Authors
Katherine Chacon
FinTech Intern
In this Issue
International Policy Developments»
USA Today reports that “Federal rescue loans during the shutdown have given smaller, relationship-driven banks an unexpected opportunity to showcase their strengths - especially their ability to quickly respond to customer needs. Banks with less than $10 billion in assets issued about 60% of loans in the first round of the PPP, according to the Small Business Administration.” In the second round, bigger banks were able to bounce back, but smaller banks still had an advantage because customers had already secured loans through them. One of the main advantages community banks have is their ability to quickly process loan applications in comparison to bigger banks. Therefore, the PPP has led to an influx of new customers at community banks, although it is unclear if they will stick.
The growth in the customer base of these smaller institutions is also due to the fact that FinTech providers are helping smaller banks. Barrons reports that Robert Smith, CEO of Vista Equity Partners, “challenged Finastra’s leaders to develop software that would help small lenders process Paycheck Protection Program loans for underserved small businesses.” Finastra provides software to 4,200 banks in the US, and nearly half of those (1,700) are small lenders. “The FinTech was already supporting these lenders, which were expected to help 1.4 million small- to medium-size businesses in its ecosystem apply for PPP loans,” said Smith in a statement. “In the process, it became apparent how unbanked these most vulnerable communities are, and we felt it was imperative to help build out permanent infrastructure in those banks so that they can build long-term relationships with the U.S. Small Business Administration beyond PPP.”
Speaking of banks, Forbes contributor Ron Shevlin predicts the future in FinTech will be “an era of FinTech, or economic, realism.” He argues that banks, who have been obsessed with FinTech partnerships for the last several years, will be increasingly fickle about FinTech experimentation. Additionally, the metric used to evaluate successful FinTechs will change, with less of an emphasis placed on the number of customers that a challenger bank has and more emphasis on its quality. Specifically, he predicts the “number of funded accounts and funded accounts percent of total downloads” will become increasingly important. However, even though there will be changes in how FinTechs are evaluated, as we look past the back-end of the COVID-19 pandemic and try to figure out the “new normal” for banking, FinTech will undoubtedly play a substantial role.
Industry Headlines
Banking: EastWest Banking Corp. announced the launch of a fully digital bank, making it the first banking group in the Philippines to do so. According to Business Mirror, the bank offers its digital bank through its subsidiary EastWest Rural Bank.
Speaking of digital banks, a survey conducted by FinTech firm Novantas reported that only around 40 percent of people expect to return to physical bank branches after COVID-19 has passed, which could accelerate the consumer shift to online banking platforms.
However, a shift toward digital banking is not the only transition occurring within the financial services sector. A joint report by Plaid, a US-based FinTech, and 11:FS, a challenger firm, explores the transition from open banking to open finance through its comparison of the regulatory-led paths of the UK, Europe, and Australia with more market-led paths in the US and Canada.
Blockchain: German blockchain firm AnyBlock Analytics has announced the launch of an app that tracks coronavirus test results, per Yahoo Finance. This news comes in the wake of comments made by the Overstock CEO that blockchain-based “immunity passports” would be key to overcoming the economic hurdles of the pandemic.
Nuggets, a digital identity and payments platform, has demonstrated another use-case for blockchain: Contact-free signing for deliveries. According to CoinDesk, Nuggets’ contactless delivery technology aims to “equip consumers with the means to provide verified proof of identification while still maintaining the social distancing required.” Additionally, this technology helps “counter a rise in delivery fraud and chargebacks” that has occurred because customers are no longer required to sign for deliveries.
In the context of fraud and security, Crowdfund Insider reports that Zebpay, a digital currency wallet and exchange provider, is working with Chainalysis, a blockchain security firm, “to monitor crypto-asset transactions performed across its platforms for Indian consumers.”
In other news, blockchain company Theta Labs and Google Cloud have formed a partnership. Forbes states that “Google Cloud will offer a new service allowing users to deploy and run nodes of Theta’s blockchain network” and will also “operate a validator for Theta’s network - servicing all of Europe.” Forbes describes a validator as a “foundation of a blockchain network, deciding if a transaction is legit and vouching for that transaction.” Even though these are small steps, this is significant because Google has previously stayed out of the cryptocurrency and blockchain space.
Cryptocurrency: According to CNBC, the consumer and investment management division of Goldman Sachs released a slide deck ahead of an investor call detailing how and why there is not a case for investing in cryptocurrencies. They even went so far as to declare that “cryptocurrencies including bitcoin are not an asset class.” There was swift backlash, most notably from the Winklevoss Twins, co-founders of Gemini, and Chris Thomas, the head of digital assets for the Swiss Bank. Thomas’ published response can be found here.
