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
September 01, 2017

Break out the Champagne

We could be looking at a record year in terms of FinTech deals and funding according to CB Insights Q2 2017 Global FinTech report. But don’t pop the champagne yet, we still have a few more months ahead of us. Still, in the first half of 2017 VC-backed FinTech companies closed approximately 500 deals worth $8 billion. Five new “unicorns” emerged bringing the global total to 26, with a valuation of nearly $84 billion. At the current pace, Europe is likely to see 270 deals valued at $2.3 billion by the end of the year, with VC-backed FinTech deals and funding in Asia–largely driven by SoftBank's efforts–expected to surpass 2016 records.

Quarterly Global Financing Trends to VC-backed FinTech Companies

Product update video

Source: CB Insights

Basel Talks FinTech 

The Basel Committee on Banking Supervision (BCBS) released a consultative document titled, Implications of FinTech developments for banks and bank supervisors. Comments on the document must be submitted no later than October 31. The document provides 10 observations and 10 recommendations which "can be used as a basis for determining follow-up actions by individual supervisors, as well as future BCBS monitoring of risks associated with emerging technologies and innovative business models.”

Of note:

“Based on information available, the BCBS notes that, despite the hype, the large size of investments and the significant number of financial products and services derived from FinTech innovations, volumes are currently still low relative to the size of the global financial services sector. That being said, the trend of rising investment and the potential long-term impact of FinTech warrant continued focus by both banks and bank supervisors.”

“In BCBS surveys, most authorities responded that they are comfortable with the applicability of regulatory requirements to banking services offered by FinTech firms. However, many noted examples of new business products and models that operate outside what is considered traditional banking, such as crowdfunding, digital currencies and other innovative products that may not necessarily be covered by bank supervisors. As a result, nearly half of regulatory authorities are considering new regulations or guidance related to emerging FinTech services.”

List of Risks and Opportunities Emanating from Financial Technologies and Innovation

Product update video

Source: Basel Committee on Banking Supervision

Brexit: A UK-EU Model for Data Exchange

A report by the UK Department for Exiting the European Uniontakes a look at what’s needed in a UK-EU model for protecting the exchange of personal data post-Brexit. The model should maintain the free flow of personal data between the UK and the EU; provide stability and confidence to industry stakeholders, public officials, and individuals; continue to protect the privacy of individuals, provide for current and future regulatory cooperation between the UK and the EU; not impose unnecessary additional costs to business, among other suggestions. In addition, the UK’s data protection law “will fully implement the most up-to-date EU framework, and this will remain the case at the point of the UK’s withdrawal from the EU. On this basis, the Government believes it would be in the interest of both the UK and EU to agree early in the process to mutually recognise each other’s data protection frameworks as a basis for the continued free flows of data between the EU (and other EU adequate countries) and UK from the point of exit until such time as new and more permanent arrangements come into force.”

BRICS Rising

A new report from the China Science and Technology Exchange Center takes a look at innovation competitiveness among BRICS (Brazil, Russia, India, China, South Africa) countries. China has solidified itself in the top spot, followed by Russia, South Africa, Brazil, and India. BRICS countries currently make up 17 percent of the world's gross annual R&D expenditure and have a high-tech product export volume totaling nearly $6 trillion (28 percent of the world's total export volume). The average share of BRICS internet economy in GDP was 3.1 percent in 2010, and the ratio was expected to rise up to 4 percent in 2016. The report estimates that India will surpass China sometime between 2025-2030 in innovation competitiveness.

SOX and VC Investment Activity

The Federal Reserve Bank of Dallas published a report covering equity regulation and U.S. venture capital investment. The report looked at the effects of the passage of the Sarbanes-Oxley Act of 2002 (SOX) had on venture capital activity. According to the report, "the regulatory burdens associated with SOX and perhaps higher levels of overall regulation since then have deterred investment, including venture capital investment, in research and development." On the costs of equity regulation, the report finds that “SOX has possibly curtailed venture capital investment, consistent with this study’s estimates that tech-related venture investment is 40 percent below what pre-SOX relationships would imply.” As a result, “equity regulation entails some downside risk to long-run growth” and a cost-benefit analysis of SOX could be worthwhile, the report states.

Millennials: Get Your Act Together

We love avocados, but can’t figure out how to improve our credit score (or what it is). In a recent study by LendEDU, 10 percent of respondents believe that a credit score is “a number assigned at birth by financial institutions, another 10 percent think it comes from the government as a way to track banks and a final five percent believe it's a waiting list for credit cards.” I mean, come on…. 

Global Developments

Columbia: President Juan Manuel Santos signed three new directives to boost technology development in the country and promote innovation, including the formal launch of the Vice Ministry of Digital Economy.

