FinTech in Focus
Undisputed Champion of FinTech?
A FinTech hub you say? How about the "undoubted center of global FinTech innovation and adoption?" That’s the pronouncement of a new report by DBS Bank and EY, “The Rise of FinTech in China: Redefining Financial Services.” Between July 2015 and June 2016, investment in Chinese FinTech was just shy of $9 billion, and the country itself accounts for nearly half of global digital retail sales. FinTech investment in the Asia-Pacific region alone is estimated at $10 billion for the first half of 2016, double the total amount of investment in 2015. As the report states, "the big winners in this flurry of activities are domestic players, both the dominant technology players and more progressive incumbents, with funding coming predominately from domestic state-owned actors and private investors."
Percentage of banking/financial services customers using FinTech services
Source: DBS Bank, EY – The Rise of FinTech in China: Redefining Financial Services
Two things usually happen when regulators/government officials make big announcements regarding FinTech: My kids get sick and I’m forced to stay home or I’m travelling. Nevertheless, U.S. federal regulators clearly had a lot to say over the past week.
First, the Office of the Comptroller of the Currency announced that it would move forward with considering applications from FinTech companies interested in becoming special-purpose national banks. According to remarks by Comptroller Thomas Curry, the office will move forward with chartering FinTech firms because "we believe doing so is in the public interest" and the companies that offer banking products and services "should have the choice to become national banks if they wish to do so." Lastly, through the chartering process, "the OCC can fully explore how the proposed bank's policies, procedures, and practices are designed to protect individuals and small business customers." The OCC also released a white paper on FinTech charters, and comments submitted to the OCC on the white paper will help the agency "develop and implement a formal agency policy for evaluating applications for fintech charters." Comments are due by January 15, 2017.
Meanwhile, in Illinois, Bryan Schneider, secretary of the Illinois Department of Financial and Professional Regulation, announced the Illinois Blockchain Initiative, along with releasing for comment the department's proposed "Digital Currency Regulatory Guidance," which "expresses the IDFPR's interpretation of the Illinois Transmitters of Money Act and the application of its interpretation to various activities involving digital currencies."
And speaking of blockchain, the Federal Reserve published a research paper titled “Distributed Ledger Technology in Payments, Clearing, and Settlement.” According to remarks from Fed Gov. Lael Brainard on the opportunities and challenges of FinTech, while “’run fast and break things’ may be a popular mantra in the technology space, it is ill-suited to an arena that depends on trust and confidence.” To better understand the potential and risks of FinTech, the Fed "has established a multidisciplinary working group that is engaged in a 360-degree analysis of fintech innovation." And lastly, the Federal Reserve Bank of San Francisco has released a series of podcasts covering FinTech in Asia to its Pacific Exchange Blog.
The central bank has partnered with Deutsche Bundesbank to unveil a blockchain prototype focused on securities settlement and settlement of basic corporation actions "such as coupon payments on securities and the redemption of maturing securities." Meanwhile, German officials have introduced the country's first five digital hubs, with Frankfurt appointed as the digital hub for financial services and FinTech. Apart from being continental Europe's leading financial center, the city "must also take the lead in the highly innovative FinTech sector," according to one official.
The Payments Strategy Forum, tasked by the U.K. Payments Systems Regulator to unlock competition in the payments space, has released a report that identifies a number of strategies to move the U.K. payments system into the 21st century. In short, the list of strategies would provide for simpler access, ensure ongoing stability and resilience, ensure greater innovation and competition, and enhance the adaptability and security of the current payments system.
Finland & Sweden
The Bank of Finland and Finland’s Ministry of Finance held a daylong seminar covering blockchain technology where 10 projects were presented. In Sweden, Stockholm is looking to become a FinTech hub to promote the country's FinTech sector and support Sweden's FinTech community. The hub is expected to launch in the first quarter of next year.
