In this Issue
Meet the Newest Member of the FinTech Team
Hello! My name is Kate Goldman, and I am thrilled to join the Milken Institute as the FinTech Associate. I want to briefly introduce myself to all of the subscribers of FinTech in Focus. I am a recent graduate of the University of Delaware, where I studied public policy. I previously worked at FS Vector, a DC-based advisory firm, where I had the opportunity to research and explore FinTech from a policy perspective. I am so excited to take all I have learned and continue to grow and build the FinTech program here at the Milken Institute.
Please feel free to reach out via email at any time: firstname.lastname@example.org.
COVID-19 and FinTech
The Washington Post reports that the Small Business Administration (SBA) and Treasury Department disclosed loan-level data, offering an in-depth look at the Payment Protection Program (PPP). This disclosure includes the names of small businesses and nonprofit organizations that received at least $150,000 in funding. The SBA grouped borrowers into five categories based on loan ranges, rather than disclosing specific loan amounts. “Although that is less than 15 percent of the total number of loans, it is the most detailed disclosure yet on one of the largest economic stimulus packages created by the federal government, as part of the $2 trillion CARES ACT.”
Based on the data released, restaurants, medical offices, and car dealerships were some of the top loan recipients, according to the New York Times. “More than 40,000 full- or limited-service restaurants received loans worth as much as $2 billion, according to the ranges provided by the government.” Through the program, banks have made around 4.9 million loans, with an average loan size of $107,000. “Nearly 5,000 businesses received individual loans between $5 million and $10 million, according to the data.” There were many companies among the beneficiaries that were not typical mom-and-pop shops, including high-priced law firms, political consulting firms, special-interest groups, and Washington lobbying shops. The disclosure of loans towards these organizations “could further fuel outrage toward the program which has been complicated by revelations that large, publicly traded companies were taking big loans and concerns that it might leave borrowers saddled with debt.”
This disclosure comes after immense pressure from Democrats and media organizations, including calls for legislation that would force disclosure. However, because most loan amounts are less than $150,000, there are still calls for increased transparency. For example, according to Transparency International, Senator Kamala Harris introduced a bill “that would make public basic information on how taxpayer money is being administered by the US Small Business Administration (SBA) through the Payment Protection Program (PPP).” This bill is called the Payment Protection Program Transparency Act of 2020. The US Office of Transparency International (TI-US) issued the following statement supporting the bill:
“In normal times and with fewer taxpayer dollars at stake, the SBA routinely provides basic information to the public about its lending programs. In what world does greater spending and higher risk require more secrecy?” said Gary Kalman, Director of the TI-US office. “While last week’s agreement, under which the SBA will release basic data on loans greater than $150,000, was a step in the right direction, this bill is a necessary and commonsense fix because it would let taxpayers know how all—not just some—of their money is being spent.” Scott Greytak, TI-US’s Advocacy Director, added: “Years of empirical evidence shows that emergency relief programs like the PPP are uniquely vulnerable to corruption, waste, fraud, and abuse. Yet American taxpayers have been denied even the most basic information about where billions of their dollars are going. Public confidence in government is at a tipping point, and this legislation is an example of how we can begin to rebuild trust by showing—not just telling—the American people that their money is being spent properly and effectively.”
Despite debates over transparency and which companies receive loans, CNN reports that President Trump signed an extension of the PPP into law. “House lawmakers unanimously passed the extension less than a day after the program expired, and PPP will now remain open to applications through August 8.”
Subcommittee on Diversity and Inclusion hearing, 7/9/20: The House Subcommittee on Diversity and Inclusion held a hearing Thursday to discuss the rollout of the Paycheck Protection Program (PPP) and the economic burden disproportionately placed on women and black-owned businesses. Members called upon witnesses to identify and consider ways in which this program failed to support those who are most vulnerable.
Witnesses and members, including Chairwoman Waters and Rep. Steil, highlighted the value of FinTech lenders in making programs like the PPP more accessible to those it intended to reach. Rep. Pressley noted the PPP was “conditioned on access to banking,” which has historically been limited or denied to women and minorities in traditional financial services. FinTech helps to bridge this gap and provide these business owners with access to the capital and lending necessary to survive the pandemic. With less than a month left in the program, FinTech lending will continue to play a key role in helping small businesses stay afloat. Alternative solutions proposed included expanding use cases for forgiveness (such as child care), more resources provided to CDFIs and MDIs, and a clear guidance and application process.
Blockchain: Blockchain News reports that Innovate UK rewarded Billion Group with a £50,000 grant “with the aim of creating blockchain certificates to keep the economy open while protecting personal data.” The team at Billion Group aims to build a “plug-and-play solution that augments any existing issuer of a certificate by providing the distributed ledger innovation behind the scenes. Companies will be able to connect their existing systems via APIs, so there would be minimal integration. Users would be able to control their certificates on their mobile phones and show them, when needed, in a user-friendly way.” This ability to verify documents without personal contact will reduce administrative burden and overcome re-employment obstacles, while also limiting the spread of the virus.
