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
April 03, 2018

The ABCs of the Future of Finance

“When bankers worry about the future, the fear is Big Tech, not FinTech.” So says Citi GPS’ new report, “Bank of the Future: The ABCs of Digital Disruption in Finance.” The report’s ABCs of digital disruption in finance are artificial intelligence, big tech, core banking & cloud computing, and digital assets. 

One thing that caught our eye is this two-by-two. The report argues that in emerging markets, big tech and FinTech are reimagining finance entirely. In developed markets, the report argues that FinTech is merely re-engineering finance. Emerging markets also stand apart from developed markets in their strong B2C focus. Indeed, 95 percent of VC investment in FinTech in Asia was B2C, compared to 40 percent in North America and 65 percent in Europe. 

The other big takeaway from the report is this—for incumbents to survive, there are four things they need. First, leadership needs to focus on digital transformation. Second, there needs to be a relatively simple mix of geography and product. Third, a deeper financial returns cushion must exist. Fourth, banking regulators and policymakers must be supportive of digital transformation in the financial sector. 

Re-Imagination vs. Re-Engineering 

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Source: Citi GPS

Is “Technopolitics” the New Geopolitics?

In The Economist’s March 15th briefing on the tech rivalry between China and the United States, they state that “To focus on individual companies is to miss the point.” Their argument is a good one. This week, KPMG’s report on “The Changing Landscape of Disruptive Technologies” shows that President Xi Jinping’s dream of China as a “science and technology superpower” is no mere dream. The report surveys 767 technology executives and discusses the global competitiveness for tech innovations. While 34 percent of those surveyed believe that the U.S. continues to lead in tech innovation, China is a close second at 26 percent. Perhaps, even more telling, a plurality of respondents believe that Silicon Valley will no longer be the epicenter of tech innovation by 2021, with Shanghai, China being seen by many as its likely successor.

There are many reasons to believe them. What Saudi Arabia is to oil, China is to data. Chinese firms have access to incredible reserves of the digital commodity, in many cases driven by the fact that the country is home to 20 percent of the world’s mobile phone users. China’s big tech firms already rival America’s in terms of market capitalization and are making their international ambitions known. President Jinping’s government is not only cheering on Chinese tech but is actively supporting it as well. According to Philip Ng, KPMG’s head of technology in China, tech innovation is a “national priority”—driven in part by landmark government initiatives such as Made in China 2025.

The United States has its own technological advantages, of course, and is no stranger to geopolitical maneuvering. Indeed, a recent paper by Jeffrey Ding, a graduate student at the University of Oxford, finds that it is unclear whether China or the United States is “winning” the AI arms race. Still, the race is on, and it is clear that tech innovation is driven by more than just market forces. Regardless of who is ahead at any given moment, we think it is safe to assume that “technopolitics” will be just as critical for understanding FinTech as geopolitics are to understanding global energy markets.

Some Headlines

Roboadvising: Wealthfront was in the news quite a bit over the past week. First, Bloomberg reported that Wealthfront’s valuation dropped by roughly a third in its most recent funding round. One of Wealthfront’s major backers, Tiger Global Management, is said to have bought $50 million in Wealthfront shares, but the headwinds facing Wealthfront show no signs of abating. Both Wealthfront and Betterment face stiff competition from incumbents who have finally caught up with the times and have been tinkering with their offerings as they calibrate their response. Wealthfront has faced some criticism for quietly changing its passive investment strategy, but Betterment has been making some changes as well. This week, Betterment announced the rollout of personalized portfolio management for clients with more than $100,000. Elsewhere, Vanguard announced a new partnership with Raisin, a startup based in Berlin.

Crypto: Telegram’s initial coin offering (ICO) is now expected to top $1.7 billion, according to Bloomberg. What could be more shocking than that? How about the fact that the $850 million it has already raised has come from just 81 investors. If that isn’t enough to make crypto-enthusiasts go wild, here is CEO Pavel Durov doing his best to be the anti-Zuckerberg. 

