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 18, 2016

Incumbents & FinTech

Goldman Sachs has launched its online lending arm called Marcus, offering loans of up to $30,000 targeted at consumers with high credit card debt. Goldman will hold and service the loans rather than sell them, funding each from its $130 billion deposit base. Applications will be limited to those who receive a code through the mail, which will go out to millions of people in the near future. Meanwhile, Morgan Stanley has offered a $100 million credit line to Affirm, a lending company that operates at the point-of-sale and which anticipates lending volume to surpass $300 million this year.

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Wells Fargo announced that it has combined its corporate payments and “some consumer-banking operations” with its technology-innovations group, now called the Payments, Virtual Solutions and Innovation Unit, run by Avid Modjtabai, the former head of Wells Fargo’s consumer lending and cross-company operations. Separately, both Wells and Australia’s ANZ have together built a distributed ledger platform prototype for correspondent banking payment reconciliation and settlement.

Additional headlines covering banking and FinTech include, India’s ICICI Bank becoming the country’s first to execute cross-border remittance and international trade documents using distributed ledger technology, UBS launching a robo-advisor called UBS SmartWealth, Regions Bank partnering with online consumer lender Avant, Microsoft joining Brazil’s Banco Votorantim to pursue FinTech investments in Brazil, and Nasdaq announcing a partnership with the Hong Kong Monetary Authority whereby the two will exchange information related to blockchain technology.

Crowdfunding and Reg A+

There are 17 registered Regulation Crowdfunding platforms operating in the U.S., up from 10 at the end of May. Separately, NextGen Crowdfunding released an analysis of more than 130 companies that filed under Reg A+ between June 2015 and June 2016, as indicated in the figure below. According to the report, 60 firms filed under Tier I (a company can raise up to $20 million in any 12-month period; state registration applies), while 71 companies filed under Tier II (a company can raise up to $50 million in any 12-month period; exempt from state registration). Mature and late-stage firms are participating in Reg A+ filings, according to the analysis, and companies filing under Tier II sought more funding (per-firm average of $25.2 million) than firms filing under Tier I (per-firm average of $6 million).

1-A filings by industry

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Source: Ipsos MORI Social Research Institute, Uses of Cash and Electronic Payments

Insights into P2P/Marketplace Lending

The Federal Reserve Bank of Cleveland published a report providing “new insights” into online lender applicants using data from the Federal Reserve’s 2015 Small Business Credit Survey, which we have written about in the past. The new report “explores differences between these online lender applicants and traditional lender applicants.” Concerns expressed in the report include the potentially more “precarious” financial position of online applicants compared with traditional applicants, as well as their vulnerability to loan brokers, a lower success rate in obtaining full funding — as indicated in the figure below — low satisfactions levels, and disparate impact and fair-lending concerns.

Total financing approved, by applicant type

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The UK’s Peer-to-Peer Finance Association (P2PFA) commissioned economic consulting firm Oxera to publish “an in-depth investigation of how P2P lending works and associated public policy issues.” According to the report, the current UK regulatory regime “is well targeted and proportionate,” though as peer-to-peer business models and practices continue to evolve, “the regulatory regime may need to evolve as well.” The P2PFA suggested the UK’s Financial Conduct Authority incorporate standards and practices developed by its member platforms in any future regulation, among other suggestions. As the report further notes, P2P lending “poses little risk to the wider financial system, not just due to its small size but also due to P2P platforms facilitating long-term investments to investors, rather than instant-access accounts to the wider public.” The worst-case scenario where investors have to wait roughly two-to-five years for a return on their investment “does not point to the catastrophic economic implications of a bank run.”

The report comes around the same time that former chairman of the now-defunct UK Financial Services Authority Lord Adair Turner provided remarks on the peer-to-peer industry at the LendIt Europe 2016 conference; CircleBack Lending announced that it would discontinue making new loans; Lending Club announced heightened rates and tightened credit policy and Chinese authorities published additional oversight to combat online financial risk at a time when some lenders are going the extra mile to determine credit scores.

Payments Update

Alipay has officially partnered with its first European mobile payments platform, Zapper, allowing Alipay to be used in the UK, Europe, and North America through affiliate Zapper businesses. The development comes as Ant Financial — the finance arm of Alibaba — showcased a virtual reality payment system called VR Pay that allows consumers with a VR headset to pay by nodding. Meanwhile, Vodafone UK and PayPal announced a partnership allowing Vodafone customers to link their PayPal account to Vodafone Pay to purchase goods and services at more than 400,000 places in the UK that accept contactless payments.

In a survey of 36,000 online consumers across 19 European countries, more than half of European consumers “regularly use a mobile device to make payments for a range of activities” compared to just 18 percent in 2015. According to the Visa Europe survey, “more than half of European respondents in all age brackets are using mobile banking” — a first — with the highest growth rate among those who are 55 to 64 years old, as shown in the figure below.

Mobile banking use is increasing across all age groups in Europe

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Financial Literacy: Abysmal

According to a new OECD/INFE survey of adult financial literacy competencies, the average score (out of 21) based on responses from roughly 52,000 adults across 30 countries was 13.2. France, Finland, Norway, Canada and Hong Kong rounded out the top five, though no country was able to register a score of 15 or above. The weakest areas of financial behavior, according to the study, “appear to be related to budgeting, planning ahead, choosing products and using independent advice” – the same areas that a number of FinTech companies are targeting. Meanwhile, nearly 40 percent of respondents resorted to borrowing to make ends meet, as can be seen in the chart below. The U.S. did not participate in the survey… PHEW!

Making ends meet*

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*Percentages (weighted data): all respondents, sorted by ‘borrowed to make ends meet.’ Note: Average, all countries and Average, OECD countries report the mean of the country/economy percentages. Each country/economy is therefore given equal weight. 



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