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FinTech in Focus — April 5, 2021
In this FinTech in Focus
Industry Developments
Cryptocurrency
To expand the company’s cryptocurrency trading operations, CEO of Robinhood Vlad Tenev recently announced in a virtual fireside chat that Robinhood plans to hire a significant number of employees. According to Business Insider, Tenev also highlighted how he will expand Robinhood’s cryptocurrency trading operations by focusing on the potential addition of new coins and a “wallet” feature to the platform. With the rising popularity and demand for cryptocurrency trading services, it is no surprise that Robinhood may need new talent to handle the large influx of new customers. Robinhood counted over 6 million new users trading cryptocurrency in under two months, as reported by Tenev. Tenev also stated that exponential user growth is often the cause of platform disruptions that can negatively impact the user experience, which is why Robinhood is prioritizing service availability and customer support at an “A+ level.”
As global companies strategically plan how to capitalize on cryptocurrency demand, Fidelity Investments is the latest to announce the launch of its Bitcoin ETF (exchange-traded fund). According to CNBC, the firm filed a Form S-1 with the US Securities and Exchange Commission (SEC), a preliminary registration for its Wise Origin Bitcoin Trust. If the SEC approves the ETF, the company will leverage its Bitcoin Index, a barometer that measures the price of the digital currency, to track Bitcoin’s market performance, as reported by CNBC. Although the launch would help Fidelity expand into digital assets, the SEC has not yet granted any company permission to create a Bitcoin ETF.
Given the recent remarks by Fed Chairman Jerome Powell, it is likely certain regulatory agencies still view cryptocurrencies as risky. Late last month, during a virtual panel discussion on digital banking hosted by the Bank of International Settlements, Powell stated that cryptocurrencies are “highly volatile and therefore not really useful stores of value and they’re not backed by anything.” He followed this by saying, “It’s more a speculative asset that’s essentially a substitute for gold rather than for the dollar,” as reported by PYMTS.com. Although regulators are seemingly bearish on the use of cryptocurrency, they don't show the same hesitancy regarding a central bank digital currency (CBDC). According to Bloomberg, a joint research initiative between the Federal Reserve Bank of Boston and Massachusetts Institute of Technology will report their research findings regarding a digital dollar platform in mid-summer 2021. In a recent interview with CNBC, Treasury Secretary Janet Yellen affirmed Powell’s sentiments and called Bitcoin “an extremely inefficient way of conducting transactions,” but noted that a federally backed digital currency “could result in faster, safer, and cheaper payments, which I think are important goals.” With the European Central Bank and other global central banks launching CBDCs, it is foreseeable that US regulators will follow their progress before developing their own.
Initial Public Offerings
After a long-rumored effort to launch its initial public offering (IPO), Robinhood announced on March 23 that it has provided its S-1 statement to the SEC and expects to offer shares to the public after it finishes regulatory review, according to Quartz. The company filed for its IPO confidentially in a similar manner as Lyft and Palantir but is planning to list on the Nasdaq exchange. The company’s confidential filing allows them to work collaboratively with regulators to ensure proper compliance with financial reporting standards while keeping other details under wraps. Robinhood has been valued at roughly $12 billion, and some have speculated that its initial public offering could be valued upwards of $20 billion, as reported by The New York Times. Remaining true to its motto of “democratizing finance,” Robinhood is planning to offer shares to its customers before wider public shares debut. This is a particularly unconventional move; typically, big funds are given first access to shares before IPOs, and retail traders cannot partake until shares debut on the exchange, according to Yahoo Finance.
In a similar vein, online finance startup SoFi plans to offer retail traders an opportunity to buy shares of companies prior to a public offering. SoFi often partakes in the underwriting of IPO deals under its brokerage capacity and is allocated a portion of IPO shares in the process, according to CNBC. Instead of carrying those shares, the company plans to offer them to SoFi clients who have at least $3,000 in account value; these clients will be able to enter the number of shares they want as a “reservation” through the SoFi platform. SoFi CEO Anthony Noto said that with the launch of this initiative, “Main Street will have access to investing in a way that they wouldn’t have before. It gives more differentiation, and more access so people can build diversified portfolios.” While this certainly gives retail investors more access, Noto acknowledged it is inherently risky to invest early and that the company does disclose that risk to clients.
