In this Issue
Industry Headlines»
International Developments»
COVID-19 and FinTech
The United Nations Privacy Policy Group and the World Health Organization have developed a joint statement on data protection and privacy in COVID-19 response efforts. The joint statement is based on the UN Personal Data and Privacy Principles but particularly focuses on the benefits and challenges data and technology practices may bear during emergency responses. Dr. Samira Asma, assistant director-general of data analytics and delivery at the World Health Organization, said, “This joint statement should serve as a reference for data protection and privacy in the context of the COVID-19 pandemic and beyond.” Unsurprisingly, the use of data have been an integral part of emergency responses to the pandemic, and technological capacities have been augmented in a multitude of industries. This statement highlights the implications of increased digital contact tracing and general health surveillance requiring the collection of personal and non-personal sensitive data.
Industry Headlines
Cloud Computing
In an effort to bolster its anti-financial crime capabilities and overall product capabilities, Nasdaq recently announced it has entered into a definitive agreement to acquire Verafin for $2.75 billion in cash. Verafin’s anti-financial crime management solutions paired with Nasdaq’s existing regulatory technology will provide Nasdaq’s users with enhanced capabilities to detect market manipulation and abuses. Adena Friedman, president and chief executive officer of Nasdaq, shared in a press release that the acquisition will further Nasdaq’s goal of becoming a premier provider of cloud-based Software as a Service (SaaS) solutions and accelerate their transition toward highly scalable subscription revenue. According to Oliver Wyman, Nasdaq’s shift towards enhanced technological regulatory solutions is timely; automation and vendor solutions represent a $13 billion market and have become increasingly attractive solutions for financial institutions.
Beyond Nasdaq’s move towards enhanced internal cloud-based capabilities, the global technology company has stayed active externally as well. According to the Wall Street Journal, Nasdaq filed a proposal early last week with the Securities and Exchange Commission (SEC) that would require listed companies to have at least one woman on their boards, in addition to a director who is a minority or identifies as LGBT+. Within the proposal, Nasdaq defined underrepresented minorities as individuals that self-identify as Black, Hispanic, Asian, Native American, or biracial. Currently, Nasdaq found that more than three-quarters of its listed companies do not meet their proposed requirements. This diversity initiative follows Goldman Sachs’ policy announced earlier this year that established the firm would no longer underwrite initial public offerings of companies in the US and Europe unless they have at least one diverse board member. However, Nasdaq’s policy could be more impactful in diversifying leadership representation, as it has the ability to set rules for over 3,000 companies listed on its stock exchange.
Digital Banking
In a November press release, CitiBank unveiled a preview of the Citi Plex Account, which will be launching on the redesigned Google Pay in 2021. The Citi Plex Account is a digital checking and savings account that will allow consumers to take advantage of Google Pay’s simplified mobile functionality on Citi’s global banking platform. Cesar Sengupta, general manager of the payments division at Google, stated, “Citi customers using Plex accounts will be able to open their accounts right within the Google Pay app,” which simplifies the often onerous process of opening a bank account. Representatives from Google have also made it clear that users’ transactions will not affect the ads they are shown on other Google services.
The Plex account is also an opportunity for Citi to enhance its financial inclusion efforts. The account has no monthly fees, no overdraft charges, and no minimum balance requirements. The fees attached to many banking platforms can often deter individuals from having formal relationships with banking institutions. While this is Citi’s first bundled checking and savings account solution, the shift towards digital banking is certainly industry wide.
Google has recently taken its innovative digital banking partnerships global by developing a new platform in partnership with Cynergy Bank in the UK, mixing digital and traditional relationship banking through technology. According to MarketWatch, Cynergy Bank will rely on the Google Cloud platform to provide customers with the option to do most of their banking online, including speaking with bank representatives. The new platform will eventually include a new range of digital lending and savings products. Cynergy Chief Executive Nick Fahy told MarketWatch the bank hopes the new platform and services will boost its customer base from 80,000 to between 300,000 and 500,000 within the next three years. This partnership is unique in that very few small banks have leveraged Google Cloud to build out digital banking platforms. Google Cloud’s technology is already used for digital financial services by Goldman Sachs, HSBC, Paypal, and Monzo.
Startups and Accelerators
New York-based startup Current recently raised an additional $131 million in funding for their digital banking operations. The company is focused on targeting the market of underbanked and unbanked individuals that often depend on cash-checking companies or cash orders rather than conventional checking accounts. Current offers consumers a streamlined mobile banking app and a Visa debit card with no minimum balance fees and faster direct deposits. According to Crain’s New York, the startup is partnered with the Metropolitan Industrial Financial Institution and Selection Monetary Group, both FDIC members. This partnership enables Current to focus on constructing their consumer base while the financial institution controls cost processing and regulatory duties. Stuart Sopp, chief executive officer of Current, stated, “If you are a deposit-agnostic company and are not making a significant amount of loans, it makes sense to companion with a banking institution rather than purchasing one—which could be very costly for Current at this stage.”
