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 29, 2017

The Global Startup Ecosystem

Startup Genome released its third report, after analyzing 10,000 startups and 300 partner companies to come up with the world’s ecosystems where startups have the best chance of building global success. Silicon Valley, London, and New York are the top three startup ecosystems. According to the report, “one-quarter of startups around the world [excluding those in the United States] have multiple connections to London; for New York City, it’s one in five (but 30 percent when including U.S. startups). No other startup ecosystem comes close to these three in terms of what we call ‘inbound’ global connections.” Beijing, Boston, Tel Aviv, Berlin, Shanghai, Los Angeles, and Seattle round out the top 10.

Percentage of startups around the world (excluding the U.S.) saying they have 2+ connections to other ecosystems
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The Milken Institute Center for Financial Markets released a white paper on modernizing financial regulation for the 21st century. It provides a nonpartisan analysis of 10 areas in the U.S. financial regulatory landscape in need of improvement. They are: the Volcker Rule, Basel reform, FSOC reform, reform of the qualified mortgage rule, tax reform for financials, trading reform, capital reform, consumer protection reform, streamlined licensing process for FinTech firms, and, not to be forgotten, the creation of a regulatory sandbox.

Technology’s Impact on Head Count

Is RegTech the culprit? Global banks are shedding thousands of members of their compliance staffs as manual compliance tasks become increasingly automated. Banks are also considering launching a venture dubbed Project Scalpel in an effort to cut administrative and operational costs, potentially resulting in $2 billion in annual savings to banks.

Meanwhile, automation as a result of enhanced robotics and artificial intelligence threatens millions of jobs. Roughly 30 percent of U.K. jobs are at risk of automation. That figure climbs to 35 percent in Germany and 38 percent in the U.S. However, given the positives and negatives associated with automation, the PwC report says, the net long-term impact on job creation is unclear.

Jobs at high risk of automation, by country

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Payments and Lending Developments

Alipay gained a foothold in Hong Kong recently after partnering with Standard Chartered Bank, while Square just launched in the U.K.—the fifth country it now operates in. Separately, Square recently updated its payments technology to speed up processing times for chip-enabled cards from 4.2 seconds to 3.6 seconds. Now, if only there was a system capable of detecting your age so yours truly did not have to stand around for an eternity at checkout waiting for actual people to approve my beer purchase. In unrelated grocery news, LG Pay will launch in South Korea in June, according to reports

Speaking of expansion, social payments firm Circle and online lender Kabbage are making moves in Ireland, with Circle announcing an expansion of its Irish workforce and Kabbage confirming plans to establish an office in Dublin. And speaking of Kabbage, the U.S.-based firm is looking to raise additional capital for acquisition purposes, with OnDeck Capital reportedly in the crosshairs. 

Global Developments

U.K.: The cost of financial exclusion is steep. According to a report published by the House of Lords Select Committee on Financial Exclusion, 1.7 million individuals in the U.K. do not have a bank account and roughly 40 percent of the working-age population has less than £100 in savings. Among the report’s recommendations: create the post of minister for financial inclusion, expand the Financial Conduct Authority (FCA) remit to include a statutory duty to promote financial inclusion, and introduce a requirement for the FCA “to make rules setting out a reasonable duty of care for financial services providers to exercise towards their customers.” 

Financial exclusion in the U.K. 

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India: Google, in partnership with the Ministry of Electronics and Information Technology, announced the formation of the Digital Payment Security Alliance to boost user awareness regarding digital and mobile payments. And speaking of payments, the U.S.-India Business Council, in partnership with the Ministry of Finance, will host the first symposium covering digital payments and financial inclusion. Representatives from Bank of America, PayPal, and the Indian government will speak. Meanwhile, A.P. Hota, managing director and CEO of the National Payments Corporation of India, was interviewed about the road ahead for digital payments in the country. Importantly, Hota noted that the government expects all public banks to be ready with Aadhaar Pay by the end of April. 

China: Get ready for the Alibaba economy—or so Boston Consulting Group thinks, based on a new report that says the platform could generate more than 100 million jobs, or 30 percent of all jobs in the country’s digital economy, by 2035. Meanwhile, China’s top financial regulators, in statements delivered at an event last Friday, vowed to continue their push for reform and responsible innovation.

