FinTech in Focus

October 18, 2017

Estimating the Direct Benefits to Cities by Going Cashless

new study conducted by Roubini ThoughtLab and commissioned by Visa finds that the use of cards and mobile payments "could yield a net benefit of up to U.S. $470 billion per year across the 100 cities studied–roughly the equivalent to 3 percent of the average GDP for these cities." Consumers could see $28 billion in direct net benefits per year, while businesses could achieve more than $312 billion in direct benefits as a result of time savings and reduced costs to businesses in accepting digital forms of payment. The study also finds that governments across the 100 cities studied could also achieve $130 billion in direct benefits per year from increased tax revenues, economic growth, reduced crime rates, and cost savings from reduced transaction costs. The study also proposes a number of actions governments can take to transition from physical to digital payments.

Graph of Average Net Benefits


Source: Visa, Roubini ThoughtLab

Keeping the UK’s FinTech Crown in the UK

KPMG and the City of London Corporation released a report that explores the value of FinTech to the UK economy and lays out 10 recommendations to maintain the country’s status as a global FinTech leader. The 10 recommendations are: Securing a FinTech sector deal (further collaboration between government and industry to develop a single public policy, vision, and strategy for FinTech, among other efforts); providing clarity on regulatory perimeters applicable to FinTech; building on the success of current regulatory efforts including the development of specialized FinTech teams focused on specific industry segments; support for UK regions to become FinTech enablers and hubs; supporting continued partnership between FinTechs and incumbents; conducting activities that focus on the value delivered by FinTechs to the end customers; continuing to promote and position the UK as a global hub for FinTechs, identifying and unlocking funding for late-stage start-ups; reviewing and providing critical infrastructure and ancillary services available to FinTechs; and retaining existing talent and addressing certain skill gaps. The paper explores global FinTech developments before focusing on the UK’s FinTech environment with regards to its market, available capital, government policy, regulation, talent, and infrastructure. 

But what about Brexit? Fear not, however, according to a new report from Parker Fitzgerald Group there is still a strong economic case for London to continue to dominate the EU's banking and capital markets. As the report notes, London holds traditional competitive advantages including English law and a mature ecosystem of professional services. The report also finds that London could ultimately benefit from leaving the EU. “Cutting ties to future EU regulations–which the UK would not be able to directly influence after Brexit–could prove an opportunity for the UK to enhance business incentives to the financial and ancillary sectors,” the report states. To remain competitive, the city “must innovate to truly capitalize on the opportunities ahead,” including efforts to promote and support its thriving FinTech sector.

Blockchain Annual Global Deal Share by Stage*


*Equity deals (excluding altcoins and initial coin offerings). 2012 - 2017 YTD
Source: CB Insights


report from the Center for International Governance Innovation suggests that governments “should tackle the new regulatory conundrums of an increasingly disintermediated global economy by focusing on DLTs’ individual use cases rather than its underlying enabling technologies.” The report groups the known use cases of blockchain and other distributed ledger technologies (DLTs) into three broad categories: the recycle box (where the adoption of blockchain/DLT solutions may require only minor adaptations of existing national and international regulatory frameworks), a dark box (where regulators must craft more effective global coordination regimes to deter illicit activities using the blockchain), and the sandbox (where existing regulatory regimes pose a threat to the core value proposition of blockchains or DLTs and require national and international regulators "to work with blockchain and DLT entrepreneurs to create innovative ways of satisfying important regulatory prerogatives across multiple industries on a global scale"). As the paper notes, “it would be counterproductive to stifle the tremendous social gains these technologies promise to deliver by taking an ill-considered or heavy-handed approach to regulating them. Forbidding their use, for example, would cause more harm than good and would likely prove ineffective. Short of shutting down the internet, there’s no way to stop DLT from proliferating. Attempts by governments to intervene at the protocol level are likewise inadvisable, as this could interfere with active private sector experimentation, which is generating rapid security and functionality improvements in the source code of many blockchains and other DLTs.”


Some Headlines

Payments: Google’s digital payment app, Tez, surpassed 5 million downloads on the Google Play store. The payments application was launched in India back in mid-September allowing users to make payments directly from their bank account. PayPal rolled out its Venmo payments app to more than 2 million U.S. retailers this week, with the company receiving revenue from merchant fees charged to process Venmo payments. JPMorgan and Temasek Holdings have led a $100 million investment round in California-based payments company, According to the press release, the funds “will be used to accelerate’s distribution into banks and accounting firms, and to continue the rapid adoption of the payment network.” JPMorgan has also acquired WePay for an undisclosed sum in what’s being reported as the firm’s “first sizable acquisition” of a FinTech company.

