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
February 08, 2017

Greetings, readers of FinTech in Focus, where yours truly is still trying to figure out how, in the 21st century, I could not get a live stream of the Super Bowl during my flight to California. Anyway, I heard it was a good game…. On to FinTech.

Financial Inclusion in Asia

A few reports are out providing analyses on financial inclusion efforts in Southeast Asia and China. A study by the Asian Development Bank finds the cumulative effect “of digitally driven acceleration  in financial inclusion could boost GDP by 2 percent to 3 percent” in countries such as Indonesia and the Philippines, and 6 percent in Cambodia. In particular, digital financial solutions “could address about 40 percent of the volume of unmet demand for payments services and 20 percent of the unmet credit needs in the [base of pyramid] and [micro, small and medium enterprise] segments.” Another study assessed the relationship between financial inclusion and entrepreneurship in China. Analyzing data from 31 provinces and 19 industries from 2005 to 2014, it found “a significant and positive coefficient between financial inclusion and barriers to entry,” with entrepreneurs in sectors with low barriers to entry particularly benefiting from financial inclusion efforts. As the study notes, “there is a threshold effect of the sectoral barriers to entry, such that the formation of entrepreneurs can benefit from the improvement of financial inclusion only when the sectoral barrier to entry is below a certain threshold level” as determined by an entrepreneur’s wealth and potential production capacity.

So, Who’s Ready to Share Data?

A recent survey of 22,000 consumers age 15 or older across 17 countries found more than a quarter of respondents more than willing to share personal data in exchange for gifts or rewards (personalized services, lower costs, etc.). Consumers in China, Mexico and Russia rank highest in overall willingness to share data, while those in Germany, France and Brazil are much more reluctant.


Willingness to Share Personal Data in Exchange for Benefits or Rewards 
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Source: GfK

Speaking of data, the European Union’s second payment services directive, also referred to as PSD2, is of concern to payment startups. Swedish-based payment firm Klarna, which just acquired BillPay for $75 million, and U.K.-based GoCardless, among other platforms, view the directive as favoring incumbent banks, particularly regarding access to a customer’s bank data.

In the U.S., not everyone is in favor of gutting Dodd-Frank. FinTech companies in particular want to save Section 1033, which, as some companies have stated, enshrines a third-party platform’s right to pull data from a customer’s bank account. Section 1033 states, in part, that “a covered person shall make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service that the consumer obtained from such covered person, including information relating to any transaction, series of transactions or to the account including costs, charges and usage data. The information shall be made available in an electronic form usable by consumers.”

Lastly, nearly a week after JPMorgan Chase partnered with Intuit to share data through an application programming interface (API), Wells Fargo joined the fray.

Everybody Is Joining or Launching Something

In the U.K., seven lenders (Capify UK, Catalyst Finance, Credit4, Fleximize, Liberis, The Just Loans Group and YesGrowth) have formed the Association of Alternative Business Finance with the goal of championing and promoting best standards for the industry. One of the group’s key initiatives is to create a centralized database of personal guarantees that “will prevent borrowers overcommitting themselves and help identify fraudulent behavior.” Also in the U.K., the TAX Incentivized Savings Association tapped Andrew Churchill to lead its efforts covering the digitization of British financial services.

On the blockchain front, American Express signed on to the 100-plus member Hyperledger project, while Cisco, BNY Mellon and others have formed a blockchain consortium focused on the Internet of things. Similarly, the Wall Street Blockchain Alliance announced the formation of a working group to focus on “native assets riding upon public blockchains,” including Bitcoin and Ethereum. The group’s first roundtable will take place in late February.

On the payments front, the cities of Atlanta and London, together with industry stakeholders, launched the P20, the first transatlantic payments initiative, which will focus on the need for greater regulatory clarity, consumer security and collaboration in payments and FinTech. The inaugural meeting will be held this fall.

Global Developments

U.K.: The Competition and Markets Authority published its final retail banking market investigation order (and explanatory note), setting out “the strict timetable for introducing key advances such as open banking, the monthly maximum unarranged overdraft charge, standardized business current account opening procedures, and banks having to publish service quality statistics.” There was mixed reaction from the FinTech industry, with British trade group Innovate Finance viewing the order as an “important milestone” in the delivery of open banking to the U.K. market but other platforms saying it could have gone further in supporting FinTech.

