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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
April 06, 2017
   
   

Hey, It’s April

Which means it’s National Financial Literacy Month! A month filled with colorful charts and statistics on how terrible we are at budgeting and understanding basic finance. For instance, more than 3,000 respondents across six countries indicated in a recent survey that over the course of their lives they’ve lost an average of $9,700 due to lack of financial knowledge. In fact, more than a quarter of respondents felt they had lost more than $30,000. In a separate survey, nearly a quarter of U.S. respondents said they do not save any portion of their households’ annual income for retirement, and roughly 20 percent of adults roll over $2,500 or more in credit card debt each month.

Returning to the Land of Bangers and Mash

Hello, FinTech in Focus readers. Yours truly will be in London next week for the Innovate Finance Global Summit (April 10-11). I’ll be moderating a roundtable on fostering responsible innovation, the details of which can be seen here.

Dear Shareholders

In his annual letter to shareholders, Jamie Dimon stated that JPMorgan Chase invested $9.5 billion in technology companywide in 2016, $3 billion of which was dedicated to new initiatives; of that amount, $600 million was spent on emerging FinTech solutions. (Page 9 discusses FinTech.) Regarding customer data access, Dimon noted the security issues that arise when customers give their login credentials to a third party, and he discussed the arrangement his firm recently made with Intuit in the hope of setting “a new standard for data-sharing relationships.” Product rollouts this year will include end-to-end digital banking, investment advice and self-directed investing, and offering clients a more robust platform in electronic trading and other online services.

Speaking of banks and FinTech, the Economist Intelligence Unit (EIU) recently published its Global Retail Banking 2017 report, which includes a number of insights into bank perceptions of FinTech. More than 200 senior retail banking executives were surveyed about security and technology, regulation, and customer interaction. Not surprisingly, regulation continues to shape banks’ strategic thinking, particularly in North America, as evident in the figure below. The EIU predicts that 2017 will mark “a new regulatory front to bring FinTech under control.” Among the findings, incumbent fear of peer-to-peer lenders and robo advisers stealing the lucrative business lines of traditional finance providers may have peaked. According to the report, “domination is harder and more expensive than assumed. Fully automated banking may never happen. Although retired investors love Skyping their grandchildren, they do not want to talk finance with a chatbot.” (Author’s note: I would love to see some data on whether retired investors actually know about and use Skype.)

Which trends will have the biggest impact on retail banks in your country in the years to 2020? (% respondents)

04 06 17a  

Citi Looks at Digital Money

Citi published its fourth annual update of its Digital Money Index, and while the report notes that the world as a whole continues toward digital money, it says that “there is reason for concern” that “some low-income countries will fall irretrievably behind in the digital economy.” It notes that the gap between the countries residing at the top of the index versus those at the bottom continues to widen. Meanwhile, those at the top are struggling to bring the unbanked and underbanked into the digital fold. The report identifies India in particular as a standout in developing a holistic approach to targeting the underbanked and unbanked. 

India’s holistic approach to targeting the unbanked and underbanked

04 06 17b 

Source: Citi

“India’s performance highlights what’s possible when government and enterprise join forces to make the digitization of money happen,” the report says. “However, the transformation isn’t easy. There has been unrest at the speed and magnitude of change (not least withdrawing high-denomination bank notes) and questions about the security of the solutions. This reminds us that gains are hard-won, and they depend on action across all four index pillars, meaning a supportive institutional environment, financial and ICT infrastructure, digital money solutions from government and private sector, and enthusiasm from consumers and businesses.”

Putting U.S. Rep. Patrick McHenry on the Hot Seat

Normally when I view a live video stream that offers the chance to direct questions to the interviewee, none of my questions get asked. But as Bob Dylan once wrote, the times they are a-changin’. The Wall Street Journal interviewed U.S. Rep. Patrick McHenry (R-N.C.) on the Republican Party’s 2017 agenda, where FinTech came up quite a bit (you can thank me later), including comments on the Office of the Comptroller of the Currency’s efforts to allow FinTechs to apply for a special-purpose national bank charter and McHenry’s sandbox bill, the Financial Services Innovation Act. 

On the OCC’s efforts, McHenry said: “First of all, Comptroller Curry is finishing the end of his term.... So the rush to get these regs done, I believe, was done more at the urging of his time ending in office. What the OCC has done, what they’re putting forward, is a step in the right direction. I think there are hopeful signs there. But I think, in this instance, the speed by which they moved here means that these regs are incomplete and not as far-reaching as I believe they could be. Given the limited capacity in the approach they’re taking, I don’t think it’s going to be a viable option and have a meaningful impact. Absent that full effort for a stronger FinTech charter, I think you’ll need congressional authority to establish this.”

Global Developments

U.S.: Let’s look at the states. Intrastate crowdfunding is now live in North Carolina after the PACES Act was adopted March 31 and took effect April 1. Meanwhile, North Carolina-based Bank of America recently committed $1.5 million to Charlotte’s FinTech initiative. Arizona’s governor signed a blockchain bill into law that recognizes signatures and smart contracts. Arizona is one of about 10 states that have adopted or are seeking to adopt legislation covering Bitcoin or blockchain this year. 

