FinTech in Focus
To Be or Not to Be … a Blockchain
Just to be clear, R3 CEV’s Corda product is not a blockchain platform, but a distributed ledger platform. According to a recent blog post, the term “blockchain” “came to be associated with any type of distributed ledger, even as the technology matured and evolved to meet the needs of different groups of users.” (Sort of like how “FinTech” is now associated with any business that has a computer.)
The firm added: “While we were almost certainly guilty of slipping into this semantics trap now and again, we’ve said from the beginning that Corda is a distributed ledger platform, not a traditional blockchain platform. It was never designed to be one.” Of course, if you remember when Corda was first announced, it was billed as a distributed ledger platform for financial services. Not everyone was satisfied, of course, with Reddit users particularly irate. (Are they ever not angry?) If you need further clarity, the blog post ends with the following statement, “When is a blockchain not a blockchain? When it’s Corda.” So there.
Next Stop, NYC
Hello, FinTech in Focus readers! Yours truly will be at LendIt in New York City next week moderating a panel on the regulatory landscape for small-business lending. After 25 minutes, I intend to rise up from my seat to raucous applause from the audience after solving all of the problems inherent in small-business lending.
Checking FinTech’s Pulse
A few weeks ago I directed your attention to the KPMG Venture Pulse report, focused on global venture capital investment trends. Over the past week, KPMG and PitchBook released the fourth-quarter Pulse of FinTech report, examining global FinTech investment trends. In short, FinTech investment is down roughly 50 percent from 2015. While venture capital investment “remained strong,” according to the report, deal flow was off significantly. U.S. numbers weren’t great, as both payments and lending spaces are becoming saturated, leading U.S. investors to focus more on “improving business models and scaling the businesses of their existing portfolio companies.” Our neighbor to the north, which also has a habit of beating us in ice hockey, saw record highs in deal activity and deal value. You win again, Canada, you win again.
Canada: Yes, I’ll put you guys first. There’s been a lot of activity over the last week as the Canadian Securities Administrators launched a regulatory sandbox initiative “open to business models that are truly innovative from a Canadian market perspective.” Examples of potentially eligible models include online platforms, firms specializing in artificial intelligence, cryptocurrency or distributed ledger technology ventures, and others. In Ontario, securities regulators signed a cooperation agreement with the U.K.’s Financial Conduct Authority “to refer to one another innovative businesses seeking to enter the other’s market.” For those who may have just woken up to Canada and FinTech being used in the same sentence, the country’s recent efforts to support financial innovation can be read about in more detail here.
U.S.: The Securities and Exchange Commission’s Division of Investment Management published a guidance update covering automated advice platforms, based on input from the SEC’s FinTech Forum in November and staff observations. The guidance focuses on robo advisers that provide services directly to clients over the Internet and reminds the operators of such platforms to be mindful of “certain unique considerations as they seek to meet their legal obligations under the Advisers Act.” The document focuses on the following three “distinct areas” identified by staff: the substance and presentation of disclosures to clients about the robo adviser and the investment advisory services it offers, the obligation to obtain information from clients to support the robo adviser’s duty to provide suitable advice, and the adoption and implementation of effective compliance programs reasonably designed to address particular concerns relevant to providing automated advice.” Moving on to another federal regulator, the Federal Trade Commission announced its next FinTech Forum, which will take place March 9 and cover artificial intelligence and blockchain technology. (In case you were wondering, R3 CEV is not listed on the agenda for the blockchain panel.) Separately, the U.S. Payments Forum has elected a new steering committee to guide the priorities of the forum as well as its working committees, including Card-Not-Present Fraud, Mobile and Contactless Payments, and Testing and Certification. Lastly, the Electronic Transactions Association announced the launch of a Payment Facilitator Committee, which will “identify current and emerging technology, business, policy and compliance-related issues that shape the continuing growth of this market.” The committee will be chaired by Mike McGirr, Adyen’s senior vice president for compliance and risk.
