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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 in Focus

By: Jackson Mueller
March 01, 2016
   
   

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The UK Crowns Itself King*
Step aside, Elizabeth! UK FinTech is now king of FinTech hubs around the globe. An EY report published during FinTech Week finds that the UK FinTech sector generated an estimated £6.6 billion ($9.2 billion) in revenue in 2015, with the country leading the pack that includes California, New York, Singapore, Germany, Australia, and Hong Kong. Of note, policy landscapes in the U.S., Hong Kong, and Germany were viewed as “more complex,” with California and New York, in particular, sitting dead last in the policy rankings. Meanwhile, Christopher Woolard, director of strategy and competition at the UK’s Financial Conduct Authority (FCA), and UK Economic Secretary Harriet Baldwin discussed the government’s work in promoting FinTech development, including Project Innovate, which has supported more than half of the 413 requests for assistance since its launch in October 2014. That initiative will also receive an upgrade this year as its focus turns international—officials intend to launch cooperative agreements with “key regulators” to allow UK-authorized firms to scale overseas and make it easier for foreign firms to enter the UK market.

*I’m a bit skeptical of analyses that compare countries with states or regions regarding FinTech trends. Indeed, the EY report did note that if U.S. FinTech hubs were consolidated, the nation would lead “by a considerable margin.” Separately, Innovate Finance released a report finding that the UK ranked second to the U.S. in the number of FinTech deals and third in total dollars invested, behind the U.S. and China. This provokes two questions: Is the self-coronation legal? And should I not be running victory laps chanting USA! USA! USA! in my Washington, D.C., office?

Game of Thrones
How long the UK retains its disputed title is in question. PWC, in a report focused on the need for evolution within the UK’s regulatory and legislative landscape to support FinTech, and EY, in an op-ed concerned with the lack of specialization in UK FinTech, have warned that the barbarians are at the gates. For instance, Hong Kong released its 2016-2017 budget, which includes efforts to develop FinTech and provide the right policies to stimulate entrepreneurship (pp. 17-20). The government’s steering committee on financial technologies, announced in March 2015, recently found (see report) that Hong Kong’s current regulatory regime is adequate for FinTech development. In Australia, the government has announced the formation of a FinTech Advisory Group to cement the country’s position as a FinTech powerhouse in the Asia-Pacific region. The committee first met last week.

Regulating FinTech—On the Global Agenda
Mark Carney, chairman of the Financial Stability Board, an international body composed of G-20 finance ministers and central bankers, made headlines after announcing that regulators are scrutinizing FinTech developments at the global level. In a letter to G-20 financial leaders, Carney remarked (p. 6) that the “regulatory framework must ensure that it is able to manage any systemic risks that may arise from technological change without stifling innovation.” The FSB is “also working to understand better the potential impacts on financial stability of operational disruption to core financial institutions or infrastructure.” Expect further clarity to emerge from the discussions as the FSB meets over the next two months to discuss its 2016 agenda.

The Home Stretch: Additional Headlines Worth Mentioning
Endorsed principles that will form the framework for the Australian Digital Currency Industry Code of Conduct, expected to be published in May, were released. On the blockchain front, JPMorgan is testing currency clearing and settlement using distributed ledger technology between its offices in London and Tokyo. Separately, banks that use the Ripple network could save up to 42 percent when conducting cross-border payments compared to current options. Speaking of payments, Venmo’s API will not be offered to new developers, according to a report, and Uber will launch its own digital wallet in India. Regarding online finance, marketplace lending platform Avant surpassed $3 billion in loan originations since inception, Goldman Sachs added a former attorney from the U.S. Consumer Financial Protection Bureau to its online consumer lending arm, and Facebook has apparently made it more difficult for online lenders to pull information from a user’s profile to determine creditworthiness. In the UK, nearly 90 percent of peer-to-peer firms have yet to receive FCA authorization—a necessary step for platforms to offer the Innovative Finance ISA product, which will launch April 6. Exactly how many platforms will be approved to offer the product is unknown at this point. Lastly, research from the London School of Economics finds that equity crowdfunding has “operated in a stable and predictable manner through its period of early emergence. The crowd invests in a rational manner, and we see no evidence of a stampede effect from investors.”

Mobile Money Update
Last week, GSMA—a trade association representing mobile operators around the world—released 2015 State of the Industry Report: Mobile Money. The report says that mobile money accounts are active in 93 countries, 51 of which have an enabling regulatory framework in place. Registered accounts rose to 411 million, with 134 million active in December alone. Active mobile money customers conducted roughly 11.2 transactions per month, with a median account balance of just under $5. The majority of mobile money providers (52 percent) reside in sub-Saharan Africa, but Latin America and the Caribbean are also seeing growth. However, the launch of new services “has been slowing each year,” the report notes. “In 2015, 13 new services were launched, compared to 30 services in 2014 and 58 services in 2013.” The report also focuses on registered agents. In 2015, “37 markets had 10 times more registered agents than commercial bank branches, up from 25 markets in 2014.”

FinF 3.1.16

 

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