Online Finance: P2Binvestor announced a unique bank-FinTech partnership allowing community banks to leverage P2Bi's receivables lending platform and marketplace to support small-to-medium size businesses. Under such a partnership, banks "will provide 50 percent of the capital with a senior secured position and P2Bi's marketplace of private investors will provide the rest of the capital, resulting in a blended interest rate of 8 to 12 percent and all the capital they need." SoFi announced that the company withdrew its application for an industrial loan charter after an exodus of senior management from the firm in the wake of sexual harassment allegations. The Innovative Lending Platform Association–which introduced its SMART Box model disclosure initiative last year–has tapped Scott Stewart, former Financial Services Roundtable senior director of FinTech initiatives, as its new CEO. Indiegogo is expanding beyond crowdfunding to online commerce by “giving backers direct access to clever new products that are completely ready to ship through The Indiegogo Marketplace.” UK peer-to-peer platform RateSetter announced that it had received full regulatory approval from the Financial Conduct Authority. The announcement comes roughly two months after the platform withdrew from the Peer-to-Peer Finance Association after failing to abide by the association’s principles. Lastly, Crowdfund Capital Advisors announced the launch of CCLEAR–a database that collects over 153 data points for each regulation crowdfunding offering. "This includes 64 data fields in addition to that which is submitted to the Securities and Exchange Commission (SEC),” according to the website.

Financial Inclusion: With the support of the Bill & Melinda Gates Foundation, Crosslake Technologies, ModusBox, Ripple, Software Group, and Dwolla came together to launch Mojaloop–"an open-source code for creating an interoperable payments infrastructure" that can be leveraged by developing nations. Meanwhile, Lenddo and Entrepreneurial Finance Lab announced that they are combining forces to provide "a suite of credit scoring and identity verification products to more than 20 emerging markets." The press release also states that the two companies "have individually facilitated over 5 million credit assessments since inception, allowing more than 50 financial institutions to disburse over $2 billion in credit to people with limited information."

Incumbents Doing Things: First, some announcements. Wells Fargo has expanded its FinTech banking team with the appointment of Charles “Chuck” Silverman as head of the FinTech group. BlackRock has formed a Digital Wealth unit with COO Rob Goldstein and Global Chief Marketing Officer Frank Cooper as co-chairs of the group. Lastly, Accenture has named Iliana Oris Valiente as managing director and global blockchain innovation lead. 

Elsewhere, IBM, Metlife, and Majesco announced the creation of an "industry-first" insurance platform built on the IBM Cloud to "help carriers better harness their expansive data sets to improve product mix and customer experience." MetLife will launch the end-to-end digital solution with its small business customers, providing MetLife with "the ability to tailor and scale its benefit offerings from quote to claim." The Royal Bank of Canada has joined together with JPMorgan and Australia and New Zealand Banking Group Limited to launch the Interbank Information Network (INN). INN will be powered by Quorum–“a permissioned-variant of the Ethereum blockchain, developed by J.P. Morgan.”

Lastly, the Depository Trust and Clearing Corporation published a report containing nine factors in assessing a FinTech’s risk to financial stability. The nine factors focus on FinTechs impact on core banking functions, the level of fragmentation, concentration risk, substitutability, financial interconnectedness, competition vs. cooperation, automated decision-making processes, growth and adoption of FinTech services, and the evolution of the regulatory environment.

Crypto and the Blockchain: Coinbase announced: “the ability for customers to instantly purchase digital currency using a U.S. bank account.” Customers can now instantly purchase up to $25,000 in Bitcoin, Ethereum, and Litecoin. Ripple announced that it surpassed 100 customers and $15 billion in cryptocurrency reserves, according to a report. The company also prevailed in a lawsuit filed by blockchain consortium R3 regarding a prior purchase agreement for XRP tokens. Lastly, Digital Asset Funding secured $40 million in financing led by Jefferson River Capital, LLC, while Coinfirm–a blockchain RegTech company–announced "the world's first known Ethereum AML/CTF analysis capability." The service is apparently already being applied to multiple ICOs


Global Developments

EU: European Central Bank Executive Board Member Yves Mersch commented on the public’s trust of virtual currencies during a conference in Luxembourg stating that the public “has more trust in public currency rather than in private currency where no one knows who is really the issuer and to what extent it is guaranteed.” Separately, European Director General for Justice and Consumers Tiina Astola commented on the EU law on data protection, noting that such protections–which are slated to enter into force in May 2018–should come before a single European digital market.

France: The country's financial markets regulator signed a co-operation agreement with Abu Dhabi Global Market Financial Services Regulatory Authority. According to the agreement, the "purpose of this Co-operation Agreement is to provide a framework for cooperation and referrals between the Innovation Functions of each Authority. The framework centers on a referral mechanism which will enable the

Authorities to refer Innovator Businesses to their respective Innovation Functions. It also sets out how the Authorities plan to share and use information on innovation in their respective markets.”

Nigeria: Telecommunications firms are in the process of obtaining licenses for mobile payment services, according to Gbolahan Awonuga, executive secretary of the Association of Licensed Telecommunications Operators of Nigeria.

South Korea: Officials are in the process of determining how to tax virtual currencies, according to comments from Han Seung-hee, the commissioner of the country’s National Tax Service.

