FinTech Briefing: October 2015
Competition investigation. The Competition and Markets Authority published the provisional findings of its investigation into the £16bn current account and business banking sectors. Potential reforms include:
forcing banks to prompt customers at certain 'trigger points' that they may wish to consider alternative providers;
upgrading Midata, the online tool that enables customers to access their banking history;
a price comparison website for SMEs;
better sharing of data between banks, credit reference agencies and financial advisers.
McKinsey sounds the alarm. A report by the consultancy warned that banks could lose 60% of their profits by 2025 as a result of competition from financial technology companies.
Kreditech raises 82.5 million euros. The data-driven consumer finance technology start-up announced a Series C funding round led by J.C. Flowers & Co. Amadeus Capital and entrepreneur Peter Thiel also invested.
Payments / digital currencies
WorldPay IPO. The payments processing company is listing on the London Stock Exchange with an estimated market cap of £4.8 billion - the biggest London IPO this year. Meanwhile, Amsterdam based Adyen, a rival payment processing firm, announced a new valuation of $2.3 billion, following a new investment from Iconiq capital.
Chase Pay. JP Morgan Chase, which handles 34 million transactions on its credit and debit cards, has announced that it will launch a mobile payments service to rival Apple, Samsung and Google's services. Chase has signed a deal with Merchant Customer Exchange, a group of major US retailers including Wal-Mart Stores. Signing up retailers - as well prompting customers to change their behaviour at the checkout - is crucial to success in the market.
Alibaba doubles down in India. Alibaba, the Chinese eCommerce giant, and its financial services affiliate, Ant Financial, have made a second major investment in India's Paytm. The mobile payments service reportedly handles 75 million transactions each month. India's Economic Times has reported that Alibaba will be buying 20% of Paytm for $680 million.
Paying for everything with anything. MasterCard has announced a new programme that will partner with consumer product designers to turn items "across the automotive, fashion, technology, wearables, and yet to be imagined categories" into payment devices. In similar news, Kerv has launched a Kickstarter campaign to raise £77,000 in mass production capital for a contactless payments ring.
Square files for IPO. The payments company plans to go public on the New York Stock Exchange. Its filing notes that "Jack Dorsey, our co-founder, President, and Chief Executive Officer, also serves as Chief Executive Officer of Twitter. This may at times adversely affect his ability to devote time, attention, and effort to Square".
Bitcoin escapes VAT. A European Court of Justice ruling this month confirmed that European bitcoin transactions will not be subject to Value Added Tax.
Bitcoin investment: up and down. Investment in Bitcoin enterprises was up 15% in Q3 compared with the same period last year, but the explosive growth of Q4 2014 and Q1 2015 seems to have disappeared. Graph and story courtesy of CoinTelegraph.
Western Union goes social. The global money transfer company has launched WU Connect, which enables users to send money abroad through existing messaging and social media platforms.
Android Pay and Coca Cola loyalty tie-up. Users of Android Pay, which replaced Google Wallet this summer, can now receive loyalty points for purchasing Cokes at NFC-enabled vending machines. The soft drinks company is the first merchant to participate in Google's new loyalty scheme.
MercadoLibre and bitcoin. The 'eBay of Latin America', has announced that it will integrate bitcoin into its range of payment options.
Turning your car into a mobile wallet. Visa and DocuSign Labs have announced a new partnership to build blockchain-based technologies that will make it easier to lease a car, purchase auto-insurance and carry out transactions (such as paying a toll or having the vehicle serviced).
R3 adds more banks. The blockchain start-up announced that it is now supported by 22 banking partners. Recent additions include Citi, Deutsche Bank and HSBC.
P2P lending / investing
When does a P2P lender become a bank? The Financial Conduct Authority does not know the answer, but it is paying close attention to the question. That was the message from John Griffiths-Jones, chairman of the FCA, when he (and acting chief executive Tracey McDermott) appeared before the Treasury Select Committee on October 21.
