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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
Associate, FinTech Program, Center for Financial Markets
Capital Access and Europe and Finance and FinTech and U.S. Economy
Dan Murphy is an 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 26, 2018
   
   

Real-Time Payments in ASEAN

According to a new report from ACI Worldwide and Ovum, bank executives across the ASEAN region see real-time payments as being a crucial area of investment. According to the 2018 ASEAN Payments Insight Survey: “ASEAN Initiatives Seek to Leverage Real-Time Payments for Innovation,” over 80 percent of respondents believe that real-time payments is an opportunity to grow their revenue. This shows that the momentum towards real-time payments has become a market-driven phenomenon, rather than being purely driven by regulators.

Further, over three-quarters of respondents believe that real-time payments will eventually replace cards, while a whopping 97 percent of them believe that there are benefits to open APIs. According to Ovum Principal Analyst David Bannister: 

“The rapid development of real-time payments — in Asia generally but in ASEAN countries in particular — has lessons for banks, central infrastructure operators and merchant service providers around the world.” 

Open APIs Are Seen as Having a Clear Business Benefit by ASEAN Banks 

03 26 18a

Financial Inclusion in Sub-Saharan Africa

According to a new survey by the Consultative Group to Assist the Poor (CGAP), sub-Saharan Africa is increasingly a priority for investments in financial inclusion. Currently, financial inclusion accounts for 30 percent of active projects by large, international investors. Almost 70 percent of this financing is aimed at growing the region’s financial service providers. 

The funding seems to be working, according to CGAP, as the countries that have received the most funding have largely seen the greatest increases in account penetration. 

Global Funding Trends for Financial Inclusion

03 26 18b

The Tripodization of Music

Hello FinTech in Focus readers! So, my wife and I decided earlier this week to part ways with our children for a few hours (not ditch them entirely) to go see a Grateful Dead cover band perform (because why not?). So here I am, at this club, about to enjoy the transition from China Cat Sunflower into I Know You Rider, when the person sitting next to me somehow pulls out of their pants pocket a phone the size of a laptop, together with a personalized tripod to record the set on Facebook Live. That’s fine and all, and I could handle a bright screen pouring into my right eye, but then, unbeknownst to me, there’s this expectation that I’m going to sit still so the camera doesn’t move in order to get that perfect shot to share with complete strangers through Facebook. Well, unbeknownst to the person recording, I cannot sit still to Grateful Dead music. So, to the 150+ people visibly complaining (through pop-up comments) about the camera shaking uncontrollably—sorry, I’m not sorry. Long live the Dead.

Some Headlines

Challenger Banks: The arms race between challenger banks and incumbents continues this week. The challengers are hitting notable milestones and adding more products to their platforms, while the incumbents are responding by adding digital banking platforms of their own.

First, the challengers. Both the U.K.’s Monzo and Germany’s N26 had good news to share, with Monzo hitting half a million current accounts less than six months after the company launched its current accounts in October 2017. N26 raised $160 million in a funding round led by Tencent and Allianz. Two more British challengers, Tandem and Revolut, added product lines this week as well, with Tandem acquiring the money manager Pariti while Revolut expanded automatic payments across Europe.

As for the incumbents, Standard Chartered will be launching a digital bank in Ivory Coast. This comes after recent news that the bank would be prioritizing digital banking. Elsewhere, rumor has it that Royal Bank of Scotland (RBS) is working on a standalone digital bank of its own.