At the federal level, the Securities and Exchange Commission denied a request by NYSE Arca to list and trade SolidX Bitcoin. Meanwhile, Reps. Pat Tiberi (R-Ohio), Tim Ryan (D-Ohio), Anna Eshoo (D-Calif.), and Barbara Comstock (R-Va.) announced the founding of the bipartisan Congressional Microbusiness Caucus. According to the news release, the caucus will seek “to define and elevate the narrative of microbusinesses in Congress and provide a forum for microbusiness owners to have constructive conversations about obstacles and regulatory barriers preventing entrepreneurs from starting and scaling their business in the United States.” Etsy is a prominent backer of the new caucus and released a report alongside the announcement on the importance of independent/freelance workers to economic growth.

U.K.: Representatives of the British government, including select delegates, are in India to promote FinTech collaboration between the two countries. A joint statement from the chancellor of the exchequer and the finance minister of India includes a section covering developments in FinTech. Apart from agreeing to deepen bilateral collaboration on FinTech, the U.K. and India would also “explore the possibility of a regulatory cooperation agreement between [Britain’s Financial Conduct Authority] and the [Reserve Bank of India] in the second quarter of 2017, which will enable the regulators to share information about financial services innovations in their respective markets, including emerging trends and regulatory issues. The feasibility of a U.K.-India FinTech Bridge would also be explored.” 

Separately, the British Treasury has published a regulatory innovation plan that covers “how financial services regulators are adapting and encouraging new technologies and disruptive business models and better utilizing new technologies to reduce regulatory burdens on business.” According to the report, the plan covers the Financial Conduct Authority, the Payment Systems Regulator, the Prudential Regulatory Authority, and the Bank of England. The document includes current regulatory efforts to adapt and encourage new technologies and lists further measures each regulator is expected to implement in the near future. 

EU: Cash is still king, representing three-quarters of Eurozone payments, according to an upcoming European Central Bank report. And, for those who are interested, law firm Clifford Chance has published a client briefing document covering European FinTech regulation that includes a country-by-country review of regulatory innovation initiatives currently underway. 

Canada: The University of Toronto is about to get a $150 million infusion from the Canadian and Ontario governments to launch an artificial intelligence institute.

Spain: Barcelona is getting an innovation hub. CaixaBank, Visa, Samsung, Global Payments, and Arval (a BNP Paribas subsidiary) have joined forces to launch Spain’s first payment innovation hub.

Bahrain: The Bahrain Economic Development Board, the Singapore FinTech Consortium, and the Dubai-based asset management and advisory firm Trucial Investment Partners have joined forces “to develop a FinTech ecosystem and regulatory framework for the kingdom.” Additional initiatives under consideration: a FinTech hub, an incubator/accelerator, and FinTech-focused venture capital.

Sri Lanka: The country will soon establish a Digital Identity Council “to implement the national policy on collection, storage, sharing, and use of citizens’ personal data under the proposed centralized Household Transfer Management Project.”

China: China Rapid Finance has filed an IPO application with the U.S. Securities and Exchange Commission with expectations for a public listing on the NYSE this month. Separately, despite the crackdown on the peer-to-peer lending sector, such lending remains robust, with total P2P loans totaling $131 billion last month and lenders nearing borrowing caps established by China’s banking regulator last year. Still, P2P platforms are having a tough time attracting commercial banks to act as custodians for client money, something that’s required under P2P regulations.

Sweden: The country’s experiment to use blockchain technology for land registry has just concluded its second phase of testing, though there are still a number of legal issues to be worked out.

Australia: An Apple victory? The Australian Competition and Consumer Commission denied Commonwealth Bank of Australia, Westpac Banking Corp., National Australia Bank, and Bendigo and Adelaide Bank plans to offer their own digital wallets on Apple devices without using Apple Pay. “While the ACCC accepts that the opportunity for the banks to collectively negotiate and boycott would place them in a better bargaining position with Apple, the benefits would be outweighed by detriments,” commission Chairman Rod Sims said. Meanwhile, RegTech startups have banded together to form the RegTech Association, formally launching it in Sydney.

Japan: The Cabinet approved a series of bills last week that include official recognition of virtual currencies as asset-like values. The legislation also requires exchanges to register with the Financial Services Agency, which will be the primary regulator.

South Korea: The country’s first Internet-only bank launched on April 3. Financial Services Commission Chairman Yim Jong-yong emphasized that Internet-only banks will usher in a new wave of competition to the benefit of consumers and will generate economic growth.

Kenya: German-based Bitbond, a platform connecting fixed-income investors with small-business owners using blockchain for cross-border payment processing, has partnered with BitPesa, allowing a small-business owner from Kenya to receive funding “from investors from all over the world via Bitbond and have the funds paid out to his mobile money account in 20 minutes.” The partnership is live across Kenya, Nigeria, Uganda, and Tanzania. And speaking of mobile phones, WorldRemit has released data showing the Kenyan diaspora is the largest sender of digital remittances to mobile accounts, with mobile money accounts making up more than 90 percent of WorldRemit transactions to Kenya.

India: Aadhaar Pay is set to go live April 14, with the Finance Ministry expecting all public-sector banks to be on the platform by that date. Meanwhile, since India’s demonetization efforts in November, digital transactions through the Unified Payments Interface have jumped nearly 600 percent, with payments using Aadhaar seeing a 1,300 percent increase.

UAE: Abu Dhabi Global Market will hold a FinTech summit in October covering key FinTech sectors, “including payment services and market infrastructure, enabling financial inclusion, deposits, lending and capital raising, investment management, FinTech regulations, advisor-client relationship, serving the un(der)banked and others, which are trending and most relevant to the region.” 


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