Cryptocurrency: Bithumb, one of the largest cryptocurrency exchanges in South Korea, is seeking an IPO and has appointed Samsung Securities to underwrite it, according to Crypto Slate. This IPO faces many challenges and the process is unlikely to be smooth; digital currencies are difficult to define and “since no regulation for their public listing exists in Korea, the listing of a crypto-exchange entity is an unseen endeavor.”
Crowdfund Insider reports that Ebang, a leading developer of cryptocurrency mining hardware, has become the second Bitcoin mining equipment manufacturer to go public on the US stock exchange.
Switzerland-based Crypto Valley Association (CVA) published its “Trusted Key Ceremony Guidelines,” which is “a set of best practices designed to help protect digital assets in a safe and secure manner,” per Crowdfund Insider. The guidelines were officially unveiled in an online event called “Demystifying Key Ceremonies,” hosted by the CVA’s Cybersecurity Working Group. Participants in the online event included PwC, SEBA Bank, Taurus Group, and Ledger Vault.
Data: US Secretary of State Mike Pompeo announced the Trump administration is considering banning popular social media app TikTok over concerns that Beijing could use the platform to gather data on Americans, per the Wall Street Journal. Specifically, “US officials are concerned that the Chinese government is potentially building a vast database of information that could be used for espionage.” TikTok has responded to these concerns, stating that “the Chinese government has never asked the company for user data and that it would refuse such a request. TikTok has an American CEO and is owned by a private company that is backed by some of the best-known US investors.”
Additionally, Fortune reports that Facebook shared users’ data with outside developers for a longer period of time than promised, “a breach of policies the social network implemented following the Cambridge Analytica scandal of 2018.” A spokesperson from Facebook said the company doesn’t have reason to believe any of the data was misused.
Digital Banks: TechRadar reports that British peer-to-peer lender Zopa is launching a digital bank after being awarded a full UK license. This new bank “will be offering a fixed term saving account and plans to follow that with a credit card later this year.”
Digital Markets: In a press release, Nasdaq announced the launch of the Marketplace Services Platform. According to the release, “The platform provides next-generation marketplace capabilities spanning the transaction lifecycle to facilitate the frictionless exchange of assets, services, and information across various types of market ecosystems and machine-to-machine transactions.” As Magnus Haglind, SVP and Head of Product Management and Market Technology at Nasdaq, notes, this demand is due to the “increased demand for seamless access to standard infrastructure components and capabilities.” Complementing the Marketplace Services Platform, Nasdaq is also offering its Digital Assets Suite, which is designed “to support the transaction lifecycle of digital assets and tokenized markets.”
Financial Action Task Force: The Financial Action Task Force (FATF) has a new president. Marcus Pleyer of Germany took over the presidency from Xiangmin Liu of China, per Bitcoin.com. At the latest FATF virtual plenary, Pleyer said, “The German Presidency intends to build on this work, focusing on the opportunities that technology can offer, by launching an initiative to monitor risks and explore opportunities.” The FATF also discussed the outcome of a year-long review of how each country has implemented new cryptocurrency standards. “Overall, both the public and private sectors have made progress in implementing the revised FATF standards, in particular, in the development of technological solutions to enable the implementation of the ‘travel rule’ for virtual asset service providers.”
Loans: According to The Hill, the Consumer Financial Protection Bureau (CFPB) revoked rules requiring lenders “to ensure that potential customers could afford to pay the potentially staggering costs of short-term, high-interest payday loans,” reversing portions of a 2017 rule on payday loans. This new regulation “leaves in place the original regulation’s restrictions on how frequently a payday lender can attempt to withdraw funds from a customer’s bank account,” but changes loan underwriting requirements.
Partnerships: Qupital, a Hong Kong-based FinTech, has partnered with eBay to provide financing services to eBay sellers in Greater China, per Pymnts. Qupital plans to provide these services to sellers “through its flagship product QiaoYiDai” and will “assist them in resolving their cash flow and working capital issues.”
Computer Weekly reports that French bank Société Générale (SocGen) has acquired challenger bank Shine “to target small business customers with digital accounts and other online services.” SocGen paid “€100m for the French FinTech, which has built up a customer base of 70,000 entrepreneurs in the two years since its launch.” While the acquisition of Shine is part of SocGen’s mission to expand open banking initiatives, according to SocGen, Shine will continue to develop independently.
Innovate Finance reports that “Currencycloud, the global leader in providing embedded B2B cross-border payments for platforms of the future, announced a partnership with Ripple, the enterprise blockchain solution for global payments.” Through this partnership, Currencycloud can explore new mechanisms for moving money globally, especially where there are limitations on opportunities for SMEs.
Savings: According to CNBC, Ellevest, a company that originally launched as a robo-advisor for women investors, introduced a three-tiered membership program. “Starting at $1 a month, members can open an FDIC-insured savings account through the app, which comes with a Mastercard debit card and unlimited ATM reimbursements, in addition to a brokerage account. There is also a $5-per-month tier and $9-per-month tier, which includes access to other products and services like retirement accounts and discounts on financial and career coaching services.” Sallie Krawcheck, Ellevest’s co-founder and CEO, notes the importance of this service, stating that “women’s finances have been hit harder than men’s on average over the course of the pandemic.”
