FinTech in Focus
FinTech: The Top Six Bipartisan FinTech Opportunities for U.S. Lawmakers
Today, the Milken Institute released a new report covering U.S. congressional efforts on FinTech. The report provides an in-depth review of the past two years of FinTech developments in the halls of Congress and FinTech-related legislation introduced in the 114th and 115th Congresses. According to our analysis, lawmakers introduced more than 70 FinTech-related bills from January 2015 to December 2017. Of those, more than half carry bipartisan support.
What’s more, the level of bipartisanship behind FinTech-related legislation is not only significant, it is accelerating. In the 114th Congress, less than half of FinTech-related legislation introduced carried bipartisan support. In the 115th Congress, nearly three-quarters of FinTech-related legislation introduced is supported by lawmakers on both sides of the aisle.
Based on our legislative analysis, quantitatively reviewing the magnitude of legislative activity and the prevalence of bipartisanship, and qualitatively based on expert interviews, the Institute selected six FinTech-related topic areas where there is true bipartisan interest and momentum for lawmakers to take action in the 115th Congress. The six topic areas focus on ‘true lender’ and ‘valid when made’ litigation, mobile banking, cryptocurrencies, data standards & reporting, and the use of alternative data to expand access to credit.
Enjoy the report! If you have any questions, please don’t hesitate to reach out to Jackson Mueller.
FinTech Saves the World
The OECD is out with its Financing SMEs and Entrepreneurs 2018 Scorecard, which benchmarks SME finance in 43 economies around the world. The report found that despite improving credit conditions, new lending to SMEs fell in 2016 in 60 percent of the economies for which comparable data was available. The news was much more upbeat for alternative finance, however, which continues to grow at a rapid pace around the world. Total online alternative finance volumes were largest in China, followed by the United States, and the United Kingdom. The report also highlights some of the actions policymakers have taken to encourage the online alternative finance sector and notes that significant room for growth remains in many economies.
Total Online Alternative Finance Market Volumes by Region, USD Billion
FinTech Saves Mortgage Lending
The Federal Reserve Bank of New York released a report on the role of technology in mortgage lending, finding that FinTech lenders are about 20 percent faster than traditional lenders in processing mortgage applications and that this increase in speed does not come at the cost of higher defaults. Indeed, the report finds that FinTech default rates on Federal Housing Administration (FHA) mortgages are 25 percent lower than traditional lenders. This good news comes as FinTech mortgage lenders have experienced significant growth, from $34 billion in originations in 2010 to $161 billion in 2016. FinTech lending now represents 8 percent of the mortgage lending market in the United States.
Market Share of FinTech Lenders by County
Source: Federal Reserve Bank of New York
AltFi: The U.K.’s original peer-to-peer lender, Zopa, had some bad news to report this week. Defaults on Zopa’s loans are rising, and that means lower returns for investors. Not only are they rising, but the default rates may look similar to the default rates (as a percent of loans originated) the company experienced at the peak of the financial crisis. Meanwhile, over at LendingClub, interest rates are on the rise, and so is John Mack’s stake in the firm. Finally, US Bank announced a new partnership with AutoGravity, a digital auto lending startup.
Crypto: This article from Bitcoin.com caught our eye because, well, yikes. Apparently, 46 percent of 2017’s [initial coin offerings (ICOs)] have already failed, and another 13 percent of them have ‘semi-failed’. “Trawling through 900 ICOs in one sitting is a deeply depressing experience…. Abandoned Twitter accounts, empty Telegram groups, websites no longer hosted, and communities no longer tended are par for the course. A digital graveyard, complete with metaphorical tumbleweed, characterizes the crop of 2017 that decided to take the money and run.”
But not to worry FinTech in Focus readers, things are looking up in 2018, with respected investors getting into the space. I mean, who doesn’t want to put their money towards ‘bitcoiin’—yes, with two Is—that’s endorsed by Steven Seagal!!!!
Elsewhere, Bank of America is concerned about the risks cryptocurrencies pose to its business. Finally, Ripple continues its push into remittances and announced partnerships this week with a host of payment service providers and banks, many of which were in emerging economies.