Last week we mentioned that the British government would publish a white paper providing additional detail on the U.K.’s departure from the EU. Well, here it is—all 77 pages. The paper lays out the government’s 12 negotiating objectives, as further described in prepared remarks from Brexit Secretary David Davis. Of course, to move forward on those objectives, British MPs had to vote on a bill triggering Article 50. Last Wednesday, after 14 hours of debate, they voted 498 to 114 in favor of the legislation. For those interested, “FinTech” is mentioned only once in the white paper.

Even with prepared remarks and white papers, there’s still a high degree of uncertainty. For instance, venture capital investment in British FinTech fell nearly 34 percent in 2016, even as global venture capital investment increased 11 percent, according to a recent report by Innovate Finance. Similarly, EY published a report saying that 14 percent of international companies with a presence in the U.K. are likely to transfer some or all of their activities elsewhere as a result of Brexit. The top four alternative destinations in Europe: Germany, France, Ireland and the Netherlands. 02 07 17b

Europe: Investment crowdfunding in Germany grew nearly 40 percent in 2016, with real estate crowdfunding seeing significant overall growth. Belgium’s new crowdfunding law went into effect February 1 and includes a number of requirements on alternative-finance platforms, tax breaks and exemptions. In Ireland, the Irish Funds Industry Association announced the development of a blockchain solution for regulatory reporting. In Switzerland, the Federal Council has initiated a consultation on proposed amendments to the Banking Act and Banking Ordinance that “aim to regulate FinTech and other firms which provide services outside normal banking business according to their risk potential.” The proposed amendments also refer to the creation of a regulatory sandbox in that the proposed changes “should allow firms to try out a business model before they are finally required to obtain authorization.” 

U.S.: Efforts are underway at the state level to enact policies favorable to FinTech and innovation. For instance, the Colorado Technology Association is partnering with Sen. Cory Gardner (R-Colo.) to “gather input from Colorado’s technology sector and help enact legislative solutions to promote technology in Colorado and throughout the nation.” In Hawaii, two Democratic representatives have filed a bill to form a working group to examine the uses and best practices of blockchain technology. At the federal level, the IRS has received court approval to delay a hearing on efforts to access U.S. customer accounts on Coinbase. For those unfamiliar, the back-and-forth between the IRS and Coinbase began back in November.

Canada: Crowdfunding platform Kickstarter has opened offices in Canada after acquiring a live-streaming startup company. Meanwhile, Prosper Canada, the Canadian Bankers Association and the Financial Consumer Agency of Canada have launched the Financial Literacy Outcome Evaluation Tool, which offers organizations “a collection of evidence-based financial literacy outcomes and indicators” to evaluate their financial literacy programs more effectively. 

India: The country’s Unified Payments Interface is not working quite as well as expected. According to the Economic Survey 2017, transactions between customers of different banks had a failure rate nearly double that of transactions between customers of the same bank. Separately, the Federation of Indian Chambers of Commerce and Industry published a report, “Leveraging the FinTech Opportunities in India,” that contains industry insights covering the evolving FinTech landscape in India, digital payments, blockchain technology, digital banking, online lending and capital markets, among other insights.

New Zealand: The Technology Industry Association launched a working group to drive efforts supportive of FinTech and innovation. 

Dubai: The Financial Services Authority (DFSA) published a consultation on the regulation of loan-based crowdfunding platforms. The consultation “is the first in a series of papers which set out the DFSA’s approach to the regulation of crowdfunding platforms and the financial technology (FinTech) industry within the Dubai International Financial Center (DIFC).” While loan-based crowdfunding could fit under certain DFSA requirements applicable to existing financial services firms, “we believe that it is best to establish a new Financial Service that directly covers the activities carried out by loan-based crowdfunding platforms.” 

DFSA Regulatory Fundamentals for Loan-Based Crowdfunding Platforms

 02 07 17c 

Source: Dubai Financial Services Authority 

Humanoid Advice

Here come the human advisors taking robo-jobs! Betterment announced the launch of two plans, Betterment Plus and Betterment Premium that allow clients to receive financial advice from humans. Wealthfront, however, continues to go all-in on digital with the launch of Path, a service that helps users plan for retirement by analyzing transaction data from non-Wealthfront accounts. In other robo-advisory news, Raymond James expects to roll out Connected Advisor, its digital advisory platform, later this year. Lastly, U.K.-based Finance & Technology Research Center has launched a robo-advisory comparison website that provides analysis on robo-advisory platforms in Britain and elsewhere. The analysis has already led to questions surrounding Nutmeg’s pricing transparency, for instance. 


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