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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Murphy Dan
Dan Murphy
Senior Associate, FinTech Program, Center for Financial Markets
Capital Access and Europe and Finance and FinTech and U.S. Economy
Dan Murphy is a senior associate at the Milken Institute’s Center for Financial Markets. He focuses on FinTech and access to capital issues. Prior to joining the Institute, Murphy was a policy fellow at the Democratic Senatorial Campaign Committee.
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FinTech in Focus

By: Jackson Mueller and Dan Murphy
March 16, 2018

Cash Is… Still King?

Here’s a finding we wouldn’t have predicted—a new study from the Bank for International Settlements (BIS) found that despite the increasingly ubiquitous electronic payment methods, the demand for cash has actually increased in most advanced economies. Yes, you read that correctly. While card payments are booming too, the BIS found that the global uptick in the amount of cash in circulation is primarily driven by advanced economies, with Hong Kong and Japan leading the charge. The reason for this? A lot of cash stuck under a lot of mattresses, apparently. Demand for large-denomination banknotes is outpacing demand for small-denomination notes, suggesting that the increase in demand for cash is for store of value purposes.

Demand for Large-Denomination Banknotes Has Increased Since the Global Financial Crisis

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Source: Bank for International Settlements

If that isn’t enough to challenge your futurist assumptions about currencies, the BIS has one more curveball to throw. Another report this month warns central bankers about the risks of digital currencies. The report, which focuses specifically on central bank digital currencies (CBDCs), cautions central bankers that issuing CBDCs might undermine the two-tiered banking system and create “digital runs” on private banks. They point out that even if private banks have depository insurance, a CBDC would be seen as a less risky asset in a crisis, and that holding CBDCs would not have some of the practical concerns as holding cash. The BIS also acknowledges some of the potential upsides of CBDCs but believes that the potential threat to traditional lenders must be explored before central banks seriously consider issuing CBDCs.

Financial Inclusion

Researchers from the International Finance Corporation (IFC), CreditEase, and the Stanford Graduate School of Business are out with a joint report, “Financial Inclusion in the Digital Age.” The report covers FinTech’s ability to promote financial inclusion by leveraging technology to increase access to financial services, offering products that address the needs of consumers, and offering services at an affordable cost. The report also highlights FinTech’s promise in four verticals—payments, lending, financial planning, and insurance—and lists 100 FinTech firms from around the world who are leveraging technology to promote financial inclusion.

Elsewhere, the Asian Development Bank (ADB) is preparing to unveil its five-year financial inclusion plan. Kelly Bird, the ADB’s country director for the Philippines, stated in an interview that rural banks would be a focus of the plan, with the ADB focusing on modernizing rural banks’ digital infrastructure to reach more customers.

Generation X Knocks Out a Millennial

Hello, FinTech in Focus readers! This is Dan again filling in for Jackson this week, who decided that a better alternative to reviewing the more than 700 Google Alerts that create this newsletter was to smash his bicycle head-first into another bicyclist earlier this week. He is OK and recovering, and would like all of you to know that he made it through about 15 minutes of a cryptocurrency hearing held this week before his head started pounding again. He blames Dogecoin for everything.

Some Headlines


Despite an increase in scrutiny from financial regulators, Ant Financial hit an impressive milestone this week after it was reported that the company’s consumer lending business doubled and surpassed $95 billion. Ant Financial has more outstanding consumer loans than China’s second largest bank. Incredibly, Ant Financial accounts for a third of China’s asset-backed securities issuance. This all comes at a time when Chinese regulatory authorities are cracking down on certain lending practices.

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Source: Bloomberg

Back in the U.S., a study by Greenwich Associates found that 52 percent of institutional investors invest in marketplace lending assets, with two-thirds of those investors citing higher yields as the primary reason for investing. 

Crypto and Blockchain

Ripple announced that it would launch a blockchain payment app with 61 Japanese banks last week. The app, called “Money Tap,” will be rolled out to a few banks in the fall, with more being added after that. Takashi Okita, the CEO of SBI Ripple Asia, said that “Together with the trust, reliability, and reach of the bank consortium, we can remove friction from payments and create a faster, safer, and more efficient domestic payments experience for our customers.” 

Ripple wasn’t the only company with big plans this week. Last week, investors in IBM were told that there are already more than 400 corporate users of IBM’s blockchain technology. Among them were household names such as Walmart, VISA, and HSBC. Finally, PwC is working on a blockchain tool that will allow ICO issuers to track their tokens after issuance.

Speaking of keeping track of your cryptocurrencies, Coincheck announced this week that it would begin repaying its customers affected by the $530 million cryptocurrency heist in January. Meanwhile, in China, exchange operator OKex has been accused of faking 90 percent of its digital trading volume. Elsewhere, Coinbase announced that it would launch its first index fund, which, to begin, will only be available to accredited U.S. investors. 

