Fintech Update, 7/16 -7/22
July 16-22, 2016
Leading Off
Top Democratic senators renewed their call for financial regulators to increase fintech oversight; Nasdaq created a new index devoted to publicly traded fintech companies; Visa and PayPal announced a new strategic payments partnership; Santander doubled its InnoVentures fintech fund to $200 million; PwC bolstered its fintech advisory services with its DeNovo platform; and a Forbes article suggested that billions of fintech investment dollars are used for compliance monitoring efforts.
Policy & Regulation
Top Democrats call for more fintech regulation. Senators Sherrod Brown (D-OH) and Jeff Merkley (D-OR) sent a letter [full text] to five federal regulators, calling on them to provide more information about their oversight of fintech companies. The senators highlighted their concern that, “if a fintech company is neither directly regulated by [federal] agencies nor a third party service provider . . . applicable federal consumer laws may not extend to [them].”
Representatives introduce bipartisan fintech resolution. Representatives Adam Kinzinger (R-IL) and Tony Cárdenas (D-CA) introduced a resolution [full text] urging the U.S. to “adopt a national policy for technology to promote consumers’ access to financial tools.” Kinzinger and Cárdenas said the U.S. should be “proactive in harnessing the FinTech revolution and leverage [it] to empower consumers, promote financial literacy, foster economic growth, and forge new markets.”
Banking & Securities
Nasdaq creates a new fintech index. The exchange operator partnered with investment bank Keefe, Bruyette & Woods to create the Nasdaq Financial Technology Index (KFTX), the first major index devoted to U.S. publicly traded fintech companies. The index is made up of “49 companies, ranging from [Visa] to [LendingClub] . . . and represent[s] $785 billion in market value.”
Traditional banking and fintech converge. Move over, “disruption;” the new buzzword for fintech may be “convergence.” In recent months, many tech startups have expanded their relationships with large banks as founders increasingly see them as sources of funding (and perhaps as an exit strategy), while banks have acquired or duplicated a number of successful fintech products and services. Convergence was apparent at Startupbootcamp’s “demo day,” where “five of the 10 [participants] pitched technology designed [for] traditional banks.”
Payments
Visa and PayPal announce a payments partnership. The agreement will make PayPal a part of Visa’s digital wallet, allowing consumers to instantly transfer money between their Visa debit products and their PayPal and Venmo accounts. Stores in Visa’s payment network that are mobile app-enabled will now also accept point-of-sale PayPal transfers.
MasterCard eyes China’s payments market. The credit card giant is considering applying to become a licensed payment services provider in China, following the Chinese government's recent decision to open its payments market to international providers as long as they meet certain requirements. China's cards market is estimated to be worth over $8.25 trillion and is forecast to be the world's largest by 2020.
Cybersecurity
Dwolla’s data security consent order is a lesson for all fintech firms. Earlier this year, the Consumer Financial Protection Bureau (CFPB) filed its first data security and privacy-based action against online payments startup Dwolla for public misrepresentations regarding the safety and security of its transactions. Dwolla agreed to sign a consent order [full text], pay a $100,000 fine, and improve its data security practices. Law firm Mintz Levin discusses the Dwolla case and what others can learn from it.
Personal Finance
Wells Fargo will launch a robo-advisory service. The world’s most valuable bank announced its plans to launch the service in 2017 as part of the bank’s expanded wealth-management offerings. Chief Operating Officer Tim Sloan said the new product will be geared toward millennials, who “like convenience . . . [but] don’t have any money yet.”
International News
McKinsey examines China’s fintech industry. The global management consultancy attributes the significant growth of China’s fintech sector to four factors: (1) an open, supportive regulatory environment; (2) a highly developed e-commerce network with widespread adoption of digital payment systems; (3) high demand for “inclusive finance;” and (4) a steady flow of investment capital into innovative digital service companies.
German startup receives EU banking license. Berlin-based Number26, or “N26,” which has long described itself as a mobile-only “bank,” was approved for a full banking license by the European Central Bank and Germany’s financial regulator. With the license, N26 will now be able to build its own financing products, including savings accounts, investment products, and credit offerings.
Grab rolls out a payments system. Grab, one of Uber’s chief rivals in Southeast Asia, will begin allowing “any mobile user to use the Grab app to pay for not only their daily transport needs, but also [non-Grab] services.” The Singapore-based company will initially target Indonesia, Southeast Asia’s largest country, with the goal of providing a full payment platform to Indonesian users by the end of 2016.
Fundraising & Deals
Baidu makes another investment in U.S. fintech. The Chinese search giant invested an undisclosed amount in Zest, an online lending platform that targets credit-worthy individuals who have been overlooked by traditional lenders. Baidu’s investment comes only a month after it led a $60 million investment in Boston-based online money transfer service Circle.
Company Spotlight
PwC has a fintech advisory platform. Announced in April, PricewaterhouseCoopers (PwC) launched a new “strategy consulting platform focused on FinTech innovation,” with a focus on fintech’s impact on financial services firms. DeNovo “combine[s] research with proprietary insights in a customized platform to help [clients] build better business strategies.”
LendingClub gets a new chief capital officer. The online lender named Patrick Dunne, formerly the head of BlackRock’s San Francisco office, to the position. As chief capital officer, Dunne will “be responsible for managing relations with individual investors, banks, endowments and strategic partnerships with retail distributors.”
Santander doubles its fintech fund. Banco Santander announced that it increased the size of its fintech investment fund, Santander InnoVentures, from $100 million to $200 million. The bank described the increase as “a sign of commitment to its [collaborations] with startups,” and the new capital will help expand the fund’s portfolio to continental Europe and Latin America. InnoVentures owns stakes in notable fintech startups such as SigFig, Kabbage, and Ripple.
Commentary & Miscellaneous
Fintech compliance monitoring may be a multibillion-dollar niche. Citing a Celent report, Forbes contributing writer James Giancotti writes that “aggregate spending on FinTech by banking institutions was estimated at $196.7 billion last year,” but that “more than 75% of . . . the money [was] spent mostly on compliance monitoring [due to] rapidly changing regulations.”
The case for online lenders becoming banks. Financial Times columnist Jonathan Ford writes that marketplace lending platforms should file for banking charters so they can tap into regular deposit funding. “While that would expose them directly to . . . consequences for capital requirements and regulatory oversight,” Ford says, “it would also provide a more stable income base, making it easier to survive lending downturns.”
Have a great weekend!
The Fintech Update Team