The Big Idea: Libra | Fintech Update, 6/24 - 6/30
June 24-30, 2019
Leading Off
We look at the recent news and reactions to the Libra cryptocurrency in our "Big Idea"; the CFTC established its LabCFTC Accelerator to further support its fintech R&D efforts; Congress investigated the use of algorithms in lending decisions; TransferWise announced it will launch in the U.S. market; Monzo raised £113M to support its U.S. expansion; and JPMorgan is rumored to be launching a digital banking operation.
The Big Idea
What's the story? Last week, after months of speculation, Facebook finally officially introduced Libra. This week, the real fun began.
What is Libra?
Libra is a new cryptocurrency, which will go live in 2020. It was dreamed into existence by Facebook, but they have taken pains to highlight that it is managed by the independent Libra Association, a consortium based in Switzerland. Libra is pegged to a basket of global currencies, which doesn't exactly make it a stablecoin but should help it avoid the volatility of other cryptos, like Bitcoin. If you want the nitty-gritty, you can read the Libra white paper here [full text].
What's happening now?
Not surprisingly, Libra's announcement has been met with a variety of responses. Many lawmakers and regulators around the world have been seen foaming at the mouth: the U.S. Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing on Libra in July; some Congressmen have called for a halt to the rollout until further investigation can be done; and the international Financial Stability Board, the UK Financial Conduct Authority, the Bank of England, and the G7 all spoke out about Libra and why it needs to be regulated.
On the other hand, many have touted Libra's potential benefits to the financial system and people in general. The Wall Street Journal ran an article suggesting that Libra could be “welcome competition” to banks and the existing payments infrastructure, the upending of which could have significant benefits for the poor and under-banked. Meanwhile, the head of Libra’s Calibra wallet has said that the success of the project could encourage Facebook to offer other services, like credit; and the MIT Technology Review considered how Libra could revolutionize digital IDs.
So what's the Big Idea?
Basically, hope for the best and prepare for the worst. The calls for information about Libra are certainly warranted: Libra will potentially be available to all of Facebook's 2.4 billion global users, introducing a new financial tool and all the challenges that come with it (fraud, money laundering, hacking, etc.). On the other hand, doomsayers may want to hold off until they see Libra in action: the potential to execute cheap, instantaneous transactions to people around the world could force incumbent institutions to make positive changes to their existing systems and could significantly benefit the lives of consumers -- particularly in regions without sufficient access to cash (imagine the cost-savings in the nearly $700 billion global remittance market alone!).
Skepticism of Facebook's latest project is warranted, particularly given the company's recent history; but the potential for good also gives us plenty of reasons to be excited.
In the News
CFTC announces fintech accelerator, conference. The U.S. Commodity Futures Trading Commission (CFTC) launched a new accelerator as part of its LabCFTC fintech research and innovation office. The accelerator will “[deploy] a variety of tools . . . to drive better understanding and potential adoption of emerging technologies.” The agency also announced its 2019 FinTech Forward conference.
Congress questions use of algorithms in lending. The U.S. Congress’s new artificial intelligence task force held a hearing to consider how the algorithms financial institutions use to inform lending decisions may be discriminatory. Senators Elizabeth Warren and Doug Jones recently requested that several government agencies investigate the same topic.
FATF recommends stricter AML rules for crypto firms. The international Financial Action Task Force (FATF) encouraged countries to tighten their oversight of cryptocurrency exchanges to curb the use of digital coins to launder cash. The FATF issued guidance that crypto exchanges should implement AML compliance programs with the same depth and breadth as banks.
TransferWise to launch in the United States. The London-based financial services firm will make its "borderless bank account" service available to U.S. customers, claiming to be “four times cheaper to spend [using a] debit card and up to 12 times cheaper to send money internationally." The company joins its European competitors N26, Revolut, and Monzo in making a play for part of the U.S. market.
Monzo raises £113M, reaches £2B valuation. The London-based digital bank raised £113 million in new capital, led by Y Combinator, doubling its valuation to £2 billion. The new funding is meant to support Monzo’s U.S. expansion, and the company confirmed that it will begin offering accounts to U.S. consumers this summer. Monzo initially will partner with Sutton Bank for its U.S. services.
Blend raises $130M. The San Francisco-based startup, which “digitizes paper processes for more than 150 banks,” raised $130 million in new funding, although the terms of the deal and Blend’s valuation were not disclosed. Blend may be best known for its mortgage applications and underwriting software, which has helped the company scale up to process “about $2 billion in loans every day.”
JPMorgan digital bank rumors. The global bank is rumored to be planning a digital banking service, following news that it is planning to invest in British fintech 10x Future Technologies and has been hiring London-based developers for a secret skunkworks project. 10x was founded by ex-Barclays CEO Anthony Jenkins and offers a plug-and-play platform for digital banking.
Have a great week!
The Fintech Update Team