Payments: There were several interesting developments in payments this week on both sides of the Atlantic. In the U.S., small business lender Fundbox announced the launch of Fundbox Pay, a B2B payments solution for small businesses. Fundbox COO Prashant Fuloria said that:

“By making credit available at the point of the transaction, we’re bringing credit closer to the moment of relevance. We’re trying to make a better transaction for buyers and sellers and addressing the root cause of what drives a lot of cash flow challenges”

Elsewhere, Google’s new Google Pay platform is piloting a new service in Las Vegas that allows commuters to purchase Monorail tickets with their Google Pay digital wallet

In Europe, BBVA is testing an “invisible” payments system in its Madrid cafeteria. The system uses facial recognition technology to recognize a customer and their order, and then seamlessly charging their card. In the U.K., Square announced the launch of its Instant Deposits service for U.K. businesses. In remarks by CEO Jack Dorsey, as highlighted in a Finextra article, he stated: “Since our founding, we’ve heard that cash flow is a major pain point for small businesses. Our products were all built to provide fast and predictable access to funds to help businesses of all sizes remain competitive and agile. We believe our sellers should have the ability to access the money they’ve made as fast as possible, so we’re thrilled to provide this new service to businesses across the UK.” 

Crypto: The big news in crypto this week was Google’s announcement that it would ban advertisements for cryptocurrencies and ICOs. This comes after a similar move by Facebook back in January and precipitated a major fall in the value of cryptocurrencies like bitcoin, which briefly fell below $8,000.

Elsewhere, Coinbase reached an agreement with U.K.-based Barclays allowing the bitcoin exchange to open a bank account in the U.K. Separately, Benoît Cœuré and Jacqueline Loh from the Bank for International Settlements (BIS) co-wrote an article advocating for central bank digital currencies (CBDCs) as the future of cryptocurrencies. For more on that, check out last week’s FinTech in Focus, which discusses the recent BIS paper on CBDCs.

AltFi: Ant Financial announced this week that it is launching China’s first asset-backed security backed by loans to online retailers. Specifically, the securities will be backed by loans to SME suppliers of e-commerce sites, such as Alibaba.

Global Developments

Asia

Australia: FinTech Australia welcomed a new report covering small and medium-sized enterprises access to capital in the country, which highlighted the role FinTech is playing in meeting credit demand. Among the findings from the Scottish Pacific SME Growth Index—a survey of more than 1,200 SMEs with annual revenues of up to $5 million—nonbank financing is now the first option for nearly one-quarter of SMEs and nearly 50 percent of SMEs who haven't used a nonbank finance provider would consider using a FinTech platform in the future. As the report notes, while SMEs "seem unsatisfied with traditional banks, they are not yet fully accessing opportunities available to them in the non-banking sector." Interestingly, growth SMEs were five times more likely to use alternative lending options than declining growth SMEs, according to the report.

03 26 18c

Source: Scottish Pacific SME Growth Index

Hong Kong: The Securities and Futures Commission (SFC) halted an initial coin offering (ICO) by Black Cell Technology Limited "over concerns that Black Cell had engaged in potential unauthorized promotional activities and unlicensed regulated activities."

Singapore: Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), gave prepared remarks covering the good, the bad, and the ugly of crypto tokens. In his remarks, Menon stated that one of the potentially strongest use cases of crypto tokens is to facilitate cross-border payments in traditional currencies. "This is the challenge that Singapore's Protect Ubin has set itself to solve: to use blockchain technology to enable entities across jurisdictions to make payments to one another: without intermediaries; with greater speed and efficiency; and at lower risk and cost." According to Menon, after two successful proofs of concept domestically, MAS has entered into a collaboration with the Bank of Canada "to test and develop a cross-border solution using crypto tokens issued by the two central banks."

Europe

France: According to reports, France is moving to become an attractive location for initial coin offerings (ICOs). The country's Minister of the Economy, Bruno Le Maire, has hired Jean-Pierre Landau, former deputy governor of the Bank de France, to determine the regulatory approach to ICOs, with proposed rules likely to be introduced next month.

Lithuania: The Bank of Lithuania is seeking proposals from software developers in the country and around the world for the development of its service-based blockchain platform, LBChain. According to Marius Jurgilas, a member of the board of the Bank of Lithuania, LBChain offers "a unique chance for businesses to trial and implement their state-of-the-art FinTech innovations to bring benefits to both consumers and the financial system." At this point, I’m trying to figure out if the use of “regulatory sandbox” just isn’t cool anymore (think back to Ontario Securities Commission’s announcement of its LaunchPad).