"With any new market, there is this 'to intervene or not to intervene, that is the question' moment. While one wants to encourage alternative sources of lending, one does not want to open up to a risk. I believe that, if we see a development of this, sooner or later these platforms will tend to offer packages. Rather than you investing directly to Mrs Smith in Brighton, in practice, they will say, 'This is the default package, which spreads it across all or many of our investments.' At that point, they become awfully like a bank, and it is very important for the regulator not to allow regulatory arbitrage into the system. What I can assure you is that we are not asleep at this wheel. What I cannot tell you is when the right moment is to either intervene or to say this is okay, but it is being kept under constant review. People will have slightly different opinions as to exactly where, when or whether we should intervene."
The full transcript of the oral evidence can be found here.
A big ministerial thumbs-up. While the regulators were giving a nod towards the potential for tighter regulation, Harriet Baldwin, Economic Secretary to the Treasury, was sprinkling kind words on the industry.
"We believe that Peer to Peer lending (P2P) is a brilliantly innovative new form of finance – which we want to see continue to grow and evolve."
Her full speech - deliverd at the annual summit of the UK Peer-to-Peer Finance Association at LendIt Europe - can be found here.
TrustBuddy destroys trust, loses friends. The Swedish P2P platform has filed for bankruptcy after £3m of savings went missing due to "serious misconduct". Savers with the platform have been told that they face little prospect of getting their money back.
Thomson Reuters to track crowdfunding data. The company's Eikon desktop will feature a new feed displaying marketplace lending data. The service will be provided in partnership with Crowdnetic.
Champ-ioning P2P. Citywire has an insightful interview with Simon Champ, who leads P2P Global Investment. Read the interview if you are interested in the thinking behind the UK's "first investment trust focusing on platform-originated loans". Topics include: the disintermediation threat; loan selection; geographical diversity; and what P2P can learn from eBay and Betfair's experiences.
RegTech, compliance and security
Stressful times. Just 14% of banks are confident that their legacy IT systems can pass new stress testing requirements, according to a new report by Wolters Kluwer Financial Services.
Alternative SME finance
Tenfold increase in UK alternative corporate lending by 2020. That estimate comes courtesy of the Centre for Economics and Business Research and payments company Fiserv. According to their research, the market will be worth $18.7 billion by 2020, compared with in $1.8 billion 2014.
P2P corporate bond trading. Liquidnet has launched a fixed income dark pool that enables peer-to-peer corporate bond trading by asset managers in the US, Canada and Europe.
Lack of tech talent at the top. Almost half of the world's biggest banks have no directors with significant technology experience, according to a survey by Accenture. Just 6% of directors at the 109 global banks surveyed had senior technology experience (or had served as a non-executive director at a technology company).
RBS is Facebook friendly. RBS has become the first bank to introduce Facebook at Work. The move comes as part of a wider shift away from email towards instant messaging for internal staff communications.
EU equity investment fund. The Commission announced this month that its European Investment Fund (EIF) has signed 28 investment agreements worth over one billion euros so far this year. The list of private equity funds partnering with the EIF - a central component of EU efforts to improve the investment landscape for European SMEs - includes BlackFin's Financial Services Fund II.
Money20/20. The payments conference and trade show took place October 25-28, attracting over 10,000 participants. Scan the agenda for an idea of the hot topics in payments innovation. Europe Money20/20 takes place April 4-7 2016 in Copenhagen (see the agenda themes here).
LendIt Europe. The marketplace lending conference took place October 21, followed by the Peer-to-Peer Finance Association annual summit on October 22. Check out the Day 1 summary here.
Iranian FinTech conference. The Digital Finance Institute, a Canadian think tank, partnered with Sana Pardakht to organise a FinTech conference on visa-free Kish Island earlier this month. The conference explored opportunities for financial innovation in Iran following this year's nuclear deal.
Canary Wharf preferred home of UK FinTech startups. The South Bank is the second biggest cluster, according to CBRE, the global real estate consultancy, beating Old Street into third.
- Poland's mBank is sponsoring a new three year 'digital banking and finance' degree course at the University of Lodz. The programme, which is also supported by Accenture, welcomed its first 100 students this month.
- Switzerland has a new accelerator - Zurich based Nexussquared.