The OCC released new guidance on how “fintech charter” applicants will be evaluated; the NYDFS appears to want greater authority over fintech firms; SWIFT announced new technology-enabled compliance offerings; the SEC denied the Winklevoss twins’ application to create a bitcoin ETF; Dubai selected IBM to help it build the world’s first “blockchain-powered government;” 40 blockchain firms formed a defensive patent coalition; and Euronet topped Ant Financial’s $880M bid for MoneyGram.
The Big Idea
Blockchain as a platform, not a product
The story: We saw a number of significant DLT/blockchain stories this week; and although they were largely unconnected, they illustrate the industry’s broad scope and continuous transformation. For example, on the digital currency and regulatory side, the SEC issued its long-awaited decision on whether to approve an exchange traded fund (ETF), tracking the price of bitcoin, that would trade on the Bats BZX Exchange: the answer was “no.”
However, despite the setback for bitcoin, the blockchain technology underlying it had a good week: At the second annual D.C. Blockchain Summit (itself a testament to blockchain’s recent growth), a group of 40 DLT firms announced the formation of the Blockchain Intellectual Property Council, a coalition dedicated to building a defensive patent pool to guard against patent trolls; and VC firm Blockchain Capital announced it will raise its next fund via a blockchain-based “initial coin offering. Meanwhile, entirely separate from financial services, Dubai selected IBM to be its strategic blockchain partner as it works to build the world’s first “blockchain-powered government” by 2020.
Why we care: As we’ve written previously, blockchain has captured the attention of people around the world, both in financial services and myriad other industries. Trustless, distributed, immutable transaction records have many potential applications and could result in significant cost-savings. However, it’s important to highlight that blockchain is a technology and a platform, not necessarily a product (although plenty are trying to package and sell it).
What we think: Honestly, we didn’t want to write about blockchain again, but we thought it was important to raise awareness for the Winklevii, two wealthy, Harvard-educated, former Olympians who just can’t catch a break.
At this week’s D.C. Blockchain Summit, we heard from a lot of people about how blockchain will “disrupt everything,” how “the revolution isn’t coming — it’s already here,” and why others should “get excited” about their particular project or service. If a lot of this sounds like unsupported hype, you’re probably not wrong — as with the Internet bubble of the late-90s, many DLT products are probably little more than digital snake oil.
That said, as the late-90s Internet also showed, there are probably areas of real opportunity in DLT. Even the SEC’s rejection of the Winklevoss project isn’t as big a setback as it may seem. Their application was denied [full text] largely due to the unregulated nature of bitcoin, not necessarily concerns about blockchain or even the concept of a bitcoin ETF. Moreover, the broad array of blockchain use-cases highlights how many opportunities there are to disrupt legacy systems across a variety of industries. But this disruptive potential deserves a key highlight: Blockchain is a platform that can be used as a base on which to build new products and improve services across sectors; it is not inherently a product itself. Saying that it will be transformative is more similar to saying that the Internet would be transformative than to betting on Pets.com or any of the other overvalued products of the last tech boom. There’s no way to know if blockchain will live up to its potential, but it also will not collapse overnight. Hyped products live or die relatively quickly, but the staying power of transformative tech tends to be much more significant.
In Other News…
OCC provides new guidance on fintech charter… The Office of the Comptroller of the Currency (OCC) released a draft supplement [full text] to its licensing manual, giving new insight into how fintech firms that apply for special-purpose national bank charters will be evaluated. The OCC also released a summary of comments received on its December white paper [full text].
…but House Republicans ask the OCC to slow down. Led by House Financial Services Committee Chairman Jeb Hensarling (R-TX), 34 Republican representatives signed a letter asking the OCC to slow consideration of charter applications from fintech firms. In the letter, the group stated that “Congress will examine the OCC’s actions and, if appropriate, overturn them.”
Marlette Funding cuts workforce. The online lender cut about one-fifth of its staff after tabling a plan to expand into “businesses beyond making unsecured personal loans.” The move echoes similar layoffs in mid-2016 by competitors Affirm, LendingClub, and Prosper amid widespread funding and growth concerns in the online lending industry.
Gmail app now allows mobile payments. Google refreshed its Gmail mobile app for Android devices, integrating its Google Wallet feature into the mobile interface. Android users can now “send or request money from anyone, including those who don’t have a Gmail address, with just a tap,” and without leaving the Gmail app.
Euronet tops Ant Financial’s bid for MoneyGram. China’s Ant Financial, which targeted U.S. money transfer firm MoneyGram with an $880 million acquisition bid in January, was outpaced by rival Euronet’s $1 billion offer for the company. Ant has been buying footholds in non-Chinese markets in recent months as it seeks to build itself into a global payments network.
Revolut to provide P2P ‘instant credit.’ The U.K.-based lender partnered with fellow lender Lending Works on a tool that will allow Revolut customers to apply for credit via mobile app anywhere in the world and receive funds within two minutes. The product matches borrowers with lenders on Lending Works’ P2P network, eliminating banks from the process.
Fintech at SXSW. Steve McLaughlin of Financial Technology Partners and Pascal Bouvier of Santander InnoVentures discussed how changes in regulation and technology are affecting financial services at this year’s SXSW festival. A PDF of the panel’s slidedeck can be found here.
Have a great weekend!
Joe Oehmke and Austin Tuell