Fintech Update 6/18-6/24
June 18-24, 2016
Leading Off
The OCC hosted a fintech forum; venture capital firm Andreessen Horowitz hosted a dialogue on the future of payments; Ethereum was hailed as “the next hot thing in cryptocurrencies” despite its role in last week’s DAO hacking; the Bank of England announced that it has created a fintech accelerator and is exploring the use of blockchain; and two prominent fintech firms, Circle and Plaid, each raised over $40 million in new funding.
Policy & Regulation
The Office of the Comptroller of the Currency (OCC) hosted its “Forum on Responsible Innovation,” featuring several panel discussions on fintech and regulation [full list]. Comptroller Thomas Curry began the forum with a speech [full text] in which he commented on the need to balance “innovations [that] make our financial system the envy of the world” with “the need for heightened risk management.”
The U.S. Federal Reserve announced that it will study its efficacy at “overseeing cybersecurity practices at financial institutions.” The review will be conducted by the Fed’s Office of the Inspector General (OIG), which “plans to release the audit in the fourth quarter.” Legislators also continue to probe the central bank’s own cybersecurity practices following more than 50 cyber breaches between 2011 and 2015.
According to the Wall Street Journal, “federal regulators are exploring whether they should intensify oversight” of online small business loans, questioning whether borrowers have the tools necessary to assess deal terms or sufficient legal protections. Online loan originations to small businesses totaled $1.9 billion in 2015, up 60% from 2014 totals.
Banking & Securities
The New York Times’ Dealbook explores Goldman Sach’s recent move to offer financial services “aimed squarely at ordinary Americans.” Goldman’s new initiatives include mobile-only banking and an online lending platform offering loans similar to those offered by fintech firms like SoFi and LendingClub.
Payments
Microsoft is rolling out a new contactless payments feature on some of its Windows 10 mobile phones, joining an increasingly crowded proprietary mobile payments space that already includes Apple, Google, and Samsung. Microsoft partnered with Visa and MasterCard on the cloud-based service, with Bank of America, Chase and US Bank among the banks supporting integration with their cards.
Venture capital firm Andreessen Horowitz (a.k.a. “a16z”) hosted a podcast on the future of mobile payments. The podcast featured BuzzFeed News technology reporter Charlie Warzel, whose most recent article chronicles his decision to implant a contactless-payments microchip in his finger as part of an effort to go cash-free for an entire month.
Digital Currency & Blockchain
Last week, a hacker stole over $50 million in digital currency from the Decentralized Autonomous Organization (DAO), an experimental virtual currency project. DAO computer scientists are trying to recover the money, but the New York Times suggested that the hack would “most likely [put] an end to the project . . . which had raised $160 million in the form of Ether, an alternative to . . . Bitcoin.”
Relatedly, the Wall Street Journal offers additional analysis of the DAO hack, as well as background on digital currency firm Ethereum. Notwithstanding last week’s hack, the WSJ hails the Ethereum open software platform, which Microsoft has integrated into its Azure business-services platform, as “the next hot thing in cryptocurrencies.”
Ripple, a distributed ledger company based in San Francisco, announced that seven major financial institutions have begun using its technology. CEO Chris Larsen described the new partnerships - with banks that include Santander, UniCredit, and UBS - as evidence that banks are increasingly adopting Ripple’s distributed ledger technology to facilitate money transfers over their proprietary platforms.
Cybersecurity
Amid growing concerns that traditional alphanumeric passwords are too cumbersome or insecure, financial institutions are increasingly protecting customer accounts with biometric technology. Millions already log into their bank accounts using fingerprints on their mobile phones, but Wells Fargo is now experimenting with eye scan authentication and Citigroup offers voice identification to some customers.
Marketplace Lending & Credit
Canada’s Scotiabank announced a partnership with U.S. online lender Kabbage that will enable the bank to offer small business loans using Kabbage’s platform. The loans will be capped at US$100,000 and will only be available to existing Scotiabank customers in Canada and Mexico; but the bank hopes to expand soon to Colombia, Chile, and Peru.
International News
Mark Carney, governor of the Bank of England (BOE), recently announced that the U.K.’s central bank is in the early stages of examining how blockchain technology can improve central banking services, a move similar to the Bank of Canada’s recent experiments with bitcoin. Carney noted, however, that “a central bank digital currency” remains “some way off.”
The BOE also announced the launch of a government-backed fintech accelerator “to work in partnership with FinTech firms on challenges that we, as a central bank, uniquely face.” According to the BOE’s press release, “the accelerator has already carried out initial work in the areas of data anonymisation, cyber security and distributed ledger technology.”
France’s financial regulator, the Autorite des Marches Financiers (AMF), plans to step up its oversight of fintech firms. “We don’t want to give fintechs the illusion that they’re operating in a totally unregulated open field,” said Franck Guiader, who heads the AMF’s new fintech division. Targets for AMF fintech oversight include automated financial advice, blockchain, and big data.
Fundraising & Deals
Online payments transmitter Circle raised $60 million in a new funding round backed by China’s Baidu. Circle allows users to send payments and transfer money to others for free, with an open source platform based on blockchain technology that allows for more efficient transactions than competing services. Circle also formed a Chinese subsidiary to help expand its operations in Asia.
San Francisco-based Plaid Technologies raised $44 million in a Series B round led by Goldman Sachs. Plaid allows apps like Venmo, Betterment, and Mint to connect with users’ bank accounts, which has been a recent cause of consternation among bank executives due to concerns about data security and product competition. Plaid has now raised nearly $60 million.
New York has surpassed Silicon Valley in fintech venture funding for the first time, according to data compiled by Accenture and the Partnership Fund for New York City. Last quarter, New York-based investment firms invested $690 million in fintech firms, roughly 35% more than the $511 million invested by firms based in the San Francisco Bay Area.
Company Spotlight
Santander InnoVentures, the venture capital arm of Spain’s Banco Santander, invested in a Socure, a New York-based startup that uses consumers' digital data, including social media, to confirm identity. Socure offers products and applications that help financial institutions verify customer identity when opening new bank accounts or issuing credit or debit cards.
The American Banker profiles Barclays’s African subsidiary, Barclays Africa Group, which is aiming to draw in Africa’s underbanked population. Barclays has partnered with Deloitte and “various fintech startups” to build a “‘virtual bank’ that will strip out legacy costs and offer new products and services, such as faster, cheaper payments, tailored to the needs of [underbanked] people.”
The Financial Solutions Lab (“FinLab”), a partnership between the Center for Financial Services Innovation and JPMorgan Chase, announced the winners of its second annual fintech competition. Judges selected the nine winning companies from over 300 applicants “based on their ability to improve consumers’ financial health.”
Commentary & Miscellaneous
The Wall Street Journal’s Jacob Schlesinger spoke with Comptroller of the Currency Thomas Curry about fintech and regulation. Curry reiterated his belief that fintech is “a valuable challenge to the traditional banking industry,” adding that important regulatory concerns include information accuracy, data security, and the importance of anti-money laundering efforts.
The Harvard Business Review explores “the rise of FinTech in supply chains,” including the potential growth opportunities for fintech firms serving as intermediaries between companies and their suppliers.
TechCrunch contributor Caitlin Klevorick urges regulators to be “more open to experimentation and alternative business models” when crafting legislation affecting fintech firms. She argues that the U.S. should use the U.K. as a model for creating a successful fintech ecosystem.
Have a great weekend!
The Fintech Update Team