In this Issue

COVID-19»
Congress»
International Developments»

Global Conference 2020

You’ll have to pardon the delay of this week’s installment of FinTech in Focus. I promise it was for a good reason! Over the last two weeks, the Milken Institute has swapped our yearly Global Conference soirée, typically held in Los Angeles, for a virtual platform. The conference’s esteemed speakers ran the gamut from our chairman, Michael Milken, to Van Jones, to Representative Dingell—and even included Pharrell Williams. Despite the attendees being miles—and sometimes oceans—apart, the conversations were rich in substance and timeliness. 

Centering around the theme of “meeting the moment,” the value of technology during the pandemic was not overlooked. Last Monday morning, Michael Milken posed a question to panelists asking how technology has impacted their business during the pandemic. The group agreed technology has played an integral role in their COVID-19 response success. Todd Gibbons, CEO of BNY Mellon, stated, “Without the technology that we had in place, it would have been an incredible challenge.” Thomas Gottstein, CEO of Credit Suisse, noted, “Technology is very important for issuers but also for investors. We have seen a huge spike in the usage of technology for our clients.” Gottstein also noted that online banking was up 40 percent from previous years. 

On October 16, Matthew Brown, founder and CEO of CAIS, hosted a panel of diverse experts to give their own perspective on FinTech’s value during COVID-19. Panelists discussed topics including the impact of rapid digitization, the role of data in our core systems, and the need for greater explainability in artificial intelligence. On the accelerated use of technology, Munish Varma, managing partner of SoftBank Investment Advisers, stated, “That fundamental shift of human behavior will persist with us even after the pandemic is over.” 

To watch panels and catch up on additional learnings from the conference, visit our website.  

 COVID-19

Speaking of the “fundamental shift” towards FinTech, Plaid recently published data supporting the idea of FinTech as the “new normal.” Earlier this month, Plaid published its first installment of The FinTech Effect, a series highlighting FinTech’s impact across the US. In their report, Plaid conducted a survey in partnership with The Harris Poll evaluating COVID-19’s bearing on FinTech usage. This report highlights three key findings: 

• Firstly, rates of FinTech adoption have accelerated throughout the pandemic. 59 percent of survey respondents agree with the statement, “I use more apps and digital tools to manage my money now than I did before COVID-19.” 

• Secondly, FinTech has proved itself as a critical tool for regulating money management habits during COVID-19. The survey found that more than half of respondents say they could not have kept up with their finances during COVID-19 if not for digital apps, products, and services.

• Lastly, FinTech’s surge in popularity isn’t a temporary phenomenon. Seventy-three percent reported that they believe FinTech will become the “new normal” for money management after the pandemic. 

It is not surprising to see evidence supporting FinTech’s popularity throughout the pandemic. For consumers, being able to bank from home used to be a matter of convenience. When stay-at-home orders were announced, this convenience became a lifeline. This is especially true for those of us living with an immunocompromised person or in an area where bank branches are already largely inaccessible. I spoke with CQ Roll Call about these issues and about Plaid’s research. You can read that article here. 

 Congress

The House Financial Service Committee FinTech Task Force held its final hearing this month. The hearing was somewhat bittersweet as members acknowledged the progress made over the last year. Still, the consensus remains that much work is left to be done. Ranking Member Tom Emmer suggested a possible FinTech Subcommittee in the 117th Congress. This isn’t a bad idea given the US still lacks a strong regulatory framework for FinTech.  

During his opening statements, Ranking Member Emmer highlighted his recently introduced Securities Clarity Act, which spells out the treatment of digital assets under securities law. Representative Emmer also recently co-sponsored the Digital Commodity Exchange Act of 2020. According to CoinDesk, the Digital Commodity Exchange Act of 2020 “seeks to create a federal definition of ‘digital commodity exchanges,’ putting them in their own legal category and charging the Commodity Futures Trading Commission (CFTC) with oversight.”

Even considering the Task Force’s progress, this final hearing showed how divided policymakers remain on some of FinTech’s foundational issues. Rather philosophically, the group grappled with the true definition of a bank. Is being a depository institution a prerequisite to banking? Can an institution assume banking functions without taking deposits? What are the consequences of action vs. inaction? This debate stems from the Office of Comptroller Currency’s recent efforts to grant non-depository institutions FinTech charters. Concerns were expressed that non-banks could potentially access the privileges of our federal system without being subject to the same regulatory scrutiny as traditional banks.  

Members were in agreement on the importance of enacting a federal data privacy framework. Just a few days prior, the Senate Committee on Commerce, Science, and Transportation held a hearing to discuss this very issue. This hearing raised critical questions that need to be addressed before moving forward on a national policy. Will this bill codify private right of action? How should expressed consent be enforced? To what extent do people own their own data? Legislators are taking notes from the California Consumer Privacy Act (CCPA) and Europe’s General Data Protection Regulation (GDPR) as they write their own policy.

Chairman Wicker took time during the hearing to promote the Setting an American Framework to Ensure Data Access, Transparency, and Accountability (SAFE DATA) Act, which he recently introduced. The SAFE DATA Act is one of the most comprehensive data reform bills introduced in the 116th Congress. A press release from the Senator’s office states: “The legislation would provide Americans with more choice and control over their data and direct businesses to be more transparent and accountable for their data practices. The bill would also enhance the Federal Trade Commission’s (FTC) authority and provide additional resources to enforce the Act.”  

