FinTech in Focus
FinTech in Focus is available via e-mail, arriving in your inbox every Tuesday. If you would prefer to receive our weekly highlights in your inbox rather than wait for us to tweet out the post, please sign up today by selecting the “FinTech in Focus Weekly E-Newsletter”. As always, please contact Jackson Mueller with any questions.
April Fool's Day
I would like to thank those of you who published FinTech April Fool’s day articles, which completely threw me (and Google Alerts) off. As a result, I was left staring at certain articles for long-periods of time trying to understand why the UK Financial Conduct Authority’s application process for online platforms to receive full authorization is going smoothly, for instance, when this is clearly not the case, and why Kickstarter had to resort to crowdfunding to save itself from insolvency. (Rick Astley continues to frustrate me!)
Separately, and this was not an April Fool’s joke, U.S. Commodity Futures Trading Commissioner Christopher Giancarlo seemed to suggest that if distributed ledger technology had been available during the depths of the financial crisis, regulators could have “reacted sooner to Lehman Brothers’ deteriorating creditworthiness,” possibly preventing the bank’s collapse. Others disagreed. And, since we are focused on distributed ledger technology, Ethereum announced a partnership with R3CEV, a blockchain consortium of large global banks, on Lizardcoin — a direct competitor to Bitcoin.
Payments & Online Finance
On the payments front, the shift in the U.S. to Europay, MasterCard and Visa (EMV) chip technology resulted in an increase of 80 percent to 100 percent in online fraud during March. Separately, Google said adios to its Wallet Card — a physical debit card tied to a Google Wallet account — and will focus instead on turning Google Wallet into a premier application for online person-to-person payments.
A new online lending coalition focused on small business lending was launched in Washington D.C. The Coalition for Responsible Business Finance includes Breakout Capital, Fundation, Business Backer, Paynet and Orion First. Meanwhile, online lender Avant launched a consumer auto loans product, and added former U.S. Federal Deposit Insurance Corp. Chairwoman Sheila Bair to its board of directors.
State Regulatory Update
Within the past week, two state securities regulators issued reports on FinTech consumer and investor protection issues. In an update on its Consumer Financial Protection Initiative, Pennsylvania’s Department of Banking and Securities reiterated its commitment to promoting an “awareness of the complexities and risks of new, innovative financial services and products dubbed ‘fintech,’ including crowdfunding, virtual currencies, the blockchain and marketplace lending.” The Massachusetts Securities Division published a policy statement warning that “fully automated robo-advisers, as currently structured, may be inherently unable to carry out the fiduciary obligations of a state-registered investment adviser.” And speaking of robo-advisers, Betterment just secured $100 million in venture capital, Fidelity began testing its robo-advisery service with clients, and Wealthfront moved to 3.0, which includes a new dashboard and incorporates artificial intelligence to help manage the platform’s $3 billion in assets.
Federal Regulatory Update
At the federal level, FinTech nerds such as myself waited in anticipation for the U.S. Office of the Comptroller of the Currency (OCC) to publish the white paper Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective. The paper sets forth eight principles that will guide the OCC’s development of a framework for responsible innovation. Based on prepared remarks from Comptroller Thomas Curry, as well as takeaways from the white paper, the OCC should be commended for publishing a thoughtful piece covering its expectations. The OCC has also asked for comment from interested parties and has provided a list of questions at the end of the paper. Comments are due by the end of May.
In a speech at Stanford University, U.S. Securities and Exchange Commission Chair Mary Jo White focused on innovation in the financial marketplace, touching on valuations of privately held companies — unicorns in particular — saying “there is a worry that the tail may wag the horn, so to speak, on valuation disclosures.” White raised the question of whether and how robo-advisery firms meet their obligations under the Investment Advisers Act of 1940, before turning to marketplace lending where she stated that the SEC expects “that investors will receive disclosures about the loans underlying their investments, including information about the borrowers as well as the platform’s proprietary risk and lending models” to allow investors to make informed investment decisions.
Enjoy the Weekend? Good. Here Are Some Reports
Last week, an insane number of reports about FinTech were published. I’ve summarized a few below:
A report co-authored by PayPal, Inc., the Cass Business School and Sidley Austin LLP examines loan data from PayPal Working Capital (PPWC) and Kiva Zip to explain how innovative technologies applied to SME lending are helping to fill the SME financing gap left by departing financial services incumbents. In particular, roughly one-quarter of PPWC loans “were disbursed in the 3 percent of counties that have lost ten or more banks since the 2008 financial crisis,” while more than half of Kiva Zip loans go to women-owned businesses and more than 63 percent to minority-owned businesses.
The Federal Reserve published its annual Consumers and Mobile Financial Services report which looked into U.S. consumer use of mobile devices to access financial services. Not surprisingly, the use of mobile banking continues to rise, with 43 percent of mobile phone owners reporting that they had used mobile banking, up from 39 percent in the Fed's 2014 study. However, mobile payments "continues to be less common than the use of mobile banking." Nearly 25 percent of respondents reported making a mobile payment in the 12 months prior to the survey. "The primary reason non-mobile-payment users gave for not using mobile payments was that they believe it is easier to pay with cash or credit/debit cards (80 percent)," according to the report.
Citi’s report Digital Disruption: How FinTech is Forcing Banking to a Tipping Point found that the growth of FinTech could result in up to 2 million banking job cuts. Roughly 70 percent of all FinTech investment to date is concentrated around personal/SME business segments, according to the report. The report contains a number of statistics covering a few FinTech verticals and is well-worth a read.
Please contact Jackson Mueller with suggestions or recommendations for improving FinTech in Focus.