Fintech Update, 6/11/16 - 6/17/16
Welcome to the Fintech Update
Sharing developments in financial technology from D.C. to the Bay and beyond.
June 11-17, 2016
Leading Off
The top stories we’re tracking this week
The OCC is looking at whether it has the legal authority to grant charters to fintech firms; a Silicon Valley entrepreneur is working on creating a new stock exchange; Ripple was granted the second BitLicense issued by New York State; Wells Fargo and Chase are both making changes to their P2P platforms; and former FDIC Chairwoman Sheila Bair explains why she’s optimistic about the future of fintech.
Policy & Regulation
The Office of the Comptroller of the Currency (OCC) is examining whether it has the legal authority to offer a limited-purpose charter to fintech firms. The OCC generally charters depository institutions, but Comptroller Thomas Curry said it can “probably” grant a charter to a “[non] deposit-taking entity,” pointing to “limited-purpose trust companies . . . and credit card banks” as examples of existing institutions with limited-purpose charters.
The White House held a “FinTech Summit” last Friday, bringing together regulators, policymakers, bank leaders, and entrepreneurs to discuss how the government can work with innovators in financial services. Adrienne Harris, an economic advisor to President Obama, described the event as an opportunity “to discuss how fintech can help advance critical economic policy priorities.”
Banking & Securities
Entrepreneur Tom Ries is in “early discussions” with the Securities and Exchange Commission on a proposal to create a new stock exchange. Ries has already built a team of engineers, finance executives, and attorneys to create the “Long-Term Stock Exchange” (LTSE), and has funding from over 30 investors. Ries sees the LTSE as a solution to the “plague . . . of short-term thinking that squashes rational economic decisions” in today’s public markets.
Payments
At this year’s annual Worldwide Developer Conference (WWDC), Apple announced that Apple Pay users will soon be able to make payments via the Safari browser. Per the WWDC demo, a new “Pay With Safari” button will now appear on the checkout page of participating vendors; clicking it will notify the user to authenticate using Touch ID on his or her iPhone.
Apple also made two additional announcements at the WWDC: First, the company will open its iMessages app to third party developers, opening the door for in-app payments similar to China’s WeChat. In addition, Apple announced that it will roll out Apple Pay in several new counties in the next few weeks, including France, Switzerland, and Hong Kong.
TechCrunch offers a “brief history of mobile payments,” providing useful background on a form of payment that continues to grow rapidly in adoption and importance. In the U.S., 39% of mobile phone users made a mobile payment in 2015, up from 14% in 2014. Forecasts predict that over 4.8 billion individuals globally will use a mobile phone by the end of 2016.
Digital Currency & Blockchain
The New York State Department of Financial Services (DFS) approved Ripple Labs’ application for a license to operate in New York. Ripple’s BitLicense allows it to conduct digital currency services throughout the state. “DFS is pleased to continue to foster the growth of the New York virtual currency marketplace,” said Acting [DFS] Superintendent Maria T. Vullo.The Bank of Canada (BoC) is working with Canadian banks and the R3CEV blockchain consortium to develop a “proof of concept” of a blockchain-based digital dollar (“Cad-Coin”). The system allows participants to place cash into a special BoC account, which then converts it to Cad-Coin, which counterparties may then exchange on the platform and later redeem for for cash.
Marketplace Lending & Credit
The FICO score, long the industry standard for measuring a customer’s credit risk, has faced a challenge in recent years from fintech startups. Online lenders like SoFi and Prosper rely on proprietary credit scoring models that use technology to account for non-FICO score data when making credit decisions. Penny Crosman of the American Banker discusses whether this new trend means the end for FICO scores.
International News
The Monetary Authority of Singapore and the Australian Securities and Investments Commission (ASIC) signed an agreement that will help fintech firms in the two countries gain faster entry to each other's market and get advice on required licenses. To qualify for the support offered by the agreement, fintech firms will need to meet the eligibility criteria of their home regulator.
Fundraising & Deals
Ascend Consumer Finance, which uses data analytics to improve credit scoring models, raised $11 million in follow-on funding. Ascend relies on its proprietary Adaptive Risk Pricing technology to “offer loans at rates that reflect real-time performance instead of past behavior.”
CheckAlt, which specializes in capturing check images on mobile devices, acquired transaction management company Klik Technologies. The combined company will offer tools for electronic check capture and analysis, check processing, and fraud mitigation. Mobile check imaging is an emerging fintech market, and the acquisition gives CheckAlt close to 500 clients.
Payoff, a startup that makes loans to people to pay off credit card debt, has raised $46.7 million as part of a new funding round expected to close at $67.4 million. Payoff’s loan amounts range from $5,000 to $35,000 and customers borrow at rates between 8% and 22% APR. The loans are largely backed by Eaglewood Capital Management, which provided Payoff with $250 million in debt financing last year.
Company Spotlight
Wells Fargo will begin allowing customers to make immediate transfers over ClearXchange, a network it co-owns with six other big banks. Wells Fargo touts the new service as a more attractive version of P2P transfer services offered by Silicon Valley firms like Venmo and Square, signaling the bank’s interest in occupying a niche carved out by fintech firms.
JPMorgan Chase is updating QuickPay, its peer-to-peer (P2P) mobile payments service. Changes include the ability to enroll in QuickPay through Chase’s mobile app, a more streamlined interface, and access to users’ contact lists. According to Chase, QuickPay users made $20 billion in [P2P] transactions last year — “more than double what any fintech company reported.”
Bank of America (BoA) announced it will cut about 8,000 jobs from its consumer banking division and further trim its branch network in response to customers’ increasing use of mobile banking tools as their primary means of accessing banking services. BoA plans to reduce the number of back-office staff and tellers, and repurpose branches as sales outlets.
Commentary & Miscellaneous
Former FDIC Chairwoman Sheila Bair, now an adviser to online-lending startup Avant and robo-advisory firm Blooom, explained to Inc. why she is optimistic about the fintech industry. However, she cautioned that “regulators need to stay on top of it, and investors too need to . . . ask ‘are [fintech businesses] sustainable, are they providing good value to customers?’”
TechCrunch contributor TX Zhuo argues that “insurance tech” represents the next wave of fintech startups to disrupt traditional industry models. Zhuo points out that the insurance industry is “enormous” and “one of the most old-fashioned, analog consumer services in existence,” creating opportunities for innovators to drive change and incentivize investment.
Have a great weekend!
The Fintech Update Team