In this FinTech in Focus
Industry Developments»
International Developments»
COVID-19 and FinTech
Similar to the second round of stimulus payments, some Americans received their third stimulus payment before others depending on the financial institution they bank with. According to CNBC, the first deposits came just one day after President Joe Biden signed the $1.9T American Rescue Plan (ARP) Act into law. A spokesperson from Current, a FinTech bank startup, told CNBC they "began crediting the payments to customers’ accounts right away, and estimated that they have credited around 25% of Current’s eligible account holders” by the day after the act’s passage. Given that Current’s target account holders are the underbanked or unbanked population, the timeliness of their stimulus deposits further suggests the merits of FinTech digital banking efforts and access to capital. The bank did not wait for the funds to settle before making them available to customers, something that would likely pose a significant challenge for large financial institutions.
Industry Developments
Payments
As large banks continue to expand their digital offerings, J.P. Morgan Chase is the latest to tap new talent to lead their FinTech initiatives. According to PYMNTS.com, J.P. Morgan Chase has hired ex-HSBC executive Jeremy Balkin as the head of FinTech and Innovation for Wholesale Payments. At HSBC, Balkin served as the head of Innovation and Strategic Digital Partnerships and was responsible for sourcing new digital products and improving the customer experience. Reuters reports that J.P. Morgan Chase’s wholesale payments division appointed former BlueVine and PayPal Holdings executive Brad Brodigan as global head of small-to-medium-sized business (SMB) for Merchant Services. Both Balkin and Brodigan will be involved in overseeing partnerships, FinTech offerings, and new investment decisions. These hires are part of an influx of FinTech talent moving from large traditional banks, such as Goldman Sachs, to new FinTech ventures.
The latest Mastercard partnership follows a similar path to its past FinTech partnerships, which speaks to the value-add of its global payment network. Payoneer, a digital payment company, is partnering with Mastercard to offer small businesses a digital payments card, CNBC reports. This partnership comes ahead of Payoneer’s plan to IPO in a deal valuing it as $3.3B and merge with the SPAC, FTAC Olympus Acquisition Corp. According to CNBC, Payoneer’s Digital Purchasing Mastercard will allow small businesses to make global purchases, connect to mobile wallets, and streamline business expenses by accessing multiple cards at once. Mastercard’s Executive Vice President of Digital Partnerships Sherri Haymond told CNBC, “Small businesses will be empowered to choose how they pay and get paid and have immediate access to funds earned, which is critical as the demand for digital payments continue to accelerate.” Payoneer’s partnership arrives amid a surge in demand for contactless and digital payment solutions due to the COVID-19 pandemic, but their cards are only being issued for use in US dollar transactions and on a limited basis until its broader rollout in the second half of 2021.
Data Privacy
Earlier this month, Virginia joined California and became the second state to pass a comprehensive consumer data privacy law. According to the National Law Review, the Virginia Consumer Data Protection Act (VCDPA) does not become effective until January 1, 2023—the same effective date of California’s Privacy Rights Act. This is likely because the states are allowing technology firms and other affected industries to prepare to comply with their new obligations. Unlike California’s Consumer Privacy Law, the VCDPA establishes heightened procedures for securing and processing data, as well as required consumer consent for businesses to process data deemed sensitive. This data can range from race, ethnicity, religious beliefs, sexual orientation, or biometric data sufficient to identify a person, as well as precise geolocation data, the National Law Review reports. Similar to California’s legislation, the VCDPA requires businesses to permit consumers to opt-out of the sale of their data. It also has an additional requirement to allow consumers to opt out of their data being used for targeted advertising. Proponents of strong consumer data protection legislation have expressed their support of the VCDPA, but some doubt these opt-out conditions will be easy for consumers to use.
Arizona and Maryland lawmakers are looking for ways to limit the power of Big Tech, ranging from online privacy and digital ads to regulating app-store fees, according to The Wall Street Journal. An Arizona bill that recently cleared their state House focuses primarily on limiting fees software developers pay Apple and Google to place their apps on their app stores. Instead of Apple or Google charging customers for paid applications, software developers for Arizona-based apps would receive payment through the payment system of their choice, as reported by The Wall Street Journal. A spokesperson from Apple stated that this legislation threatens to break their safe and trusted App store model and “undermines the strong protections we’ve put in place for customers.” Maryland’s recently passed bill also highlights why technology companies have stepped up their legislative spending. If passed, the legislation would tax the revenue from digital ads of companies such as Google, Amazon, and Facebook, according to The Wall Street Journal. The question to consider now is whether skilled lobbying can slow the inevitable federal regulation of Big Tech data-oriented activities?
Cryptocurrency
The cryptocurrency frenzy has driven individuals to think creatively about physical asset ownership, including digital media, fine art, and collectibles like trading cards. Earlier this month, a trading card featuring quarterback Tom Brady sold for a record $1.3M via a non-fungible token (NFT). Additionally, Christie’s renowned auction house sold digital artwork created by Beeple for $69.3M after bids started at $100, according to The New York Times. It appears that individuals’ fascination with blockchain technology has inflated the price of items backed by NFTs.
An NFT is a unique digital file for which ownership can be identified and verified on a blockchain. Skeptics believe it is a risky investment as NFT images can be copied and shared beyond the owner’s control, but artists likely see the growth of NFT investments as an opportunity because creators of the underlying works typically retain the copyright, as reported by The New York Times. For Christie's sale, both the NFT digital format of the piece and the Ethereum cryptocurrency used to pay for the piece could be viewed as risky. Given the volatility of the cryptocurrency market, Alex Rotter, Christie’s chairman of 20th and 21st-century art, stated, “We let the market decide what it’s worth, we didn’t push anyone to bid $60.25 million.” Noting that while $69M is not unprecedented for established artists, it is rare for a new artist like Beeple.
Organizational Development
Earlier this month, Wise, Betterment, Afterpay, Plaid, and other FinTechs launched the Financial Technology Association (FTA). The organization's mission is to “educate stakeholders on the value of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion, fairness, and innovation.” Structurally, the organization is likely to be run similarly to a lobbying group centered around research and technology. Read FTA’s launch paper, “Shaping the Future of Finance.”
International Developments
China
China’s central bank is testing the use of digital yuan with local retailers in preparation for a full launch of its digital currency ahead of the 2022 Beijing Olympics. The first set of local retailers to accept the digital yuan payments are two department stores and one food center in Shanghai, according to CoinGeek. The retailers worked in partnership with China Construction Bank and the Bank of Communications to process several thousand digital yuan transactions the weekend of the local launch, as reported by Shine News. One reason for the rapid adoption of the digital yuan by consumers is the ease of use. Both partner banks have created digital yuan apps that give customers a persona barcode that retailers can scan for seamless payments. With the European Central Bank also in the development stage of the digital euro, more central banks are likely to follow.
After heightened scrutiny and restructuring of Ant Group, a FinTech company headquartered in China, its Chief Executive Officer Simon Hu resigned this month. Hu had served as the CEO of Ant since December 2019 and spearheaded efforts to work with Chinese regulators to rectify their concerns, according to the Wall Street Journal. However, after the company's IPO was blocked and Ant began planning for their restructuring into a financial holding company overseen by China’s central bank, employees will have to wait longer to monetize their shares. Ant’s Chairman Eric Jing will now assume the CEO role, but this is likely a temporary arrangement.
For more information on FinTech in Focus or the Milken Institute’s FinTech program, please contact Kate Goldman at [email protected].