“Unlike other popular apps, Telegram doesn’t have shareholders or advertisers to report to. We don’t do deals with marketers, data miners or government agencies. Since the day we launched in August 2013 we haven’t disclosed a single byte of our users’ private data to third parties. We operate this way because we don’t regard Telegram as an organization or an app. For us, Telegram is an idea; it is the idea that everyone on this planet has a right to be free.”

Elsewhere, Cboe Global Markets urged U.S. regulators to allow cyptocurrency ETFs, arguing that they are the same as ETFs comprised of other commodities. Also on the regulatory front, the Financial Crimes Enforcement Network (FinCEN) sent an interesting letter to Senator Ron Wyden (D-OR) saying that cryptocurrency exchanges need to register with FinCEN as a money transmitter as well as comply with AML/KYC rules. 

Blockchain: This headline might just be the biggest wrinkle we’ve seen so far with respect to blockchain technology—“Bitcoin's Blockchain Contains ‘Hundreds of Links’ to Child Pornography.” A team of researchers in Germany found that about 1.4 percent of the transactions on the Bitcoin blockchain contain non-financial information, including links to child porn. Of course, the blockchain’s immutability means that anyone who downloads it is also downloading those links.

In other blockchain news, Google is exploring the application of blockchain technology in the cloud, while Deutsche Börse Group is planning to use it for securities lending. Finally, Everledger announced that it raised $10.4 million in a Series A funding round led by Fidelity Investments.

Payments: There were a ton of developments in the payments space this week, with more and more companies seeming to prioritize the space in their growth strategy. Let’s start with partnerships. 

Ripple and Santander announced that they will launch an international money transfer app based on Ripple’s blockchain technology. Initially, the app will launch in Spain, Brazil, Poland, and the United Kingdom. Bank of America (BofA) and PayPal, meanwhile, are streamlining their own services by allowing BofA customers to add multiple cards to their PayPal account directly from BofA’s mobile app. Affirm and Apple Pay are launching an online credit card that allows users to tap their iPhones to pay, which they hope will attract tech-savvy millennials.

Walmart and Tencent are now an item as well, in a blow to Alibaba. Walmart will be dropping Alipay in all of its western China locations and will replace it with Tencent-owned WeChat’s payment system.

In other payments news, WhatsApp is rolling out QR codes for Androids to support payments, Google Assistant is beating Amazon’s Alexa to the punch on voice-activated payments, and Uber is going Dutch, literally.

Digital Banking: There were a host of new products launched on the digital banking front as well this week. With an eye towards combatting fraud, Revolut has launched single-use virtual cards. Upon use, each card will be destroyed and another will be automatically generated in its place. Just across the Channel, France’s telecom giant Orange applied for a banking license in the West African Economic and Monetary Union in order to grow its digital banking footprint.

Incumbents made headway on their digital strategies as well this week. Citi, in keeping with its own recommendations in the ABCs of Digital Disruption report, announced that it will open its mobile app to non-customers and offer spending insights and a “360-degree view” of all the financial accounts of these non-customers. Meanwhile, a startup backed by BBVA, the digitally active Spanish bank, will launch the world’s first global bank account.

AltFi: PeerIQ’s quarterly online lending report is out, showing an overall strong performance for online lending. Our favorite quote from the report? “A specter is haunting financial services – the specter of Amazon.” Elsewhere in the United States, Mike Cagney’s new lending venture focused on “transforming home equity” is getting off the ground, and CommonBond raised $130 million from Fifth Third Capital and First Republic.

In India, Paytm has set its sights on peer-to-peer lending, and has reportedly applied for a license from the Reserve Bank of India. Finally, in the U.K., MarketInvoice announced that it will be working with Banco BNI Europa and Varengold Bank AG to lend $191 million to British businesses

Global Developments 


Nigeria: The Central Bank of Nigeria (CBN) and the Nigeria Interbank Settlement System (NIBSS) unveiled a regulatory sandbox—"Financial Industry Sandbox"—to facilitate digital innovation. The sandbox will be managed by the newly formed Financial Service Innovators Association of Nigeria (FSI), under CBN and NIBSS supervision.


