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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...
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FinTech in Focus

By: Jackson Mueller
October 04, 2016
   
   

Call It a Draw?

If you found yourself lying on the couch on Sunday afternoon withering in pain after finally putting your Red Bull-intoxicated kids down for a nap, then you may have watched America dominate Europe at the Ryder Cup in Minnesota. Of course, Team Europe decided to play better hockey during the World Cup of Hockey tournament earlier in the week, so I guess you “could” call this a draw. But to be fair to all of my fellow Americans out there, Team Europe did not win the World Cup, so … USA, USA, USA!!! But enough about my patriotism, let’s get into FinTech.

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Oh, Canada!

The country that won the World Cup of Hockey is also making moves on the FinTech front. LaunchPad is apparently the “cooler” term for sandbox, judging by the Ontario Securities Commission’s plan to launch the first innovation hub by a Canadian securities regulator within the next few weeks. According to OSC chair and CEO Maureen Jensen, under LaunchPad, the OSC “will work to tailor regulation and oversight to [FinTech’s] unique business models, as long as investor protections are in place.” The development comes roughly a month after the Department of Finance Canada launched the first of two consultations to review the current federal legislative and regulatory framework for the financial sector. The OSC has worked with more than 40 FinTech firms, including online lender Vault Circle Inc., which just received regulatory approval.

Data Access & Sentiment

Plaid Technologies, a banking API platform, released a survey of nearly 850 U.S. consumers who use financial applications or software. It found “that despite steady FinTech growth and media reports of disruption, consumers are looking to banks to help them manage their digital financial services.” The study also found that an overwhelming percentage of those surveyed “indicated that they would like banks to enable a dashboard for them to track and manage financial apps.” The survey also noted that hindering customers’ access to data “may undermine a bank’s relationship with its customers.” More than 80 percent of respondents said they were unwilling to pay for third-party access to bank data, and 91 percent said they would consider or strongly consider switching banks if charged more to access their data.

Likelihood of switching banks if charged more for data access than customers of other banks

10 04 16a 

Source: Plaid Technologies

And speaking of data, Facebook has partnered with the World Bank and the Organization for Economic Cooperation and Development to “better understand business sentiment, and to leverage a digital platform to provide a unique source of information.” The partnership has led to the release of a report detailing survey responses from 90,000 small and medium-size enterprises in 22 countries. The survey focused solely on those businesses with a Facebook page—more than 60 million at present.

Watson’s Hungry

Unless you’ve been living under a rock, you’ve heard about IBM’s acquisition of Promontory Financial Group. As noted in the press release, more than 20,000 new regulatory requirements were created in 2015, and “the complete catalog of regulations is projected to exceed 300 million pages by 2020.” Those working at Promontory will essentially feed Watson regulatory information in the hopes of accelerating IBM’s “development and machine training of cognitive solutions for risk and compliance.” In short, instead of a Terminator we now have a robotic compliance officer.

Why Wait? Same-Day, Real-Time Payments on the Way

On the payments front, NACHA, the governing body over the ACH network in the U.S., announced the launch of Phase 1 of Same Day ACH, allowing “for the sending and receiving of virtually any ACH credit transaction.” While the sending of same-day transactions remains optional to NACHA members, most intend to originate Same Day ACH this year. Phase 2, which is to launch in September 2017, will include faster processing of debit transactions.

Meanwhile, IBM announced real-time payment processing for commercial banks through its Financial Transaction Manager for Immediate Payments, which supports new payment initiatives in the U.S. (The Clearing House) and Europe (Pan-European Instant Payment scheme). Separately, ACI Worldwide and VocaLink entered into “the first global strategic partnership of its kind” to offer “a complete end-to-end immediate-payments solution to launch a domestic or regional immediate-payments network.” Of course, the proliferation of real-time payments systems in the U.S., via The Clearing House, Dwolla or others, could present a host of problems.

Consumers Turn Digital, as Do the Criminals

MasterCard commissioned a survey of 23,000 consumers in 23 countries in Europe, Africa and the Middle East on their attitudes toward digital technology. According to the press release, 92 percent of consumers think digital innovations “are a good thing,” yet when it comes to overall readiness in paying through a smartphone, Western Europe is far behind Africa and the Middle East. The survey also indicates that consumers trust biometric identification more than PIN codes when making payments.

Share of consumer interest in digital services*

 10 04 16b

Source: Mastercard

*Note: High-growth, emerging = Russia, Ukraine, Turkey 

Security concerns abound as consumers continue to embrace digital. A Europol IOCTA report finds that while the EMV chip technology continues to reduce card-present fraud, card-not-present transactions continue to grow, and the “first indications that organized crime groups (OCGs) are starting to manipulate or compromise payments involving contactless (NFC) cards have also been seen.” As noted in the report, the reported average volume of data per investigation is now close to 3 terabytes.

Goldman Sachs Is at the Gates

Goldman has opened up a bit more about its online lending ambitions. At a conference in New York, Stephen Scherr, CEO of Goldman Sachs Bank USA, discussed some of the advantages Goldman has relative to its online-lending peers.

And speaking of online finance, the U.K.’s Financial Conduct Authority (FCA) has partnered with the Cambridge Centre for Alternative Finance—the organization behind the alternative-financing benchmark reports—to “carry out research with the investors and fundraisers on equity crowdfunding and peer-to-peer platforms.” According to the press release, the first outputs will aid the FCA in its post-implementation review of crowdfunding regulation. At the time of the announcement, the FCA confirmed to Bridging & Commercial that three firms had withdrawn applications for peer-to-peer lender registration since March, though no application has been declined to date.

FinTech & Capital Markets

Two reports released recently cover FinTech in capital markets. First, EY and Innovate Finance released a report titled “Capital Markets: Innovation and the FinTech Landscape.” Second, Boston Consulting Group (BCG) published “FinTech in Capital Markets: A Land of Opportunity.” The EY report acts as “a guide to the areas in which FinTechs and institutions can better collaborate to help transform capital markets,” according to Innovate Finance CEO Lawrence Wintermeyer. With more than 5,000 FinTech firms in existence, the report predicts that the greatest near-term benefits, as indicated in the first figure below, “will come from innovation based on advanced analytics, robotic process automation (RPA), digital transformation, and externalization of processes and services,” with blockchain and artificial intelligence potentially turning into long-term benefits. The BCG report describes the difficulties of FinTech firms operating in the capital markets space, how nascent this space is for FinTech (as indicated in the second figure below), and the value proposition FinTechs can provide legacy institutions operating in this space. 

Benefit trajectory for enabling technologies

 10 04 16c

Sources: EY, Innovate Finance

 

Capital markets (CM) FinTech: Small portion of overall market but growing in funding

 10 04 16d

Source: Boston Consulting Group


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