India: Uber launched its integration with United Payment Interface after partnering with the National Payments Corporation of India, Axis Bank, and HDFC Bank. And speaking of payments, are e-wallets becoming a thing of the past? According to a report, despite India’s demonetization efforts, e-wallet transactions, as a share of total wallet transactions, actually fell by more than 10 percent between November 2016 and February 2017. The industry has contracted even further this year with digital wallet transactions declining by 30 percent between April and June. Separately, payments companies are petitioning India's government to make the National Payments Corporation of India (NPCI) a neutral body as competitiveness concerns are increasing due to the government's support and promotion of the NPCI-backed Bharat Interface for Money (BHIM). Meanwhile, the government is also considering discounts or cash-back to end-users that use digital means to pay for things as part of a broader effort to shift the country from its reliance on cash.

The government is set to mandate certain cybersecurity standards for mobile device makers covering data protection and movement of personal information to servers located abroad. India is concerned about the proliferation of smartphones in the country from Chinese-based mobile device makers. Meanwhile, the Commerce and Industry Ministry has established an 18-member task force on artificial intelligence focused on Industry 4.0 and the digitization of the country’s manufacturing sector.

On the lending front, it is being reported that the Reserve Bank of India (RBI) may allow for peer-to-peer (P2P) platforms to have an on-the-ground presence in an effort to help spur financial inclusion, particularly in underserved and rural areas. Guidance on the country's P2P sector is expected soon.

The RBI’s Household Finance Committee published its findingscovering the financing decisions of India’s households. Among the report’s recommendations: leveraging technology to reduce household transactions costs, a framework for data privacy, more tailored financial products, a focus on financial advice, and the development of a regulatory sandbox to test innovative products and financial service delivery mechanisms (see pages 91-117). However, as the report notes, "technological evangelism needs to be tempered with several sobering realities. To begin with, we note that the existing regulatory framework in India (and indeed in most countries) is not specifically designed to address numerous challenges that arise with the pace of technological innovation in financial services provision." Separately, the Ministry of Commerce and Industry Department of Industrial Policy and Promotion released a report detailing the department's efforts to open up foreign direct investment (FDI) to support startups in the country.

Lastly, the Department of Economic Affairs, among other agencies, held a seminar covering high-frequency trading (HFT)/ algorithmic trading. According to Muralidhar Rao, Executive Director of Securities and Exchange Board of India (SEBI), the board "is carrying out simulation exercises to understand the merits and demerits of its proposals unveiled in its Discussion Paper of August 2016, in view of the various public comments received in this regard. SEBI has also setup a panel to evaluate concepts like [the] regulatory sandbox for dealing with the technological challenges posed by algos and FinTechs.” A report was also released during the seminar focused on some of the benefits and concerns surrounding HFT, as well as proposed improvements to HFT/ algorithmic trading policy.

Canada: The Canadian Securities Administers published a staff note that outlined how current securities law may apply to initial coin offerings (ICO). According to the release, “Staff is aware of businesses marketing their coins/tokens as software products, taking the position that the coins/tokens are not subject to securities laws. However, in many cases, when the totality of the offering or arrangement is considered, the coins/tokens should properly be considered securities. In assessing whether or not securities laws apply, we will consider substance over form.... Every ICO/ITO is unique and must be assessed on its own characteristics.”

Estonia: Kaspar Korjus, managing director at e-Residency, penned a blog post last week covering the potential for Estonia to become the first country to launch an initial coin offering. “‘Estcoin’ might make sense today as a name, but it might not be the right one long term because its use could grow far bigger than Estonia. The same thing is happening to e-Residency as a whole, which was initially thought of as a way to be part of the Estonian nation but is now creating a new global digital nation, powered by the Republic of Estonia. If there is support for this proposal, then the next stage before the ICO would be to provide a white paper that outlines the value of estcoins and how the investment will be used to develop our digital nation. It is likely to begin as a pilot project that can be scaled up based on demand.”

Vietnam: The government is considering plans to recognize virtual currency according to a plan approved this week by Prime Minister Nguyen Quan Phuc. The Ministry of Justice will take the lead on this effort and complete an assessment before August 2018.

UK: The UK's Labour Party will announce a policy shift by offering a soft Brexit alternative to the plans currently proposed (and being proposed) by Prime Minister Theresa May. Separately, banks are expected to close more than 760 branches this year–a record. The closures would leave the UK with an estimated 8,000 branches, far from the nearly 18,000 branches that dotted the landscape back in 1989.

Bahrain: London-based foreign exchange cash management firm Tramonex and Dubai-based remittance platform NOW Moneybecame the first two entrants to the country's regulatory sandbox.

U.S.: The Securities and Exchange Commission (SEC) issued an investor alert on public companies making initial coin offering-related claims. According to the alert, the SEC "may suspend trading in a stock when the SEC is of the opinion that a suspension is required to protect investors and the public interest." Furthermore, suspensions have been issued to several companies already: First Bitcoin Capital Corp., CIAO Group, Strategic Global, and Sunshine Capital. Meanwhile, the Federal Reserve announced Dave Sapenaro as payments strategy director. Sapenaro will be responsible "for leading payment system improvement initiatives" described in the 2015 paper, Strategies for Improving the U.S. Payment System.

The Internal Revenue Service (IRS) has reportedly signed a contract with Chainanalysis to track and analyze bitcoin transactions. Still, confusion reigns on whether the IRS will offer additional guidance on the tax treatment of virtual currencies after releasing preliminary guidance back in 2014.

