The CFPB and CFTC are working together to build a “regulatory sandbox” to support fintech innovation; a small blockchain startup in the Cayman Islands is about to raise $4B through digital token sales; Amex is using blockchain to support a rewards program, giving it access to sought-after purchase information; Visa experienced a European network outage that left many consumers unable to pay with their cards; and U.S. digital banking app Chime raised $70M in new funding.
The Big Idea
The CFPB and CFTC are apparently developing a regulatory sandbox(!)
Speaking at an event in Washington, D.C., last week, acting Director Mick Mulvaney of the Consumer Financial Protection Bureau (CFPB) said that the Bureau is working with the Commodity Futures Trading Commission (CFTC) to build a “fintech sandbox.” If the plan is real, it would signal a potentially huge shift in how American regulators approach new fintech developments and work with innovative companies.
Regulatory “sandboxes” have gained increasing traction since 2016, when the U.K.’s Financial Conduct Authority (FCA) established its “Project Innovate.” The initiative has earned plaudits from international commentators, regulators, and fintech firms alike, with the FCA noting in 2017 that most cohort firms “have tested products in the sandbox [and] have gone on to take their innovation to market.” Other countries including Singapore and Australia have since set up their own sandboxes (and the FCA is now looking at expanding its own), but the approach has not been particularly embraced by U.S. regulators.
Despite some limited efforts to generate interest in a federal regulatory sandbox (e.g., Rep. Patrick McHenry’s 2016 bill), the decentralized patchwork of U.S. regulators presents structural challenges to a sandbox approach that other countries do not face. However, some U.S. states (e.g., Arizona) recently have begun looking at sandboxes; and now it appears that momentum may be gathering at the federal level as well. Stay tuned!
In the News…
Ant Financial signs third bank technology deal. The Chinese fintech giant is partnering with Shanghai Pudong Development Bank to support its online risk management work. Ant will provide tech support for fraud prevention, as well as AI, supply chain finance, biometric identification, and risk management services. Ant has signed similar deals with Huaxia Bank and China Everbright Bank.
Chinese AI startup raises $620M. China’s SenseTime, which brought in $600 million from Alibaba last month, raised a fresh $620 million in Series C funding, giving it a $4.5 billion valuation and the title of the world’s highest-valued AI company. SenseTime provides AI services to several industries, including fintech, automotive, and telecommunications, as well as to the Chinese government.
PayPal integrates its payments services deeper into Google. The global payments firm is extending its relationship with Google to encompass its “entire ecosystem, including Gmail, YouTube, Google Pay, and Google Store.” The deeper ties between the two services will allow Google users to set PayPal as their default, “embedded payments option across all Google products and services.”
block.one is close to raising $4B through token sales. The Cayman Islands-based “little known startup . . . without a concrete plan” is “on track to raise more than $4 billion through a yearlong sale of digital tokens—the largest fundraising of its kind.” block.one, which bills its core project as a global payments platform, plans to invest some of its new funds in other firms that use its platform.
Binance launches $1B fund for crypto and blockchain startups. Binance, the world’s largest crypto exchange based on daily trade volumes, announced it would establish a ‘Community Influence’ fund and serve as an incubator for startups focused on cryptocurrency or blockchain. Binance’s first planned investment is in Dache Chain, a new blockchain-based Chinese ride-hailing service.
Amex’s new rewards blockchain could be a new trove of consumer data. American Express’s new blockchain platform allows merchants to “tie card rewards to products they want to move off the shelf,” giving the payments processor detailed information about customers’ purchases. Such access raises consumer privacy concerns due to its potential use for highly targeted product offerings.
Visa’s European payment network failed. Consumers across parts of Europe, including the U.K., were unable to use their Visa cards to make purchases on Friday, when the payment card network experienced widespread failures. The outage was “the result of a hardware failure,” not a cyberattack.
Blockchain firm Paxos raises $65M Series B. The company, which offers solutions for digitizing assets and settling trades in precious metals and securities, closed a $65 million Series B funding round led by Liberty City Ventures and RRE Ventures. Paxos will use the new funds to “scale up its operations and expand product offerings across international capital markets.”
Chime raises $70M Series C. The San Francisco-based mobile banking service raised $70 million in new funding, valuing the firm at nearly $500 million. Chime caters to millennial customers by offering fee-free services, no minimum balance, and an emphasis on a mobile, consumer-friendly interface.
Citi spent more on fintech in 2017 than raised by U.S. fintech startups. Citi CEO Michael Corbat said that the global bank spent $8 billion on technology in 2017, more than all the money “invested by VCs across the entire US financial technology startup scene during the same period.” Corbat said roughly 20% of Citi’s total annual expenses are on technology.
How might new Chinese regulations affect Ant? Forbes describes the potential for new Chinese regulations that would impact the country’s money market funds, and how such regulation could affect the world’s largest private fintech company.