Fintech Update, 12/17 - 1/6
January 6, 2017
...We’re back! Happy New Year! We hope you had an enjoyable and restful holiday season. We thought we'd kick off the first Update of 2017 by sharing two of our resolutions.
First, based on some feedback we've gotten from you guys (thank you!), we're going to try tweak our format slightly to focus on providing more analysis for a smaller number of important stories. We hope that placing emphasis on connecting the big dots, rather than throwing a bunch of small ones at you, will help foster a better understanding of the ongoing trends in fintech on a week-to-week basis. Please bear with us as we work out the kinks in this idea over the next several weeks.
Second, we want to make the Update as responsive to your needs as possible. If you have any feedback on what we're doing, thoughts on how to improve, or questions about things we discuss, please let us know! We'd love to hear from you.
Thanks, as always, for your support and interest. Keep spreading the word!
-- J.O./A.T.
Leading Off
The number of blockchain-related patent applications has spiked, raising red flags about the possibility of intellectual property battles on the horizon; the NYDFS released revised cyber regulations reflecting comments received on its September 2016 proposal; India’s demonetization program has produced upheaval, creating new opportunities for digital services; and President-elect Trump’s lack of specificity regarding financial and cybersecurity regulations is creating uncertainty in many fintech circles.
Our Favorite Stories This Week
WeChat’s addictive money exchange tool. FastCompany features a fascinating long-form article about WeChat -- China’s chat-app-on-steroids, which has over 750 million active users -- and its “Red Packets,” a digital twist on “the age-old Chinese custom of giving red envelopes filled with money . . . [on] special occasions.” Some WeChat features have already made their way to the U.S., but the extent of WeChat’s in-app functionality still far outpaces that of its Western competitors. Nevertheless, it’s hard not to see the bevy of services offered through WeChat as the future of mobile apps in the West. Facebook, Kik, and others may be getting closer, but the first American app to figure out how to successfully combine social interaction, gamification, existing habits and traditions, and efficient money transmission could be a big winner in the race for mobile app dominance.
The perils of blockchain taking a proprietary turn. According to law firm Reed Smith, the total number of blockchain-related patent applications approximately doubled between January and November 2016. This potentially poses a significant risk for the firms, innovators, and investors involved in the blockchain space, which has largely avoided intellectual property challenges to this point. A race to grab patents could trigger heightened threats of litigation, patent trolls, and legal gridlock similar to that seen in early-90s software development or the recent Apple-Samsung battles. “Anybody who’s investing in the ecosystem, anybody who’s interested in the technology should be worried about this,” said Patrick Murck, a blockchain legal expert at Cooley LLP.
India’s demonetization saga continues, and digital tools stand to benefit. Prime Minister Narendra Modi’s decision to eliminate 500 and 1,000 rupee notes from circulation has resulted in a cash crunch and protests, and its efficacy in curbing black market cash is uncertain. Still, the administration maintains that “incentivising people to go digital and shed cash” is a “good development for the economy.” What’s certain, though, is that eliminating 86% of the cash in circulation represents a significant opportunity for the country’s digital banks. Paytm, India’s leading digital payments firm, recently received approval from the Reserve Bank of India (RBI) to form Paytm Payments Bank; and the State Bank of India, the country's largest lender, announced it will launch a digital-only bank in 2017 and experiment with branchless banking. Meanwhile, the government launched its own solution, the Bharat Interface for Money, a digital payment app developed by the National Payments Corp. of India, which was downloaded five million times and logged over 700,000 transactions in its first four days.
Other Stories We're Tracking
NYDFS releases revised cyber regulations. The New York Department of Financial Services (NYDFS) published an “extensively revised” version of its cybersecurity regulations, originally released in September 2016. The agency made “multiple changes to almost every provision” after receiving over 150 comments on the original proposal.
Chinese consortium launches fintech fund. Several Chinese state-owned and private companies joined forces to form the Asia FinTech Merger and Acquisition Fund of Funds. The fund, valued at nearly $1.5 billion, will target investments in artificial intelligence, mobile payments, and blockchain firms, among others.
What’s next for blockchain in Delaware? In 2016, Delaware created the Delaware Blockchain Initiative (DBI). The DBI aims to migrate some government services to blockchain and ensure that the state’s regulatory environment is "welcoming and enabling" to blockchain. DBI head Andrea Tinianow provides an overview of its progress and discusses her team’s goals for 2017.
Fintech and the Trump Administration. Hogan Lovells partner Aaron Cutler surveys the recent regulatory steps taken by Congress and federal agencies to address the fintech industry. Though the Trump Administration “has not actively addressed [fintech],” Cutler believes the campaign’s pledge to reduce financial regulation “means significant changes are likely forthcoming.”
Have a great weekend!
The Fintech Update Team