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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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FinTech: A new year, a promising future

By: Jackson Mueller
January 26, 2015
   
   

As we recover from the holiday season and finally usher out our in-laws, now’s the time to catch up with a number of FinTech-related headlines you may have missed.

Investment Soars in Europe and the United States. In 2014, FinTech firms raised more than $5 billion from venture capitalists in more than 300 deals—roughly double the amount in 2013. European FinTech firms raised more than $1 billion, while U.S. players tripled that. This scale of investment has not been seen since the dot-com bubble.

Separately, fundraising by the U.S. venture capital industry rose to more than $33 billion in 2014, marking the highest total since 2007. VC-backed initial public offerings hit a 15-year high.   In particular, California generated more venture funding than the rest of the U.S. combined. So much for entrepreneurial equality.

FinTech Goes Public. Two big IPOs debuted in December. Lending Club saw its share price climb 56 percent in opening-day trading, giving the company an $8.5-billion valuation—higher than all but 14 U.S. banks. Less than a week later, OnDeck Capital’s stock climbed 40 percent on its first day, giving the innovative small business lender a valuation of $1.3 billion and making it the largest venture-backed tech exit in New York City’s history.  

Payments Explosion. According to a recent report, two-thirds of global banks intend to invest in innovative payment technologies, including digital wallet and near-field communication, and nearly half the banks surveyed view technology that enables immediate payments as a top three priority. This shift in investment is driven by their customers’ increasing reliance on mobile phones to purchase goods and services. In fact, 5 percent of the 600 to 650 million phones equipped with near-field communication technology are expected to make in-store payments at least once a month in 2015—up from 0.5 percent in 2014.

In recognition of this trend, the U.S. Payments Security Task Force—which includes leading U.S. payment networks and merchants—released a report with recommendations for protecting cardholder data at a merchant’s physical or virtual point of sale. And the Federal Reserve just released a report identifying strategies for improving the U.S. payments system in response to technological change.

FinTech Moves East. We’ve discussed previously how the UK and, to some extent, the U.S., are promoting their FinTech industries and exploring alternative regulatory frameworks conducive to financial innovation. They’re not the only ones, however.

In December, the Australian Financial System Inquiry panel released a report that includes recommendations to the government on how to harness the potential of innovation for the financial system and the broader economy. One idea is the establishment of a public-private committee called “Innovation Collaboration” to “facilitate financial system innovation and enable timely and coordinated policy and regulatory responses.” The report also advises on facilitating crowdfunding, implementing graduated payments regulation, and improving the use of data.

South Korea’s Financial Services Commission (FSC) has also stepped up to the plate with plans to foster FinTech development by reducing regulatory red tape. In December, FSC Chairman Shin Jae-yoon stated: “From now on, we will push forward with a revolution in FinTech.” In separate comments, the chairman said the commission would “open support centers for the FinTech industry next year, so that we can provide consultation and financing for an entire process, from starting up to developing and launching.”

Giftwrapped Regulation. As expected, U.S. regulators handed out a few presents as the holidays neared, focused on digital currencies. In early December, the New York State Department of Taxation and Finance issued a technical memorandum pertaining to convertible virtual currency, or, as defined by the tax department, “virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency.” According to the release, sales of convertible virtual currency, such as Bitcoin, will not incur sales tax as they are “intangible property”—which reaffirms the Internal Revenue Service’s interpretation in its April release.

Separately, the Conference of State Bank Supervisors (CSBS) released its draft framework for the regulation of virtual currency activities in mid-December. The framework resembles the BitLicense proposal released by the New York State Department of Financial Services in July, which encountered substantial pushback from virtual currency supporters. The comment period on the CSBS draft will end February 16. It should be noted that while the framework will have no direct influence on state policy, the “guidance document” could be included in state legislation across the U.S.