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
January 04, 2017

The Holiday Hangover

Happy New Year to everyone! Yours truly spent about two weeks on the ski slopes which is why I did not answer your e-mails and calls (I tried but, as the saying goes, there’s no friend on a powder day). This also means that it feels like I'm five years behind on FinTech developments (I told you all to go on vacation!) and about 10 pounds heavier than I was before I left for Utah. But enough about me as I shed tears standing on the weight scale. Let’s get into FinTech.

Cash(less) is King

The Fed published some analysis before the New Year on the growth of cashless transactions in the U.S. According to the Federal Reserve Payments Study 2016, noncash payment transactions in 2015 totaled 144 billion with an estimated value of nearly $180 trillion. "Total noncash payments increased at an annual rate of 5.3 percent by number or 3.4 percent by value from 2012 to 2015," the report said. Of note, general-purpose cards with embedded microchips “have grown 230 percent per year since 2012,” but amount to only a 2 percent share of total in-person general-purpose card payments in 2015. As for fraudulent activity, the data shows that in-person fraud maintains a slight lead over remote fraud (54 percent to 46 percent, respectively) in the U.S.  However, as the report notes, “given that the share of remote payments is estimated to have been small (19 percent) relative to the share of in-person payments (81 percent) in 2015, the data show that the remote fraud rate by value is already higher than the in-person fraud rate.”

Distribution of Core Noncash Payments in 2015 by Type, Number and Value

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Big Data in the EU

A discussion paper released for comment by the European Banking Authority, the European Insurance and Occupational Pension Authority, and the European Securities and Markets Authority covers the use of big data by financial institutions. While recognizing the potential of big data, including benefits related to improved regulatory compliance, European regulators expressed concerns that certain big data techniques might result in restrictions on consumer access to products and services in the future. Regulators also said they are considering whether new rules are needed to tackle the risk of discrimination. As the report states, “questions surrounding who will have access and control the growing consumer data sets that Big Data tools will be able to extract from their interactions with clients will need to be addressed. Other important considerations for regulators include how to supervise institutions that develop and operate Big Data software, how to determine if a Big Data-based service failed or provided inappropriate services or whether business decisions are discriminating against certain group of customers.”

Double-Spend Attacks

As Bitcoin’s price hit the $1,000 mark for the first time in three years, after climbing 125 percent in 2016, new research published by Carlos Pinzon and Camilo Rocha analyzes two models of double-spend attacks — where users spend the same money at least twice — which have already taken place on the Bitcoin network. The study noted that while double-spend attacks are very unlikely given "the number of confirmations required for a transaction to be valid and the number of leading zeroes required to sign a block of transactions … the double-spend attacks become a real risk when an attacker has enough time advantage.”

A Successful Double-Spend Attack

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Global Developments 

U.S.: For those familiar with the Jumpstart Our Business Startups (JOBS) Act (and my apologies for not seeing this earlier), the Securities and Exchange Commission (SEC) released a white paper covering the first 16 months since Regulation A+ (Title IV of the JOBS Act) took effect. According to the white paper, 147 Regulation A+ offerings have been publicly filed seeking $2.6 billion in financing. Of those offerings, 81 have been qualified by the SEC seeking up to $1.5 billion. According to the paper, Tier 2 offerings "were on the margin more common among qualified offerings, accounting for 60 percent of qualified offerings." Meanwhile, the average issuer sought upwards of $18 million in financing. “Equity offerings accounted for the majority of offerings (87 percent of all offerings and 90 percent of qualified offerings),” according to the paper. And, since this is always of interest, the median legal and audit costs and intermediary fees were about $40,000 (all filings), $15,000 (filed and qualified offerings), and $150,000 (all offerings), respectively. 

India: The U.S. Agency for International Development (USAID) joined with the Indian Finance Ministry to launch a program under the Catalyst Initiative to create and expand awareness of digital payments across the membership of the Confederation of All India Traders (CAIT). Similarly, CAIT recently urged India's government to create a Digital Payments Promotion Board to encourage digital payments.

China: Asia FinTech Fund of Funds — a foundation targeting FinTech mergers and acquisitions throughout Asia — was established in Beijing last week with roughly $1.4 billion in funding. Meanwhile, a recently published information and technology planning document covering China’s next five years includes blockchain development and other efforts in support of FinTech.

Hong Kong: The Hong Kong Monetary Authority and the Applied Science and Technology Research Institute have come together to launch the FinTech Career Accelerator Scheme "to provide practical internship for undergraduate and postgraduate students interested in developing their careers in the FinTech industry." According to a release, interns will fill roughly 70 positions at 11 participating banks and work for six months to one year.

South Korea: The central bank has published a report covering some of the major issues associated with adopting distributed-ledger technology. As reported by CoinDesk, the document advocates for a central manager to oversee privacy controls as well as issue tokens and grant participants access to the shared ledger. The document also calls “for a Merkle root-based implementation of a public blockchain capable of conducting 3,000 transactions per second.”

Sweden: Apparently, not everyone is comfortable with switching to the eKrona digital currency. According to results from a recent survey, at least half of respondents were opposed to its creation and one-third expressed no interest in the topic.

Blockchain Rising in Importance Outside of Financial Services

A new Deloitte survey of 308 senior executives at U.S. firms with $500 million or more in annual revenue found that more than 60 percent have some knowledge (broad to expert) of blockchain technology. Twenty-one percent of the executives said they have already brought blockchain into production and 25 percent indicated that they are planning to do so in 2017.


Deployment Extends Beyond Financial Services…

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  • A great thing being done by the Hong Kong monetary authority.

    Thanks for the update here.

    Where do you feel the greatest opportunities for crypto currency lie outside of financial services?

    Posted by Ken White , 01/06/2017 (2 years ago)

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