The Hong Kong Monetary Authority hosted a meeting of the Financial Stability Board Regional Consultative Group for Asia on Dec. 2. According to the press release, discussion focused, in part, on retail payments systems. As the release notes, the use of FinTech in these systems "has made the micro payments and money transfers more accessible and convenient." However, "these advancements expose customers to credit and operational risk." The FSB will continue to look into "appropriate" regulatory approaches "to foster sound and secure retail payments systems" while striking the right balance between financial inclusion, customer convenience and financial stability.
The country's securities commission and its research and development center will collaborate on developing a capital market advanced analytics platform. From this collaboration, the securities commission "will be able to leverage new technology to process a higher volume of data from a variety of sources beyond the traditional data sets, facilitate the usage of RegTech or technology to enhance regulatory effectiveness, and build Malaysia’s Big Data capability in the capital market."
Japan and China
The Bank of Japan and the European Central Bank have announced a joint research project to study the application of distributed ledger technologies for market infrastructure purposes, with findings to be released next year. The agreement comes two days after Bank of Japan Gov. Haruhiko Kuroda spoke on the challenges and opportunities of FinTech. “In some sense, technological innovation reflects the basic human nature of ‘intellectual adventure.’ I believe that human beings are inherently curious and search for better ideas to resolve problems, and that they have a genuine desire to communicate and share such ideas with other people. Thus, I do not think it is easy to suppress such human characteristics.” In China, new peer-to-peer lending guidelines have been issued, according to the China Banking Regulatory Commission, as the country continues on a path to establish a national investment standard to boost equity investment.
The Australian Securities and Investments Commission (ASIC) Chairman Greg Medcraft gave prepared remarks on positioning ASIC as a regulator for the future through the use of big data analytics. Separately, the Australian Digital Currency Commerce Association (ADCCA) released the country’s first code of conduct for the digital currency industry. Applicants must prove to independent assessors that they meet the standards required to become an ADCCA-certified digital currency business. The code of conduct "also voluntarily adopts" anti-money laundering and counter-terrorism standards.
There are a couple of headlines resulting from the government’s demonetization efforts. First, while officials expect some “short-term pain,” they believe the steps being taken will hasten the country’s move towards the digitization of financial services. Meanwhile, the government's "premier think tank" has formed a committee to promote the use of digital payment systems around India, and a report containing recommendations to encourage digital payments is expected to be published within the next week. And lastly, efforts are being made to turn the port city of Visakhapatnam into a FinTech hub.
The Commercial Bank of Africa plans to launch its M-Shwari mobile banking service in Ivory Coast next year, in partnership with South African telecom provider MTN. This will mark the first time that a lender from Kenya has launched operations in West Africa.
Alternative Finance Lenders: On Hold
Zopa, a U.K.-based online lending platform, announced that it would not accept new money transfers from its customers due to reduced loan demand. According to the platform, “The queues have been increasing because Zopa has grown its investor base both in terms of new investors and total funds from investors. This growth has outpaced the growth of new loans. It is important to note that we have strict lending principles and will only lend to those who meet our risk criteria.” Meanwhile, not only has U.S.- based lender CAN Capital restructured its management team, but the platform also said it would pause new lending until the end of the year and merely service existing customers. In other industry news, PeerIQ struck a strategic partnership with TransUnion, and Funding Circle UK recorded an industry first after surpassing £100 million in loan originations in one month. Fundera’s Brayden McCarthy and Harvard Business School Senior Fellow Karen Mills released an updated report to their widely cited 2014 research covering small business lending, and Accion published a new report on “Bridging the Small Business Credit Gap Through Innovative Lending.”
FinTech and the Media
A recent studylooks at the drivers of FinTech from the perspectives of English and German media. The report is the first of its kind "to reflect the media perspective on the FinTech phenomenon in the research." The paper argues that "FinTech is rather an entrepreneurial phenomenon, which is not triggered by exclusively one and only driver of financial innovation, but rather is influenced by the combination of economic, technological and regulatory factors." Media interest in FinTech really took off beginning in 2011 based on the number of articles written. The chart below provides an interesting look at the media’s interest in FinTech in certain regions around the world.
Locations classified according to regions for the periods