U.K.: Britain’s artificial intelligence sector is getting a £17-million boost, according to a digital strategy report to be released by the government this week. Separately, Hannah Nixon, managing director of the Payment Systems Regulator, in prepared remarks on the regulatory challenges ahead for U.K. payments, said the PSR would explore three new themes: consumer protection, the use of data, and changing competitive dynamics. Regarding the use of data, Nixon said the PSR was “seeking much greater availability and use of payments data (including cards data). While this could drive innovation in the sector, resulting in more payment products and services being made available to end-users, the increased commercial use of payments data could have implications for end-users with respect to privacy, security, and data protection. We want to explore those issues and consider what our role should be.” Lest we forget, the U.K. is celebrating FinTech Week in mid-April, alongside Innovate Finance’s annual global summit.
The EU: The European Parliament published an opinion covering geo-blocking and other forms of discrimination. The document says that preventing access “to online interfaces and redirecting are regarded as a practice that causes frustration to customers, and this proposal addresses the issue, ensuring that customers would be able to access the interface of their liking at all times and regardless of their geographical location.” The EP also produced a white paper covering blockchain’s potential across digital content, patents, e-voting, smart contracts, supply chain management, public services, and decentralized autonomous organizations.
Separately, the European Banking Authority published a final draft of regulatory technical standards (RTS) on strong customer authentication and common and secure communication. The EBA heard from 224 respondents to its consultation. EBA Chairman Andrea Enria, in prepared remarks on the future of payments policy, provided details on the final-draft RTS, including the conclusion “that the current practice of third-party access without identification that a few respondents referred to as ‘screen scraping,’, or mistakenly as ‘direct access,’ will no longer be allowed once the transition period under the PSD2 has elapsed and the RTS applies.”
Germany: You know your payments system is a bit behind the curve when the chair of the European Payments Council has a difficult time purchasing train tickets. “After this experience, the myths I had about Germany being developed have been obliterated,” Javier Santamaría said.
Russia: The country will reportedly launch its first accelerator program for local FinTech firms, called FinTech Lab. Ak Bars, VTB 24, Bank Saint Petersburg, and Home Credit Bank will team up with MasterCard and Accenture on the launch.
Indonesia: The Financial Services Authority launched a website that compiles hundreds of banking regulations in one place, where industry stakeholders and the public can determine whether certain statutes have been replaced, repealed, revoked, or remain as is.
Nigeria: FinTech is coming! PwC published a survey of Nigerian financial services industry leaders, focused on the impact of FinTech in the country. Not surprisingly, retail banking and payments were two areas seen as most at risk of disruption. Nearly 80 percent of respondents indicated that some part of their business was at risk of disruption.
India: The Associated Chambers of Commerce and Industry of India will hold a global summit in early March covering Bitcoin and the blockchain, and the opportunities and challenges posed to the Indian economy.
China: TheChina Securities Regulatory Commission is considering loosening restrictions on companies looking to go public, in a bid to make the mainland more attractive to large, homegrown companies, especially tech companies. China Rapid Finance, for example, is looking to raise at least $100 million in an IPO in the U.S. Meanwhile, Shanghai’s financial regulator has announced that it will pursue research and regulation covering blockchain.
Bahrain: Khalid Al Rumaihi, chief executive of the Bahrain Economic Development Board, said the country would launch a venture capital fund this year to support FinTech ventures, as well as create a regulatory sandbox and FinTech accelerator.
Money, Money, Money … Money!
Seriously, who doesn’t love the O’Jays!? Anyway, Prosper signed an agreement with certain institutional investors to purchase up to $5 billion in loans over the next two years. And remember when you sold off your Bitcoin, thinking there couldn’t possibly be any way the digital currency highs again? Well, you were wrong. The price of Bitcoin hit an all-time high of $1,210.16 yesterday.
The Mobile Economy
GSMA released a report on the mobile economy in 2017. According to the report, nearly two-thirds of the global population has a mobile subscription, with Asia expected to drive the number of new unique subscribers for the foreseeable future. Interestingly, GSMA finds that mobile technologies and services “generated 4.4 percent of GDP globally, equivalent to around $3.3 trillion of economic value,” and the mobile ecosystem supported 28 million jobs in 2016.
Top 10 countries by projected new mobile subscribers (in millions): 2016-2020