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HKMA rejects criticism of its approach to Fintech
FinTech
<p>Fintech entrepreneurs are not shy about criticizing Hong Kong for a perceived Luddite attitude to their innovative products and services. At the Cyberport and NexChange Fintech O-2-O Meet up last week, panelists and delegates compared the city’s regulators unfavorably to their more accommodating counterparts in the US, UK and even usually cautious Singapore.</p> <p>Well, on Friday the Hong Kong Monetary Authority (HKMA) hit back at its detractors.</p> <p>Speaking at the Hong Kong Institute of Bankers conference, Arthur Yuen, deputy chief executive, insisted that the HKMA welcomed fintech development, recognizing that it intensified competition in the financial service industry and empowered customers, reports  AsianInvestor.</p> <p>It was the first time for a while that the regulator had clarified its stance on an industry that attracted more than $12 billion of investment in startups last year.</p> <p>He rejected criticism that conservative restrictions inhibited fintech companies in Hong Kong, and argued that although it wants to ensure consumer protection HKMA does not want to stifle innovation.</p> <p>“We want to be technology-neutral,” and allow banks to adopt new technology while retaining safeguards for customers, he said.</p> <p>However, perhaps a little ambiguously, Yuen added that “the same customer protection requirement will more or less remain relevant regardless of the channel used to deliver it,” he said. </p> <p>He is most concerned about new entrants and whether the regulatory framework is sufficiently robust to supervise and the public sophisticated enough to understand the risks.<br /> Photo: Martin Ng<br /> &nbsp;</p>
Wall Street’s takeover of peer-to-peer lending almost complete
FinTech
<p>Big banks are excellent at creativity and innovation, some of it a legitimate component of the business that helps the economy, and creativity in other areas has proven to be less than beneficial to the economy and market security. This includes finding and exploiting regulatory cracks and arbitrage opportunities, as a recent Financial Times piece observed, applying a sense of historical reflexivity to the recent dominance of the peer-to-peer lending revolution by banks and Hedge Funds.</p> <p>With peer-to-peer lending, sharp-eyed readers might feel a sense of déjà vu<br /> “Sharp-eyed readers might feel a sense of déjà vu,” Gillian Tett, U.S. managing editor of the Financial Times observes today. While discussing Wall Street’s ascendancy to dominate several angles of a “peer-to-peer” lending process that was advertised as a method to disintermediate banks, Tett, in a piece titled “The sharing economy is now a playground for Wall Street,” observes what what algorithmic traders might otherwise call a confirmation pattern. A confirmation pattern is a re-occurring event that often ends with the same conclusion. For Tett, the combination of banks operating in regulatory cracks is something that will end in "tears."</p> <p>"History suggests that whenever innovation and regulatory arbitrage are combined in an era of ultra cheap money, it often ends in tears — somewhere. If nothing else, that also suggests that policymakers need to find ways to stop activity falling between the regulatory cracks; not least because financiers are endlessly creative at dancing in those gaps."<br /> Peer-to-peer lending operating in regulatory cracks as a business model<br /> While she did not specifically identify it, Tett was peeling back the onion on a highly evolved business model. "The idea of using innovations to dance around tough capital rules is hardly new: in the early years of the past decade, banks used structured investment vehicles and collateralised debt obligations in the same way,” she writes, noting a unique relative value strategy. “They also took advantage of cracks in regulatory structures to create products that policymakers could not easily monitor or control (it was unclear, for instance, who was supposed to oversee mortgage derivatives).”</p> <p>This big bank issue has occurred on a frequent basis and can be tied back to 1998 with a man at the center of assisting in creating big bank “cracks” that can be exploited, one who is also at the center of the peer-to-peer revolution today: Larry Summers.</p> <p>In 1998 Summers fought hard to punish then CFTC Chair Brooksley Born, who wanted to study unregulated derivatives that would eventually have a significantly negative impact on the economy on more than one occasion. At that point, regulatory confusion and allowing banks to operate in the “cracks” seemed like the point, as the unwritten rules against questioning questionable bank behavior on derivatives were later codified into law in the form of the Commodity Modernization Act of 2000, stripping away common sense derivatives</p>
Square's imminent IPO could leave its CEO spread thin
FinTech
<p>Payments start-up Square could file the first documents for its IPO in as little as two weeks, according to Fortune.  The news comes packaged with two big unknowns.</p> <p>Firstly, there are the macro-economic issues stemming mainly from fears over the stability of the Chinese economy and the prospect of the Federal Reserve raising interest rates before the year is out.</p> <p>The second issue is how Square co-founder and CEO Jack Dorsey - who is interim CEO of Twitter, which he also co-founded - will handle running two public-listed companies.</p> <p>As Fortune points out, an executive running two public firms is rare. Someone running two firms, when one is actually going through the process of an IPO, is rarer still.</p> <p>Dorsey was a previously rumored to be a favorite for the full-time CEO gig at Twitter, but the company's board has since said it would only consider a full time CEO in a “position to make a full-time commitment to Twitter.”</p> <p>What is certain is that Square will need to clarify Dorsey's commitments before hitting the road to raise money. Until then, the prospect of handling the workload of two public companies is going to make Jack is a very dull boy indeed.<br /> Photo: George Redgrave</p>
Is the Islamic State responsible for Android Pay?
