FinTech in Focus
Hello, FinTech in Focus readers! Hopefully most of you have found some time to leave the desk and take a vacation this summer. Yours truly was down in Charlottesville, Va., this weekend attempting to reverse two straight years of finishing last place in NFL fantasy football. When the dust settled on another successful fantasy draft, I found that I had picked up more defensive than offensive players. So here’s to a third straight losing season. But enough about me, let’s get into some of the headlines.
The Hong Kong-based bitcoin exchange—and one of the largest bitcoin exchanges out there—suffered a security breach last week resulting in the loss of nearly 120,000 BTC ($66 million around the time of the announcement). This is the largest loss of BTC by an exchange since Japanese-based exchange Mt. Gox collapsed, although the amount of BTC that was stolen on Bitfinex represents less than 20 percent of the losses suffered in the Mt. Gox breach. The price of Bitcoin fell more than 20 percent on the news (but has since recovered), and affected users and interested parties continue to look into whether the exchange’s multi-signature system and-or a past regulatory action by the U.S. Commodity Futures Trading Commission against Bitfinex is to blame for the loss (both no, according to a blog post from Coin Center). Since the announcement, Bitfinex has notified its users “that losses must be generalized across all accounts and assets,” with customers experiencing “a generalized loss percentage of 36.067%.” The blog post also noted that in place of the loss in each wallet, “we are crediting a token labeled BFX to record each customer’s discrete losses” and those tokens “will remain outstanding until redeemed in full by Bitfinex or possibly exchanged—upon the creditor’s request and Bitfinex’s acceptance—for shares of iFinex Inc.” The exchange has also relaunched its website in “read only” mode, with full functionality to come later.
Quantifying the U.S. Venture Capital Ecosystem
What does a thriving venture capital ecosystem look like? A new report released by PitchBook ranks 11 U.S. cities based on the size of their venture capital ecosystems. The rankings are based on “weighting capital raised, VC invested, VC activity and venture-backed exit value equally, tallying up their ranking in each area, then summing and sorting from lowest to highest, with a lower score indicating a larger ecosystem.” San Francisco, San Jose, New York, Boston and Los Angeles are the top five cities.
And speaking of venture capital, Fenwick & West published a report examining 195 venture financings closed in the second quarter of 2016 by companies headquartered in Silicon Valley. As the report notes, this is the third straight quarter in which the percentage of “up rounds” declined—and it marks the lowest percentage of “up rounds" since the fourth quarter of 2013. Meanwhile, the percentage of Series A or B financings was 44 percent, the lowest since the second quarter of 2014.
Update on Government Efforts
The U.K.’s Competition and Markets Authority (CMA) released its final report covering competition within the retail banking market. The report finds that older, larger banks “do not have to work hard enough to win and retain customers,” and, as a result, the CMA has proposed a set of reforms to open up the retail banking space to the benefit of smaller and newer banks. One of the reforms requires banks to implement Open Banking by 2018, enabling “customers and small businesses to share their data securely with other banks and third parties” and provide customers with more control over their funds, among other measures. (See figure below.) In Sweden, the government has set up a special 10-person committee to examine the legal and regulatory environment for investment crowdfunding. The committee is expected to present its findings in Sweden by December 2017. Meanwhile, the Monetary Authority of Singapore (MAS) announced the formation of an International Technology Advisory Panel to advise MAS “on international developments in FinTech and how Singapore can harness new technologies to enhance the provision of financial services.” In the U.S., the Federal Trade Commission announced an upcoming FinTech Forum, to be held in October and covering crowdfunding and peer-to-peer payments. It also released a blog post covering some of the key takeaways from its first FinTech Forum, on marketplace lending. “One point we heard again and again—and the one we highlight here—is that many existing laws and regulations already apply in this space, regardless of the novel technologies used,” the agency said.
A Few FinTech Headlines
In other news, Hogan Lovells, an international law firm, announced the launch of a regulatory accelerator in the U.K. to help FinTech firms navigate the Financial Conduct Authority’s regulatory regime. The accelerator will be free to FinTech members of Innovate Finance, with the official launch scheduled for September. International money-transfer service Azimo has partnered with Facebook to allow users to transfer funds using Facebook Messenger. And speaking of payments, flaws are being reported in Samsung Pay’s security, specifically regarding the tokenization process, which converts credit card information into tokens to prevent a hacker from retrieving card information. In its response to the report, Samsung Pay noted that its payments service “does not use the algorithm claimed in the Black Hat presentation to encrypt payment credentials or generate cryptograms.” Lastly, Jefferies has reportedly closed a private sale of bonds backed by loans originated by Lending Club, and both Lending Club and OnDeck reported second-quarter earnings on Monday.
Entrepreneurship Recovering in the U.S.?
The Kauffman Foundation released its annual Kauffman Index of Startup Activity, which explores new business creation in the U.S. According to the report, the rate of new entrepreneurs has increased 15 percent over the past two years, while the current rate of new entrepreneurs (330 out of 100,000 adults) translates to approximately 550,000 new business owners each month in 2016. Of note, immigrant entrepreneurs now account for 27.5 percent of all new entrepreneurs in the U.S.—nearly a two-decade high—and the rate of female entrepreneurs saw the largest increase in 20 years in 2015.