FinTech in Focus
In the wake of the recent attacks in Paris, which are estimated to have cost less than $10,000 to carry out, officials worldwide are looking to clamp down on alternative payment methods, virtual currencies in particular. Jennifer Shasky Calvery, director of the U.S. Treasury’s Financial Crimes Enforcement Network, said it was not surprising that ISIS might be “interested in using emerging payment technologies” on top of traditional ways of moving funds. Former Federal Reserve Chairman Ben Bernanke, in a recent interview with Quartz, suggested that government officials enhance their oversight of virtual currencies due to their anonymity and use for illicit means. Australian Federal Police Commissioner Andrew Colvin recently remarked that today’s terrorists are “using the same products and services that are making banking convenient for all of us.”
In a draft document obtained by Reuters, European officials are looking to “strengthen controls of non-banking payment methods such as electronic/anonymous payments, money remittances, cash-carriers, virtual currencies, transfers of gold or precious metals and pre-paid cards in line with the risk they present.” Similarly, Interpol held its sixth annual Global Focal Point Conference on Asset Recovery last week to discuss, in part, digital currencies and the “dark Web” while finance ministers from G7 nations met to discuss the regulation of FinTech firms during the G20 meeting in Turkey. In addition, Japan is discussing new rules targeting virtual currencies after the collapse of the Mt. Gox bitcoin exchange in 2014.
Banks and FinTech: Friends or Foes?
During an interview with American Banker, new American Bankers Association Chairman Daniel Blanton discussed potential partnerships with tech companies and the increasing threats to banks’ business models. Partnerships between banks and FinTech firms have become more commonplace, but that is not to suggest that this relationship is cordial. In fact, banks have voiced worries about lax security standards among financial technology firms, including third-party payment providers, while FinTech firms are clamoring for regulatory certainty and clarity.
Blockchain Consortium Grows to 30 Global Banks
R3, a financial innovation firm focused on the use of blockchain technology in financial markets, just announced five new banks to its initiative, bringing the total membership to 30. R3’s initiative has grown considerably when the firm announced the first nine members back in September. The firm also announced the formation of a new team to design and develop the distributed ledger technology in coordination with its member banks. The team includes Tim Swanson, who recently wrote a report asserting that “a public, distributed ledger (such as Bitcoin) that secures off-chain assets cannot be both censorship-resistant and legally authoritative.” Separately, the Institute for International Finance released a report on the benefits and potential of blockchain technology as well as the possible challenges the technology poses for regulators and officials. As banks, technology firms, regulators and others continue to experiment and review the technology, it should be noted that the innovation is coming up against a decades-old U.S. payments system that is ill-suited to deal with vastly reduced trade settlement times.
Payments Over the Holidays
Apple Pay for your ham, Samsung Pay for your turkey, or maybe feed the family with new tokenized cards? We are sure to see a number of payments surveys released during and after the holidays. For example, an INSIDE Secure survey found that 17 percent of U.S. consumers who did not make holiday purchases last year using a mobile phone plan to do so this year. That number is likely to rise given the recent switch in the U.S. to EMV-compliant technology and the lack of familiarity with using chip-enabled cards for purchases. Speaking of digital payment methods, American Express recently unveiled its NFC, HCE and tokenization platform, LG is reportedly nearing the launch of LG Pay in South Korea (adding yet another mobile payments provider to an already crowded marketplace), and PayPal is looking at ways to derive revenue from Venmo, the payment service millennials love.
OnDeck recently released updated estimates of the economic impact of its lending in the U.S., showing that the first $3 billion in loans to small businesses resulted in $11 billion worth of business activity and the creation of 74,000 jobs. Separately, Orchard Partners struck a partnership with Bloomberg to provide the Orchard US Consumer Marketplace Lending Index. And speaking of partnerships, LendingRobot and Funding Circle announced a partnership to effectively extend LendingRobot’s automated trading across Funding Circle’s platform, while Canadian Imperial Bank of Commerce partnered with Thinking Capital to expand its small business lending in Canada through an innovative online solution called Rapid Financing—the first such partnership between a major Canadian bank and a FinTech firm.
Lest we forget, Fundrise said last week that it launched a real estate investment trust (REIT) to invest in U.S. commercial properties. The $50 million REIT marks the largest Regulation A+ offering to date. And as the U.S. waits for equity crowdfunding rules to take effect, a recent report from Nabarro and AltFi Data finds that of the 367 companies that have raised equity through the top five UK crowdfunding platforms since 2013, roughly 28 percent show signs of financial difficulty or have failed. And the internal rate of return from equity crowdfunding investment across the platforms studied was 2.17 percent.
Please contact Jackson Mueller with suggestions or recommendations for improving FinTech in Focus.