FinTech in Focus
White House Leaves Trump with a Parting Gift
With less than a week to go before the Trump Administration takes office, folks at the White House aren’t packing just yet. On Friday, the White House National Economic Council published the white paper, A Framework for FinTech. The document sets policy objectives that "reflect widely-shared values and practical expectations for the financial services sector” and “provides 10 overarching principles that constitute a framework policymakers and regulators can use to think about, engage with, and assess the FinTech ecosystem.”
The policy objectives are: foster positive financial services innovation and entrepreneurship; promote safe, affordable and fair access to capital; strengthen financial inclusion and health in the U.S. and abroad; address financial stability risks; further a 21st Century financial regulatory framework (which the Institute has been engaged in since the start of our FinTech program); and maintain national competitiveness. The 10 principles are: thinking broadly about the financial ecosystem; start with the consumer in mind; promote safe financial inclusion and financial health; recognize and overcome potential technological bias; maximize transparency; strive for interoperability and harmonize technical standards; built in cybersecurity, data security, privacy protections from the start; increase efficiency and effectiveness in financial infrastructure; protect financial stability; and continue and strengthen cross-sector engagement. “For Fintech to achieve its full potential, however, stakeholders must learn from the experiences of the financial crisis and collaborate to orient products and services toward broader objectives that benefit consumers, markets and the economy,” the report concludes.
Fourth-Quarter Venture Capital Numbers Are in ….
KPMG released its quarterly Venture Pulse report, which provides analysis of global venture-capital funding. Among the findings, activity fell 24 percent year-over-year, even though funding reached nearly $130 billion in 2016, or double 2013's total. While venture capital investment in Asia "remained steady," investment in the Americas and Europe declined, with deal activity falling considerably. Corporate M&A activity continues to account for the bulk of all VC-backed exits (84 percent in 2016), but quarterly data "reveals a slow but steady slide in corporate M&A, which could suggest a period of lessened liquidity for VC firms unless other exit options arise."
Global Venture Financing by Stage, 2010 – 2016
Consumers Warm to Robo Advice
Of the 33,000 consumers across 18 countries and regions surveyed by Accenture, more than 70 percent of respondents would use “entirely computer-generated support” for banking, insurance and investment services, and two-thirds would share more data with banks, insurers, and investment advisory firms in return for new benefits. Additionally, tech providers are increasingly viewed as attractive to Gen Y, with 40 percent of respondents willing to consider banking with Google or Amazon. Important to note: Consumers increasingly are channel agnostic, with nearly 60 percent of respondents indicating they do not mind which channel is used to communicate with their bank, insurer or investment advisor.
Prevalence of Consumer Personas* by Market
Nomads: digitally active and ready for new delivery methods.
Hunters: in search of the best price.
Quality Seekers: value brand integrity and service and will work with providers who put customers first.
Source: Accenture, Financial Providers: Transforming Distribution Models for the Evolving Consumer
China: The country's digital economy is projected to create 415 million jobs and represent 48 percent of gross domestic product by 2035, according to a forecast from Boston Consulting Group and AliResearch Institute. Not surprisingly, traditional firms are seeking a share, with incumbents seeking to challenge AliPay and TenPay’s (WeChat Pay) dominance (89 percent market share) in the $4 trillion mobile payments market, for instance. Separately, in the wake of Bitcoin's recent price decline (after reaching a three-year high), the People’s Bank of China continues to scrutinize virtual currency platforms. This has resulted in at least one startup halting some services due to growing regulatory concern.
Europe: Yves Mersch, a member of the executive board of the European Central Bank, has delivered two speeches within the past two weeks (Jan. 6 and Jan. 16) focused on prospects for creation of a pan-European instant payment settlement service in central bank money and in banks' digital currency. Sometime this year, Mersch said, payment services providers will deliver instant payment solutions to the end user, most ACHs will be in position to launch their instant payment clearing systems, and “the Eurosystem will decide on whether or not to provide a pan-European instant payment settlement service in central bank money to payment service providers.” Regarding digital currency, Mersch said the ECB “would in particular have to understand the impact — positive or negative — of Digital Base Money (DBM) on our primary objective of price stability before considering introducing it.” And while focusing his remarks on options for the design, issuance and management of DBM, Mersch pointed out that the ECB does not see a trend away from cash. Growth in demand for banknotes in the Euro area, he said, “has by far exceeded that of economic output.”
Belgium and France: The UK's Innovate Finance, a FinTech membership association, has established a "FinTech bridge" with Belgium's collaborative innovation platform B-Hive. The link was the outcome of discussions with Belgium's finance minister, Johan Van Overtveldt, and members of the country's digital finance community. As Overtveldt stated, "I am very pleased to announce the launch of B-hive, a collaborative innovation platform where finance meets technology. The new platform is the result of a recommendation made by a high-level expert group on the future of finance in Belgium, which I put in place in 2015, and led by Johan Thijs, CEO of KBC Bank and Insurance Group.”
U.K.: Prime Minister Theresa May provided more clarity yesterday on the government’s plans for Brexit. According to May, Brexit will not include a “partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave. No, the United Kingdom is leaving the European Union. And my job is to get the right deal for Britain as we do.” Of note, May also stated that the UK government “will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament, before it comes into force.”
US: House Majority Leader Kevin McCarthy (R-CA) released a statement following House passage of a series of bills that are part of the Innovation Initiative unveiled by the Majority Leader and Congressman Patrick McHenry (R-NC) in March. The Food and Drug Administration has signed a research initiative with IBM, which broke the U.S. patent record in 2016, when its researchers were granted more than 8,000 patents, "aimed at defining a secure, efficient and scalable exchange of health data using blockchain technology.” The Securities and Exchange Commission announced its 2017 exam priorities, which include examinations "to review firms delivering investment advice through electronic mechanisms, sometimes referred to as 'robo-advising.'"
Ripple here, Ripple there. Axis Bank has partnered with Ripple to conduct cross-border remittances, becoming the third bank in India to incorporate blockchain solutions in its operations, while Bitstamp has added Ripple's currency, XRP, to its trading platform. And speaking of Ripple, Chinese CERT recently released a report covering potential security risks with certain distributed ledgers and gave Ripple the worst score with 223 out of the 230 flaws discovered classified as "high threat." Litecoin, Ethereum, Dogecoin, Bitshares and other projects also had a number of vulnerabilities, though most were not deemed "high risk." In a statement on the report, Ripple notes that “since the researchers behind the report did not demonstrate responsible disclosure by contacting Ripple prior to publication, we do not know what testing methodology or techniques were used nor which code repositories were tested…. At this time, we do not feel confident in the accuracy of the CERT report. Furthermore, based on the way in which the report was published, we question the legitimacy of the reporting body.” Lastly, R3 says it will close the industry’s largest-ever funding round in the first-quarter, Deloitte has launched a blockchain research lab in New York, and Sweden will begin public testing of land title registration using blockchain technology in March.