The Australian Tax Office (ATO) published a consultation paper seeking to address the challenges and complexities of taxpayer compliance with virtual currency tax obligations. According to the release, the ATO "would like to work with the cryptocurrency community to better understand any practical compliance issues with: record keeping as it relates to cryptocurrency transactions and exchanging one cryptocurrency for another cryptocurrency." Public responses are due by April 20.

The Australian Banking Association (ABA) submitted a response to Australian Treasury regarding the Farrell report on open banking. "The ABA supports transaction data being transferred for free when the transferee is limited to using that data for the direct use case. For example, if a customer consents for their transaction data to be transferred to a third party for the direct use case of comparing a new loan product and limits the transferee’s right to use that data for that purpose only, then no charge should be levied on either the third party or the customer.” However, “[i]n the cases where customers provide consent for unrestricted use cases, the transferee is likely to be able to gain value for that data beyond the use that directly benefits the customer. For example, the transferee may be able to derive significant value through segmentation and aggregation insights, which it can then recoup through selling those insights. This is beyond the objective of open data and the ABA believes that further consideration should be given for an economic model in the case of data transfer for unrestricted use cases.” Lastly, “ABA members do not believe that a 12 month implementation period from the Government‘s announcement of an open data regime is feasible. This would not provide sufficient time for standards and rules design, and the subsequent technology build that requires the standards and rules before it can begin.”

On the roboadvice front, the Financial Services Institute of Australia (FINSIA) submitted comments to the Australian Productivity Commission’s draft report, “Competition in the Australian Financial System.” According to the comments, FINSIA stated “that the term ‘general advice’ as currently defined in the Corporations Act has the potential to mislead consumers.” Further, “[w]here fintechs or incumbents provide advice through roboadvice tools, they should demonstrate a comparable level of competence to skilled individuals who provide personal financial advice and likewise be bound by a code of professional conduct.”


China: The China Banknote Blockchain Technology Research Institute launched a blockchain-as-a-service (BaaS) platform (Blockchain Registry Open Platform, BROP) for identity and supply train tracking. As CoinDesk reports, “the research institute operates as a fully state-owned subsidiary of the China Banknote Printing and Mining Corporation under the oversight of the People's Bank of China (PBoC), the country's central banking authority.”

Hong Kong: The Securities and Futures Commission (SFC) published consultation conclusions on proposed guidelines on online distribution and advisory platforms. On the role of algorithms in roboadvice and whether/to what extent additional information should be provided on how the underlying algorithms operate, the SFC stated that it is “important for clients to understand how investment advice is generated and how algorithms are used to manage their accounts. Information provided to clients should include the limitations of the robo-adviser’s services and how and when the algorithm might rebalance a client’s portfolio. We do not expect platforms to go into the technical details of the algorithms. The focus of the requirement is that clients are provided with information which enables them to assess whether to use the services of the roboadviser. Disclosures must be clear and easy to read. Overly technical terms should be avoided.” 

Japan: The Singapore FinTech Association (SFA) signed a Memorandum of Understanding (MoU) with the FinTech Association of Japan. Separately, Hong Kong-based cryptocurrency exchange, Binance—the largest cryptocurrency exchange by trade volumereceived a warning from Japan's Financial Services Agency (FSA) about failing to register with the regulator in offering services to Japanese citizens. At the same time as the warning, the company announced that it was moving its headquarters to Malta after struggles with Hong Kong and Japanese regulators. 

Malaysia: Deputy Governor of the Central Bank of Malaysia Puan Jessica Chew Cheng Lian gave prepared remarks at the 2018 Asian Banker Digital Finance Convention. On Open APIs, Chew stated that over the last five years “publications of APIs in the financial sector have increased exponentially, with an estimated 200 new APIs published every year. In a survey that we conducted earlier this year, more than half of banks and insurers in Malaysia indicated plans to roll out open APIs in the near to medium term. At the industry level, the Bank has established an open API implementation group with members drawn from the industry, fintech community and key stakeholders to develop open API standards for the financial sector as part of efforts to broaden access and promote innovation and competition.”


European Union: The European Union's Regulatory Technical Standards for strong customer authentication entered into force on March 14. After an 18-month transition period, the regulation will apply beginning September 14, 2019. 

