FinTech in Focus

April 12, 2016

FCA Publishes Its Business Plan, Australia Looks for FinTech Deals Abroad & Other Headlines

The UK's Financial Conduct Authority (FCA) has published its Business Plan 2016-2017 with innovation and technology listed as one of the regulatory body's seven priorities. Of note, Andrew Bailey, the former head of the UK’s Prudential Regulation Authority, will step in as CEO of the FCA this summer. In the release, the FCA said it was worried about risks to the consumer from the emergence of innovative platforms and also had concerns about firms’ use of third parties and innovations from beyond the FCA’s regulatory oversight. The FCA will also launch a "specialist advice unit," separate from its Project Innovate, “to give regulatory support to new automated advice models,” and will launch its Regulatory Sandbox initiative to “provide a leading example to regulators in other countries.”

Separately, the Australian Securities and Investments Commission is interested in seeking an agreement, along the lines of the recent Australia-UK FinTech partnership, with the Monetary Authority of Singapore.

And finally, U.S. Comptroller of the Currency Thomas Curry and Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, gave separate speeches focused on responsible innovation in the retail banking space and alternative forms of lending and the proliferation of consumer-facing applications that “may not always focus as intensely on security."

Online Banking and the Continued Decline of the Bank Branch

Two developments in the online banking space over the past week: First, Atom Bank, a UK-based digital bank, has launched via an app, becoming the first digital-only bank in Britain. With no retail branches, the bank conducts business through the app, referring customer inquiries to its 30-member service team and offering two savings products to start. On the heels of Atom Bank’s launch, Tandem Bank, which is expected to launch in the UK later this year, has received an equity investment from Omidyar Network–founded by eBay founder Pierre Omidyar–as part of the investment firm’s focus on financial inclusion. Meanwhile, Carlos Torres, CEO of Spanish-based banking giant BBVA, announced that up to 2,800 BBVA branches could close in Spain–the direct result of customers preferring online banking channels and technology startups.

Updates Covering Digital Currency and Distributed Ledger Technology

Circle Internet Financial has become the first digital currency company to be licensed in the UK, after its mobile money-transfer service, which relies on bitcoin to facilitate international money transfers between the U.S. and the UK, was approved by the FCA. What is interesting is that Barclays "is providing the account that Circle needs to store sterling for consumers, and the infrastructure to allow transfers from any UK bank account in and out of Circle," according to an article in Fortune.

Japan's Financial Services Agency is expected to hold meetings in May to discuss the potential for blockchain technology in the financial services space, while a working group within the Central Bank of Russia is expected to present the results of its research on blockchain technology in June. In other news, Microsoft has inked a deal with the R3 consortium focused on distributed ledger technology, seven firms successfully completed a blockchain test that replicated the trading of credit default swaps, and Wall Street’s next target is the $2 trillion repo market. And lastly, R3 continues to air its disapproval of public blockchains by claiming that such a system carries with it settlement risks, while Ripple’s Asia-Pacific chief, Dilip Rao, has downplayed the hype surrounding expected savings from moving to blockchain technology.

Online Lending & Digital Payments–Let's Cram the Headlines Together

Where to begin? If you recall back in December, the California Department of Business Oversight announced an inquiry into marketplace lenders. Last week, the department released some of the data that 13 online lenders submitted. Among the findings, the industry has grown 700 percent since 2010. Information was provided by Lending Club, Prosper Marketplace, Social Finance, Avant, Affirm, Funding Circle, Kabbage, OnDeck Capital, CAN Capital, Fundbox, Bond Street, PayPal and Square. Three of those lenders, Funding Circle, Lending Club and Prosper, joined together last week to announce the formation of the Marketplace Lending Association. (I published a blog post on this development on Friday.) In related announcements, online lender Avant has partnered with Regions Financial; Ldger successfully completed “the first platform-based, open secondary auction of its kind for marketplace whole loans”; Orchard Platform plans to launch the “first end-to-end, many-to-many electronic trading platform for marketplace loans”; and the Reserve Bank of India will prepare a concept note on peer-to-peer lending by the end of April. Meanwhile, the U.S. Securities and Exchange Commission has received applications from 30 platforms for Title III crowdfunding portals.

No, I did not forget about payments. Barclays Bank—the last holdout among the UK’s biggest banks—has joined Apple Pay. Amazon has been busy over the last week or so with announcements that it’s looking to acquire FinTech companies and plans to launch the Amazon Payments Global Partner Program. Meanwhile, MasterCard said the company was interested in working with Facebook and Twitter as the two social media giants move more into the payments space. And speaking of payments, Alipay has launched in Europe, extending the company’s reach to Chinese tourists flocking there.

And lastly, SWIFT has announced that 21 banks have “started the pilot for its global payments initiative” to improve pain points associated with correspondent banking. According to SWIFT, 51 banks are signed up to the initiative “to create a new service level agreement rulebook for cross-border payments.” Speaking of pain points, NACHA—an organization that manages and governs the ACH network in the U.S. —and the Electronic Payments Association released an infographic showing that U.S. financial institutions are ready for same-day ACH payments.

LendIt 2016

Yes, I have made it to LendIt in San Francisco (despite the two-hour flight delay, massive turbulence and being wedged into the middle seat). Trying to find me is like trying to pick out Waldo from the Where’s Waldo books. (I considered wearing the red and white hat.) Nevertheless, by the time of this release, there will have been a number of announcements made on the state of online finance. In particular, Fundera released its quarterly survey covering the state of small-business lending in the first quarter of 2016, which takes a deep dive into the platform’s millennial population and changes in the platform’s allocation of loan volume and APRs.

Separately, the Cambridge Centre for Alternative Finance and the University of Chicago Booth School of Business released their benchmark report on the alternative finance landscape in the Americas, which found that the industry grew to nearly $37 billion in 2015, with the U.S. making up the bulk of the transaction volume. The top three alternative finance models: marketplace/P2P consumer lending ($25.74 billion), balance sheet consumer lending ($3.09 billion) and marketplace/P2P business lending ($2.62 billion). Total transaction volume for rewards-based crowdfunding and equity-based crowdfunding totaled $658 million and nearly $600 million, respectively.