Movements in Payments
Mastercard added its digital wallet Masterpass to Facebook Messenger, while PayPal extended its partnership with Google by enabling PayPal to be used as a payment method within Android Pay. Separately, Zelle, the peer-to-peer (P2P) network launched by banks to rival Venmo, saw 170 million P2P payments totaling $55 billion in 2016, with 85 million customers now a part of the network. Adding to the competition, Apple is apparently in talks to launch its own money transfer service. The news comes as Apple Pay continues to expand, reaching an additional 20 banks and credit unions in the U.S. and China.
In India, Amazon acquired a mobile payments license from the Reserve Bank of India—India’s central bank—to operate a prepaid payment instrument. Elsewhere, TransferWise expanded its international money transfer service to Singapore; WorldRemit partnered with Tigo Money to allow for money transfers to and from El Salvador and Guatemala; and Samsung Pay launched in four more places: Sweden, Hong Kong, Switzerland, and the United Arab Emirates.
Greetings From Global
Yours truly certainly racked up the airline miles in April. I now find myself in Los Angeles, where the Milken Institute is holding its 20th annual Global Conference. (Follow #MIGlobal for the latest on the gathering.) I will be moderating the FinAction panel focused on how FinTech is truly (not potentially) building meaningful lives. To provide a little preview of the panel, I posted an article on LinkedIn titled “FinTech: Can It Be a Real Tool to Build Meaningful Lives?”
The $150 Billion U.S. App Economy
A new report from ACT: The App Association says the U.S. app economy has created more than 110,000 jobs and is worth nearly $150 billion. Geographically, more than 80 percent of the app economy lies outside of Silicon Valley. The report cites the lack of a skilled workforce as a looming problem for the app economy, noting that “only one in four K-12 schools teach computer science, leaving three-quarters of American students ill-equipped to enter the modern workforce. At present, more than 500,000 computing jobs are unfilled, and by 2024, there will be more than 1 million unfilled computing jobs.”
Incumbents on the Move
Nomura launched the Voyager-Nomura FinTech Partnership, designed to help startups focused on the capital markets space. (As you may recall, EY and BCG both published reports covering the FinTech opportunity in capital markets.) Similarly, Nasdaq launched Nasdaq Ventures, an investment program focused on “new technologies and groundbreaking services and solutions which align with Nasdaq’s clients’ needs and the company’s long-term objectives in the global capital markets.” Investments by the venture arm will range from $1 million to $10 million and include both seed and later-stage rounds. Meanwhile, Edward Jones has partnered with St. Louis-based venture fund SixThirty in search of FinTech opportunities.
On the online lending/banking front, Goldman Sachs provided few details about its online consumer lending platform Marcus during a quarterly earnings call. Separately, French telecom company Orange will launch Orange Bank in July. The online bank will offer a variety of services, including the use of an IBM Watson chatbot assistant.
On the payments front, Wells Fargo has partnered with PayPal to allow its customers to use PayPal at participating merchants that accept NFC payments. In the Netherlands, six banks—ABN AMRO, ASN Bank, ING, Rabobank, Regiobank, and SNS—will back ING’s mobile payments app Payconiq, with rollout expected this summer.
On the blockchain front, BBVA has tapped Ripple to allow for prompt international payments through the company’s distributed ledger platform and will begin testing in a few weeks. Ripple just recently announced that 10 additional banks had been added to its distributed ledger network. And speaking of money transfers, members of a consortium of nearly 60 Japanese banks will test the speed and cost of transferring money using a blockchain platform as an alternative to the country’s current payments-clearing platform, Zengin. Additionally, Tencent is building a blockchain platform, TrustSQL, for use with a number of services. JPMorgan has left the blockchain consortium R3, with one R3 representative saying the company “parted ways with R3 to pursue a very distinct technology path which is at odds with the one chosen by the global financial services industry, represented by our 80-plus members.” Lastly, SWIFT has launched a blockchain proof of concept with six global banks to “test whether distributed ledger technology (DLT) can be used by banks to improve the reconciliation of their nostro accounts in real time, optimizing their global liquidity.”
Your Data, Breached
The 10th edition of Verizon’s Data Breach Investigations Report was released recently. In addition to the more than 1,900 confirmed breaches of firms in more than 80 countries, an additional 42,000 incidents were analyzed in which attacks may have compromised systems. Focusing on the financial services industry, it says that denial of service, Web application attacks, and payment card skimming represent 88 percent of all security incidents, with 94 percent of attacks coming from external actors. Across all industries, 81 percent of hacking-related breaches leveraged either stolen and-or weak passwords.
Wealthfront has turned from focusing solely on automated wealth management to lending after launching its Portfolio Line of Credit. According to a company blog post, the product “establishes a line of credit of up to 30 percent of your account value for Wealthfront clients with at least $100,000 invested in an individual or joint investment account.” Each line of credit is secured by a user’s investments, allowing Wealthfront to offer lower interest rates compared with other products. SoFi has raised $105 million for its SoFi Prime Income Fund, the first of its kind for the company which provides another avenue for SoFi to raise capital to issue loans. Meanwhile, CommonBond has offered a direct student loan product, moving beyond just debt refinancing.