Partnerships with established institutions and accelerator programs seem to be the path many FinTech startups are now taking. These partnerships are mutually beneficial; startups reap the benefits of funding and an established platform while established institutions gain access to innovative technological solutions. Flagstar Bank, one of the largest residential bank servicers in the United States, is the latest institution to announce startup participants for their accelerator program. According to National Mortgage News, Flagstar’s mortgage accelerator program is aimed at supporting technologies that predict the likelihood of home-loan approval for borrowers, automate document processing and analysis, and manage vendor interactions in the closing process. The three newest Flagstar backed startups are Home Lending Pal, RealKey, and Stavvy; these FinTechs will gain access to mentors, Flagstar’s platform, and potential customers over a three-month period. While the three companies are oriented around different components of the mortgage origination and closing process, together, they could help reduce processing timelines, which have been lengthened by this year’s record demand. Home Lending Pal aims to reduce the preparation time for consumers in the home shopping process, while Stavvy and RealKey are targeted towards mortgage originators.
Blockchain and Cryptocurrency
The Libra Association announced the adoption of a new name and the appointment of key executives early last week. The Libra cryptocurrency project, now known as Diem, is focused on reinforcing its organizational independence and building a secure and compliant payment system. According to the Financial Times, Diem’s cryptocurrency could debut as a single coin backed by the dollar, with a possible initial launch in early 2021. In a press release last week, the Diem Association’s Chief Executive Officer Stuart Levy stated, ”The evolution of the project results from constructive ongoing engagement with governments, regulators and other key stakeholders.” Libra was initially pitched by Facebook as a mainstream cryptocurrency that could be used online and offline, similar to the dollar. However, the currency’s launch was halted as many major partners pulled support after a multitude of regulatory hurdles.
Visa and BlockFi are partnering to launch a new credit card issued by Evolve Bank & Trust that will reward user’s purchases with Bitcoin similar to airline miles and other cashback rewards. The credit card will be available to the general public in early 2021 with a $200 annual fee, and 1.5 percent of user’s purchase values will be rewarded with Bitcoin. This is not Visa’s first venture with crypto-based rewards; the credit card company partnered with digital startup Fold earlier this year to offer a debit card with similar reward capabilities, according to CoinTelegraph.
Late last month, VMware Blockchain was made commercially available as a digital platform for enterprises to build business networks and deploy decentralized applications. As reported by IT Brief, the enterprise-grade blockchain platform provides a set of operational capabilities, including ease of deployment, upgradability, and support to meet the requirements of early operations to enable enterprises to bring their blockchain solutions to production. Chief Executive Officer of Digital Asset and co-innovator of VMWare Blockchain stated, “The VMware Blockchain integrated with DARPA Agent Markup Language (DAML) smart contracts from Digital Asset provides privacy between participants in the same workflow.” This integration also allows competitors to collaborate on a distributed ledger, which alleviates privacy concerns.
International Developments
Philippines
The Monetary Board in the Philippines has approved the recognition of digital banking platforms as a new autonomous banking category separate from the traditional bank classifications. According to Crowdfund Insider, regulators have defined digital banks as institutions or entities that provide financial services that are digitally managed end-to-end without any physical branches. The Philippines reserve bank is one of the first in Asia to approve a digital banking framework, with regulators in Malaysia, Hong Kong, and Singapore still in the proposal process. This updated framework will allow industry participants to develop more tech-driven financial services products while being subjected to the same requirements that other traditional banks are required to follow. The Philippine National Bank Governor Benjamin E. Diokno stated that the reserve bank wants 70 percent of Filipinos to maintain transaction accounts by the year 2023, and these developments could “remove sticky points and leapfrog our financial inclusiveness agenda.” It is fair to say that targeting the unbanked and underbanked using digital banking platforms is on the minds of both the public and private sector.
Singapore
Singapore and the Philippines are definitely aligned with their digital banking initiatives. Singapore’s financial regulators have recently announced they are sticking to their original plan of awarding digital banking licenses by the end of 2021. Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), affirmed that the regulatory tightening occurring in China “will not have an impact on the digital banks here,” according to Bloomberg. Given that Singapore is a financial regulatory hub, digital banking licenses will be highly sought. Reportedly, as many as five licenses will be awarded from a list of 14 eligible candidates; many Chinese firms, such as Ant Group, are presumed to be on that list. Menon also clarified that the MAS is taking a progressive approach to regulating digital banks, such as restricting their ability to take deposits initially, before giving them permission to operate more freely once steady profitability is proven. Singapore’s regulators will not penalize banks from any country because of sanctions it may be under, undoubtedly a glimmer of hope for highly regulated Chinese and foreign firms.
The MAS has also announced it will allow eligible non-bank financial institutions to have direct access to the country’s electronic retail payment platforms, PayNow and Fast and Secure Transfers (FAST). This will enable e-wallet users to make funds transfers between bank accounts and different e-wallets. These non-bank institutions will need to be licensed under the Payment Services Act. Currently, most e-wallets can only be refilled via credit or debit cards, and funds cannot be transferred between e-wallets, according to ZDNet.
Canada
After persistent calls for the Canadian government to increase protections for consumers' digital privacy, Innovation Minister Navdeep Bains introduced the Digital Implementation Act. According to CBC, if the bill passes, companies could face fines up to five percent of global revenue or CAD$25 million for the most serious offenses. Essentially, the legislation will require companies to obtain consent from customers through plain language—not the run of the mill terms and conditions filled with legal jargon—before using their personal data. This would be in addition to Canada’s two established privacy laws, the Privacy Act and Personal Information Protection Act. President of the Canadian Internet Registration Authority (CIRA) Bryon Holland stated that “companies that handle massive troves of personal data must be held accountable for protecting that data, be transparent about how they use it and face real consequences should they break the trust of their users.”
For more information on FinTech in Focus or the Milken Institute’s FinTech program, please contact Kate Goldman at [email protected].