UAE: Abu Dhabi Global Market (ADGM) entered into a few partnerships over the past week. ADGM signed an MoU with Yes Bank "to further foster cross-border exchange between the FinTech ecosystems of the UAE and India." ADGM also announced collaborations with Mastercard and foreign exchange and money transfer company, Al Ansari Exchange. In Dubai, the UAE Strategy for Artificial Intelligence was unveiled.

China: The government is gunning for BigTech. According to the Wall Street Journal, Chinese regulators have discussed plans to take 1 percent stakes in social media companies Tencent Holdings, Weibo Corp, and Youku Tudou. Chinese officials have confirmed that the country's central bank conducted mock transactions using digital fiat currency with commercial banks earlier this year. There was no confirmation regarding the timetable for when the currency would be deployed.

Gibraltar: Last week the government published the Financial Services (Distributed Ledger Technologies Providers) Regulations 2017. The legislation “has been designed to provide an efficient, safe, and innovative regulatory framework for firms engaging in activities not otherwise subject to regulation and that use DLT for the transmission or storage of value belonging to others (DLT framework).”

Mauritius: The State Bank of Mauritius, SBM Group, and blockchain-focused firm Salt "have entered into an exploratory relationship to become the first to use blockchain assets as collateral for lending services,” according to a Finextra report.

India: The Reserve Bank of India released new guidelines on the operation of Prepaid Payment Instruments and introduced stricter Know Your Customer (KYC) requirements for digital wallets.  Nandan Nilekani, architect of India's Aadhaar system, stated that more than 1 billion people have enrolled and the government has saved approximately $9 billion.

Singapore: Ravi Menon, managing director of the Monetary Authority of Singapore, gave prepared remarks at a recent blockchain conference. According to Menon, the "killer app" for distributed ledger technology (DLT) is in cross-border transactions. "Cross-border trade is a good example. In Singapore, we are exploring two specific applications–trade finance and trade documentation." Menon also discussed the ongoing work with Project Ubin. Lastly, MAS, the Association of Banks in Singapore, and Accenture have joined together to develop a blockchain-based platform for interbank payments.

Russia: President Vladimir Putin held his first meeting with top finance ministers on cryptocurrencies. Top regulators agreed to regulate the crypto-currency market, with regulation expected by the end of the year. 

UK: Open Risk Exchange has launched a platform offering free credit scores for all UK-registered businesses. Professor Dame Wendy Hall and Jérôme Pesenti recently submitted a report on how to grow the artificial intelligence (AI) community in the UK. According to the report, AI “could add an additional $814 billion to the UK economy by 2035.” In addition to developing a skilled workforce in this space, the report also encourages the government to increase the ease of access to data across a wide range of sectors. The report includes 18 recommendations on how to properly develop this market.

Indonesia: The Bank of Indonesia is turning to big data to give the bank a better understanding of the health of the economy.

Australia:Reports are surfacing that three FinTech companies–AgriDigital, FlashFX, and Othera–have pushed FinTech Australia and the government's Fintech Advisory Group to support a digital Australian dollar. The Australian Government Digital Transformation Agency published a video on YouTube describing Australia's digital identification system–Govpass.

U.S.: At the state level, the City of Boston tapped Jeanethe Falvey as its second-ever chief digital officer. Pennsylvania's Department of Banking and Securities released a letter focused on FinTech, which reiterated the agency's position "that all persons offering financial services to the consumers of the Commonwealth of Pennsylvania must comply with all legal requirements associated with the offering of those services." The letter further states that "a person that offers a financial service to residents of Pennsylvania... regardless of whether they designate themselves as a ‘FinTech’ company or any other type of nomenclature, must be licensed in accordance with the appropriate statute and comply with all provisions of the law which they are regulated."

The Federal Reserve announced the U.S. Faster Payments Governance Framework Formation Team—a 27-member work group "that will focus on developing a governance framework for faster payments in the United States." Meanwhile, the Commodity Futures Trading Commission (CFTC) LabCFTC released a primer on virtual currencies. According to Daniel Gorfine, director of LabCFTC: “LabCFTC believes that promoting education, understanding, and regulatory clarity around emerging technologies can help facilitate market-enhancing innovation and guard against risks. As people worldwide try to understand and wrap their heads around the virtual currency ecosystem, we thought it timely and important for our first primer to help explain the space, identify how developments involve the CFTC, and highlight risks that investors or users of virtual currencies should carefully consider.”

At the legislative level, Sen. Ed Markey (D-MA) submitted a letter to the Consumer Financial Protection Bureau (CFPB) regarding Section 1033 of the Dodd-Frank Act which "guarantees consumer access to their own financial data." According to Markey, third parties "are providing valuable services to which consumers are fully entitled. However, some stakeholders have raised concerns about the security of the data transfer to these third parties. I urge the CFPB to carefully consider both the need for consumer access and these security risks in carrying out Section 1033." Separately, Rep. Emanuel Cleaver (D-MO) put out a press release on "the initial findings of his Small Business FinTech investigation launched in June." Among the findings include: FinTech loans are more likely to be used by minority-owned businesses, consumer credit reports are being utilized by the industry for small business loan underwriting, and there is limited adoption of safeguards against discriminatory pricing.


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