Accelerators
Plaid has recently announced the inaugural cohort of its new accelerator program, FinRise. While most FinTech accelerators provide founders with capital or use equity to back promising startups financially, FinRise is an equity-free and capital-free program that focuses on advising FinTech companies and pairing them with capital access partners, according to TechCrunch. In the evaluation process for potential FinTech partners, Plaid explicitly focused on backing underrepresented founders. The five startups selected for this year’s accelerator are the Global Data Consortium, Guidefi, OfColor, Walnut, and Zeta. These startups range from a global identity verification platform to an enterprise wellness platform for employees of color.
Digital Banking
As Greenwood, the digital banking service targeting Black and Latino individuals, prepares for its wider launch later this year, it has managed to raise $40 million in only a few months, according to TechCrunch. Given the increased attention within corporations and large banks on racial equity, it is no surprise they were potential sources of capital during Greenwood’s fundraising efforts. Currently, Bank of America, PNC, JPMorgan Chase, Wells Fargo, Truist, Mastercard, and Visa are backing the company, as reported by TechCrunch. Truist Chief Digital and Client Experience Officer Dontá L. Wilson said, “Truist Ventures is helping to inspire and build better lives and communities by leading the Series A funding round for Greenwood’s innovative approach to building greater trust in banking within Black and Latino communities.” With Black founders receiving roughly 1 percent of venture capital funding, the capital-raising disparities for underrepresented founders within the tech industry are alarming. The enthusiasm and sizable investments in Greenwood by both venture capital funds and corporate investing efforts are refreshing.
International Developments
France
In a 13-page confidential note, the French data protection regulator, Commission Nationale de I’informatique et des libertés (CNIL), expressed concerns about Apple’s compliance with EU privacy rules, as reported by Politico. According to the CNIL document, “Apple’s advertising processing requires consent when it involves reading or writing data on a user’s device” but “Apple’s practices suggest a lack of consent collection.” This information follows a court proceeding early last month facilitated by France’s competition authority that was decided in Apple’s favor over its new anti-tracking tool, according to Politico. However, the note was dated December 17 and drafted before the favorable ruling. The confidential note also stated that Apple does not consider itself to be defying data protection rules but does not believe it needs to collect users’ consent to process personal information within its advertising platform because it does not engage in tracking. In response to CNIL’s note, a spokesperson from Apple said, “Privacy is built into the ads we sell on our platform. We hold ourselves to a higher standard by allowing users to opt-out of Apple's limited first-party data use for personalized advertising.” While the CNIL has authority over data protection concerns, the note was written to inform a case led by another authority, so it is not yet apparent how the potential privacy violations will be handled.
Egypt
The International Finance Corporation (IFC) and the Egyptian FinTech Association recently announced a joint venture to support financial technology entrepreneurs, according to Daily News Egypt. The IFC will leverage its resources and market expertise to help improve the environment for FinTech entrepreneurs doing business in collaboration with the Egyptian FinTech Association. Additionally, the IFC will help conduct research and market analysis to identify the challenges and opportunities for growth that entrepreneurs in the country face. Sherif Samy, the chairperson of the Egyptian FinTech Association, said, “Egypt is witnessing a rapidly developing FinTech sector, driven by a number of proactive regulatory initiatives and attractive demographics, in addition to a growing interest from local and regional investors.” With FinTech innovations being highlighted throughout the COVID-19 pandemic, it is unsurprising that institutional entities are joining the effort to enhance tech-enabled solutions.
China
A document jointly released by a group of China’s top regulators (the Cyberspace Administration, the Ministry of Industry and Information Technology, the Ministry of Public Security, and the State Administration for Market Regulation) announced that starting May 1, apps in China can no longer force users into providing excessive personal data, according to TechCrunch. Before this decision, it was common practice for application developers to ask users to provide sensitive personal information and deny access to users who decline to share. Late last year, Chinese authorities laid out acceptable data that 39 common app types are entitled to collect, as reported by TechCrunch. Marketing manager at AppInChina Todd Kuhns said, “Extraneous data is most often used for advertising purposes, such as serving up localized ads or ads based on the user’s interests.” The document is a general guiding framework for now, as there were no specific details on how the regulation would be enforced or how offenders will be punished. Although with the antitrust laws and increased regulatory measures enforced upon technology firms in China, it is likely that this rule will soon be formalized.
For more information on FinTech in Focus or the Milken Institute’s FinTech program, please contact Kate Goldman at [email protected].