A new report by digital asset intelligence firm CipherTrace details an increase in cryptocurrency crimes over the first five months of 2020, with the total value in those months standing at $1.4 billion. According to the report, this increase in crime seems to be partly attributed to criminals capitalizing on the COVID-19 pandemic; many of the scams involve false email campaigns that impersonate groups such as the Red Cross and the Centers for Disease Control and Prevention to solicit donations in the form of cryptocurrency. Cointelegraph spoke with John Jefferies, the chief marketing officer and chief financial analyst at CipherTrace, and he said, “[I]t is possible that by the time the year comes to a close, the amount of funds netted by criminals may exceed the expectations of the report, beating 2019’s $4.5 billion figure.” In addition to capitalizing on COVID-19, CipherTrace’s report also suggests that the rise in money laundering and fraud has coincided with an increase of funds being sent from Bitcoin ATMs, which are higher-risk exchanges than established crypto exchanges.
Additionally, CoinTelegraph reported that Microsoft, IBM, and Nasdaq, among other organizations, have recently formed the InterWork Alliance, a non-profit dedicated to creating global standards for tokenization to drive widespread adoption of distributed ledger technology.
Bitcoin.com announced that Bitcoin Suisse added gold, silver, and platinum to its platform, allowing users to trade the metals against bitcoin and ether, as well as five other major flat currencies. Bitcoin has drawn comparisons with gold and has even been thought of as Gold 2.0. However, in the same article, Bitcoin.com also notes that “tradable products that connect BTC and gold or other precious metals remain few and far between.”
Along the same lines, crypto asset management company CoinShares has launched the CoinShares Gold and Crypto Assets Index (CGCI). According to Crowdfund Insider, “The CGCI is reportedly the first EU Benchmark Regulations (EU BMR) compliant index for the digital asset sector that combines virtual assets and gold. The index is live on Bloomberg Terminals and Refinitiv (previously known as Reuters).”
Digital Assets: Ground X, the blockchain affiliate of South Korean Internet giant Kakao, launched a blockchain-based digital asset wallet service called Klip. Yahoo Finance reported, “Klip users can safely store and easily transfer digital assets obtained from Klaytn-based blockchain applications across different verticals such as social networking, gaming, and e-commerce. The Klaytn platform itself is a global public blockchain platform also developed by Ground X.”
Lending: London base peer-to-peer lending platform Elfin Market announced the launch of the Elfin card, the first physical credit card in the P2P market in the UK. The card will be linked to Elfin Purse, an existing product, and will allow “customers to make transactions and withdrawals on the go.”
Partnerships: Hundson Technologies Inc. announced a partnership with global FinTech company Finastra to develop and launch a new version of Finastra’s portfolio management, Fusion Invest.
Via a press release, UK FinTech and rising challenger bank Plutus has announced a collaboration with Nike in a bid to enable customers to earn cashback via the Plutus Visa Card, which will be made available on Nike’s online store. “According to Plutus, the agreement with Nike is expected to enable the former’s users to earn additional rewards on specific products.”
According to Forbes, “Samsung’s Blockchain Wallet will add support for users of U.S. bitcoin and crypto exchange Gemini in North America. Users of Samsung’s crypto wallet, which allows self-custody of bitcoin and crypto directly on newer Samsung Galaxy models, will be able to buy and sell bitcoin and a small selection of other cryptocurrencies via the Gemini exchange. They will also be able to view Gemini account balances and transfer their bitcoin and crypto into a higher security cold storage account.”
Ondot Systems, a digital card services platform for credit and debt issuers, announced its collaboration with Visa Token Services, which is “enabling the company to begin tokenizing credential-on-file digital payments on behalf of their clients for an additional level of security. By teaming up with Visa, Ondot can provide tokenization services through the company’s Card App interface to support the use of Visa cards through digital wallets.”
Payments: According to a press release, “high-growth, US-based payment installment platform, QuadPay, has partnered with Australian publicly traded buy now pay later (BNPL) pioneer, Zip Co., to create a $1bn+ global payments company. The deal will continue to significantly grow the North American BNPL market and expands the group’s reach to more than 3.5 million customers and 26,000 merchant partners worldwide.” The move to trade as one public company not only allows for international expansion but also expands the US BNPL market: Quadpay’s “online virtual checkout technology enables eCommerce websites to add QuadPay in a few lines of front-end code without requiring any API integrations or modifications to financial settlement, reconciliation or refunds processes. So, whether merchants are online-only, have one store, or one thousand, they can deploy QuadPay and see results quicker than with any other BNPL solution.”
