Fintech Update, 12/3 - 12/9
December 3-9, 2016
Leading Off
The Fed released a research paper on distributed ledger technology; it was learned that the SEC questioned LendingClub about its operations and accounting practices; IBM demonstrated its Watson platform in Toronto; Circle announced it would stop allowing bitcoin transactions; Scotiabank and QED Investors created a joint VC fund to invest in Latin American fintech; and the NYT’s Dealbook examined last week’s IRS-Coinbase ruling.
Policy & Regulation
Fed releases DLT research paper. The Federal Reserve’s new paper [full text] examines the potential risks, rewards, and impact of distributed ledger technology (“DLT”) for business cases including payments, securities clearing, and settlement. The research was spearheaded by Fed governor Lael Brainard, following a speech she delivered on DLT in April [full text].
OCC requires special-purpose charter-seekers to consider financial inclusion. The Office of the Comptroller of the Currency (OCC) dedicated significant attention to financial inclusion in its recent paper on special-purpose charter applications [full text]. The OCC expects all applicants “engaging in lending activities,” even if not subject to the Community Reinvestment Act, to show commitment to financial inclusion and create business plans responsive to community needs.
Marketplace Lending & Credit
SEC questions LendingClub’s business and accounting. The Securities and Exchange Commission (SEC) asked LendingClub to “disclose more about its lending operations” and questioned its use of “non-GAAP” financial measures. The SEC’s requests came in recently released comment letters to the company from June and October.
Banking & Markets
Watson may offer big benefits for banks. IBM demonstrated its Watson platform and discussed what it may mean for financial services at a recent event in Toronto. The demonstration ranged from “simple” tasks, like automated customer service support, to the "quite complex,” like analyzing large datasets to find “early signals of opportunities and risks for asset managers.”
Digital Currency & Blockchain
Circle to stop transacting bitcoin. The company will no longer offer customers the ability to buy and sell bitcoins. The company intends to grow its Circle Pay mobile app, which facilitates transfers in dollars, euros and British pounds, though it may continue using bitcoin to settle transactions behind the scenes. Circle’s payments platform will continue to rely on blockchain.
BCG on blockchain. The Boston Consulting Group (BCG) published “Thinking Outside the Blocks,” [full text] a primer for businesses to understand the interplay of tokens and blockchain in facilitating new forms of digital identity, ownership, contracts, and trust. BCG suggests that the environment for blockchain is “favorable” but prospects for the technology remain uncertain.
International News
Facebook acquires European e-money license. Facebook has been authorized as an “electronic money institution” by the Central Bank of Ireland (CBI). The new license allows the social media giant to roll out new functionality to its European users, including the ability to make payments and P2P money transfers via the Messenger app.
Scotiabank and QED to invest in Latin American fintech startups. Canada’s Scotiabank is partnering with QED Investors, a Virginia-based venture capital firm, to launch a VC fund targeting Latin American fintech firms. QED will manage the fund and leverage Scotiabank’s “strong presence in the region” to assess potential investments.
Fundraising & Deals
R3 expects to raise $150 million in Q1. The blockchain consortium’s CEO confirmed that the company is “in the process of raising a $150 million round” expected to close “in the early part of the new year.” Over 90% of R3’s original 42 bank members “have expressed an interest in investing.” Current members include JPMorgan Chase, Deutsche Bank, and Thomson Reuters.
Company Spotlight
CRB offers to advise fintech firms. Cross River Bank (CRB), a frequent bank partner for fintech firms, said it could provide advice on regulatory compliance to any fintech firm seeking a special-purpose bank charter from the OCC. “All fintech companies venturing in[to] the charter application process must achieve . . . a top-down culture of compliance,” said CEO Gilles Gade.
Citi FinTech releases first product. Citibank’s internal fintech initiative released its first product, a refreshed Citi Mobile app available only to the bank customers with Citigold accounts. The rollout comes with mixed reactions: the app appears to be responsive to customer feedback, but, as TechCrunch points out, “only a fraction of [Citi’s] customer base will get to sample [it].”
Veridium hires former HSBC fintech executive as CEO. The Boston-based digital biometric authentication firm hired James Stickland as its new CEO. Stickland previously led fintech innovation and investments at HSBC and held executive roles at JPMorgan and Cisco.
Commentary & Miscellaneous
Unpacking the IRS-Coinbase ruling. A California federal court last week approved an IRS request for digital currency firm Coinbase to reveal the identities of users “transacting in virtual currencies” between 2013-15. Writing in Dealbook, Peter Henning discusses why “Coinbase is now important enough to draw [such] scrutiny,” and what that means for fintech firms.
Is blockchain still on track? In the wake of early R3-backers Goldman Sachs and Banco Santander leaving the consortium, Bloomberg’s Elaine Ou wonders what’s next for blockchain. Ou suggests that some blockchain ventures may be running into problems because they “neglected to ask financial institutions what they wanted.”
What is the future for fintech and regulation? Carol Van Cleef, a partner in Baker Hostetler’s D.C. office, shares her thoughts on the outlook for fintech and regulation. Van Cleef’s comments include notes on cybersecurity and ransomware, smart contracts, and robo-advisory services.
Have a great weekend!
The Fintech Update Team