FinTech in Focus—June 29, 2020

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FinTech in Focus—June 29, 2020

Author(s)
Katherine Chacon
Katherine Chacon

In this Issue

Industry Headlines»

International Developments »

COVID-19 and FinTech

Forbes reports that there could be a possible second round of coronavirus stimulus checks. This option is being weighed by White House officials and congressional leaders. In addition, some leaders have “proposed using blockchain technology to ease the flow of stimulus checks and government payments, with the Congressional Financial Technology Task Force meeting last week to discuss how ‘FedAccounts’ and ‘digital tools’ could improve the system.”

Transparency of the Paycheck Protection Program (PPP), a cornerstone of the government’s response to the pandemic, remains an issue. CNN notes that this has been a longstanding problem, with lawmakers on both sides of the aisle seeking more information about the more than 4 million recipients of the program. While the Small Business Administration (SBA), the agency that runs the program, has consistently put out topline data, it has not revealed which businesses received the loans or the amount of the loans. Speaker Nancy Pelosi has noted that the main goal of the PPP is to help the most vulnerable small businesses, which means explicitly targeting minority, women, and veteran-owned businesses in need. Without specific data on who is receiving loans, it is impossible to ensure that this goal is fulfilled. On the other hand, Treasury Secretary Steve Mnuchin noted that the names and amounts of specific loans is confidential information for these businesses. 

However, the New York Times reports that rather abruptly, the Trump administration has dropped its insistence on secrecy for the PPP and announced that it will publicly disclose the names of recipients of the loans, as well as the amounts of these loans, in ranges. Mnuchin said that this change in position has resulted from “a bipartisan agreement with the leaders of the Senate Small Business Committee.” This decision seems to be a compromise in increasing transparency. Per the New York Times, “information on loans of less than $150,000 will only be disclosed in totals by industry, business type and demographic category.” However, “nearly 75% of the total loan amounts approved are over $150,000 and will be subject to full disclosure, according to the Treasury Department and the SBA. In addition, business owners’ personally identifiable information, such as a home address associated with the loan, will be withheld.”

 Industry Headlines

Artificial Intelligence: Nasdaq reports that Capital One Services, a subsidiary of Capital One, recently got its patent approved for its artificial intelligence system that analyzes the credibility of cryptocurrency-related information. However, Capital One believes that the patent will need “further nuance” before the service can be launched. 

Blockchain: According to CoinTelegraph, L3COS, a United Kingdom-based blockchain firm, “submitted a proposal to the Bank of England for a blockchain-based operating system to power a central bank-issued digital currency (CBDC).” While the Bank of England has not made a final decision on whether or not to pursue a CBDC, CoinTelegraph reports that “the depths of the coronavirus-induced global crisis have renewed CBDC discussions among many policymakers, with BoE digital currencies team manager, Ben Dyson, asserting that it is ‘the right time for us to be thinking about the future of money’ during a webinar in April.”

In other news, Coindesk reports that mutual fund “Vanguard has completed the first phase of a blockchain pilot to issue digital asset-backed securities (ABS).” This pilot was done in collaboration with blockchain startup Symbiont, BNY Mellon, Citi, and State Street. Coindesk further reports that “Vanguard’s end goal for the pilot is to improve the process of securitization with blockchain. The decades-old Wall Street practice of repackaging loans with bonds sold to investors is one that many firms are trying to reimagine with blockchain technology.” 

Cryptocurrency: Crowdfund Insider reports that Wilshire Phoenix, an investment firm, “filed an S-1 registration statement with the US Securities and Exchange Commission (SEC) for a publicly traded Bitcoin (BTC) Fund. If it is approved, Wilshire’s Bitcoin Commodity Trust would be publicly traded on OTC Markets Group, Inc.’s OTCQX Best Marketplace.” Fidelity Digital Assets is working with Wilshire Phoenix as its custodian, and Broadridge Financial Solutions and UMB Funds are also involved. 

Speaking of Bitcoin, per Yahoo Finance, analysts at JPMorgan Chase & Co. described in a report to clients “how Bitcoin has shifted from a fairly uncorrelated asset to one whose price more closely tracks traditional stocks.” They also noted “that liquidity on major Bitcoin exchanges was, surprisingly, more resilient than for traditional assets such as equities, gold, US Treasury bonds and foreign exchange.” However, the report concludes that “‘there is little evidence that Bitcoin and others served as a safe haven - rather, its value appears to have been highly correlated with risky assets like equities.’” 