Another high-profile partnership recently announced is between Safecharge and Visa. Per the press release, SafeCharge Local, which is backed by Visa, “enables businesses to receive payments through the use of QR codes and secure payment links without the need for a physical point of sale terminal or an online shop.”
In other news, according to a press release, Ingenico Group unveiled its SCA Accelerator Suite. “The suite will bring all of Ingenico ePayments’ expertise together to help online businesses improve their performance and facilitate the implementation of Strong Customer Authentication (SCA).”
Savetech: Save Advisors, a new FinTech startup, announced plans to launch a FDIC-insured savings platform. Forbes reports this platform would allow customers to open “a savings account with a minimum of $1,000.” However, “instead of getting a fixed rate of interest, Save invests the customer’s interest in a portfolio of ETFs that cover stocks, bonds, real estate, and commodities.”
International Policy Developments
Argentina: According to Coin Geek, a new report by local newspaper El Cronista reveals Argentina’s Financial Information Unit is pushing for stricter and tighter controls over digital currency trading. Carlos Alberto Cruz, the agency’s president, stated the reasoning for this decision was based on “an increase in operations carried out through virtual assets. These transactions could be carried out by people who intend to circumvent international standards and avoid the anti-money laundering framework.”
Australia: The Reserve Bank of Australia (RBA), the country’s central bank, is considering using “its regulatory powers to reduce the cost of electronic payments for merchants,” per Reuters. Assistant Governor Michele Bullock cited increased consumer wariness of cash payments as the main reason for this potential regulatory shift. Currently, RBA is conducting a review of retail payments regulation in the country to determine the next steps.
China: Bitcoin.com reported that in the “third session of the 13th National People’s Congress (NPC), China’s top legislature, voted on and passed the ‘Civil Code of the People’s Republic of China.’” Under this new civil code, “virtual assets, such as bitcoins, can be inherited.” Additionally, some Chinese courts have ruled cryptocurrencies are considered property protected by law. “For example, the Shanghai No. 1 Intermediate People’s Court ruled that bitcoin is an asset protected by law while the Shenzhen Futian District People’s Court ruled that Ethereum is legal property with economic value.”
European Union: According to Bloomberg, after the 2008 crisis, the UK “was at the forefront of some of the bloc’s most onerous financial regulation.” This led to a crackdown on funding for investment research, “rolled out across the EU in 2018 as part of the MiFID II financial rule-book reforms—which forced fund managers to budget and pay for investment research ideas separately from actual trading and investing.” However, because of Brexit, “a lobbying push to relax MiFID research curbs led by asset managers, bankers and even national regulators in countries such as France and Germany is gathering pace. EU authorities are mulling special exemptions and incentives to boost research coverage of small-to-medium-sized companies…in order to help the economy get back on its feet.”
India: Per BloombergQuint, “The Reserve Bank of India will put in seed capital to set up a Payments Infrastructure Development Fund to encourage the adoption and deployment of Point-Of-Sale devices.”
Russia: According to Coin Idol, “Sberbank, Russia’s largest state-owned bank, has expanded and installed blockchain-based ATMs to increase contactless transactions.” Specifically, “Sberbank plans to deploy 5,000 ATMs powered by blockchain throughout the country.”
Singapore: Straits Times reports the Monetary Authority of Singapore has launched a $1.75 million competition to “seek innovative fintech solutions that can help financial institutions (FIs) respond to two critical global challenges: COVID-19 and climate change.”
South Korea: In 2021, South Korea will start taxing profits from cryptocurrencies, per Bitcoin.com. Only profit from digital asset sales will be taxed, and “trades between cryptocurrencies will remain tax-free.” The Korean government has already tried to tax bitcoin, with its most recent attempt in January of 2020. However, disagreements among different government agencies prevented the tax from being enforced.
Switzerland: Coin Telegraph announced that The Swiss Financial Market Supervisory Authority authorized InCore bank to carry out digital asset transactions. “InCore is the first Swiss B2B bank approved to operate within the crypto sphere.”
United Kingdom: CNBC revealed that Britain’s National Health Services signed a data-sharing agreement with US tech firm Palantir, giving the firm access to the private health data of millions of British citizens. Similar data-sharing agreements also exist between Britain and companies, such as, Microsoft, Google, and Faculty.
United States: Per Crowdfund Insider, the New York Department of Financial Services (NYDFS) has become the first state regulator to commit to a FinTech Memorandum of Understanding with the French Prudential Supervision and Resolution Authority, an independent administrative authority that oversees the activities of banking institutions and insurance providers in France. According to the MOU, the NYDFS and French Prudential Supervision and Resolution Authority will cooperate to support innovative FinTech initiatives to improve consumer protection and exchange information about regulatory matters.
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