FinTech
<p>At first glance, the notion that Islamic State - formerly ISIS  (Islamic State of Iraq and Syria) - has a part to play in the birth of Android Pay is absurd, but its not impossible. No one is suggesting that the Islamic terrorist organisation  has a secret cell of programmers moonlighting  in Mountain View, however the group's mere existence may have set off a chain of events that inadvertently brought us Google's latest payment's platform.</p> <p>This is what's suggested by fintech blog Mobile Payments Today which insists that to understand Android Pay one must start with ISIS. Why? Because the IP behind the Smart Tap technology that is at the center of Android Pay's value proposition was actually acquired by Google when it bought a company called Softcard in 2013.</p> <p>Softcard was a joint venture created in 2010 by AT&amp;T, T-Mobile and Verizon back when it was called Isis, at a time when name was more closely associated the Egyptian goddess. It was only when the terrorist group ISIS came onto the scene they were forced to change their name. Supposedly the brand never recovered from the name change, making it easier - so the logic goes - for Google to acquire them and their IP, and eventually bring us Android Pay.<br /> Photo: FutureTrillionaire</p>
Soros steps into the fintech arena
FinTech
<p>George Soros, the original posterboy of the swashbuckling global macro arena, isn’t exactly the first person who comes to mind when you think about fintech.</p> <p>He just joined the space though, and as always, his bet looks like a winner.</p> <p>According to Business Insider, Soros Fund Management has just backed TruMid, an electronic corporate bond marketplace which aims to provide superior liquidity for its users via “swarms.” What are swarms? Here’s what TruMid says about them on their website:<br /> Trading occurs in “swarms” - well-publicized trading sessions that are focused on a specific set of related or topical securities. We will attract a critical mass of traders and investors to our swarms. This robust forum will generate superior liquidity and pricing efficiency for everyone.<br /> And it plans to do this – and more – all under “a shield of anonymity with zero information leakage.”</p> <p>Soros’ bet could not have come at a better time. Years upon years of zero interest rates have led asset managers to snap up all the corporate bonds they could get, and now that the Fed is about lift rates, people are having a lot of problems trying to move them.</p> <p>Industry heavies such as Jamie Dimon, Steve Schwarzman, and Bill Gross meanwhile have all sounded the alarm on bond market liquidity. If they’re right, the man who broke the Bank of England just make another killing again.<br /> Photo: International Monetary Fund</p>
Samsung Pay sees strong S. Korea debut, so should its US rivals worry?
FinTech
<p>Within a month of launching in South Korea, Samsung Pay has clocked up 1.5 million transactions worth $30 million, and it will now take on the US market.</p> <p>It's a strong start. Data released by the company shows that since August 36% of Samsung phone owners used the service and 10% of  those did so every day. Around 60% these purchases were made using the Galaxy Note 5.</p> <p>Samsung had a home advantage by launching in South Korea first but it's still an impressive debut. How will it stack up against Apple and Android Pay when it enters the US next month?</p> <p>It is hard to compare performance. Apple Pay has enjoyed an adoption rate of 42% among iPhone 6 and iPhone 6 Plus users, according to Auriemma Consulting Group, but that's with a year-long head start. No data yet exists on Android Pay, which only started rolling out earlier this month.</p> <p>The biggest curve ball for Android and Apple is likely to be Samsung's payment technology. Both Apple and Android rely on contactless near field communication (NFC) technology - which means merchants need to have an NFC reader installed.</p> <p>Samsung Pay uses MST technology which means merchants without NFC readers can accept it. Weirdly, the Galaxy S6 can emulate the magnetic strip of a card wirelessly so - Samsung claims - it can work on over 90% of card payment machines.<br /> Photo credit: TechStage </p>
Prosper Marketplace acquires BillGuard
FinTech
<p>Prosper Marketplace is strengthening its competitive stance through an acquisition of financial security startup BillGuard.</p> <p>Prosper Marketplace, an online loan market, is hoping the addition of BillGuard will help them edge out their competitors, reports the New York Times. Lending Club, OnDeck, and other online lenders have seen their stocks drop sharply this year. Prosper has also struck up deals with companies like American HealthCare Lending, which helps finance elective surgeries.</p> <p>The BillGuard deal, valued at about $30 million, is mostly in cash, with some stock as retention incentives for BillGuard staff. BillGuard services will add fraud monitoring and financial management to Prosper.<br /> "It really takes us from being a one-dimensional marketplace to potentially a multiproduct company providing more value," says Stephan Vermut, executive chairman at Prosper Marketplace.<br /> Photo: Simon Cunningham</p>
What does the internet think of Bitcoin and blockchain?
