Fintech Update, 8/6 - 8/12
August 6-12, 2016
Leading Off
SoFi settled a class-action lawsuit for alleged FCRA violations; A new World Economic Forum report was “one of the strongest endorsements yet” for blockchain’s disruptive potential; eight of the largest U.S. banks formed a new, collaborative cybersecurity group; robo-advisory firms have begun expanding their service offerings to include college-savings plans and 401(k) accounts; and British regulators called for banks to adopt a new open banking program by 2018.
Marketplace Lending & Credit
Square expands its loan offerings. The payments processing firm announced that its lending arm, Square Capital, would offer loans for the first time to merchants who do not use Square for point-of-sale (POS) services. Square is partnering with Upserve, a software and POS service firm, which will provide Square with anonymous sales and cash-flow data to analyze and determine which restaurants qualify for loans.
SoFi settles lawsuit for $2.4 million. A federal judge in California approved a $2.4 million class action settlement between online lender Social Finance (SoFi) and nearly 11,000 consumers. The suit alleged that SoFi violated the Fair Credit Reporting Act. According to the settlement, SoFi “violated federal and state credit reporting and business laws” by making “hard pull” instead of “soft pull” inquiries (the former of which leave a mark on the credit history of the investigated person).
Banking & Securities
U.K. startup gains bank license. London-based mobile banking startup Mondo has been granted a U.K. banking license “with restrictions” from the U.K.’s Financial Conduct Authority and Prudential Regulation Authority. Mondo plans to make a full banking launch in early 2017.
Payments
Brian Moynihan discusses the cost savings of e-payments. The Bank of America CEO noted to Bloomberg TV that “the cost of doing business for banks is going to decrease as usage of digital payment methods increase.” Moynihan specifically mentioned the bank’s collaboration with other large U.S. banks on the clearXchange network, part of his strategy to make peer-to-peer (P2P) payments “as ubiquitous as cash.”
Incumbent payments firms concerned about disruption. A recent PricewaterhouseCoopers (PwC) report [full text] suggests that payments is no longer “one of the [financial services] least vulnerable to disruption.” In a survey of 24 global payment firms, PwC found that 28% believe that over 25% of their business operations could be lost to fintech firms by 2020.
Digital Currency & Blockchain
World Economic Forum endorses blockchain. A new report from the World Economic Forum (WEF) highlights the transformative potential of blockchain technology, but notes that its “applications will require deep collaboration between incumbents, innovators, and regulators” [full text]. The New York Times declared the WEF report to be “one of the strongest endorsements yet for . . . blockchain.”
Using blockchain to replace Letters of Credit. A consortium of financial institutions including Bank of America and HSBC demonstrated that distributed ledger technology could replace paper Letters of Credit in trade finance transactions. The test has significant implications for the efficiency and costs of such transactions; working with physical documents accounts for roughly 50% of bank costs when dealing with Letters of Credit.
U.S. government to auction seized Bitcoins. On August 22, the U.S. government will auction 2,719 Bitcoins acquired in nine different criminal, civil, or administrative cases like the 2014 Silk Road investigation. According to CoinDesk, the Bitcoins are worth about $1.6 million.
Cybersecurity
U.S. banks form new cybersecurity group. Eight of the U.S.’s largest banks have banded together to tackle emerging cybersecurity threats. The new group will operate as an affiliate of the U.S. Financial Services Information Sharing and Analysis Center. The banks will work to share information on cyber threats and collaborate on improving their responses to cyber attacks.
Personal Finance
Evolving robo-advisory services. Robo-advisory firms like Betterment and Wealthfront, which provide users with automated investment advice and portfolio analysis, are expanding into new areas of the wealth management market. The new service offerings will include managing “529” college-savings plans and administering 401(k) retirement accounts.
International News
New U.K. regulations push fintech. The British Competition and Markets Authority (CMA) published new regulations to “make big banks work harder for their customers and make them take advantage of the the opportunities of technology.” In particular, banks have until 2018 to comply with the CMA’s “Open Banking programme,” which is designed to “accelerate technological change” in retail banking.
European Commission asked to postpone new AML directive. The European Banking Authority (EBA) called on the European Commission (EC) to delay its plans to bring virtual currency exchanges and wallet providers under the scope of its new Anti-Money Laundering Directive. While the EBA is not opposed to the new directive, approved by the EC in July, it suggested that the EC rethink its effective date.
Hogan Lovells creates fintech advisory tool. Law firm Hogan Lovells announced that its “regulatory accelerator” tool will help startups “better understand the Financial Conduct Authority’s (FCA) regulatory regime.” Rachel Kent, global head of Hogan’s financial institutions practice, said the firm created its “own tool to address the challenges we see fintech clients facing on a daily basis.”
Company Spotlight
Analyzing LendingClub’s Q2 results. The Financial Times Alphaville blog examines the second-quarter results of LendingClub, particularly in light of the company's troubles following CEO Renaud Laplanche’s resignation in May. LendingClub’s origination rate is up only 2% over 2015Q2, which could either be “worrying” or a signal of “more responsible lending.”
Events
FTC forum on crowdfunding and P2P payments. The Federal Trade Commission will host the second in a series of fintech forums on October 26. This forum, on crowdfunding and peer-to-peer payments, follows the FTC’s first forum in June on marketplace lending.
Have a great weekend!
The Fintech Update Team