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
March 15, 2017

Leading Global Innovation Hubs

KPMG released a survey ranking the major innovation hubs around the world beyond Silicon Valley, and four of the top 10 cities are in the U.S. The report finds, not surprisingly, that the battle for innovation supremacy continues between China and the United States. Also unsurprising: People tend to view the countries they’re in (or around) as showing the most promise for disruptive technology breakthroughs. Nearly 50 percent of respondents from North America named the U.S. as the innovation center leader, while only 18 percent of respondents from North America viewed China as the leader. This compares with 35 percent of respondents from Asia who selected China as the innovation leader, with only 13 percent selecting the U.S. India remains in third position, while the U.K. jumped significantly in the rankings to take fourth. 

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The Rise of Artificial Intelligence and Machine Learning

Startupbootcamp and PwC released a study on emerging trends in FinTech based on applicants to the startup accelerator and knowledge gleaned during the process. The report highlights how startups are increasingly focused on artificial intelligence and machine learning, with nearly 20 percent of applicants involved in those areas of FinTech. Only 6 percent of applicants were from companies using blockchain technologies, despite that being the most talked-about field of 2016. As the report notes, “The key in this space will be to move away from a focus on technology to the problems that blockchain may be able to solve—to put human applications at the heart of development by combining expertise on blockchain with user delivery and experience knowledge.” Meanwhile, roughly 12 percent of applicants were focused on efforts to foster financial inclusion and improve individuals’ financial well-being, with the bulk of applicants hailing from developing countries. On collaboration with incumbents, the report notes that organizations still have trouble understanding how to measure the success of relationships with FinTech companies, though the continued momentum in favor of collaboration is encouraging. 

Incumbents Making Moves

Citi appointed Yolande Piazza to head Citi FinTech. Piazza has been with Citi for roughly 30 years, serving in a variety of technology roles, in particular as chief operating officer for Citi FinTech. JPMorgan Chase acquired MCX payments technology to expand Chase Pay. Meanwhile, Morgan Stanley is hiring hundreds of tech specialists to train advisors on the firm’s new digital wealth-management tools. 

A First for Everything (or Not)

The SEC denied listing for would have been the first U.S. exchange-traded fund-tracking Bitcoin, ending a three-year process by the Winklevoss brothers to list their Bitcoin ETF. Bitcoin’s price dropped $200 after the news but has since rebounded. In India, IDFC Bank launched Aadhaar Pay, the country’s first cashless-merchant solution linked to the Aadhaar, the personal identity number for Indians. Meanwhile, Global Alternatives is set to becomes Europe’s first cross-border trading exchange for crowdfunded securities.

Global Developments 

U.K.: On Monday night, Parliament passed the European Union withdrawal bill with no amendments, allowing the government to proceed with triggering Article 50. Objections raised concerning EU residency rights and Parliament having the final say on a Brexit deal were overturned. On Sunday, the House of Commons Foreign Affairs Committee, in a report, urged the government to prepare for the “real prospect” that no deal with the EU will be reached. According to the report, the government “has produced no evidence, either to this inquiry or in its white paper, to indicate that it is giving the possibility of ‘no deal’ the level of consideration that it deserves, or is contemplating any serious contingency planning. This is all the more urgent if the government is serious in its assertion that it will walk away from a ‘bad’ deal.” The report strongly urges the government to require all departments to make preparations in case no final deal is reached. Within 48 hours of Article 50 being triggered, the EU will reportedly lay out draft negotiation guidelines for Britain’s 27 EU neighbors to consider.

In other news, the U.K. Financial Conduct Authority and Japan’s Financial Services Agency exchanged letters on a cooperation framework supportive of FinTech companies. The letters “will provide a regulatory referral system for innovator businesses from Japan and the U.K. seeking to enter the other’s market” and “will encourage regulators to share information about financial services innovation in their respective markets, reduce barriers to entry in a new jurisdiction and further encourage innovation in both countries.”

Bahamas: The central bank is eyeing mid-2017 for initial regulations to license non-bank e-payment providers in an effort to move the country beyond cash transactions.

Singapore: The central bank has been busy over the past week striking two FinTech cooperation agreements with Japan and Abu Dhabi Global Market, and the “successful conclusion of the proof-of-concept project to conduct domestic interbank payments using distributed ledger technology.” The central bank plans two spinoffs based on lessons learned from the project: making the fixed-income securities trading and settlement cycle more efficient and establishing new methods to conduct cross-border payments using central bank digital currency.

