FinTech in Focus

April 27, 2016

Millennials: Save as Many as You Can

Yes, the generation that I am proud to represent and that is arguably the driving force behind many of the changes occurring within the financial services space, is under a lot of pressure. Sure, you could say that I am once again turning into a whiny Millennial, and you may be correct. However, when you consider the fact that we're now the largest generation and occupy the largest share of the U.S. workforce, then it is important to note the alarming findings of recent research. In a study conducted by the Bureau of Labor Statistics, 30 percent of individuals by the age of 29 had received a bachelor’s degree. Meanwhile, young adults held on average seven jobs between the ages of 18 to 28. Beyond employment and education, we’re also more financially stressed out than any other generation, according to a recent PWC study. Nearly every year-over-year comparison chart shows the Millennial generation doing worse than the prior year. For instance, more than half of us carry balances on our credit cards, and 40 percent of Millennials report finding it difficult to pay the required minimum payment on a credit card, which is 10 percent higher than in 2015. And more than one-third of Millennials are distracted at work due to financial stress — a 15 percent increase over 2015. To conclude, please, someone, find me a positive study on Millennials.

UK Treasury Consultation on FinTech and Other Regulatory News

Last week, the UK Treasury released a consultation paper “to set out ongoing and proposed work to foster a supportive regulatory framework for financial services that allows innovation to flourish.” Beyond the fact that Treasury dubs the UK as the “world-leader in FinTech,” which, as an American, I highly disagree with, the consultation provides an overview of UK regulatory authorities work on fostering innovation in the UK market and, among the questions raised, asks whether regulators understand the innovation occurring in financial services and potential areas where new technologies might arise.

In mainland Europe, Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, concluded his trip in Finland where he met with a number of representatives to focus on FinTech, in particular. Meanwhile, Luxembourg, a country unafraid of showcasing its FinTech prowess, granted European bitcoin exchange Bitstamp a license to be regulated as a Payment Institution and allowing the exchange, as of July 1, to offer its services across the EU-28 member states.

M-Pesa Hits Milestone, Faster Payments Hits the Throttle in the U.S., and Asia Developments

Earlier this week, Vodafone announced that the much cited mobile money transfer service M-Pesa has surpassed 25 million users across Africa, Asia and Europe. The service currently operates in 11 countries and is supported by more than 260,000 agents.

Meanwhile, as we get closer to the Milken Institute Global Conference and the Speed of Money panel, which yours truly will moderate, a couple of things to note. First, the “United States’ first-of-a-kind, real-time payments system, available to all financial institutions, is nearing reality” with the announcement by FIS and The Clearing House of preparations to launch a pilot beginning in 2017 that will bring payments that settle and clear in real-time to participating institutions. The two firms, who are part of the Federal Reserve’s Faster Payments Task Force Steering Committee, also submitted a joint proposal on their real-time payments system to the Task Force on Friday. In other news, a new study has found that NACHA’s — the body governing the ACH network in the U.S. — move last May to support same day ACH could result in a heightened risk of fraud for U.S. financial institutions. According to the survey, more than 90 percent of institutions surveyed expect new threats to emerge as a result of the shift to same-day ACH and more than 50 percent lack the appropriate fraud protection tools to handle such transactions.

Lastly, Apple Pay is now available in Singapore through a partnership with American Express, though Apple did state that the service will be made available to other cards soon. Elsewhere, Ant Financial, which spun off from Alibaba back in 2011 and which operates AliPay, is expected to go public this year. Ant Financial has the potential to become the largest IPO in China within the last six years. And Tencent, operator of WeChat, is looking for an additional $2 billion loan for acquisition and expansion purposes on top of a previous $1.5 billion loan secured in November.

A Black Eye for Online Lenders in the U.S. and China

Well, here’s one way to potentially correct China’s peer-to-peer lending troubles — suspend firms with finance-related names or businesses from registering with local offices and force them to register through China’s financial regulators.

Meanwhile, in the U.S., the Consumer Financial Protection Bureau released findings from 18 months’ worth of transaction data from more than 330 lenders. According to the Bureau, half of all accounts "have at least one payment request that results in overdraft or failure due to [non-sufficient funds (NSF)," and the accounts "are charged an average of $185 in overdraft and NSF fees by their institution on attempted payment requests from online lenders during the 18 months." As stated further in the study, payment requests from online lenders can occur more than once a day, with nearly 35 percent of online payday payment requests occurring “on the same day as another request by the same lender.”

In other news, marketplace lenders are facing more legal headwinds as a borrower complaints cite criminal usury violations and civil provisions under the Racketeer Influenced and Corrupt Organizations Act (RICO). Lending Club, which was named in the proposed class action lawsuit, also increased loan loss projection rates by 23 basis points in an updated 8K filing with the U.S. Securities and Exchange Commission.

On a less somber note, as Lending Club and others look to re-embrace retail investors, a presentation given by Brian Korn of Manatt at LendIt suggests that marketplace lenders could use Reg A+ under Title IV of the JOBS Act. And lastly, could GS Bank become the launchpad for Goldman’s online lending ambitions? Of interest, Stephen Scherr, Goldman’s chief strategy officer, acknowledges that the new funds could support Mosaic.

Morgan Stanley Foretells Blockchain’s Potential

Before we get into the report published by Morgan Stanley there are a few quick headlines that merit attention. The U.S. Department of Defense is looking to create an encrypted messaging system built on the blockchain, while Standards Australia is advocating for the International Organization for Standardization to prepare global standards for the blockchain. Separately, SWIFT and Accenture identify critical factors leading to the adoption of distributed ledger technology, while MIT goes beyond the blackboard to form a partnership with Ripple.

Getting back to the Morgan Stanley report, it provides a roadmap for the adoption of distributed ledger technology by financial institutions. In short, by 2020 Morgan Stanley expects to see the emergence of shared infrastructure, with more assets moving onto the blockchain between 2021 and 2025 "as efficiencies prove out." As can be seen below, however, significant hurdles exist. The report also corrects a few misconceptions regarding permissioned vs. permissionless networks and real-time settlement, for instance. According to the research, the firm buys "into the concept that distributed ledger has the potential to help reduce the costs of post-trade activities dramatically," yet, as stated further on, "it may not be quite as radical as some hope."

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