FinTech
<p>The way the world understands digital money is changing. Related but distinct, Bitcoin and blockchain are two of the biggest buzzwords in fintech. Bitcoin, the crypto-currency,  is the easiest to understand and the most notorious. Blockchain, the technology behind bitcoin, on the other hand is a bit more arcane and a bit more difficult to grasp. So it’s no surprise that when you run both words through Google Trends - the analytics tool for tracking internet searches - you get this:</p> <p>&nbsp;</p> <p>But take a closer look at blockchain on its own and you will see something interesting:  </p> <p>While interest in Bitcoin seems to have peaked - or even started to decline - interest in blockchain has been soaring. Also, a look at the kind of search terms offers an interesting insight into sentiment.</p> <p>Bitcoin remains the top buzzword of the day, people are seeking to get a better understanding of blockchain. But looking at the kinds of questions people are asking, it seems as if blockchain will struggle to shake Bitcoin's reputation.</p>
The buzzsaw aimed at blockchain
FinTech
<p>Karen Petrou's memorandum to Federal Financial Analytics clients on the buzzsaw aimed at blockchain.<br /> &nbsp;</p> <p>Earlier this week, an NPR story fired up a campaign to force banks to absorb customer losses when business accounts are hacked. It remains to be seen if legislation will change the Electronic Funds Transfer Act, but the campaign is a sharp reminder of what happens when law falls behind technological reality. Regulators know this all too well – see our analysis of Treasury’s new inquiry into online marketplace lending as a critical case in point. Blockchain processing, take warning. The most exciting change in years for clearing and settlement will come to pass only if regulators come to love it.</p> <p>There’s been a lot of buzz about blockchains in the past few months, and buzz turned into a strong signal when nine global banks earlier this week announced a new consortium to figure out ways to make blockchain processing work for them. Several freestanding start-ups are also attracting significant industry and investor interest, with all of these ventures aimed at turning digital ledgers into the double-entry bookkeeping of tomorrow.</p> <p>Regulators really like this in theory – current market infrastructure is prone to breakdowns that pose severe operational risk, cost a lot, and concentrate risk into the hands of the largest dealers and exchanges. Banks used to make buckets from their central role across the clearing-and-settlement spectrum, but a raft of new rules has combined with an array of empowered competitors (CCPs, anyone) to restructure clearing-and-settlement into a losing proposition. In theory, large banks could simply shutter clearing-and-settlement operations, but then the lights would go out across the financial system.</p> <p>The upside of blockchain processing thus is evident, especially to the largest banks and their regulators. Customers need to have clearing-and-settlement services and banks have long perched higher-margin products atop their infrastructure edifices. Regulators very much want banks in the clearing-and-settlement business – if banks don’t do it, then others – such as they may be and whatever bits and pieces of the business they might do – won’t be under strong prudential supervision (if any).</p> <p>What’s the downside? In thinking through blockchains, it’s critical at the start to work through what it fixes and how its fixes could go wrong. For starters, skeptics will look at the new big-bank venture, review research about collusion risk in anonymized, digital-ledger systems, and think LIBOR. That’s the first thing an expert in this field asked me about when the word “banker” came up, and he didn’t even know until I told him just how big they are.</p> <p>Another unanswered question is the extent to which counterparties – especially banks – will aggregate data when using digital ledgers. Data aggregation is a top regulatory priority not now faring well at any of the big banks. Will blockchains make this better? If so, that’s a big plus, but if so isn’t it even harder to tell one systemic counterparty from another until losses warp out of control?</p> <p>An even bigger plus would come if blockchain design addresses operational risk and, thus, systemic resilience. It is possible – certainly hopeful – that digital ledgers could erase all the speedbumps that can destroy financial-market axles under stress. However, would blockchain processes rev up high-frequency trading across the markets to the point at which trades couldn’t be halted by automatic stays in a regulatory resolution? If it does, then orderly resolutions are even more remote.</p> <p>Blockcha</p>
Apple Pay gets ready for war in China
FinTech
<p>Apple looks set to take on internet giants Alibaba and Tencent by launching its Apple Pay platform in China to compete with theirs.</p> <p>The Wall Street Journal reports the mobile-payment service registered an entity in the Shanghai free-trade zone in June. Called Apple Technology Service (Shanghai), its operations will include technical consulting and services and system integration in payments.</p> <p>It comes as no surprise. Apple CEO Tim Cook has said the company wants to launch payments as soon as possible. But the doesn't mean it won't have a heck of a fight on its hands.</p> <p>Alibaba and Tencent have already been in the payments space for at two years. E-commerce giant Alibaba has AliPay, while Tencent has payments functionality  bundled into its WeChat platform. Like Apple Pay, both are based on near-field communication (NFC) technology.</p> <p>Apple is not incapable of pulling a China incursion off. Apple's other products have taken China by storm, its most recent result showed revenue in  Greater China rose 112% in the fiscal third quarter ended June.</p> <p>Also, iPhone sales in the region rose 87% versus 5% in the broader smartphone market. This is important as the Apply Pay service is restricted iPhone and Apple Watch owners.</p> <p>Breaking China's  payment market will not be like breaking the smartphone market, and Apple can expect a lot more fightback from well-established domestic players and, potentially, local regulators.<br /> Photo: Dan DeChiaro</p>