The recognition of Bitcoin by JPMorgan Chase & Co. is not a one-off event, but rather highlights a growing trend: the general increasing acceptance and adoption of digital assets by financial institutions. According to new research from Fidelity, a growing number of institutional investors believe that digital assets should be a part of their investment portfolios. Almost 80 percent of investors surveyed found something appealing about digital assets, and 36 percent of respondents already invested in the asset class. The report also highlighted how “investors in Europe are more likely to own digital assets and have a more progressive view of the asset class than American investors.” 

To help institutional investors manage their digital assets, Nomura, Japan’s top financial services and banking firm, launched its Bitcoin custody service for institutional investors. It has partnered with crypto firms Ledger and CoinShares, and the three have been working on this project since 2018. Cryptoslate reports that this custodian service, called “Komainu” will support large-cap cryptocurrencies, such as Bitcoin and Ether. The benefit of this service is that it provides asset security and storage from a big-name bank, encouraging more investors to consider adding cryptocurrencies to their portfolio. 

In other news, Bitcoin IRA, a digital asset IRA technology platform, announced the launch of its newest product called Saver IRA, which “is aimed at helping individuals build up retirement savings and allowing them to invest in digital assets in small increments starting with as little as $100 per month,” per Yahoo Finance

Additionally, according to Nasdaq, Blockchain payments provider BitPay launched a prepaid debit card, “enabling US customers to spend their crypto holdings as fiat currency.” The product is known as BitPay Card, and it is provided through Mastercard. This service will be the first of its kind in the US market. 

KPMG has launched its crypto asset management tool called KPMG Chain Fusion. Sam Wyner, director and co-lead of the Big 4 auditor’s Cryptoasset Services team, told CoinDesk that “Chain Fusion’s core service essentially creates a standardized data model for all transactions that an organization conducts, regardless of whether they’re an on-chain/off-chain blockchain transaction or a traditional fiat one.” 

Securities.io reports that the Securities, Commodities, and Derivative Exchange (SECDEX) announced that they have launched the SECDEX Digital Custodian (SDC). Because of this addition, the SECDEX Group can offer services, including regulated exchange, clearing house, securities depository, digital custodian, and digital marketplace. As a digital custodian, the SDC will be a home for both traditional cryptocurrencies, as well as digital securities. According to Securities.io, the launch of the SDC is possible because the SDC entered into a “regulated sandbox, orchestrated by the Seychelles Financial Services Authority.” 

Digital Banking: Per Pymnts, ByteDance, the owner of TikTok, is “expanding into financial services with the family that owns OCBC Bank, the global financial services corporation headquartered in Singapore.” Currently, ByteDance is also competing for one of five electronic banking licenses that are going to be issued by the Monetary Authority of Singapore. 

In the context of electronic banking, Marcus, the digital-only bank created by Goldman Sachs, is entering into a new partnership with Amazon. According to CNBC, Amazon merchants will be invited to apply in a two-step process for credit lines that come with “a fixed annual interest rate of 6.99% to 20.99%.” This move is significant because, as CNBC also notes, “it is the first time Amazon will let a financial institution make underwriting decisions for the hundreds of thousands of sellers on its platform.” For Goldman, this partnership supports their desire to expand into Main Street finance; in the same article, it is stated that “by accessing data on thousands of Amazon merchants, Goldman can improve its lending models and accelerate its push into Main Street finance.”

Speaking of Marcus, Affirm announced the launch of Affirm Savings, its high-yield savings account, putting it into competition with neobanks like Marcus, as well as Chime and N26. Business Insider notes that “the account comes with a 1.30% annual percentage yield, no minimum threshold or fees, and an auto-deposit option.” While Affirm is entering a competitive market, Affirm’s focus on Millennial and Gen Z consumers, a growing customer base, could give it an edge. 

In Asia, “Hong-Kong based Airstar Bank, an internet-only lender backed by smartphone maker Xiaomi Corp., officially opened for business, becoming the second virtual bank to start operations in the Asian financial hub,” according to Caixin Global. The bank will start with deposit and loan services, and in an effort to remain competitive, “it will offer annual interest rates as high as 3.6% for a year, compared to 0.001% at conventional banks.”

Lastly, Credit Suisse signed a partnership agreement with Modalmais, a digital bank in Brazil. According to FI News, “the deal allows Credit to purchase preferred shares equivalent to as much as 35% of the digital bank’s capital” and gives Credit Suisse access to a million new clients. 