Finally, John Oliver dove into the wild world of cryptocurrencies this week. Essentially, his segment is a summary of the cryptocurrency section of FinTech in Focus for the past year. After listing a few of the more than 1,500 cryptocurrencies currently in existence, Oliver stated the following: "A list so insane that you can't tell which ones are real and which are made up, because they are all real. I didn't make any up. I tried to come up with a dumber name than DeepOnion, and it just can't be done!"


Interest in the InsurTech space continues to grow this week. MetLife announced a series of global InsurTech initiatives, including an open innovation lab and a $100,000 contract to pilot InsurTech solutions with MetLife EMEA. Elsewhere, XL Catlin was announced as a founding member of the InsurTech Asia Association, and S&P Global announced that InsurTech deals rose to $216 million in February, up from $71 million in January.

Meanwhile, in not-so-good InsurTech news, Lemonade reported an eightfold increase in underwriting losses from 2016, with 2017 losses hitting $15.8 million. 


RegTech and SupTech got a high-profile shout-out this week from Christine Lagarde, the managing director of the International Monetary Fund (IMF). Lagarde cites advanced technologies as a means to “fight fire with fire” in the cryptocurrency space. “Regulatory technology and supervisory technology can help shut criminals out of the crypto world. More broadly, we are seeing crypto-asset exchanges in some countries that are subject to know-your-customer requirements.” Even so, “these advances will take years to refine and implement.” We know, the actual topic of her post was cryptocurrency. But we think RegTech is just as interesting and important for readers to be aware of. We may be biased, however, since we’re in the midst of writing our own RegTech white paper (watch this space).

Global Developments


Rwanda: Digital banking in the country is on the rise according to John Rwangombwa, the governor of the National Bank of Rwanda (NBR). According to The New Times in Rwanda, the number of payment cards and transactions through point-of-sale technology increased by 22 percent and 84 percent, respectively. Also, active mobile money holders increased by 13 percent to more than 3.7 million subscribers in 2017.


China: China will reportedly merge its banking and insurance regulators, provide new powers to the central bank, and create new ministries in an overhaul of the country's regulatory system. Meanwhile, the Ministry of Industry and Information Technology plans to build a blockchain technical standardization committee. Lastly, has reportedly launched a global supply chain innovation center to promote the development of next-generation smart supply chain technologies (adding yet another Google Alert to the list).

India: YES BANK, PwC, Let's Talk Payments (LTP), and Ourcrowd unveiled the inaugural “India FinTech Opportunities Review (IFOR)” for 2017-2018. According to the report, the India FinTech market is forecasted to eclipse $2.4 billion by 2020, with the FinTech/digital finance industry projected to create 21 million new jobs in the country. Among some of the findings from the report, the government has introduced more than 50 schemes in the last five years to assist the growth of startups and SMEs and nearly 90 percent of respondents suggested the need for a regulatory sandbox. The IFOR report also provides recommendations on how to turn India into a FinTech hub. Among the recommendations: the creation of a regulatory sandbox governed by the Institute for Development and Research in Banking Technology, the formation of a FinTech association, the creation of an open data or API framework, the creation of a FinTech registry to better understand the landscape in India for research and investment purposes, the establishment of dedicated areas or innovation labs throughout the country to foster innovation, and partnerships with global FinTech hubs.

Indonesia: The financial services authority is considering a cap on interest rates on loans offered by FinTech lenders. The country currently has roughly 40 FinTech lenders, with another 40 firms awaiting approval.

Japan: The government has launched a series of events across Europe to promote Japan's market with a focus on FinTech in particular. Toshio Taki, board director of Money Forward and former researcher at Nomura, noted that Japan "has its own extremely ambitious targets for banks to open up their customer data, and we expect that by 2020 more than 80 banks will have successfully adopted API Standards. This is a remarkable achievement which seems to have gone unnoticed...." Lastly, the Financial Services Agency (FSA) penalized seven domestic cryptocurrency exchanges for lax cybersecurity practices and anti-money laundering measures. Two exchanges, FSHO and BitStation received month-long suspensions, according to CCN

Thailand: According to reports, the prime minister’s cabinet agreed earlier in the week to draft a law to regulate and tax cryptocurrency trading.


European Union: Startup Europe Partnership—a startup initiative established by the European Commission—submitted an open letter to various EU leaders on how EU programs can help innovators and startups. The letter states that tech companies continue to face difficulties in scaling up across Europe and internationally. In Europe, “more than 4,200 tech companies have been able to raise more than 1 million Euros.” The letter added, "If Europe has somewhat partially filled the gap in seed and early-stage financing, later stage growth financing (including access to IPOs and investments from pension funds and wealth foreign sovereign funds) still need to be significantly improved," the letter states.

Separately, the Chairperson of the European Banking Authority (EBA), Andrea Enria, gave prepared remarks at the Copenhagen Business School earlier in the week on designing a regulatory and supervisory roadmap for FinTech. Enria spoke on how the policy debate currently focuses on two opposite approaches: "regulate and restrict" and "let things happen." In reality, he said, "both these regulatory strategies have already shown their limits."