Separately, the Bank of Lithuania and the Monetary Authority of Singapore signed a FinTech Co-operation Agreement allowing regulators "to explore joint innovation projects and share information on emerging market trends."

SpainAccording to a report in The Local, authorities in Spain's Basque country "will allow its citizens to invest in state handpicked start-ups," becoming the first local government to do so on the planet. Selected startups can request to have the government match the level of funding raised by the public up to €30,000, according to the report.

U.K.: A lot of activity out of the country this week as the Innovate Finance Global Summit and the International FinTech Conferencekicked off. In prepared remarks, the U.K. Chancellor Philip Hammond announced the launch of a new strategy for the U.K. FinTech sector. According to Hammond, "we are committed to building the most pro-growth and pro-innovation regulatory environment in the world for FinTech." As such, the Financial Conduct Authority (FCA) and the Bank of England will take the first steps towards “automating regulatory compliance... reducing costs for financial services firms, and removing a key barrier for FinTechs as they enter financial services markets;" appointing new envoys to spearhead the adoption of FinTech by regional banks in England, Wales, and Northern Ireland; signing a new FinTech cooperation agreement with Australia; and other efforts.

The FinTech Sector Strategy: Securing the Future of UK Fintech, unveiled by HM Treasury, also includes the creation of a Cryptoassets Task Force comprised of representatives from Treasury, Bank of England, and the FCA; the creation of industry standards to enable FinTech firms to "more easily partner with existing banks"; and other initiatives designed to help small FinTechs grow and mature.

As to the FCA’s efforts to launch a global regulatory sandbox, Christopher Woolard, executive director of strategy and competition at the FCA, stated that at present, “there is no joint sandbox programme with other regulators for firms to participate in. Such a project represents new territory. Breaking new ground requires an element of risk, not something, as I’ve said, that regulators are generally comfortable with. But our whole history with Innovate has been about doing things that regulators historically haven’t done.”

Woolard focuses on two areas in particular where the sandbox could solve global challenges: money laundering and regulatory compliance. On anti-money laundering, the FCA "will be bringing together international partners from the US, Europe, Australia, Japan and Korea in a TechSprint which will focus specifically on developing solutions to the challenges of money laundering, financial crime and terrorist financing." On the regulatory burden of compliance, "we saw for ourselves that it is possible to take a regulatory requirement contained in our handbook and turn it into a language that a machine can understand. And from that language, machines can respond to the requirement by effectively pulling the necessary information direct from the firm. Not in months, but in seconds. In our sprint, 12 seconds to be precise.” The FCA reportedly got together with regulators across Europe, the U.S., and the Far East to discuss a blueprint for a global sandbox.

In case you were wondering whether the U.K. is concerned about FinTechs leaving the region, John Glen, economic secretary to the treasury and city minister, made it clear that they are not.

“I hear rumblings from across the Channel that President Macron is looking to drag you all over to Paris. And I understand why – it’s a great city. So, hop on a Eurostar, enjoy a weekend away, stock up on croissants etc. Then come on back to London on Monday morning to carry on making money/go back to work/crack on as you have been… because President Macron can’t argue against hard truths: that the FinTech sector is estimated to be worth over £6 billion to the UK economy… generating a staggering 60,000 jobs across 1,600 firms…a greater number than work in New York’s FinTech sector, or in the combined FinTech workforce of Singapore, Hong Kong and Australia.”

So—take that world!

In other developments, the U.K.'s Information Commissioner, Elizabeth Denham, announced in a blog post that WhatsApp has signed a public commitment not to share personal data with Facebook until data protection concerns are addressed.

