Murphy Dan
Dan Murphy
Senior Associate, FinTech Program, Center for Financial Markets
Capital Access and Europe and Finance and FinTech and U.S. Economy
Dan Murphy is a senior associate at the Milken Institute’s Center for Financial Markets. He focuses on FinTech and access to capital issues. Prior to joining the Institute, Murphy was a policy fellow at the Democratic Senatorial Campaign Committee.
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FinTech in Focus

By: Dan Murphy
September 10, 2018

In this issue:

Industry Headlines »

Global Developments »

Mike Piwowar joins the Center for Financial Markets

Last week, the Milken Institute announced some exciting news of our own. Dr. Mike Piwowar, a longtime commissioner of the Securities and Exchange Commission (SEC) and a respected economist, joined the Institute as the new executive director of the Center for Financial Markets. Mike served as a commissioner of the SEC from 2013 to 2018, and as acting chair in 2017. Previously, he was the chief economist on the Senate Committee on Banking, Housing, and Urban Affairs, where he played a key role in developing policies to recover from the 2008 financial crisis, including the Dodd-Frank Act and the JOBS Act. Prior to his time in the Senate, he was a senior economist at the President’s Council of Economic Advisers (CEA) in both the Barack Obama and George W. Bush administrations.

Mike has weighed in on FinTech issues before, including at the Milken Institute’s Global Conference this past April. Upon joining the Institute, he stated, “As a nonpartisan think tank, the Milken Institute’s talented staff and distinguished fellows are highly regarded for conducting programs and fostering policies to support the development of capital markets that broaden economic opportunity and financial inclusion. I am pleased to bring my experience from the SEC, the White House, Congress, and academia to lead the Institute’s efforts in these areas.” We’re incredibly excited to welcome Mike aboard!

Disappointing Ledger Technology (Part 2)

In previous editions of FinTech in Focus, I have written skeptically of much of the blockchain and cryptocurrency hype. While cryptocurrencies have spent 2018 in a long fall from grace, blockchain still retains much of its original appeal. Somewhere along the way, a consensus emerged that while much of the activity in the cryptocurrency space is cause for concern, blockchain’s promise is not to be questioned. Last week, The Economist seemed to dispute this consensus. Their quarterly technology report not only goes out on a limb to call Bitcoin and other cryptocurrencies “useless”, but also points out that blockchain’s promise is often oversold, and its success stories fall short of the hype.

The report is careful to note that unlike its assessment of cryptocurrencies, blockchain is not “useless.” This is true, and the report discusses several of the technology’s more promising use cases. Still, the report is correct to note that “most attempts to use it remain tentative.” PwC’s recently released Global Blockchain Survey perhaps puts it best by noting that no one wants to get left behind. However, a quick look at the survey’s results reveals that something else is equally true: few firms are confident enough to get very far ahead. Two-thirds of the firms surveyed are either still in the research or development phases with blockchain or aren’t looking into it at all.  Moreover, an additional 7 percent of firms reported that they have paused their pilot projects.

This might not be entirely blockchain’s fault. PwC’s survey also found that regulatory uncertainty, for example, is a significant barrier to adoption. Still, it might be time to temper your expectations for blockchain. The Economist is not wrong to note that the obvious way to think about blockchain is simply as a database. Databases are useful, but after all we’ve heard, the analogy feels underwhelming.

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Industry Headlines

AltFi: Funding Circle, one of the leading peer-to-peer lending platforms out of the United Kingdom, announced last week that it would go public on the London Stock Exchange. The lender aims to raise $387 million and has secured Heartland A/S as a buyer for about 10 percent of the issued shares. Since Funding Circle was launched in 2010, it has generated £5 billion in loans to small businesses. Elsewhere, Indonesia’s ride-hailing and payments company Go-Jek will partner with three peer-to-peer lenders, Findaya, Dana Cita, and Aktivaku.

Big Tech: Google announced last week that it would offer loans to Indian consumers in a partnership with four Indian banks, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, and Federal Bank. The loans will be made within the Google Pay app, which is among the many payment apps competing for market share in India.

Blockchain & Crypto: The World Bank is claiming to have issued the world’s first blockchain-only bond. According to the Bank, the bond is the first to be “created, allocated, transferred and managed through its life cycle using distributed ledger technology.” That claim is not undisputed, however. As noted by Fortune, several smaller firms have previously issued blockchain bonds. Meanwhile, a recruitment firm reports that the number of blockchain related jobs in Asia has increased by 50 percent since this time last year, despite cryptocurrency’s struggles.

Speaking of cryptocurrency, it’s been a bit of a bumpy ride once again. On news that Goldman Sachs was ditching its cryptocurrency trading plans, Bitcoin and other cryptocurrencies dropped precipitously. At the time of writing, however, Goldman CFO Martin Chavez is calling these reports “fake news.” Meanwhile, Japanese messaging app Line is launching its own cryptocurrency called Link. Link will be given away for free to Line users and can be used to purchase stickers and other features on the Line app. Finally, Square received approval from the U.S. Patent and Trademark Office for a cryptocurrency payment network patent.

Data Security: While we were away,Fiserv fixed a glitch in its software that exposed customer data. The glitch was noticed by a security researcher while checking email alerts for activity on his account. The researcher realized that simply by changing the case number of the alert in his browser, he was able to see another customers email address, phone number, and bank account number. A Fiserv spokeswoman said that upon being alerted, Fiserv “promptly developed a patch to update the feature, deployed the patch to clients using the feature and completed testing to confirm the issue has been fully resolved.”