Enria's remarks also focused on feedback received from the EBA's consultation on FinTech released in August 2017. "One point on which we received unanimous feedback is that FinTech issues need to be tackled through consistent and comparable approaches across the Single Market," Enria stated. In addition, an "excessive extension of the regulatory perimeter, attracting most FinTech firms under the scope of bank-like supervision just because they compete with banks in some market segment, is likely to be a sub-optimal solution." Enria further added that heightened monitoring and rigorous analysis are needed to protect against potential risks from interconnectedness between FinTech firms and traditional regulated entities, proportionate technologically neutral regulation, and efforts to protect consumers. Enria also discussed the EBA's roadmap on FinTech, which can be viewed in the figure below.

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Source: EBA 

U.K.: As part of the Treasury's spring statement for 2018, the U.K. Treasury has published several consultations, including a call for evidence on the role of cash and digital payments in the new economy and a consultation on creating a fund structure within the Enterprise Investment Scheme for investment in innovative, knowledge-intensive companies. In particular, the call for evidence on the role of cash and digital payments “represents an important step in the discussion about cash and digital payments in the new economy, and how the transition from cash to digital payments impacts on different sectors, different regions and different demographics. It seeks to gather evidence to inform that debate, by exploring how the government can support digital payments; ensure that the ability to pay by cash is available for those who need it; whilst cracking down on the minority who use cash to evade tax and launder money. It is seeking both domestic and international evidence of what the government can and should do in this area.”

Middle East

UAE: The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) published a white paper on a proposed regulatory framework covering private financing platforms. The framework "would facilitate access by startups and SMEs to new, alternative sources of funding primarily from Professional Clients," whilst ensuring robust safeguards are in place.

The Dubai International Financial Centre (DIFC) signed a Memorandum of Understanding with Middle East Venture Partners (MEVP) "to facilitate the exchange of information on the latest trends in the finance industry, with a focus on the FinTech field."

North and South America 

Canada: Payments Canada, the country's financial market infrastructure for payments, announced that it is implementing "a new credit risk model for the country's retail payment system, effective March 12, 2018." According to the press release, the Automated Clearing Settlement System (ACSS) "will be aligned with international best practices and risk management standards. The Interim Credit Risk Model will see system participants pledging collateral to cover the risk they bring to the system." 

U.S.: Regulatory officials from the Federal Reserve, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau are reportedly in favor of more flexibility in applying third-party risk management guidance given the increased interest partnerships between FinTechs and traditional financial institutions. 

After Judge Jack Weinstein of the New York Eastern District Court ruled in favor of the Commodity Futures Trading Commission's (CFTC) position that virtual currencies should be treated as commodities and that the CFTC be allowed to address fraud in this space, the CFTC is now using this order to support its actions against other fraudulent cryptocurrency schemes, according to FinanceFeeds.

CFTC Commissioner Brian Quintenz gave prepared remarks at the DC Blockchain Summit where he stated that an independent, self-regulating body for spot platforms in the U.S. "could significantly contribute to these ongoing efforts to rationalize and formalize cryptocurrency regulation....” Any [self-regulatory organization (SRO)]-like body "should have policies and procedures to address potential conflicts of interest between itself and the industry it regulates" and "should strive to have a fair representation of diverse views among its members and leadership." The SRO should follow, in part, the benchmarks set by the International Organization of Securities Commissioners regarding principles for self-regulation, he added. 

Interestingly, a few days later, the Winklevoss twins outlined a proposal for the Virtual Commodity Association (VCA)—"an industry sponsored self-regulatory organization for the U.S. virtual currency industry, specifically virtual commodity exchanges and custodians (collectively, "platforms")." Further, the VCA stated: "(i) [it] will be a non-profit, independent regulatory organization that does not operate any markets, (ii) will not be a trade association, (iii) will not provide regulatory programs for security tokens or security token platforms, and (iv) will be in compliance with global standards and best practices for SROs."

Separately, the Securities and Exchange (SEC) Commissioner, Michael Piwowar, gave prepared remarks at the RegTech Data Summit on innovation in technology and law. According to Piwowar, RegTech “covers the use of technology by regulators to fulfill their duties in a more thorough and efficient manner, as is the case when our Market Abuse Unit Analysis and Detection Center deploys technological tools to detect insider trading and market manipulation activities.” Further, “RegTech also refers to the use of technology by regulated entities to streamline their compliance efforts and reduce legal and regulatory costs.” In his remarks, Piwowar mentioned one area of RegTech “where we continue to sow and reap tangible rewards is in the technological capabilities of our Division of Enforcement. I previously mentioned the use of RegTech by our Division of Enforcement through technologies such as ARTEMIS. But that system is just one of many advanced technologies, both internally developed and in partnerships with the private sector, that we are deploying in our efforts to root out fraud in the securities markets and protect investors. These investments in cutting-edge data analytics are allowing our enforcement staff to be more efficient in their investigations and more aggressive in uncovering fraud in hard to detect areas.”

Venezuela: President Nicolas Maduro claimed the Petro raised $5 billion from its initial coin offering (ICO), though no buyers have received tokens yet. More than 83,000 individuals from 127 countries participated in the offering, according to officials.


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