Lending: dv01, a top data aggregator tracking the online lending industry, published a new report tracking the impact of COVID-19 on online lending. Overall, this report suggests that the online lending market is improving, even as the pandemic continues on. The researchers note, “Total [loan] impairments continued their decline throughout the month of May. After the normal seasonal spike at the start of June, impairments have continued their decline and are approaching mid-April levels, even as unemployment remains high with millions of new weekly jobless claims. For the second straight month, new impairments are below historical levels and are below levels seen since 2019.”

Uber has partnered with FinTech lender Kabbage to “provide drivers with a streamlined application for Paycheck Protection Program (PPP) loans,” per Fortune. This move comes after a reduction in the demand for Uber rides, with the number of rides down as much as 80 percent, according to Fortune. By partnering with Kabbage, drivers can get the help they need through a streamlined application process. 

Partnerships: Pymnts announced that Credit Sesame finished its acquisition of Canadian challenger bank STACK. This partnership began last year with the creation of Sesame Cash, a no-fee digital bank account. The CEO and Founder of Credit Sesame noted the strategic benefits of this deal in his announcement, stating, “Together with STACK, we are combining the power of smart baking and AI-driven credit management to create a new kind of personal finance.” 

Verdict reports that “London-based fintech challenger Lanistar forged a partnership with Mastercard as it prepares to launch its new banking alternative product.” Under the agreement, Mastercard will allow Lanistar to launch and issue its new debit card product, which leverages polymorphic technology and open banking, to UK customers. 

Speaking of Mastercard, the Alliance for Financial Inclusion (AFI) is partnering with the Mastercard Foundation to implement a “COVID-19 Policy Response program in Africa in response to the devastating impacts of the global pandemic,” according to AFI. This project, which will span two years, is focusing on micro, small and medium enterprises, and digital finance. It will target forty-nine financial sector regulators and policymaking institutions, with special attention given to gender and youth policy considerations. AFI Executive Director Alfred Hannig explained the thought process behind the project, noting that “financial inclusion is one of the very few solutions available that can immediately address the issues facing hard-hit economies.” 

Credorax, a smart payments provider, announced a partnership with Samsung “to develop blockchain technology to offer open banking services,” per Pymnts. By comingling global open banking initiatives, Samsung SDS’ Nexledger Universal platform, and Credorax’s industry expertise, services, such as automatic payment reconciliation, and remittances and invoices for B2B payments, can be offered. 

In a press release, Ripple announced that it was joining the Open Payments Coalition, which already has 40 global companies and nonprofits, to launch PayID, a universal payments identifier. According to the release, “PayID allows for organic growth where no single company can control or set the terms for joining.”

According to TechCrunch, Square acquired Verse, a peer-to-peer payment app that works across Europe, but the terms of the deal are undisclosed. Verse’s team will join the Cash App division within Square. Previously, the Cash App has been confined to the US and the UK, but by acquiring Verse, Square can expand its presence in Europe. 

Another acquisition is that of Finicity, an open-banking company, by Mastercard. While the transaction has not been completed yet, Mastercard announced that it planned to acquire Fincity for $825 million, with the deal expected to close at the end of the year. MarketWatch notes the value of the deal, stating that, “Mastercard said in a release that Fincity’s technologies will strengthen its open-banking capabilities, helping give customers more control over their financial data as they link up with third-party services that rely on banking information.” 

Payments: TechCrunch reports that WhatsApp finally launched a payments service, with users in Brazil being the first to “send and receive money through the messaging app, using Facebook Pay.” This service is currently free to consumers but requires a 3.99 percent processing fee for businesses receiving payments. Additionally, complete transactions require a six-digit PIN or fingerprint. 

Additionally, the Federal Reserve published its FraudClassifer model,” a set of tools and materials to help provide a consistent way to classify and better understand the magnitude of fraudulent activity and how it occurs across the payments industry.” 

Remittances: Uber is launching Uber Cash in Sub-Saharan Africa through a partnership with Flutterwave, a Nigerian-founded FinTech firm. TechCrunch posits that “the arrangement will allow riders to top up Uber wallets using the dozens of remittance partners active on Flutterwave’s Pan-African network.” According to the article, this move aims to increase Uber’s ride traffic in Africa by “boosting the volume of funds sent to digital wallets and reducing friction in the payment process.” 

Venture Capital: Crunchbase reports that “Blockchain professionals Nikola Stojanow and Luka Sucic announced the creation of Meta Change Capital on Monday and are raising a €100 million venture capital fund focused on blockchain development in emerging markets.”

