Fintech Update, 9/3 - 9/9
September 3-9, 2016
Leading Off
PayPal partnered with MasterCard to increase its POS presence; Japan’s big banks are developing blockchain-based money transmission platforms; Hong Kong and Indonesia announced new regulatory sandbox initiatives for fintech; SoFi began a new funding round with the goal of raising $500 million; and the NYT examined the “Venture Communism” model at work in China’s startup ecosystem.
Policy & Regulation
CFPB-CashCall “true lender” analysis may raise concern for online lenders. Last week, the U.S. District Court for the Central District of California ruled for the Consumer Financial Protection Bureau in its case against online loan servicer CashCall. CashCall had partnered with lender Western Sky Financial, which claimed immunity from state interest rate caps due to its affiliation with a Native American tribe, to acquire and service loans made by Western Sky. The court decided that CashCall, not Western Sky, was the “true lender” and that it violated federal UDAAP rules by using Western Sky to circumvent state usury caps. The court’s “true lender” analysis could present new risks for certain online lenders and their financial partners.
Banking & Securities
Goldman releases its trading database. Goldman Sachs made its proprietary Securities Database (SecDB) -- which made the firm “a trading powerhouse” -- available to clients for free. Goldman is hoping to “win more business from clients” by deploying technology, including many “web-based applications that customers can customize and operate on their own.”
Payments
PayPal pushes into in-store sales with MasterCard partnership. The payments company, which wants to increase its presence at the point-of-sale (POS), now allows MasterCard users to input their cards into the PayPal Wallet app for use at any merchant supporting contactless payment.
Square Cash introduces virtual card. The mobile payments company launched a virtual card product that gives “every user a virtual Visa debit card number that they can use to spend their balance anywhere that accepts Visa.” The new product will allow users to pay with Square on any online shopping site by entering the virtual card number.
Digital Currency & Blockchain
Japanese banks compete on blockchain money transfer services. Japan’s Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group, and SBI Holdings Group are “vying fiercely to develop platforms for low-cost international money transfers” based on blockchain technology. MUFG is relying on expertise gained from its partnership with U.S. digital currency brokerage Coinbase, while Mizuho and SBI are working with 50 global banks to develop their platform.
Santander publishes on bitcoin. A research paper from the Spanish bank suggested that growing bitcoin acceptance would challenge the business model of issuer banks, which “would see their interchange revenues threatened.” Santander sees benefits for “big card brands,” however, which could see “lower transaction, IT and back-office costs.”
Cybersecurity
The U.S. gets its first CISO. The White House appointed former Air Force general and Department of Homeland Security official Gregory Touhill to be the country’s first chief information security officer (CISO). In the role, which was announced in February as part of President Obama’s Cybersecurity National Action Plan, Touhill is responsible for cybersecurity policy and implementation across the federal government.
International News
Asia’s two new regulatory sandboxes. The Hong Kong Monetary Authority (HKMA) announced the creation of a “fintech facilitation office” as well as a new regulatory sandbox program aimed at encouraging innovation and collaboration among regulators, banks, and fintech firms. Indonesia also announced its own sandbox initiative, joining a growing list of countries, including Singapore, Australia, and the U.K., that have adopted the model in the past year.
BoE weighs new fintech rules. The Bank of England (BoE) said one of its priorities for the year is to devise its regulatory approach to fintech, being careful not to “stifle innovation” within the community. Among other fintech-related issues, the BoE is weighing “the risks and benefits of using digital currencies and blockchain” to settle transactions and improve bank operations.
Fundraising & Deals
SoFi aims to raise $500 million. Online lender Social Finance (SoFi), which is privately funded, is pitching a new funding round with the goal of raising $500 million to “fund new growth initiatives among mass-market borrowers and international markets.” SoFi sees “a tremendous opportunity to expand” in the current market, given the recent struggles of its competitors.
Company Spotlight
On Moven’s partnership with TD Bank. The American Banker profiles the recent partnership between mobile banking startup Moven and Canada’s TD Bank as a case study of the growing collaboration between fintech firms and traditional banks. TD Bank began offering Moven's MySpend app to its Canadian customers in April, and over 550,000 TD customers now use it.
iZettle acquires SaaS firm. The Swedish mobile payments startup bought U.K.-based cloud software provider intelligentpos, which focuses on inventory, loyalty program, and customer flow management. iZettle CEO Jacob de Geer expects intelligentpos will “add another €500 million in processing volume to the €3 billion that iZettle already processes annually.”
Events
New York hosted three fintech conferences. The American Banker recaps some key takeaways from Next Money and Finovate. Meanwhile, Goldman Sachs hosted its sixth annual gathering of fintech companies, which this year included LendingTree, Flywire, and SoFi.
Commentary & Miscellaneous
Are regulators spurring innovation in fintech? At least one commentator thinks so. Thom Hook, Director of Compliance for software firm Pegasystems, writes that the recent growth of regulatory sandbox arrangements demonstrates how governments can encourage innovation and spur growth.
How “Venture Communism” is producing a startup boom in China. The New York Times explores how Chinese officials, rather than relying on “the invisible hand of capitalism,” support China’s startup ecosystem by using public money to create investment funds, provide cash subsidies, and build incubators.
Have a great weekend!
The Fintech Update Team