Digital Banking: Last week brought very big news for digital banking in the United States, as challenger bank Varo Money received conditional approval on its application for a national bank charter from the Office of the Comptroller of the Currency (OCC). This application, it should be noted, is separate from the OCC’s much discussed FinTech charter and would make Varo the first all-mobile national bank in the history of the United States. Upon news of the approval, Varo CEO Colin Walsh stated, “This is a historic moment and marks the start of a new era in banking. We founded Varo because we saw that banks weren’t serving the majority of their customers very well, and we wanted to fix that. So we decided to build a bank from the ground up with the goal of improving consumers’ financial health through better technology and a more efficient business model.”

Varo Money is also a member of the Milken Institute’s FinTech Advisory Committee, which we launched back in June. We are very excited to see Varo take such an important step, and look forward to their continued input on the Advisory Committee.

Elsewhere, Starling, one of several challenger banks vying for market share in the U.K.,  will work with the Royal Bank of Scotland (RBS) to develop its own digital bank. This news came from a letter to RBS shareholders and closely follows on news that Starling will partner with Raisin, a German FinTech for savers.

Payments: The big news in payments this week is that Warren Buffett will take a $300 million stake in Paytm’s parent company, One97 Communications. Paytm, though locally grown in India, has attracted a significant amount of foreign investment from. SoftBank and Alibaba both already own significant stakes in the company. Buffett was not the only American making headlines on the subcontinent, however. Amazon announced that it acquired data aggregator Tapzo in an effort to bolster its own push into India, while Google rebranded Tez to Google Pay, and then announced that they would offer loans directly on the Google Pay app (as discussed above).

Meanwhile, Costco announced that they would begin accepting Apple Pay and World Remit announced the launch of a new digital money transfer service within Africa.

Wealth Management: Several incumbents made news in wealth management while we were away. First, J.P. Morgan announced that they would offer 100 free stock or ETF trades for the first year to clients through their app, and unlimited trades to those with Chase Private Client. UBS, meanwhile, announced they would sell their SmartWealth platform to SigFig. A UBS spokesman stated that while they were satisfied with its progress thus far, it’s near-term potential is “limited.”


 Global Developments

Australia: The Reserve Bank of Australia made headlines last week when Assistant Governor Lindsay Boulton said a coordinated approach to digital identity was needed in order to ensure security and efficiency. Boulton also stressed that Australia’s New Payments Platform and open banking initiatives were key projects for driving innovation in financial services.

China: Chinese authorities continue to crack down on rogue segments of the FinTech industry with the People’s Bank of China (PBOC) cautioning investors last week to take care when investing in blockchain companies. The PBOC states that many firms’ technologies “are not really based on blockchain technology but are hyping the blockchain concept to raise funds illegally.” Meanwhile, China’s Financial Stability and Development Commission (FSDC) is expediting regulations to curb risk in online lending and ensure market stability.

All is not doom and gloom for FinTech in China, however, according to PBOC data. The central bank’s data shows that mobile payment volume in China is up by 73 percent from this time last year.

India: The Reserve Bank of India announced that they are researching the feasibility of launching a central bank digital currency (CBDC). This comes amid rising costs in the subcontinent for minting new cash. Relatedly, the Bank’s annual report was released recently and covers a number of interesting issues. Among them is whether or not its crackdown on cryptocurrencies may be pushing the industry even further into the “shadow economy” than it already is.

Meanwhile, the Unique Identification Authority of India (UIDAI) announced that they would extend the deadline for banks in India to meet minimum enrolment criteria for Aadhaar. The deadline will be extended to November 1 with those failing to meet it being subject to “financial disincentives.”

Kenya: Kenyan lawmakers killed a proposal to impose a 0.05 percent tax on certain large transactions. The proposal, known as the Robin Hood tax, was due to go to Kenya’s High Court. 

South Africa: Mastercard South Africa is partnering with Entersekt to make QR codes in South Africa interoperable, after the payments method has gained increasing usage throughout the country.

Switzerland: Switzerland’s Financial Market Supervisory Authority (FINMA) announced that it will loosen anti-money laundering rules for certain FinTech firms. The effort is intended to be more accommodating for small FinTech firms by allowing them to forgo the requirement to set up an independent anti-money laundering unit, for example.

Thailand: The Bank of Thailand announced its plans to have completed its central bank digital currency proof of concept by March of 2019. The proof of concept uses R3’s Corda, a permissioned distributed ledger technology, and is being undertaken in partnership with eight Thai banks. On a related note, Thailand’s Anti-Money Laundering Office (AMLO) is considering establishing an “AMLO Wallet” to hold cryptocurrencies that have been confiscated. This is an interesting concept, but brings to mind a recent thought piece on fungibility, cryptocurrencies, and Gresham’s Law, for those economically inclined.

United Kingdom: The U.K.’s Information Commissioner’s Office (ICO), a data protection watchdog, reports that the number of complaints it receives has more than doubled since the European Union’s General Data Protection Regulation (GDPR) went into effect in May. A spokesperson for the ICO said, “Complaints relating to data protection issues are also up and, as more people become aware of their individual rights, we are expecting the number of complaints to the ICO to increase too.”

Venezuela: A report from Reuters found that the Petro, Venezuela’s cryptocurrency that purports to be backed by the country’s oil reserves, is not traded on any major exchange or accepted by any retailers in the country.


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