FinTech in Focus
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Europe Responds to … Europe
You might recall that back in September 2015 the European Commission published a consultation paper calling for responses by the end of January covering the EU regulatory framework for financial services. The commission has posted the list of respondents on its website, and while a number of comments focus on regulatory issues that are complex and far above my pay grade, several focused in part on FinTech. For instance, the Association of the Luxembourg Fund Industry and others urged the Commission to adopt principles-based rulemaking to ensure regulation is flexible to address upcoming innovations. The UK treasury discussed the need for passporting regimes to “help further lower barriers to the free movement of capital and services” among other issues (see Chapter 8). Regarding payments, comments focused on the revised Payment Services Directive, and while most were supportive, there were concerns that bringing FinTech players into the regulatory fold could potentially downgrade “safety requirements that banks have applied since the beginning of payment services,” according to European Association of Co-operative Banks. Comments also focused on the entrance of “third country players and products” into the EU market which could be subject to “less stringent” regulation than their peers, according to the French Asset Management Association. A number of letters about blockchain technology expressed the view that regulatory gaps should not exist between FinTech firms offering decentralized post-trade services and incumbent securities settlement firms.
Telecom Arrangements to Propel FinTech? Finclusion?
Interoperability among telecom providers, especially those based in developing nations, has the potential to reduce friction in the mobile payments space and boost financial inclusion. In Tanzania, reportedly the top country for financial inclusion in sub-Saharan Africa, Vodacom became the fourth major telecom’s provider to join an interoperability agreement with Airtel, Tigo and Zantel, allowing subscribers to transfer money across the mobile networks. This makes Tanzania “the first country in the world to achieve full interoperability among its mobile network operators,” according to Bank of Tanzania Governor Benno Ndulu. In other telecoms news, Ericsson partnered with ASBANC to launch a mobile money service in Peru. The agreement represents an effort to move 2.1 million unbanked people into the formal financial system by 2019. Meanwhile, Vodafone and TansferTo have partnered "to enable real-time international money transfers to M-Pesa Mobile Money accounts worldwide."
Payments: Breaking Barriers and Inking Deals
Speaking of payments, Apple Pay finally landed in China on February 18 with partnerships with about 20 Chinese lenders. This has not been an easy process for Apple. Talks with the country’s main banks were reportedly stalled in early in 2015, due in part to concerns about Apple’s cut of each Apple Pay transaction. That concern has clearly remained a sticking point as it is now being reported that Apple Pay has reduced the share of its cut on each transaction in China as a compromise. And, since we’re focused on the Asia Pacific region, MasterCard unveiled a study concluding that one in five consumers now use digital wallets. Separately, Venmo announced its largest month ever with a total of $1 billion transferred in January, roughly 2.5 times the volume registered in January 2015. As for Samsung Pay, more than 5 million people in South Korea and the U.S. have registered to use the service, with $500 million worth of sales processed to date. Samsung Pay is expected to launch in China in March in partnership with UnionPay.
Marketplace Lending: Market Turbulence and Heightened Rates
Roughly two months after Lending Club raised interest rates to reflect the U.S. Federal Reserve’s recent decision to increase rates, Prosper announced that the company would raise its rates by an average of 1.4 percent. According to the e-mail sent to registered investors, Prosper stated that since August 2015 the firm has proactively raised “estimated loss rates and the price for risk in the loan products originated through the platform. We believe that these proactive moves will ensure that we continue to offer superior products to our investors.” Market turbulence is also affecting rates on low-quality loans, as Lending Club’s recent Form 8-K shows. The new rates, as identified by Compass Point Research & Trading, are 47 basis points higher, on average, than two months ago. Lending Academy, a website that tracks the peer-to-peer lending industry, addressed the concerns regarding Lending Club and Prosper hiking rates in a recent post, saying that while investors “may have seen some under performance in their portfolios, overall performance appears to be in line with expectations of each platform.”
Alternative Finance in the UK: 2015 in Review
Nesta and the Cambridge Center for Alternative Finance, which just received a $1 million donation from the CME Group Foundation, co-authored a report that offers a review of the UK alternative finance industry – now a £3.2 billion ($4.5 billion) market. While the report is worth a read, there are a few key takeaways worth discussion here. First, there is a lot of interest in real estate, which makes up 26 percent of equity-based crowdfunding and 41 percent of peer-to-peer business lending. Second, growth in the online alternative finance market is slowing from 20 percent between Q1 and Q2 to 12.2 percent in Q3 to Q4, which “suggests that the alternative market is beginning to consolidate.” Third, institutional funding is growing with 45 percent of platforms reporting “some level” of funding compared to 28 percent in 2014. And lastly, more than 90 percent of the respondents viewed current regulation as adequate and appropriate. The numbers are self-reported from the firms that took part in the survey, and, as a recent report found, this could lead to over reporting. Of course, you’re free to pick a side in this debate.
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