Australia: On July 1, the Consumer Data Right Act became law, introducing an open banking regime nationwide, per Business Insider. There are stages to this regime, and as of now, “consumers can share their bank data with accredited third-party providers for deposit and transaction accounts as well as credit and debit cards.” The goal of this launch is to help FinTechs break the dominant market position of the “big four” major banks: ANZ, NAB, Westpac, and Commonwealth Bank.
China: Fortune reports that “Chinese ride-hailing giant Didi Chuxing Technology Co. will test a pilot version of China’s digital currency, according to a company statement.” For this pilot, Didi Chuxing Technology Co. is partnering with the People’s Bank of China (PBOC), and specifically their Digital Currency Research Institute. “Didi’s huge customer base, existing digital payment infrastructure, and range of services make it an ideal platform for the digital currency’s biggest trial so far. Didi has more than 550 million users worldwide, most of them in China; it claims more than 90% of China’s ride-hailing market.”
European Union: Yahoo Finance reports the European Union is “preparing a new cryptocurrency regime that could include stricter requirements for ‘global stablecoin’ projects such as Libra.” During a speech at the 2020 Digital Finance Outreach, Valdis Dombrovskis, the European Union’s executive vice president of the European Commission for an Economy that Works for People, said, “This is a good chance for Europe to strengthen its international standing and to become a global standard-setter, with European companies leading new technologies for digital finance.” Additionally, he believes the first test case is cryptocurrencies because a “lack of legal certainty is often cited as the main barrier to developing a sound crypto-asset market in the EU.”
Israel: According to Crowdfund Insider, Israel is preparing to launch a FinTech regulatory sandbox to make it easier for local FinTech startups to test new products and services. “The Arrangements Law that the nation’s Treasury will be presenting to the cabinet will include rules that recommend establishing a regulatory sandbox that will give local fast-growing FinTechs a flexible environment to test new financial products.”
Japan: Japan is starting to build out its central bank digital currency (CBDC) capabilities, according to Crypto Slate. However, there are many technical challenges and legal implications Japan wants to have a grasp on before issuing a digital currency. Currently, Japan is conducting a study on the subject, headed by the Bank of Japan (BoJ). There are two specific research areas that have been identified as core focal points: resilience and ease-of-access. “The former deals with how a digital framework could survive efficiently in times of disasters.” The latter is concerned with access to smartphones, particularly among Japan’s older population.
Lithuania: Metro reports that Lithuania is set to issue the first central bank-produced digital coin in the eurozone. Twenty-four thousand digital tokens, called LBCOINs, are set for pre-sale. The tokens “will be sold in packs of six for ninety-nine euros. The central bank expects users to trade them with others to build a specific set that can then be exchanged for a credit card-sized physical silver coin with a nominal worth of 19.18 euros.”
Monaco: According to Finance Magnate, “The government of Monaco has formalized a Memorandum of Understanding with Tokeny Solutions as its technology provider to support the issuance of tokenized financial instruments.” Tokeny stated, “The company’s range of blockchain-based solutions will allow the Principality to apply control and compliance to the Ethereum blockchain.” This initiative supports Monaco’s goal of becoming “the world’s first state utilizing the benefits of decentralized finance.”
Philippines: The Overseas Filipino Bank will become the first ever “digital-only and the country’s first-ever branchless government bank” to serve overseas Filipino workers and those who have returned home, according to bank officials.
Scotland: Per Finextra, UK Research and Innovation has awarded Scotland’s FinTech industry “£22.5 million in innovation funding to establish a Global Open Finance Centre of Excellence (GOFCoE) in Edinburgh.” The aim of the GOFCoE is to research and develop financial service offerings that will deliver social and economic benefits though Open Banking and financial data. The establishment of the GOFCoE is being led by the University of Edinburgh, FinTech Scotland, the Financial Data and Technology Association (FDATA), and Scottish Enterprise.
South Africa: Intelligent CIO notes that “South Africa’s long awaited data privacy laws have finally come into force, giving anyone processing personal information in the country a 12-month grace period to ensure that they comply with the requirements of the Protection of Personal Information Act (PoPI).” The sections of the laws in affect now are related to the regulation of how personal information is processed both in South Africa and across borders.
Sweden: According to Coin Geek, the Central Bank of Sweden published a review of the case for central bank digital currencies (CBDCs). In the document, its own plans for an e-krona, a Central Bank issued fiat token, were discussed. It is the latest step towards an official CBDC launch and is in-line with the increasing interest in CBDCs from central banks worldwide.
United States: JD Supra reports that “New York State’s Department of Financial Services (DFS) has released a Request for Comments on a Proposed Framework for a Conditional BitLicense that DFS says will make it easier for start-ups to enter the New York virtual currency market.”