European Union: The EU is seeking to undercut the U.K.’s leading position in FinTech through relaxed regulatory requirements and passporting rights to attract FinTech development to the continent, according to reports. The effort comes as the European Commission published an action plan to solve for various obstacles that block Europeans’ financial access.

Financial access hurdles in Europe

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Looking at FinTech in particular, the commission “intends to focus on three core principles: technology-neutrality, so that the same rules are applied to traditionally sold products and services (e.g., via branches) as those sold digitally; this is to ensure innovation and a level playing field. Second, proportionality so that the rules are suitable for different business models, size, and activities of the regulated entities. Third, improved integrity to ensure transparency, privacy, and security for consumers.” The commission expects to map out its strategy on FinTech later this year and has asked interested parties to respond to its FinTech consultation released in conjunction with the action plan. And finally, the European Parliament passed a resolution on the fundamental rights implications of big data.

Kenya: Mobile-phone-based bonds. That’s right, you heard me correctly. Late Thursday, Kenya’s government went live with M-Akiba, a tax-free mobile-phone-based government bond, in an effort to promote financial inclusion by opening up infrastructure investment to small investors.

Malaysia and Indonesia: Interest in Alibaba founder Jack Ma could potentially lead to war between the two countries. The Trojan War best exemplifies the battle over Ma, who apparently was courted by Indonesia first before becoming digital economy advisor to Malaysia. Of course, I could be wrong in my assessment.

Singapore: Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), gave prepared remarks last Monday at the Australian Securities and Investments Commission annual meeting on the forward-looking agenda for financial regulation. On technological innovation, he noted that with risk assessments of FinTech, often “there is a certain ‘fear of the unknown’ or tendency to ‘imagine the worst.’ A degree of conservatism and caution are indeed laudable virtues for regulators, but we should guard against taking too preemptive an approach when dealing with the uncertainties of FinTech.” On regulatory sandboxes, Menon said they “not only encourage FinTech innovation by providing a safe space for experimentation. They also give regulators an opportunity to learn the risks associated with new technologies and right-size regulation accordingly.” Menon also assessed some of the sandboxes currently in operation.

MAS also signed a FinTech agreement with France providing for a framework under which national financial supervisory authorities can share information with each other and provide startups with information on the regulatory requirements and ecosystems of each country. MAS is also piloting a know-your-customer (KYC) utility for financial services, the first stage of a national rollout of electronic KYC.

U.S.: The New York Department of Financial Services approved a request by Coinbase to offer Ethereum and Litcoin trades, and its debit card service to New York residents. According to the press release, “DFS has proven that the state regulatory system is the best way to supervise and cultivate a thriving fintech industry, like virtual currency.  New York will remain steadfast in pushing back against federal encroachment efforts like the OCC’s proposal to impose a one-size-fits-all national bank charter that increases risk and seeks to usurp state sovereignty.” Keeping with the states, Bryan Schneider, secretary of the Illinois Department of Financial and Professional Regulation, penned an op-ed where he called upon fellow state financial regulators and the Conference of State Bank Supervisors "to convene a Fintech advisory group" which "could provide advice and formal feedback on a broad range of important issues impacting this growing industry." 

At the federal level, Bats BZX Exchange, which would have listed the first SEC approved Bitcoin ETF – before it was denied – will appeal the SEC’s decision.

Canada: The government published the federal budget, which includes a few FinTech elements (Page 104). It expects to release a consultation paper on a new retail payments oversight framework as well as engagement with industry stakeholders that “will culminate in the Review of the Federal Financial Sector Framework.” The budget also includes funding toward efforts that support the development of artificial intelligence and the launch of a procurement program called Innovative Solutions Canada, modeled after the U.S. Small Business Innovation Research program. 

Australia: The Commonwealth Bank of Australia and Austrade signed an agreement “to support the flow of FinTech innovation between Australia and the U.K.” The agreement “will be used to target and attract FinTech investment to Australia and assist Australian FinTech companies to access the U.K. market.”


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