 International Developments

Australia: Australia is planning on extending one of its FinTech agreements with the UK, according to Crowdfund Insider. This agreement is “designed to help FinTech firms in each country by making it easier for them to acquire operational licenses. Both jurisdictions also aim to increase cooperation and collaboration between each other’s financial regulators, including how they approach business opportunities in Singapore.” 

Canada: Focus Taiwan reports that eight members of the Canadian Securities Administrators signed a FinTech cooperation agreement with The Financial Supervisory Commission (FSC), Taiwan’s top financial regulator. The FSC said that the aim of the agreement is to “facilitate cooperation in financial technology development by gaining access to the work of the CSA Regulatory Sandbox Initiative and the FSC FinTech Regulatory Sandbox.” 

China: China’s Center for Information and Industry Developments has released its ranking of cryptocurrency projects. Since the last ranking in April, Bitcoin has improved in rank, rising from the 14th to the 12th position. Additionally, Bitcoin.com notes that Bitcoin Cash fell from the 31st to the 34th spot, while EOS, Tron, and Ethereum maintained the top spots. 

Speaking of cryptocurrencies, the Nikkei Asian Review reported that “Chinese officials are mulling developing an East Asia digital currency.” The Review also said that China would back the digital currency with a basket consisting of the Chinese yuan, Japanese yen, Hong Kong dollar, and the South Korean won. The yuan and yen combined will account for about 80 percent of the digital currency’s value. This plan aims to create a cross-border payment network that would rely on a free-trade agreement negotiated by Japan, China, and South Korea. 

European Union: The European Fintech Association officially launched, with the main goal of developing cooperation between FinTech companies within the EU, per Peer to Peer Finance News. More than 20 FinTechs from across Europe have joined the association, including the UK-headquartered Funding Circle. 

India: According to Crowdfund Insider, the nation’s government is considering passing a law that would ban the use of decentralized cryptocurrencies. Crowdfund Insider reports that “this development has come after the country’s Supreme Court struck down the RBI’s ban on offering banking services to firms or individuals dealing in Bitcoin and other cryptocurrencies.” 

Israel: The Israel Securities Authority and the Israel Innovation Authority introduced a Data Sandbox program for FinTech firms. The Tel Aviv Stock Exchange and the nation’s Ministry of Finance are also helping with the initiative. Crowdfund Insider states that “five Israeli firms have been chosen for the data sandbox program, which will run for about six months. The initiative aims to offer key solutions in liquidity provision and aims to provide digital or online tools for user data authentication and verification, identification of potential trading anomalies, and special tools for investment managers.” The companies chosen include Zirra.co, an Israeli trading analytics company that leverages AI, and Scanovate, a Ramat-Gan based company that aims to offer a SaaS-based Identity Provider. 

Italy: Italy joins a long line of other countries, such as China, that are embracing the idea of a central bank digital currency. Asia Times reports that The Italian Banking Association says that its members are willing to pilot a digital version of the euro. 

Norway: According to TechCrunch, “one of the first national coronavirus contacts-tracing apps to be launched in Europe is being suspended in Norway after the country’s data protection authority raised concerns that the software, called “Smittestopp,” poses a disproportionate threat to user privacy.” In response, the Norwegian Institute of Public Health (FHI) said it will pause its work and stop uploading data, even though it disagrees with the assessment made by the data protection authority. As of June 3, over 10 percent of Norway’s population had downloaded the app, and 14 percent of the population over 16 years of age had downloaded the app. 

Singapore: CoinTelegraph reports that the Monetary Authority of Singapore (MAS) is looking to cooperate with China over central bank digital currency (CBDC), according to MAS Managing Directory Ravi Menon. He also said that Singapore and China’s central banks are currently “discussing various CBDC development scenarios.” 

South Korea: The Minister for Trade in both South Korea and Singapore have announced the launch of negotiations on a new Korea-Singapore Digital Partnership Agreement. According to The Edge Markets, this deal aims to “further bilateral cooperation in new emerging digital areas, such as in personal data protection and cross-border data flows, digital identities, FinTech, as well as artificial intelligence governance frameworks.”

Thailand: Following in the footsteps of China and Singapore, the Bank of Thailand has announced that “it plans to develop a prototype to test real-life business use cases of its central bank digital currency,” specifically with large-scale enterprises, per CoinTelegraph. They have currently partnered with the largest cement and building material provider in Thailand, Siam Cement Group, and Digital Ventures Company, a Thailand-based FinTech firm for their pilot test. 

Published June 29, 2020