Blog


Mueller Jackson
Jackson Mueller
Associate Director, Center for Financial Markets
Jackson Mueller is an associate director at the Milken Institute's Center for Financial Markets. He focuses on fintech, capital formation policy and financial markets education initiatives. Prior to joining the Institute, Mueller was an assistant vice president at the Securities Industry and Financial Markets Association (SIFMA), where he focused on...
read bio

FinTech in Focus

By: Jackson Mueller
September 13, 2016
   
   

How Venmo Benefits a Millennial

I promise I’ll keep my focus on U.S. college football to a minimum this year, but there was an interesting highlight from this weekend’s action that had nothing to do with actual play on the field. During Saturday morning’s pre-game show, a student, Sam Crowder, held up a sign requesting that Mom send beer money to his Venmo account, which was fully displayed on the sign. And America listened, because within a few hours, more than 2,000 people had contributed to the account. As of 8 a.m. EST Monday, more than 3,000 people had sent money. When asked how much he’d received, Sam responded, “I don’t feel comfortable giving an exact amount, but it’s a lot.” Isn’t payments tech great?!

Digital Currencies & Distributed Ledger Technologies

Funds stolen from the Decentralized Autonomous Organization (DAO)—which was subject to a $50 million hack back in June that resulted in a “hard fork” to the Ethereum network roughly one month later—are on the move, according to a report.

Meanwhile, Coinbase CEO Brian Armstrong penned a blog post covering where cryptocurrencies are headed in an “open financial system.” A chart on the evolution of the Internet and digital currency can be viewed below.

The evolution of two open networks (Internet and digital currency)

9 13 16a 

Source: The Coinbase Secret Master Plan

Separately, R3 added another member to its blockchain consortium, with Brazil’s BM&FBovespa becoming the first exchange to join. And DLT Finance announced last week that it would launch the first fund to track an index of 10 cryptocurrencies, including Bitcoin, Ethereum and Ripple.

On the same topic, Peter Van Valkenburgh, director of research at Coin Center, released a blog post detailing how the next administration and incoming Congress can support open blockchain networks. Separately, Lionel Laurent and Elaine He wrote on Bloomberg about how blockchain’s numbers just don’t add up. As they note, “To match such ambitious expectations would surely require some seriously large-scale resources—which, despite the hype, bank-friendly blockchain technology has yet to attract.” All of this comes at a time when developers are flocking to blockchain bootcamps, groups continue to form to support the technology, traditional financial institutions continue to launch FinTech laboratories focused on the technology, and more than 80 percent of respondents to a World Federation of Exchanges survey indicate that they are “either investigating the applicability of DLT or actively pursuing DLT initiatives.”

Shifting Names & Strategies

Brian Forde, director of MIT’s Digital Currency Initiative, will step down from his current position and transfer to MIT’s Sloan School of Management, where he will lecture on cryptocurrencies. Autonomous Research has announced that Alexey Sokolin, previously chief operating officer of digital wealth management platform Vanare, will become its newest partner and global head of FinTech Strategy. Lending Club appointed Thomas Casey as its new chief financial officer. Casey was formerly CFO at Acelity, a privately held medical device company. And the former CEO of Lloyds Banking Group, Eric Daniels, has joined Funding Circle’s board as non-executive director who will sit on the platform’s risk and audit committees.

And speaking of Funding Circle and risk, the platform has “basically halved” its U.S. lending volumes amid tighter acceptance criteria after it was found in early January that the Funding Circle model “was not fully adapted to the U.S. economy.” Meanwhile, lending volumes in the U.K. remain unaffected.

Trade Finance

Barclays announced that it had successfully executed a trade finance transaction via the blockchain-based supply chain startup Wave. The development comes around the same time the Asian Development Bank released a study estimating the global trade finance gap at $1.6 trillion. The study also finds that small and medium-sized enterprises “continue to generate the highest number of proposals and face rejection rates above their proposal share (44% of all proposals, 56% rejected).” As a result, smaller firms are increasingly turning to alternative financial providers. However, 70 percent of respondents “indicated they were unfamiliar with any type of digital finance.” For those familiar, uptake is low, as shown in the chart below. 

Recognition and utilization rates of digital finance (by type)

9 13 16b 

Additional Headlines

Google is launching an effort in India to provide financial planning tools and information to the country’s citizens to accelerate financial inclusion efforts there. The proposed website, Bharat Saves, will allow Indians to compare and purchase banking and insurance products through the digital platform.

On the robo-advice front, according to a new report by Finextra, a survey of investment professionals shows that nearly half think algorithmic flaws could be the biggest risk introduced by robo-advisors, ahead of mis-selling (30 percent) and data protection (12 percent). The report contains a collection of views on where the robo-advice industry is headed and its potential to shake up the wealth management industry. The report comes as advisors and customers continue to press for clarification and guidance concerning the robo-advisor’s decision to halt trading on its platform as a result of the Brexit vote.

In the U.K., Victoria Cleland, chief cashier at the Bank of England, spoke on FinTech at a London conference. Her prepared remarks included a focus on central bank-issued digital currency (CBDC) and the benefits and costs of removing intermediaries to allow businesses and consumers “to transact directly and instantaneously in central bank money.” One risk, Cleland notes, is that “if a CBDC provided competition for commercial bank deposits, one outcome could be reduction in deposit funding available to commercial banks, undermining their ability to provide credit to consumers.”

The Monetary Authority of Singapore has expanded its FinTech cooperation agreement with Switzerland’s Financial Market Supervisory Authority. According to the MAS website, the agreement “will help to create opportunities for FinTech businesses from Singapore and Switzerland to expand into each other’s markets. FINMA and MAS have also committed to share information about emerging FinTech trends and regulatory issues pertaining to innovation.”

On the alternative-finance front, SoFi is looking to raise $500 million in equity, with the round “likely weeks away from completion,” according to one report. Separately, Just Loans Group, an alternative lender based in the U.K., joined the British Bankers’ Association, becoming the trade group’s first alternative commercial lender. And Swedish-based payments-processing firm Klarna is adding to its product mix in the U.S. and Europe by offering customers lines of credit as a checkout option through partnerships with BigCommerce, Shopify, Magento, Demandware, OpenCart and CyberSource. Lastly, Omidyar Network published a report covering the relationship between big data and small credit and the forces shaping the digital revolution in financial services.

FDIC Previews Upcoming Unbanked, Underbanked Report

In October, the U.S. Federal Deposit Insurance Corporation (FDIC) will release its 2015 FDIC National Survey of Unbanked and Underbanked Households. Chairman Martin Gruenberg provided a preview of the report, which says that 27 percent of U.S. households are either unbanked or underbanked. In particular, nearly half of African American and Hispanic households were classified as such in 2015, as illustrated in the chart below. According to Gruenberg, the results “underscore the importance of building bridges between banks and underserved communities. Consumers who do not trust banks or who view banks as uninterested in addressing their needs are less likely to consider banks as an option to meet their financial needs.” Of note, on the adoption of mobile services, Gruenberg remarked that “it is not clear if the technology’s full potential is being leveraged to expand inclusion in the banking system.”

U.S. household combined unbanked and underbanked rates (2013 and 2015)

9 13 16c 

 


Comments

No one has commented on this page yet.

Post your comment