TFU | Sept. 18-24


Leading Off

The European Central Bank may impose special licensing requirements on fintech firms; IBM and MIT partnered to launch the Watson AI Lab; the SEC revealed that its EDGAR database was hacked last year; in the wake of the Equifax breach, New York Gov. Andrew Cuomo has proposed new rules requiring all credit reporting agencies to register with the state’s Department of Financial Services; and former SEC Chairman Arthur Levitt suggested that SoFi’s recent scandals may prevent it from gaining an ILC license.

The Big Idea

The race for influence in Asia’s mobile payments market is on.

Last week, Wall Street Journal profiled China’s Alibaba and Tencent, the companies behind the two largest digital payments services — Alipay and Tenpay, respectively — in the world’s largest digital payments market. Together they account for roughly 90% of China’s mobile payments market share, and have recently embarked on efforts to acquire, invest in, and otherwise stake claims to new global markets (e.g., the notable saga around Ant Financial’s pusuit of MoneyGram).

Only four months after Fortune highlighted the battle being waged for China’s mobile payments market, it’s clear that China is not the only front. As the WSJ notes, both firms are now competing to expand their influence into other “Asian markets, from Indonesia to India,” using tools that range from investments and knowledge-sharing to outright acquisition. Add to the mix (i) a number of homegrown services (e.g., India’s successful and popular Paytm, which is backed by Alibaba), (ii) foreign, but global, alternatives (e.g., Apple Pay and Samsung Pay); and (iii) new entrants backed by foreign multinationals (e.g., Google’s Tez), and the battlefield gets very crowded, very quickly.

None of these developments is surprising, of course. With a huge population, growing middle class, and rapidly increasingly levels of connectivity, Asia — particularly Southeast Asia — is an obvious growth market for fintech firms of all shapes and sizes. We’ll be fascinated to see how the competition shakes out, and which firms prevail: the foreign goliaths, homegrown Davids, or some combination of the two.

The Week in Review…

New York proposes post-Equifax legislation.  Following the report of a major data breach at credit reporting firm Equifax, New York Gov. Andrew Cuomo is expected to propose new state regulations that would require all credit reporting agencies to register with the state’s Department of Financial Services and comply with its cybersecurity rules.

SEC Discloses Hack of its “EDGAR” System.  Securities and Exchange Commission (SEC) Chairman Jay Clayton revealed [full statement] that the agency’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database was breached in 2016. The hackers obtained “access to nonpublic information . . . [that] may have provided the basis for illicit gain through trading.”

ECB may propose liquidity guidelines for fintech firms.  The European Central Bank (ECB), which administers monetary policy for the Eurozone, has developed a draft of special licensing guidelines for fintech firms that would increase the capital and liquidity requirements for “fintech banks,” reflecting their “volatile, price-sensitive client base [and] untested product[s].”

Square outlines its ILC plans.  Earlier this month, the payments firm took a step toward offering certain bank products and services by applying to establish an industrial loan company (ILC) in Utah. In an interview with American Banker, Square’s head of leading said that Square’s new bank will target “an underserved market” of small businesses “in a way . . . few others have.”

An explanation of ICOs.  Recode produced a guide to initial coin offerings (ICOs), the fundraising strategy that has “gripped Silicon Valley” and raised new flags from regulators around the globe. Relatedly, TechCrunch highlights some “benefits, risks and regulatory measures you need to know about ICOs” in its own primer on the subject.

IBM and MIT partner to launch Watson AI Lab.  Co-chaired by Dario Gil of IBM and Anantha Chandrakasan, dean of MIT’s School of Engineering, the Watson AI Lab will use a $240 million investment by IBM to finance joint research in artificial intelligence. The lab aims to increase AI’s impact on and benefit to the healthcare and cybersecurity industries.

Post-scandal SoFi may fail to gain ILC.  SoFi advisor and former SEC Chairman Arthur Levitt noted that the FDIC has denied ILC charter applications “many times” as a result of irregularities and risks in a firm’s profile. Following SoFi’s sexual harassment scandal, Levitt believes its chances of getting an ILC charter are “almost impossible.”

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