Fintech Update, 8/13-8/19
August 13-19, 2016
Leading Off
California state legislators decline to create a new digital currency license; Canada’s AML watchdog (FINTRAC) assesses potential fintech vulnerabilities; China’s Alipay pushes into Europe with a new partnership; Bloomberg profiles an early LendingClub investor who unearthed concerns about the lender’s disclosure and governance practices; and former SEC Chairman Arthur Levitt writes that blockchain could “rewrite the financial services sector.”
Policy & Regulation
CA decides not to create digital currency license. California lawmakers decided not to enact legislation that would have established a state license for digital currency companies similar to New York’s BitLicense. The proposed bill had been increasingly criticized since its initial drafting in 2015 for having “grown to encompass too many types of businesses.” A spokesman for the state assembly said that the bill would be reintroduced in 2017.
FINTRAC examines its role regarding fintech. After including virtual currency companies in its definition of “money-services business” in 2014, Canada’s anti-money laundering agency is now working to understand the digital activities for which it is responsible. Director Gerald Cossette said that the regulator is “assessing the vulnerabilities of . . . new technologies to criminal exploitation . . . [where] detection techniques are not as well understood as they should be.”
Marketplace Lending & Credit
Avant cuts 30% of its staff. Citing a challenging funding environment for online loans, the online lender downsized 220 staff members. Avant’s move follows similar cost-cutting measures by other online lenders like LendingClub, which have faced a difficult funding environment in 2016 as investors have “stepped back” amid concerns about loan quality and slipping returns.
How an early LendingClub investor uncovered its questionable loan practices. Bloomberg profiled Bryan Sims, an early investor in Lending Club, who became one of the marketplace lender’s fiercest critics. Sims discovered the marketplace lender’s “shady” loan disclosure and governance practices after reviewing and finding inconsistencies in hundreds of its loans.
Digital Currency & Blockchain
Rakuten opens a blockchain lab. The Japanese e-commerce giant established a new development lab in Belfast, Northern Ireland, to grow its fintech portfolio. The new lab, which opens next week, will focus on “blockchain technology and its potential applications in the fintech and e-commerce sectors.”
Cybersecurity
Is cybersecurity compatible with “digital convenience”? A new McKinsey report [full text] explores how customers feel about their digital security. As companies have addressed the growing risk of cyber threats by “putting higher security burdens on customers,” McKinsey finds that the “quality of [their] digital experience . . . has decreased dramatically.”
International News
Alipay pushes into Europe. China’s largest online payments platform partnered with France’s Ingenico Group to embed its service “into Ingenico's in-store payment gateway.” The partnership will allow Alipay users to pay via the Alipay mobile app at any store that uses Ingenico merchant terminals. Alipay has over 450 million active users, and Ingenico processed more than 3.5 billion transactions in 2015.
Many German bankers leaving for tech startups. The Wall Street Journal notes that although Germany’s tech-startup scene is “struggling,” many of the country’s bankers and consultants are moving from their professional services jobs to more technology-oriented ones, including positions with fintech startups like digital banking service provider Rocket Internet SE.
Fundraising & Deals
Record funding for auto title lending platform. Florida-based Finova Financial, an online lending platform that offers loans based on the equity in a customer’s car, secured a $52.5 million funding round led by several Silicon Valley-based VC firms. The company plans to use the cash to grow “the industry’s first-to-market all-digital lending platform for auto title loans.”
Company Spotlight
Good news for Walmart's e-commerce business. Following five straight quarters of decreasing growth in its e-commerce business, Walmart’s recent earnings report showed its global online sales were up 7% over last quarter. The new earnings report comes on the heels of Walmart’s announcement that it will purchase online retailer Jet.com for $3.3 billion in an effort to put added pressure on e-commerce rivals like Amazon.
TransferWise enters B2B market. The U.K.-based money transfer service, which achieved unicorn status as a peer-to-peer (P2P) service, announced TransferWise for Business. The new platform will allow cross-border business-to-business (B2B) transfers via the firm’s network of partner banks. TransferWise said it has already facilitated over $1.3 billion in B2B transfers.
Events
Federal Reserve to host marketplace lending conference. The U.S. Federal Reserve’s Board of Governors will convene policymakers, academics, and fintech leaders at a conference in Washington this December to examine innovations in online lending and its implications for borrowers, traditional lenders, regulatory policy and financial stability.
Commentary & Miscellaneous
Arthur Levitt responds to blockchain naysayers. The former Securities & Exchange Commission chairman and current member of Promontory’s Advisory Board argues that blockchain “provides the opportunity to rewrite the financial services sector and create a more global, open and efficient system.”
The future of fintech is in China? TechCrunch and the New York Times (NYT) feature pieces on China’s role in bringing about the future of global fintech. TechCrunch focuses on disruption in China’s financial marketplace, noting that China has fewer ties to legacy institutions than many other countries, while the NYT’s video story asks what China’s ubiquitous WeChat could signal about the future of mobile apps.
Do fintech firms need support from regulators? James Saft of Reuters says ‘yes,’ writing that, without regulations supportive of fintech, innovative products and services “will be adopted, coopted or stifled by the incumbents in finance, who enjoy huge advantages.”
Have a great weekend!
The Fintech Update Team