International: The World Bank released a report on migration and global remittances that says that for the second year in a row, remittances have declined—something not seen in the last 30 years. Overall, remittances in 2016 declined 2.4 percent, or $429 billion. India saw the largest decrease, at 8.9 percent. Remittance flows to Europe and Central Asia declined for a third straight year and are down more than 30 percent since 2013. The average cost of sending remittances remained flat at 7.45 percent, nearly 4.5 percent higher than the Sustainable Development Goals (SDGs) target of 3 percent. As the report notes, a “major barrier to reducing remittance costs is de-risking—when international correspondent banks close the bank accounts of money transfer operators to avoid the risks of money laundering and financial crime.”
The cost of sending $200 has remained nearly flat
Asia: Bangladesh will launch a nationwide mobile payment system next year in partnership with the country’s central bank. Ravi Menon, managing director of the Monetary Authority of Singapore, was in Washington on April 21 to speak on the next phase of financial regulation, including the regulation of FinTech. Among the FinTech highlights from his prepared remarks: Regulators need to develop a deep understanding of emerging technologies and the risks and opportunities they present; regulation must not front-run innovation; and experimentation must occur to facilitate FinTech innovation, while limiting its risks to consumers and the financial system if such innovations fail. He added that one of the more promising applications of technology lies in RegTech, aimed at enhancing the efficiency and effectiveness of financial firms’ risk management and compliance. “We can see RegTech advancing in several areas,” Menon said.
In India, the Securities and Exchange Board will allow investors to invest in mutual funds through their digital wallets, with certain limits. In Iran, the country’s central bank announced efforts to increase the security of the country’s payment system through tokenization. Lastly, the State Bank of Pakistan is creating a new category of banking services called digital banks to reach customers more effectively.
Australia: The Australian Securities and Investments Commission (ASIC) signed a FinTech agreement with Indonesia’s Financial Services Authority that “establishes a framework for cooperation between [the two] in the expanding space of innovation in financial services, agreeing to share information on emerging market trends and regulatory issues arising from the growth in innovation.” Lastly, ASIC Commissioner John Price spoke on ASIC’s approach to FinTech, its regulatory sandbox, and engagement with the RegTech sector.
Europe: The European Commission has released a pre-information notice for a European Union blockchain observatory/forum, with an estimated budget of €500,000 over two years. The observatory will provide the commission with insight into what role blockchain can play in EU policy and public services. The Luxembourg House of Financial Technology officially opened its innovation hub, while in Ireland, the Department of Finance published a consultation paper on the regulation of crowdfunding. In Germany, industry and regulators alike remain skeptical of implementing a U.K.-like regulatory sandbox regime.
In the U.K., the Bank of England has opened up applications for its fourth cohort, focused on distributed ledger technology and machine learning; applications are due by May 17. Specifically, the bank is looking for firms focused on big-data analytics, privacy in distributed ledger systems, and XBRL data storage. Meanwhile, former Santander U.K. executive Stephen Jones has been appointed to a new British trade body, U.K. Finance, which has integrated the Asset Based Finance Association, the British Bankers' Association, the Council of Mortgage Lenders, Financial Fraud Action U.K., Payments U.K., and the U.K. Cards Association under one umbrella. Lastly, the Financial Conduct Authority’s consultation on crowdfunding has been delayed as a result of the upcoming snap election.
China: TheBetter Than Cash Alliance has released a report covering the growth of digital payments in the country, with specific focus on WeChat and Alipay. The report examines “the opportunities presented by social networks and e-commerce platforms to expand digital payments, and in doing so, help other countries use these experiences as a guide and reference in building out inclusive digital payments ecosystems in their own market context.”
WeChat payments per user have surged ($US)
U.S.: So I put Rep. Patrick McHenry (R-N.C.) on the hot seat once again (at 24:30). McHenry spoke (before I took the stage) at an American Action Forum event on FinTech, where he discussed the Financial Services Innovation Act. He also penned an op-ed on the failure of the Consumer Financial Protection Bureau’s (CFPB) Project Catalyst initiative. “Of course, the failure of Project Catalyst is not for a lack of trying. Really, the story of Project Catalyst is that of an agency colliding with the cold realities of the laws and rules that govern what agencies can and cannot do to promote innovation.”
Separately, Sen. Cory Gardner (R-Colo.) has asked the CFPB to provide a report on the regulatory burdens affecting rural access to capital. At the state level, California reportedly will try again on adopting a BitLicense-like framework for virtual-currency companies.
A couple of other developments to mention: First, the Federal Reserve Bank of Boston published a report on how mobile technology is driving innovation and enhancing payment security. The Government Accountability Office, meanwhile, published a report on FinTech with a specific focus on marketplace lending, mobile payments, digital wealth management platforms, and distributed ledger technology.