The CFTC subpoenaed several cryptocurrency exchanges as part of an investigation into possible crypto market manipulation; Ant Financial raised $14B, the largest single private fundraising round in history; Google published its “code of ethics” for AI R&D; Facebook took another hit on its privacy controls due to a bug affecting 14 million users; the CFSI unveiled the eight winners of its 2018 FinLab competition; and Circle, Coinbase, and Revolut all made moves to expand their capabilities.
The Big Idea
U.S. fintech firms are seeking to expand their offerings and regulatory approvals.
Last week, three very different firms made three fairly similar announcements:
- Circle, which began as a money transfer service before adding a crypto-investing platform, is now exploring how to acquire a national bank charter and register as a brokerage.
- Coinbase, the most well-known crypto exchange in the U.S., acquired Keystone Capital, a registered broker-dealer whose licenses will allow Coinbase to offer more services to institutional investors, pending regulatory approval.
- Revolut, the London-based digital banking service that plans to begin U.S. operations this summer, said it could apply for a California banking license by the end of 2018, which would allow it to take on a variety of bank powers in the U.S.
To be clear, these moves are not responses to each other in a direct sense, but they are illustrative of two recent trends in the fintech marketplace: a movement toward “everything to everyone” business models, and the related need for regulatory approvals. Recently, we have seen a number of firms exhibiting signs of convergent evolution: for example, Robinhood, Circle, and even online lender LendingClub are now offering services in the crypto space; while Coinbase itself is moving to compete with traditional brokerages for institutional investors. Meanwhile, Circle, Varo Money, and new market entrants like Revolut are actively considering or working toward bank licenses that would support the goal of offering a variety of financial products and services without relying on third-party bank partners.
It remains to be seen whether this trend is merely evidence of successful companies looking for new sources of revenue by throwing ideas against the wall, or whether it represents a broader trend of large fintechs copying the Big Bank playbook to duplicate the offerings of their smaller competitors. Maybe it’s both. Regardless, their recent moves have emphasized the need for regulatory collaboration. As fintech firms expand, their federal and state financial services regulators — and their requirements — will increasingly serve as gatekeepers (enablers?) for future diversification and revenues. It will be fascinating to watch how both sides respond.
In the News…
Bitcoin futures dispute sparks CFTC regulatory probe. The Commodity Futures Trading Commission (CFTC) subpoenaed several crypto exchanges as part an investigation into potential cryptocurrency price manipulation. The CFTC’s probe is separate from the Justice Department’s investigation into potential manipulation of other cryptocurrencies, but the agencies are working together on them.
Ant raises $14B: largest fundraise in history. The Chinese technology giant raised $14 billion in U.S. Dollars and Chinese Yuan from multiple investors, making it the “largest confirmed single fundraising round in history.” Ant’s official valuation is unknown, but it is estimated to be about $150 billion. “It’s the most uniquely positioned TechFin company in the world,” said Warburg Pincus’s Ben Zhou.
Visa launches $100M European fintech investment fund. The global payments giant created the fund to invest in startups “innovating in the arena of open banking and . . . emerging technologies,” and has created a “fast track programme for onboarding fintech startups to the network.” Visa’s fund will begin with a focus on U.K. firms, providing funding and access to various Visa products and services.
Ripple challenges SWIFT on cross-border payments. The Financial Times explores the growing competition between blockchain-based Ripple and traditional powerhouse SWIFT for the management of the world’s cross-border payments. Ripple’s Xcurrent system now provides near real-time money transfers to over 100 financial institutions, though Swift has upgraded its own services in response.
CFSI names newest FinLab cohort. The Center for Financial Services Innovation (CFSI) unveiled the winners of its annual Financial Solutions Lab (FinLab) competition. Each of the eight winners uses technology to “help improve the financial health of underrepresented populations in the U.S.,” and the new FinLab cohort will receive advisory services from a variety of companies.
Facebook bug leads to another privacy snafu. Up to 14 million Facebook users were affected by a bug in the social media giant’s code that “updated the audience for some users’ posts to ‘public’ without any warning.” As a result, some users who intended to publish items only visible for their friends “may have been posting that content publicly.” Facebook said it will alert affected users “immediately.”
Quebec suspends power requests for crypto miners. Hydro-Quebec, Canada’s largest electric utility, has halted processing power requests from crypto miners so it can “continue to fulfill its obligations to supply electricity to the entire province.” Hydro-Qubec has experienced “unprecedented” demand from cryptocurrency miners, with their power needs exceeding its short-and-medium-term capacity.
Congressmen seek new Office of Technology Assessment (OTA). Democratic lawmakers, led by Reps. Mark Takano (CA) and Bill Foster (IL), are trying to grow support for the revival of the think tank, “which lawmakers disbanded amid partisan squabbles in the 1990s.” Takano and Foster called the OTA a “wise investment” that would “better prepare Congress to account for emerging technologies.”
Google outlines its AI code of ethics. In a blog post [full text], CEO Sundar Pichai named seven core principles underpinning Google’s AI research, including that it should “avoid creating or reinforcing unfair bias,” “be accountable to people,” and “incorporate privacy design principles.” The release of the principles follows internal protests against Google’s work on AI for the U.S. Department of Defense.