Separately, on March 28, the European Commission released a proposal to make cross-border payments in euros cheaper across the entire EU. According to the press release, the proposal "aims to extend this benefit to people and businesses in non-euro countries. This will allow all consumers and businesses to fully reap the benefits of the Single Market when they send money, withdraw cash or pay abroad. All intra-EU cross-border payments in euro outside the euro area will now be priced the same – with small or zero fees - as domestic payments in the local official currency."

Current Costs of Cross-Border Bank Transfers

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Source: European Commission

France: In an op-ed, Finance Minister Bruno Le Maire announced that the country plans to create a legal framework for ICOs, cementing the country as a hub for ICOs. What’s most amazing about all of this is that former central bank official Jean-Pierre Landau is nicknamed “Monsieur Bitcoin” in France.

Ireland: The country's finance department published a discussion paper on virtual currencies and blockchain technology. According to the press release, the paper “comprises an overview of virtual currencies and the blockchain technology supporting them; summarizes actions taken by selected countries around the world; and sets out the key risks and opportunities these technologies present. The discussion paper concludes with a recommendation to establish an internal working group to coordinate the Department’s engagement in this area, both locally and abroad.” 

Switzerland: The finance regulatory authority, FINMA, released its annual report for 2017 earlier this week. According to the report, the regulator received more than 450 FinTech inquiries last year, the bulk of which were about blockchain applications, cryptocurrencies, and initial coin offerings. Page 38 of the report focuses on FINMA's efforts on FinTech and digitalization.

U.K.: The Bank of England has launched a FinTech hub. According to prepared remarks by Deputy Governor for Markets and Banking Dave Ramsden, the FinTech hub "will be a central point of contact for the fintech sector to engage with the Bank, and will play an active role in the new HMT/FCA/Bank taskforce. And it will engage with you to understand and apply these developments to support the next wave of innovation in finance, and ensure that the UK has the right infrastructure to support that into the future." The FinTech hub builds on the success of the FinTech accelerator, according to Ramsden.

Meanwhile, the States of Jersey announced that the government selected U.K.-based platform, Yoti, as the government's digital ID provider. According to the press release, "Yoti will work with the government’s technical team to build their service into the States of Jersey’s technology systems. The ID verification service will be accepted by government as a means of identification from May, and will be promoted for islanders to use with online government services as they become available."

Middle East 

UAE: The Dubai International Financial Centre (DIFC) announced important FinTech developments, including welcoming five new startups to its accelerator—including the first InsurTech and RegTech firms.

North America

Canada: In mid-March, the National Crowdfunding & FinTech Association (NCFA) participated in a call with Finance Canada "to discuss it's latest submission calling for an urgent need for regulatory changes and government support" to ensure the Canadian FinTech sector remains competitive with international peers. Among the challenges cited, NCFA stated that the regulatory regimes in Canada are not harmonized and are overly complex. Appendix 2 provides a look at the jurisdictional complexity as it relates to crowdfunding. 

U.S.: The Internal Revenue Service (IRS) issued a reminder to taxpayers "that income from virtual currency transactions is reportable on their income tax returns." Speaking of virtual currency transactions, the Treasury Department's Office of Foreign Assets Control (OFAC) included five frequently asked questions (559-563) as they relate to virtual currencies and sanctions compliance.

Separately, the Government Accountability Office (GAO) released a report on FinTech and made 16 recommendations, calling on regulators to improve interagency coordination on FinTech, address competing concerns on financial account aggregation, and evaluate whether it would be feasible and beneficial "to adopt regulatory approaches similar to those undertaken by regulators in jurisdictions outside of the United States." The document itself is yet another “wake up call” to regulators and policymakers on how difficult it can be for startups (and mature firms) to navigate the U.S. financial regulatory apparatus (state and fed). For those of you on Twitter (sorry, I deleted Facebook), you can see our quick review of some of the report’s findings.

South America

Brazil: The country's antitrust watchdog announced an investigation into Brazilian banks and whether they are blocking competition by FinTechs in the credit card business space.


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