Robo-Advising: Robinhood already seems to be reaping the benefits of adding crypto-trading to its platform after announcing this week that the platform surpassed more than 4 million users since inception (+1 million users since November 2017). Wealthsimple announced this week that they raised $51 million from Power Financial Corp., which will be used to expand its service and increase its offerings to customers.
Payments: Big tech firms made major waves in payments this week. First, Google rolled out its Google Pay app, which replaces Android Pay and Google Wallet. Amazon announced this week that its Payfort online payments service has been registered in Saudi Arabia, an e-payments market that Payfort’s 2017 report found to be one of the fastest growing in the region. Finally, Apple appears to be getting into the international payments game as well, with Apple Pay Cash reportedly expanding to Brazil, Ireland, and Spain. Elsewhere, Google announced that they would begin accepting payments in M-Pesa in Kenya, and Paytm is launching Paytm Score in India, its own credit scoring initiative.
India: A report from GlobalData shows that India has made rapid progress in mobile payment adoption. Following demonetization, mobile payments have become the norm for making small payments in India. The country now outpaces China, Denmark, the U.S., and the U.K. in mobile payment adoption.
EU: The European Commission took a very small step toward the regulation of cryptocurrencies this week. Following a roundtable discussion, Commission Vice President Valdis Dombrovskis outlined some of the opportunities and risks associated with cryptocurrencies and suggested that further regulation from the EU may be warranted.
Germany: The Federal Financial Supervisory Authority (BaFin) issued guidance regarding the classification of ICOs. Rather than make a blanket classification, BaFin is opting to examine ICOs on a case by case basis.
Italy: The Italian Ministry of Economy and Finance will roll out its new cryptocurrency rules and regulations over the next three months. Cryptocurrency service providers already operating in the country will have 60 days to register.
U.K.: The U.K. Treasury is conducting an inquiry into cryptocurrencies and blockchain technology, as well as the government’s regulatory response to them thus far. Broadly, the inquiry will look at the potential benefits and risks of both cryptocurrencies and blockchain technology.
Iran: Iran announced this week that its state-owned Post Bank will work on developing its own cryptocurrency. Details are still scarce, but the plan quickly drew comparisons to Venezuela’s Petro, as both nations are subject to strict international sanctions.
Turkey: Turkey’s skepticism towards cryptocurrencies may be thawing. The Nationalist Movement Party’s (MHP) deputy chair, Ahmet Kenan Tanrikulu released a report calling for Turkey to release a “national bitcoin” called the “Turkcoin.” Cryptocurrencies still operate in a significant legal vacuum in Turkey, but Tanrikulu believes that allowing this to continue, and potentially missing out on the rise of cryptocurrencies and blockchain technology, would be a mistake. Tanrikulu said, “The world is advancing toward a new digital system. Turkey should create its own digital system and currency before it’s too late.”
UAE: The Abu Dhabi Global Market (ADGM) announced that the application period is now open for the third cohort of its Regulatory Laboratory (RegLab), which will focus on SMEs. Applications are open through May 10, and the ADGM is encouraging all FinTech and RegTech firms focused on SMEs to apply.
North and South America
U.S.: Momentum seems to be building on Capitol Hill for action on cryptocurrencies, with lawmakers from both sides of the aisle acknowledging that the market may be ripe for regulation. Republican Senator Mike Rounds stated that “There's no question about the fact that there is a need for a regulatory framework.”
Elsewhere, the Securities and Exchange Commission (SEC) denied a Freedom of Information Request (FOIA) for information related to BitConnect. This likely indicates that an investigation into BitConnect is underway, with both the SEC and the Commodity Futures Trading Commission (CFTC) showing interest. BitConnect is under fire after a series of accusations were leveled against the exchange that it operates a giant Ponzi scheme.
Finally, the Wyoming House of Representatives passed two bills to provide certainty to blockchain firms as the state seeks to become a hub for blockchain innovation. The bills still need to pass the Senate, where they face significantly less certainty.
Venezuela: Finally, the Venezuelan crypto saga continues. According to President Nicolás Maduro, the Petro raised $735 million on its first day of pre-sales. Not bad, but there’s no way to verify that, of course. Anyway, Maduro is now calling on Venezuelan banks to mine the Petro and requiring that state-owned companies begin to use the Petro for some of their transactions in the future. That’s not all though, of course. Venezuela’s next act will apparently include a second, gold-backed cryptocurrency.