Ranking Member of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to the head of the Federal Deposit Insurance Corporation (FDIC) calling for the agency to hold at least one public hearing covering SoFi's application for an industrial loan charter. “Granting SoFi’s application would set a precedent that a wide variety of other FinTech companies may choose to follow even though concerns related to financial inclusion, consumer benefits, supervision, and regulation of such entities are still unresolved. Thus, the FDIC should carefully consider these concerns when reviewing SoFi’s application, and in doing so, hold a public hearing to allow for a fuller vetting of the advantages and disadvantages of extending an outdated regulatory framework for ILCs to FinTech companies, and the potential implications for the broader financial system.”

On the advocacy front, a coalition of 16 trade groups sent a letter to the Federal Housing Finance Agency concerned with the current credit-scoring system, which is not meeting the needs of borrowers and serving today's credit market.

Lastly, the British Ambassador to the U.S., Sir Kim Darroch, discussed the economic ties between Atlanta, Georgia, and the UK, with FinTech at the heart of the relationship.

Mexico: Bank of Mexico Governor Agustin Carstens has rejected adopting the term "virtual currency" as a legal classification for bitcoin, according to reports.

Korea: Since the beginning of this year, crowdfunding investmenthas grown nearly 30 percent with the number of firms participating increasing by more than 50 percent compared to last year, according to a report. Publishing, filmmaking, broadcasting, communications, and information service sectors secured the largest amount of funding.

Australia: Intersekt–Australia’s first FinTech festival put together by FinTech Australia, Next Money, and the State Government of Victoria–will take place October 27 to November 3.

China: China’s top technology firms are continuing to make serious investments in start-ups. For instance, China Life Insurance Group and Baidu Inc. will put together a $1 billion fund focused on internet and other technology investments. Similarly, China's second biggest life insurer, Ping An Insurance has invested anywhere between $5 million and $50 million in venture capital-backed firms.

Quartz profiled one of the most influential mining companies in the bitcoin space, Bitmain. Located in China, Bitmain's two mining pools, Antpool and, account for nearly 30 percent of the processing power on the global bitcoin network. And since we’re focused on the virtual currency space, the government is becoming increasingly concerned about initial coin offerings with the State Council Legislative Affairs Office publishing proposed rules for public comment.

Last week, representatives from China's central bank as well as several research organizations were in San Francisco to meet with local start-ups including, blockchain and online finance firms. Apparently, Shanghai New Financial Research Institute and Peking University Digital Finance Research Center are putting together a report on the status of U.S. FinTech development and regulation.

UAE: The Dubai Financial Services Authority (DFSA) and Naseba will co-host the second FinTech Summit on October 30 in Dubai. The DFSA and the Securities and Futures Commission in Hong Kong entered into a FinTech agreement this week. Both authorities will share information on FinTech developments in their market and refer innovative firms to one another's markets. Lastly, UAE Exchange is in talks with Ripple "to help it introduce real time, cross-border payments using blockchain technology," according to a report.

Indonesia: Financial regulators are seeking to consolidate Indonesia’s banking industry from the current 120 commercial banks to 50 or 60 in the long run, according to remarks at a CNBC event earlier this month. As regulators look to consolidate the traditional banking space, the Financial Service Authority’s Licensing and Supervision Director Hendrikus Passgi explained that a circular would be issued soon covering peer-to-peer transactions.“The procedures for borrowing will be regulated in detail, such as how contract agreements anticipate the risk of bad debt," Hendrikus stated in a report published on Wednesday.

Papua New Guinea: The country's central bank is increasingly interested in the blockchain and is moving forward with running trials, according to a report. Governor Loi Bakani gave prepared remarks recently on the central bank’s efforts to help foster financial innovation and inclusion.

Brazil: Brazil's Ministry of Planning, Budget, and Management is working with Microsoft and ConsensSys to pilot a blockchain-based identity application.

Singapore: Lattice80–a non-profit FinTech hub based in Singapore–signed a Memorandum of Understanding with Japan-based Finolab last week. Lattice80 will also be expanding to the UK with CEO Joe Seunghyun Cho stating that Brexit offers Lattice80 and Asia’s FinTech community “a fantastic opportunity” to build new ties and develop offices in “the world’s financial capital.”

The Monetary Authority of Singapore’s (MAS) Payments Council held its inaugural meeting on August 11. Discussion focused on interoperable electronic payments and developing a common QR code for Singapore. According to the press release, the "SGQR Taskforce aims to have in place by the end of 2017, standardized SGQR specifications to accept both domestic and international payment schemes. The SGQR Taskforce will also consider the governance structure and implementation strategy for QR payments." And speaking of MAS, insurance start-up PolicyPalbecame the first company to graduate from the authority’s regulatory sandbox. "We are delighted to be the first start-up to graduate from the MAS regulatory sandbox and are looking forward to operate and scale up as a registered direct insurance broker and exempt financial adviser under BaoXianBaoBao to provide individuals and organizations with better insurance coverage,” said PolicyPal founder Val Yap.