Middle East 

Israel: The committee for examining and regulating initial coin offerings submitted its interim report to the Israel Securities Authority (ISA). “The question of whether a cryptocurrency should be considered a security will be decided on the totality of the circumstances and features of each case in accordance with the purposes of the law. As a general rule, cryptocurrencies that confer rights similar to the rights conferred by traditional securities such as shares, bonds, and participation units, will be deemed securities. In contrast, cryptocurrencies that represent rights to a product or service and are acquired solely for the purpose of consumption and use and not for investment purposes, will not be considered securities,” the press release states. The report also recommends an examination of the following issues: “lenient regulation for small-scale ICOs; raising capital through ICOs on crowdfunding platforms; defining a provisional framework for ICOs pilots, in the form of a regulatory sandbox, including oversight of the cryptocurrency developers, and; examining the option of relying on foreign regulation that applies to cryptocurrencies.” Public feedback on the report is welcome and comments to the ISA are due by April 20.

Separately, the securities authority also announced that cryptocurrency companies will not be included in the Tel Aviv Stock Exchange (TASE) indices. According to the press release, the ISA “will take steps to promote a provisional amendment to the TASE Rules & Regulations to restrict inclusion in TASE indices of public companies whose main activity is the holding of, investment in, or mining of decentralized cryptocurrency (such as Bitcoin, Ethereum and others). The aim of the amendment is to prevent public companies operating in this risky, speculative field, characterized by high trading volatility, from being included in the TASE indices and in the investment portfolios of passive investors. The amendment will be in force for a limited period of one year, at the end of which it will be revisited according to market developments.”

North America

U.S.: If you recall back in September, Arizona’s attorney general, Mark Brnovich, in an op-ed in American Banker, advocated for the launch of a state-based regulatory sandbox in Arizona. Well, the Arizona legislature listened. This week, state lawmakers passed HB 2434 (Rep. Jeff Weninger), making Arizona the first state to pass legislation to establish a regulatory sandbox program. The bill awaits Arizona Governor Doug Ducey’s signature. FinTech proponents also met late this week to discuss the measure and other state legislative efforts related to FinTech.

[Last year, the Milken Institute released a paper which discusses the pros and cons of regulatory sandboxes and how regulators and policymakers should approach FinTech.]

Elsewhere, the state of Wyoming earlier this month passed comprehensive legislation, comprised of five separate bills, providing greater regulatory clarity and certainty to blockchain and cryptocurrency firms. The National Law Review provides a breakdown of each bill.

At the federal level, the Joint Economic Committee released its annual economic report which, for the first time, mentions blockchain and cryptocurrency technologies. In fact, the report contains a chapter titled, "Building a Secure Future, One Blockchain at a Time." On blockchain, more generally, the technology and the possibilities it creates "present regulatory and legislative challenges for the Federal Government, including disparate treatment by the States." Among the list of regulatory recommendations, separate from the blockchain section, the report recommends that “the design of regulations generally should prioritize enhancing market function rather than attempt to impose preconceived outcomes.” In the blockchain section, the report focuses on the rapid rise in the price of certain cryptocurrencies, a general overview defining and describing what these technologies are, and the challenges presented by these emerging technologies. The recommendations call on the public and policymakers to become more familiar with these technologies; that regulators should continue to coordinate to ensure coherent policy frameworks; that industry, policymakers, and regulators continue to work together to ensure blockchain technologies can be deployed quickly "and in a manner that protects Americans from fraud, theft, and abuse, while ensuring compliance with relevant regulations"; and government (at all levels) consideration of how these technologies could make their processes more efficient.

As we discussed in our recent U.S. FinTech legislation report, a late insertion into the Senate banking bill (S. 2155), among FinTech-related legislation that we identified, includes a section covering the use of credit-scoring alternatives to expand access to mortgage credit. The Senate passed S. 2155 by a vote of 67-31, with 17 Democrats in support. The bill’s fate now rests in the hands of Rep. Jeb Hensarling (R-TX) who provided a list of 29 bills that he would like to see incorporated into S. 2155. As we’ve highlighted previously, there are three FinTech-related bills included in Hensarling’s list: HR 79, the HALOs Act; HR 1585, Fair Investment Opportunities for Professional Experts Act; and HR 3299, Protecting Consumers’ Access to Credit Act–“Madden Fix.”


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