FinTech in Focus
First of all, happy Fourth of July to all FinTech in Focus readers in the United States. Almost 200 years ago, Alexis de Tocqueville wrote, “The health of a democratic society may be measured by the quality of functions performed by private citizens.” Those words ring true today. At yesterday’s Nathan's 2016 Hot Dog Eating Contest in Coney Island, the legendary Joey Chestnut devoured 70 hot dogs in 10 minutes to retake the Mustard Yellow International Belt. America, you truly are amazing.
But enough of amusement park spectacles, FinTech had a few fireworks of its own:
Virtual Currencies and Distributed Ledger Technology: This month, the American Institute of CPAs (AICPA) submitted a letter to the Internal Revenue Service regarding the tax treatment of virtual currency transactions, including issues not addressed in Notice 2014-21. On top of calls for greater clarity comes pressure for tighter regulations. John Carlin, assistant attorney general at the Department of Justice, called for additional efforts to regulate virtual currencies last week. Separately, Mark Wetjen, a former commissioner at the Commodity Futures Trading Commission, and IBM joined the Chamber of Digital Commerce. Finally, the Reserve Bank of India intends to form a committee to explore blockchain technology, and a group composed of Russian banks and other financial firms has formed a blockchain consortium.
Payments: The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, announced that 73 banks have joined its global payments innovation initiative to improve cross-border payments; digital wallet firm Abra reportedly launched in the U.S. (Abra founder and CEO Bill Barhydt discussed his company at the Milken Institute's 2015 Global Conference); and Sweden-based payment services platform Klarna recently tapped the debt markets for $35 million.
Online Finance: The Cambridge Centre for Alternative Finance announced the launch of the first alternative finance study for the Middle East and Africa. Separately, additional developments have surfaced from the ongoing internal review at Lending Club. In addition, the firm's $800-million Broad Based Consumer Credit Fund, which invests in consumer loans originated on its platform, saw negative returns for the first time in 64 months of trading. Both Lending Club and Avant announced layoffs in the face of slower growth and heightened uncertainty. And, as many have heard, the U.S. Supreme Court decided not to review the decision by U.S. Court of Appeals for the Second Circuit in the Madden v. Midland Funding case. The case has already had a significant impact on consumer lending to high-risk borrowers in New York, Connecticut, and Vermont.
Big Data: A lawsuit has been filed by the American Civil Liberties Union and others against a provision in the Computer Fraud and Abuse Act (CFAA). According to the lawsuit, the “CFAA’s prohibition on conducting robust research into online discrimination is of real concern given growing indications that proprietary algorithms are causing websites to discriminate among users, including on the basis of race, gender, and other characteristics protected from discrimination under the civil rights laws.”
Brexit: Volume II
A few interesting developments to note beyond what was discussed in last week’s release. Initiatives are underway across the European Union to replace London as the FinTech capital of the world as the Brexit vote continues to reverberate. For instance, France FinTech met with representatives of the French ministry of finance on ways to attract UK-domiciled FinTech companies to France, while Russia is implementing efforts to become the world leader in distributed ledger technology. Still, officials in the United Kingdom are actively trying to ensure that Britain’s FinTech industry continues to grow. A roundtable was held by UK Business Secretary Sajid Javid with domestic business groups to discuss Brexit’s potential impact on UK businesses, while London Mayor Sadiq Khan appointed FinTech entrepreneur Rajesh Agrawal deputy mayor for business and enterprise. Even so, UK companies are looking at how to expand further in the EU and overseas rather than the UK as a result of the vote.
Betterment and Brexit
Speaking of Brexit, CNBC anchors and Betterment CEO Jon Stein had an interesting discussion about the firm’s decision to halt trading for several hours as a result of market volatility caused by Brexit and notification (or lack thereof) to Betterment’s customers about the delay in trading. According to Stein, the Friday following the Brexit vote "was our biggest ad-hoc deposit day ever. More customers deposited more money than ever before." The development comes as customers in North America get more comfortable with robo-advice. According to a report from Accenture, nearly half of the 4,000 consumers surveyed in the U.S. and Canada indicated a willingness to bank using robo-advice in the future.
The Impact of UK Bank Closures
A new report shines light on the "devastating impact" bank closures are having on local communities throughout the United Kingdom. According to Move Your Money—“a national campaign for a banking system that helps build and support a just and sustainable society, rather than undermining it”—the report finds that “bank branch closures dampen SME lending growth by 63% on average in postcodes that lose a bank branch.” That figure grows to 104 percent for towns that lose their last bank as the figure below shows. More than 1,500 communities across the UK have no bank at all, while a further 840 have only one bank remaining, according to the report. “We find that the dominant paradigm of competition in banking and financial services has abjectly failed to provide the key functions of bank branch provision and facilitating access to the financial system for the public,” the report states.