reports released over the past week, JPMorgan Chase released a survey on Americans’ use and perception of mobile banking applications. Of note, Millennials — who get my vote for the Greatest Generation — are leading the pack when it comes to mobile banking, even as the use of ATM’s has risen 17 percent compared to last year. At the same time, Bank of America released its annual “Trends in Consumer Mobility Report,” which found that nearly half of Americans are constantly checking their finances through their mobile phone, while nearly two-thirds of Americans use mobile or online as the preferred method of banking. Interestingly, the report also tries to separate Millennials into two groups, young and old, to examine different responses within the generation — something I’ve advocated in the past. Meanwhile, a FICO report on mobile payments and alternative finance introduced an entirely new generation, the Digital Generation, or Gen-D for those of us who only write using acronyms. Gen-D, according to the report, is not defined by age, but “is made up of technologically savvy consumers comfortable using all types of devices and apps.”
Silicon Alley Triumphs Over Silicon Valley, at Least in Q1
A new report from Accenture’s Innovation Lab compares FinTech investments in New York and Silicon Valley. In first quarter, New York topped Silicon Valley for the first time in venture-backed FinTech investment by nearly $200 million. On page four of the report, Accenture breaks down FinTech investments in New York and Silicon Valley based on whether funds went to FinTech firms looking to collaborate or compete with traditional financial services firms. At the global level, investment in collaborative FinTech in Europe shrank from 38 percent of deals to 14 percent between 2010 and 2015, while North America has seen collaborative FinTech investments jump 20 percent within that same period.