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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 12, 2017
   
   

Congrats FinTech, You Made the Top 10 (Again)

If you’re looking to clear out champagne left over from your New Year’s Eve party, (Thanks for the invite by the way!) Investopedia has given you another reason to pop the bubbly. The website has declared FinTech one of the top 10 financial terms of 2016. Also included: peer-to-peer lending, blockchain, Trumpflation, Trumponomics and a few others. (Apparently Black Swan is not just a title of a Hollywood movie).

About that Special Purpose FinTech Charter …

U.S. Senators Sherrod Brown and Jeff Merkley submitted a letter to the Office of the Comptroller of the Currency (OCC) expressing concern about the OCC’s interest in offering special purpose charters to FinTech firms. As stated in the letter: “Providing a more favorable charter to companies engaged only in narrow lines of bank services would have a detrimental impact on the consumers who are supposed to benefit from financial innovation. A core assumption of federal efforts toward a more inclusive banking system is for the underbanked to ‘establish a mainstream banking relationship that provides them the opportunity to deposit funds securely, conduct basic financial transactions, accumulate savings, and access credit on fair and affordable terms.’ It is unclear to us how the OCC’s proposal, which would normalize the delivery of a la carte services by nondepository firms, aligns with the goal of providing the underbanked with access to a full range of ‘safe, secure, and affordable banking services.’”

Global Developments

UK: As we try to make sense of Brexit, it’s important to point out that Britain’s top envoy to the EU, Ivan Rogers, resigned last week and was replaced by Tim Barrow, the former UK ambassador to Russia. Meanwhile, the University of Cambridge released a study that analyzes the macro-economic impact of Brexit on the UK by constructing a new economic model. The model indicates a much more subdued economic impact than the gravity-model approach used by the UK Treasury, which forecasts tougher consequences in the near term. The Treasury's model “can be unstable and unreliable and the Treasury’s use of this this approach is inappropriate. The Treasury rely on average impacts across all EU members and on equations estimated across over a hundred countries, most of them involved in little trade with the UK,” the report said. As such, the researchers sided with the baseline scenario under their new model, which projects that GDP will drop two percent over the next decade before recovering as a result of accommodative monetary policy and a depreciated currency.

Real GDP (percent per annum)

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In non-Brexit matters, the British Business Bank expanded its relationship with Funding Circle (UK) by lending an additional £40 million through the platform to fund small businesses. Over the past three years, the British Business Bank Investments Ltd “has earned a 6.2 percent annual net return by lending to small businesses through the platform, totaling £5m in cumulative net interest on behalf of the taxpayer.”

Canada: Venture capital investment in FinTech is booming, according to recent reports, which cite growth estimates of 35 percent to 75 percent.

US: The Treasury Department’s Federal Advisory Committee on Insurance convened last Thursday to discuss “a number of issues, including blockchain technology in the insurance sector, the changing auto safety landscape, and an overview of insurance fraud.” An archived webcast of the discussion can be viewed here. Meanwhile, the Office of the Comptroller of the Currency, which is receiving comments on its white paper covering special purpose FinTech charters, published its Semiannual Risk Perspective for Fall 2016. Noting that evolving needs in financial services may put banks at a disadvantage, the report encouraged banks to adapt risk management in a timely way and control processes to changes in business strategy. Separately, LendEDU published a blog post examining the number of consumer complaints against financial institutions registered with the Consumer Financial Protection Bureau (CFPB). According to the data, only seven complaints have been submitted against virtual currency firms since the bureau first started collecting them in July 2011. And lastly, the Department of Energy is seeking novel concepts for blockchain-based energy systems. According to the document, proposals “are sought to develop novel concepts for energy systems that rely on blockchain technology to assure robust systems that are less susceptible to cyber-attack.”

And speaking of blockchain, the Depository Trust and Clearing Corporation (DTCC) picked IBM, in partnership with Axomi and R3, to build “a derivatives distributed ledger solution for post-trade processing based on existing [DTCC Trade Information Warehouse (TIW)] capabilities and interfaces with technology providers and market participants.” According to the press release, TIW “currently automates the record keeping, lifecycle events and payment management for more than $11 trillion of cleared and bilateral credit derivatives.”

China: The People's Bank of China held a private meeting with bitcoin exchanges to discuss limitations in how exchanges market their services to acquire new users. The meeting was held last week as the PBOC raised concerns with Shanghai-based bitcoin trading platform BTCC about abnormal trading activity, including higher than normal growth in the number of new investors to the platform.

On the online finance front, China Rapid Finance has expanded its partnership with Tencent Holdings to support Tencent's online wealth management service, Licaitong. China Rapid Finance first partnered with Tencent back in 2015 providing low-cost, low-interest loans to Chinese consumers. The company is also looking to triple the 1.2 million borrowers using its platform by the end of this year. Meanwhile, Chinese search engine Baidu has reportedly obtained an online banking license in partnership with China’s CITIC Bank. “The joint venture bank named Baixin Bank will tentatively have RMB2 billion in registered capital,” according to the report.

Indonesia: In a previous blog, we mentioned that the Financial Services Authority was preparing FinTech lending regulations. The rules for peer-to-peer lending, released last week, are more relaxed than those listed in the draft version. Meanwhile, Indonesia’s anti-money laundering agency stated that criminals are seeking to move funds through alternative means outside the banking system and identified one militant as having used online methods to fund terror-related activities.

Finland: The Ministry of Finance formed an expert group on FinTech headed by Ministerial Advisor Miki Kuusinen to develop and promote FinTech within the country's financial services sector. The Ministry also released an analysis of Finland’s crowdfunding market, which has doubled to more than €150 million from €70.5 million last year.

Amounts collected or mediated in Finland through different forms of crowdfunding

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India: Google plans to offer digital payments services to support India's effort to promote seamless electronic transaction processing through the United Payments Interface (UPI) initiative, according to a report. Separately, PayTM expects to launch a payments bank within the next month or two. Initial services will consist of wallet accounts, current accounts and savings accounts, according to PayTM CFO Madhur Deora. And, India’s demonetization effort, seen by some as the most disruptive policy innovation since 1991 reforms, has resulted in 41 percent of the country’s micro, small and medium-sized enterprises shifting to check and electronic payments, according to a survey. Demonetization has also led foreign governments to advise citizens traveling to India to use e-payments instead of cash.

The Institute for Development and Research in Banking Technology, established by the Reserve Bank of India, has released a white paper covering the applications of blockchain technology to India's banking and financial services sector. The report provides an overview of blockchain technology as well as the various applications where the technology could be employed, in addition to a roadmap for the adoption of blockchain in India. The report also highlighted a proof-of-concept covering blockchain’s application to trade finance.

Japan: The Financial Services Authority has cleared the Japan Exchange Group to adopt FinTech technology, such as blockchain, to bring greater efficiencies to trading. According to the report, the agency “will approve FinTech adoption on a case-by-case basis.”


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