India: MicroSave released a study analyzing the impact of India’s demonetization efforts. According to the report, 66 percent of respondents are likely to permanently transition to digital solutions to transact, yet 34 percent will not adopt digital payments. There’s been an increase in the use of checks, particularly for small transactions, while mobile wallets have seen increased adoption due to their ease of use. The report finds the impact of demonetization “short-lived,” with transaction amounts across cashless-payment instruments nearing pre-demonetization amounts. Indeed, the use of digital payments has been in decline since December, according to central bank data (full report here), and the trend is likely to continue after the Reserve Bank of India (RBI) lifted withdrawal limits on bank accounts Monday. Separately, the Supreme Court has asked the RBI to respond to litigation concerning the legality and security of non-bank e-wallet providers.

Luxembourg: PayPal (Europe), Luxembourg’s National Research Fund (FNR) and the University of Luxembourg have signed a memorandum of understanding to create an FNR PEARL chair of digital financial services. The chair’s mission will be “to demystify digital technology and rethink connections across regulators, industries and users.”

Russia: Prime Minister Dmitry Medvedev has asked certain government departments and state-owned development banks to investigate the use of blockchain applications for public-sector use. Meanwhile, the Moscow city government announced its support of the use of blockchain technology for transportation infrastructure.

Australia: ATM use in the country hit a 15-year low, according to figures from the Reserve Bank of Australia. Use of the machines was down 7.7 percent from a year earlier, marking two consecutive years of declines of more than 6 percent.

U.S.: The Maine Senate has introduced legislation to study the use of blockchain technology in state elections. In New Hampshire, representatives approved a bill that would prevent the state from regulating virtual currencies.

At the federal level, the Chamber of Digital Commerce and Steptoe & Johnson LLP announced the formation of the Digital Assets Tax Policy Coalition to “help develop effective and efficient tax policies for the growing virtual currency markets.” The idea emerged due to the lack of guidance from the Internal Revenue Service on digital currencies. And speaking of digital currencies, Coin Center published Version 2.0 of its State Digital Currency Principles and Framework, which offers policymakers guidance on more effective digital currency laws. And for those interested in the JOBS Act, the House Financial Services Subcommittee on Capital Markets, Securities and Investment has scheduled a hearing for March 22 to examine the law’s impact. Interestingly, no regulation crowdfunding platforms are listed among the various witnesses.

Lastly, the Commodity Futures Trading Commission's acting chairman, J. Christopher Giancarlo, gave prepared remarks at a conference in Florida where he spoke on FinTech, among other issues. According to Giancarlo, "The CFTC must be a leader in adopting the 'do no harm' approach to financial technology similar to the U.S. approach to the early Internet. We must cultivate a regulatory culture of forward thinking. We must open wider our CFTC agency doors and regulatory minds to benefit from FinTech innovation. We must welcome the support of knowledgeable and experienced market professionals inside and outside of the federal government to help make the CFTC a 21st century regulator for today’s rapidly changing markets."

Canada: The Ontario Securities Commission (OSC) issued a news release advising businesses that the use of distributed ledger technologies (DLT) as part of their financial products or service offerings “may be subject to Ontario securities law requirements.” It advised businesses with questions to contact the OSC’s LaunchPad.

International: Two developments to note: First, the International Telecommunication Union Focus Group on Digital Financial Services has published a list of 85 policy recommendations, which include a number of recommendations covering DLT and FinTech. The recommendations in the report include the use of regulatory sandboxes to encourage DLT and FinTech innovation; regulators undertaking capacity-building exercises with other regulators, industry, academia  and others to understand DLT’s use for financial inclusion; and pushing regulators and policymakers to “plan for using a functional—rather than an institutional or technology-specific—approach to regulation and amendments to existing legislation.” Separately, the International Standards Organization Financial Services Committee has launched a global committee, the FinTech Technical Advisory Group, to establish a “proactive dialogue” with regulators, financial institutions, supply chain and FinTech firms. 

Early Lessons: Licensing Mobile Money Remittance Providers

GSMA produced a report focused on early lessons from licensing mobile money remittance providers. The average cost of sending $200 using mobile money is less than 3 percent of the amount sent, compared with 6 percent if using global money-transfer operators. In 2015, mobile-money-enabled remittance services were offered in 51 countries. The report “looks at common licensing models and their scope, application procedures for providers, challenges regulators face in assessing license applications and the licensing requirements for remittance hubs.” Common licensing approaches include a unified licensing framework for mobile money and international remittances; separate licenses for mobile money and international remittances, requiring the latter to create a special-purpose vehicle; and licenses solely restricted to banks. The report also provides regulators with recommendations on how to provide a streamlined, transparent licensing process. These include providing a clear time frame for review; publishing application requirements for mobile money firms seeking approval; and, for jurisdictions currently developing or revising e-money regulations, including international remittances under the regulations’ scope.


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