FinTech in Focus
Visiting a Hurricane
Yours truly gets one opportunity a year to watch in person as the Fighting Irish of Notre Dame underperform in a college football game. This year’s game in North Carolina just happened to take place directly under Hurricane Matthew, where I spent more time trying to justify to my kids why we need to stand in a monsoon than actually watching the game. Sunday’s weather: sunny and clear, 75 degrees …
Digital Currency Dodges a Regulatory Bullet (at least for now)
Last week, the U.S. Consumer Financial Protection Bureau (CFPB) published final rules covering prepaid card users. Embedded in the 1,700-page rule, the CFPB “reiterates that application of Regulation E and this final rule to [virtual currency] products and services is outside of the scope of this rulemaking.” Of course, and as Coin Center noted, the final rule “doesn't say that digital currency products are outside the scope of these regulations.” As such, “we still don't know.”
And while the digital currency industry may have caught a break, payment applications like Venmo or Google Wallet will come under greater regulatory oversight to ensure the safety of customers’ funds.
The UK Revenue and Customs agency published a report conducted by Ipsos MORI Social Research Institute covering the use of cash and electronic payments. The report finds that for small businesses with fewer than 20 employees and an annual turnover of less than £10 million, cash and checks are most commonly offered, although online transfers (including PayPal) are most often used by customers and are the preferred payment option for small businesses. Meanwhile, payment via contactless and mobile phone apps "is still rare among small businesses” and the study found a majority of the small businesses that don’t offer electronic payments “are unlikely to change their approach” in the future.
Future use of credit/debit cards, contactless and mobile payments
Source: Ipsos MORI Social Research Institute, Uses of Cash and Electronic Payments
And speaking of SMEs, Paynet — a provider of small business credit data and analysis — announced the Paynet MasterScore for Alternative Lending which is able to identify credit risk greater than models used by today’s alternative lenders "as a result of leveraging a score built on extensive data from the much larger traditional lending space, but training it and other factors, on outcomes specifically in the alternative space."
The U.S. Fed & FinTech
In prepared remarks during last week’s Institute for International Finance annual meeting, Federal Reserve Gov. Lael Brainard focused on distributed ledger technology, noting that the Fed has established a working group “that is engaged in a 360-degree analysis of financial innovation across the broad range of our responsibilities.” On the use of so-called “smart contracts,” for instance, the Fed governor asked, “what is the legal status of a smart contract, which is written in code?” And, “could the widespread automated interaction of multiple counterparties lead to any unwanted dynamics for financial markets?” Brainard also mentioned that the Fed expects "to publish a research paper later this year that summarizes some of the key findings from our industry engagement so far." She also focused on regulatory sandboxes ($) in the question-and-answer session following her remarks. “Sandboxes have been used in a more forward-leaning way as a sort of safe harbor, and I think that’s premature. … We have a responsibility to promote socially beneficial innovation. We’re going to want to make sure that risks are well managed and controlled from the outset,” she said.
A report from FinTech research firm Burnmark profiles “a new breed of technology-driven, customer-centric financial institutions” that are bidding to transform the current banking landscape. While there's no earth shattering information, the report provides several insights into challenger banks, their rise in popularity with digital savvy consumers, and the lack of trust in and dependency on traditional banks. This relationship was further examined in a recent EY report which found that out of 55,000 consumers surveyed, 42 percent have used a non-bank provider within the past year and 40 percent “expressed decreased dependence on their bank as their primary financial services provider.”
Geographic reasons for challenger banking evolution
Source: Burnmark, Challenger Banking
Additional Headlines to Consider
The SEC is looking into former Lending Club CEO Renaud Laplanche’s role in a $150 million share buyback approved earlier this year as part of the regulator’s broader investigation into the online platform. Prosper is shutting down its secondary market at the end of this month. According to an announcement, "Prosper has found over time that very few investors are using the secondary market and, as such, has made the decision to no longer offer this service."
Amazon, Facebook, Google, IBM and Microsoft have launched a nonprofit focused on artificial intelligence called the Partnership on Artificial Intelligence to Benefit People and Society. Meanwhile, more than 50 lawyers, academics and representatives from nonprofits have joined together to launch the Digital Currency and Ledger Defense Coalition (DCLDC). According to the website, the DCLDC “was founded to help protect individual constitutional rights and civil liberties in connection with regulatory and law enforcement scrutiny and efforts relating to digital currencies (e.g. bitcoin) and ledgers (e.g. blockchains).”
Young Millennials and Gen Z: Cautious Optimism
Bank of America/USA Today released the Fall 2016 Better Money Habits report which examines “younger” millennials as well as Generation Z, otherwise known as “The Founders,” according to MTV. Americans 18 to 26 are "proceeding with caution" as 57 percent of respondents described the economy as somewhat or very poor, while more than 40 percent view the job market as somewhat poor or very poor. The report also found that 40 percent of respondents who attended college "either somewhat or completely disagreed when asked if college had prepared them for the 'real world.'" Respondents also wished they received greater financial education in high school and college, as indicated in the figure below.
What young Americans wished they had learned more about in school
Source: Bank of America/USA Today, Better Money Habits