Fintech Update, 10/1 - 10/7
October 1-7, 201
Leading Off
The CFPB’s new prepaid card rule will impact certain fintech payments services like Venmo; Overstock announced the creation of a new blockchain consortium; Ontario’s securities regulator created LaunchPad, Canada’s first innovation hub for collaboration between fintech startups and regulators; Capital One acquired another fintech startup; cross-border money transfer service Payoneer raised $180 million in new funding; and Rep. Patrick McHenry discussed his recently introduced fintech bill.
Policy & Regulation
Prepaid card rule impacts mobile payment services. The Consumer Financial Protection Bureau’s new rule, largely effective October 2017, will require providers of prepaid products to undertake greater consumer protection activities and disclosures. The rule will cover transaction services (e.g., Venmo and Square Cash), but not ones that merely store payment credentials (e.g., Apple Pay).
Fed considers new proposals on electronic payments system. The Federal Reserve announced that it is studying proposals on how to “speed up and secure” U.S. electronic payments systems. The Fed’s project is organized into two “national task forces” -- one studying faster payment methods, the other overall system security. It will release its findings in 2017.
Banking & Markets
Automated trading blamed for GBP flash crash. Analysts believe that algorithms are responsible for a “mini-flash crash” that caused the British pound to drop 6% in two minutes in early trading on Friday. One theory is that “an algorithm set to scan the news for negative Brexit stories went into overdrive,” spurring multiple computer systems “into a selling frenzy.”
Digital Currency & Blockchain
Overstock.com creates new blockchain consortium. The online retailer, led by CEO and vocal blockchain supporter Patrick Byrne, announced the creation of a new consortium to compete with R3. Overstock views its “Revolution 4” project a way to share “technology and regulatory expertise as it relates to [blockchain]” with small businesses, fintech firms, and other partners.
JP Morgan’s new blockchain project. JP Morgan announced that it is building Quorum, a proprietary platform based on the publicly available Ethereum blockchain code. The bank is aiming for a private system that remains “public enough for regulators,” and also plans to make Quorum’s code open to outside developers.
A primer on bitcoin and blockchain. If you’re curious about blockchain and its applications, but could use some background, consider TechCrunch’s upcoming webseries. Beginning 10/10, TechCrunch will feature a six-part video series on bitcoin and blockchain, featuring Nathaniel Popper of the New York Times and “various bitcoin developers, influencers and scholars.”
Privacy & Cybersecurity
Critiques of New York’s new cyber rules. According to the American Banker, some bankers are frustrated by New York’s new cybersecurity rules, which they argue are duplicative of existing federal standards -- though they “would still cost banks more in compliance to ensure they are following the state rules.”
International News
Ontario creates fintech innovation hub. The Ontario Securities Commission (OSC) unveiled plans for LaunchPad, Canada’s first innovation hub dedicated to encouraging collaboration between fintech firms and regulators. In a speech [full text], OSC CEO Maureen Jensen said the new hub would help “tailor regulation and oversight to [fintech firms’] unique business models.”
BOJ official not worried about digital currencies for now. In a conversation with Reuters, Hiromi Yamoaka, head of payment and settlement systems at the Bank of Japan (BOJ), downplayed the short-term impact of digital currency on central banks. However, Yamoaka did note that “digital currency was among topics keenly studied by the bank."
Fundraising & Deals
BCG on investment in cap markets fintech firms. A Boston Consulting Group (BCG) report [full text] suggests that investment banks are under-investing in capital markets-focused fintech firms. BCG notes that fintech can “dramatically lower” capital markets transaction costs, but startups in that sector have received only 4% of total fintech investment dollars since 2000.
Capital One acquires online price tracker. Capital One expanded its portfolio of fintech products by purchasing Paribus for an undisclosed amount. Paribus, which has grown to 700,000 users since starting up in 2014, “alert[s] subscribers to price reductions on recently-purchased products,” allowing users to make post-sale price matching requests to merchants.
Payoneer raises $180 million. The New York-based cross-border payments provider, which helps “small businesses to send and receive payments across borders more quickly and cheaply than via banks,” has now raised $280 million total. The round, one of the largest fintech fundings of 2016, was led by Technology Crossover Ventures.
Company Spotlight
StateStreet to sponsor non-profit FinTech Sandbox. The bank joins other financial services firms, including Fidelity and Thomson Reuters, as sponsors of the Massachusetts-based nonprofit (which is not to be confused with the “regulatory sandbox” policy initiative). The FinTech Sandbox promises that sponsors can “access to fintech innovation in real-time, observe activity on the cutting-edge of technology, and learn more about the startup process.”
Events
FRB Governor to speak about blockchain. Lael Brainard of the U.S. Federal Reserve Board of Governors is expected to deliver a speech on Friday afternoon addressing blockchain’s potential role in the Fed's review of U.S. electronic payment systems.
Commentary & Miscellaneous
A conversation with Patrick McHenry. Rep. McHenry (R-NC), the Vice Chairman of the House Financial Services Committee, has led a recent charge on fintech regulation, introducing three fintech-related bills in the past several months. In an interview with Crowdfund Insider, McHenry discusses his latest proposal, the “Financial Services Innovation Act of 2016.”
Is fintech’s “third wave” coming? Jeff Gido, Global Head of Fintech at Goldman Sachs, believes that fintech is on the verge of a new phase of development marked by partnerships between banks and startups. According to Gido, the first phase was marked by new technology and regulatory changes, and the second by incumbent banks reasserting themselves in the market.
Have a great weekend!
The Fintech Update Team