FU | February 11-17, 2017

Leading Off

Several fintech firms created the Online Lending Policy Institute research group; major U.S. banks are working on digital, phone-based ATM cards; a dozen global banks began using SWIFT’s new cross-border payments service; the U.K.’s FCA granted an electronic money institution designation to a blockchain firm, paving the way for blockchain-based money; PayPal acquired retail store-based bill-pay facilitator TIO Networks; and SVB became the latest bank to agree to an API-based data-sharing partnership.

The Big Idea

Remember when “Internet-connected” meant dial-up? Things have gotten much more complicated.

The story:  This week, auto maker Jaguar announced a new new venture with Shell that will allow Jag owners to select the type and amount of fuel they need, and pay for it using PayPal or Apple Pay, seamlessly from a touchscreen on the console. Meanwhile, IBM announced a new partnership with Visa that will connect IBM’s Watson IoT (Internet of Things) platform with Visa’s payments services, “potentially turning billions of cars, fridges, sneakers and other connected devices into points of sale.”

Why we care:  IoT and Internet-connected devices have been buzzy areas of innovation for years, but the advent of financial data-sharing changes the cost/benefit calculus of all this connectivity. Seamlessness is great, but each new connection represents a new point of potential concern for privacy, data security, and even personal autonomy. How we choose to respond to these issues, and where we decide to draw the line between the ‘permissible’ and ‘impermissible’ integration of our digital lives, are important policy issues to consider heading forward.

What we think:

Initially, “IoT” devices were merely connected to the internet, allowing for remote or self-monitoring (e.g., a fridge that knows when the milk has gone bad and helps you order more). But recently, financial data has become an increasingly common type of information shared with or accessed by IoT devices. Whether it’s your Samsung Phone, Apple Watch, or Jaguar XF that has your credit card information, more of our consumer products have greater access to more sensitive financial information than ever before. This financial data-sharing should make us think hard about privacy, security, and access when it comes to our digital information. It’s one thing for your refrigerator to know you need more milk; it’s another for it to know your bank account information.

A couple weeks ago, we wrote about the fight on the horizon regarding third-party access to consumers’ bank data. This will continue to be a significant topic of conversation as more firms attempt to gain, maintain, or restrict access to that data. Financial firms have been on a recent spree of API launches and data-sharing agreements (this week see, e.g., Silicon Valley Bank/Xero and Payoneer), which help facilitate consumers’ financial lives but also increase the risk posed by cyber breaches. Moreover, banks and fintech firms are no longer the only players with access to your finances. The Financial Times recently examined how the world’s largest tech firms (e.g., Google, Apple, Facebook, etc.) are beginning to rival the services of big banks via digital wallets, money transfer services, and even lending capabilities. As more firms have access to sensitive financial information and more connections with which to share it, the probability of succumbing to cyber vulnerabilities increases.

A growing base of consumers — particularly millennials — has become increasingly conformable providing personal information to technology and consumer products firms. This information helps those firms create better-tailored products and services, but it also creates new targets for hackers. Ensuring compliance with robust data protection measures will be key going forward, as the number of connected devices grows and the nature of information shared with them becomes increasingly sensitive.

In Other News…

Fintech firms form MPL research group.  The Online Lending Policy Institute was formed by several fintech companies to “publish research in various forms, . . . weigh in on public policy matters, [and] develop an accurate data source for the industry.”

Banks rolling out phone-based ATM cards.  Several U.S. banks are working on phone-based debit cards: JPMorgan Chase, which has the most ATMs in the U.S., is already testing the technology in four cities, and Bank of America and Wells Fargo plan to make their ATMs card-optional by the end of the year.

FCA paves way for blockchain-based money.  The U.K.’s Financial Conduct Authority (FCA) granted a Small Electronic Money Institution (EMI) registration to blockchain firm Tramonex, making it the first DLT company to gain the EMI designation. Tramonex can now operate as money transmitter and payment facilitator, as well as “issue, distribute and redeem e-money.”

Japanese banks invest in bitcoin exchange.  Japan’s largest banks, Mizuho and Sumitomo Mitsui, participated in a “$1.75 million funding round for Japan’s biggest bitcoin exchange, bitFlyer.” They are pursuing DLT initiatives to help “bring down the costs of international wire transfers.”

SoFi raises $500 million.  The online lender is finalizing a deal to raise $500 million from investors including private equity firm Silver Lake and Japanese conglomerate Softbank.  SoFi intends to use the new funds to continue expanding its financial services offerings.

“OS for financial services” raises $15M.  Capital markets startup OpenFin raised $15 million in a round led by JP Morgan and Bain Capital Ventures. OpenFin is developing an open source software platform aimed at helping financial services firms integrate trading software, data, news, and research functions.

Where are the credit scores of yesteryear?  American Banker columnist Penny Crosman examines the impact of AI and proprietary credit scoring algorithms on the lending industry and consumers. While AI “offers lenders the ability to . . . score those previously deemed unscorable,” Crosman writes, “such scoring techniques also bring uncertainty.”

Have a great weekend!
Joe and Austin

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