Digital Assets

The Securities and Exchange Commission has issued a no-action letter to Financial Industry Regulatory Authority (FINRA) that could help with the settlement of digital asset securities transactions processed on an alternative trading system (ATS). The National Law Review reports, “An ATS facilitating transactions in digital asset securities may not be subject to enforcement action if they abide by the following three-step settlement process:

1. The buyer and seller send their respective orders to the ATS, notify their respective custodians of their respective orders submitted to the ATS, and instruct their respective custodians to settle transactions in accordance with the terms of their orders when the ATS notifies the custodians of a match on the ATS;

2. the ATS matches the orders; and

3. the ATS notifies the buyer and seller and their respective custodians of the matched trade and the custodians carry out the conditional instructions.”

Diginex, a Singapore-based digital asset group, listed on Nasdaq just a few weeks ago. They are the first crypto and digital asset exchange to go public in the US. Diginex’s CEO Richard Byworth discussed their historic public listing, saying, “When we started building Diginex, we felt strongly that we needed to help raise standards and the transparency of the industry in order to help it grow. Nasdaq was the ultimate destination as a technology company and now investors will be able to participate in the ‘picks and shovels’ of this burgeoning new asset class via the rich ecosystem built across the Diginex group.”

Cryptocurrency 

Square released a press release this month announcing the company had purchased nearly 5,000 bitcoins for the modest price of about $50 million. The press release goes on to say, “Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose. The investment represents approximately one percent of Square’s total assets as of the end of the second quarter of 2020.” Square also published an open-sourced whitepaper discussing the impressive bitcoin purchase.

In other cryptocurrency news, PayPal just announced that beginning in 2021, customers will be able to buy, sell, and hold digital currencies. PayPal users will also be able to shop at certain retailers using cryptocurrencies. Cointelegraph explains, “The payments will be settled through fiat currencies, similar to many existing crypto merchant solutions like BitPay. This means that the merchants will be receiving fiat, as PayPal will take care of the conversion.”

The Internal Revenue Service (IRS) will be adding a cryptocurrency question to the 2020 1040 Form. Fortune reports, “The proposed IRS change comes as the agency continues to ramp up scrutiny of Bitcoin and other cryptocurrencies. In some cases, the focus of the IRS has been criminal activity involving digital currency, while in others the agency has sought to identify those who fail to report profits from trading.” While this change may be a result of regulators’ heightened concern over illegal crypto activity, it is still a step in the right direction for cryptocurrency owners desiring a clear regulatory compliance framework.

Virtual Banking

Bank of America has announced the launch of their new Life Plan program. The program, which is available through the bank’s mobile app and website, aims to help their customers with financial planning. According to a press release, users will be enabled to prioritize and subsequently adjust financial goals, track their overall progress, and “leverage the company’s network of financial professionals by scheduling in-person or virtual one-on-one appointments for collaborative discussions about their goals and strategies to help achieve them.” Life Plan is currently available in Spanish and English. 

Payments

JPMorgan Chase & Co. is raising the standard for FinTech services after announcing the launch of QuickAccept. QuickAccept will allow businesses to receive money into their Chase accounts faster than what competitors like Square are currently offering and without the additional fees. CNBC reports, “QuickAccept lets merchants take card payments within minutes, either through a mobile app or a contactless card reader, and users will see sales hit their Chase business accounts on the same day.” This product will likely be extremely attractive to business owners, especially as many businesses are struggling to make ends meet.  

 International Developments

Brazil: The Central Bank of Brazil Governor Roberto Campos Neto spoke with Komal Sri-Kumar, a senior fellow at the Milken Institute and president of Sri-Kumar Global Strategies, on Monday, October 19 at the Milken Institute Global Conference. Discussing Brazil’s economic recovery from COVID-19, Campos Neto told Sri-Kumar that technology was playing a large role in their efforts. 

Regarding technology specifically, Campos Neto stated there was a lot that had changed in the way they see financial intermediation. These changes include the convergence of texting, content, and payments; the concentration in cloud computing; and the tokenization of assets. The Governor told the virtual audience, “The reaction of the Central Bank was not to postpone the technology in general but to anticipate a lot of it. So, we have an instant payment system that starts live next month.” 

The instant payment system he referred to is the Central Bank of Brazil’s PIX system. Ebanx explains, “PIX is the system created by the Brazilian Central Bank to bring instant payments to life. It is through PIX that all wallets that use QR Codes will be interoperable, meaning transfers and payments will be allowed from one e-wallet to another in real-time, 24/7.”

In other news coming out of Brazil this month, Cointelegraph reports, “Brazil ‘is about to’ join the Organization for Economic Cooperation and Development (OECD) and that the Brazilian government has plans to launch a public offering of shares (IPO) for the newly-created digital bank of Caixa Econômica Federal.” Paulo Guedes, Brazil’s minister of finance, announced the news during a virtual conversation at the Milken Institute’s Global Conference on Tuesday, October 20. You can watch a broadcast of this conversation here.