Blockchain & Fintech Needs Open Data Access for Development

Canada’s largest securities regulator has stated that open access to data is fundamental to developing fintech solutions like blockchain technology, in a white paper, reports Reuters.

Last November, the Ontario Securities Commission (OSC) hosted a hackathon, with the aim of discovering innovative FinTech solutions for the finance sector. Its paper was the result of the hackathon.

According to Pat Chaukos, chief of OSC LaunchPad, which is a regulatory sandbox to promote innovative solutions, blockchain can provide answers for problems that companies are experiencing.

Chaukos said:

You need to have the open-access data before you can get to the innovation.

In a bid to further expand the sector between the two nations, regulators in the U.K. and Canada signed an agreement earlier this month. By doing so they have made it easier for FinTech companies to expand into each other’s markets, which resolves the issue of growth.

More, though, needs to be done.

EU Law Set to Shake Things Up

The European Union’s Payment Services Directives 2 (PSD2), which is due to come into effect in early 2018, is expected to bring the change that many financial technology companies are seeking.

The new directive will allow a third party, such as a FinTech company, to access banking data with the customer’s permission, establishing greater confidence to users in the reliability of the services. It would also make signing up for financial services easier.

And yet, while it will help shake up the way banks work with data, some European FinTech firms believe that banks are lobbying against the EU legislation.

Of course, banks want tighter regulation on financial technology firms and their access to customer data for fear that cybercriminals will obtain the information. It is because of this that FinTech companies believe that banks will delay response times to access requests.

Banks and FinTech to Collaborate

But, if banks are to thrive in the face of FinTech it needs to collaborate with the companies to remain relevant. As with anything new, change is slow to take shape, but as Mark Carney, the governor of the Bank of England said, FinTech brings great promise and risk that need to be understood to realize the benefits.

With access to open data, though, it would improve manual regulatory processes such as how information is collected and analysed, the white paper asserts. Not only that, but it would boost competition and provide concrete benefits for investors too.

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FinTech Collaboration Needed to Protect Consumers and Banks

Canadian regulators and policy makers need to work together to ensure that the country maintains its FinTech development; however, it also needs to be mindful of maintaining the protection of its customers and banks.

That’s according to an organized federal Competition Bureau discussion, reports the Financial Post. Moderated by Carolyn Wilkins, senior deputy governor of the Bank of Canada, those present included the federal Department of Finance, the Ontario Securities Commission, the Financial Consumer Agency of Canada, FINTRAC, and Payments Canada.

The federal Competition Bureau is expected to publish its findings this spring on whether the FinTech industry needs to be regulated or not.

Naturally, high on the list for discussion was Canada’s regulatory environment regarding FinTech and where many companies stand within that landscape.

According to the report, some FinTech companies will fall under the regulation of the Financial Transactions and Reports Analysis Centre of Canada; however, there are others that don’t.

Not only that, but while there are firms that comply with the Bank Act, many traditional banks are turning their attention to financial technology firms, which don’t have to comply with the Financial Consumer Agency of Canada’s consumer protection rules.

Innovative Modernized Environment

For banks, consumers, and financial technology services this is relatively new ground that is being explored.

And yet, it is new ground that would benefit from a collaborative approach from both sides. The payments sector realizes this while the Bank of Canada has said that working with FinTechs could ensure a smooth evolution to tomorrow’s financial system.

In order to maintain pace with financial technology firms, Canada’s banks are undergoing a technological change as customers’ embrace online banking services through their smartphones.

With FinTech funding in Canada increasing the nation is keen to explore what the technology can provide. At the same time it needs to ensure its customers and banks are protected too.

The only way to achieve this is through the working collaboration between the two sectors that will ensure the advancement of financial technology services at the same time guaranteeing that banks don’t get left behind as the sector grows.

As Canada continues to demonstrate its prowess within FinTech it has to make sure that it remains in close contact with regulators and policy makers than ever before. At the same time different agencies in the country need to maintain contact too.

It may be a new area for all concerned, but it’s one that needs addressing.

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PayPal Invests in $48 Million Series C of Korean Fintech Payments Startup

South Korean Fintech firm Viva Republica has closed a KRW 55 billion ($48 million) Series C round of funding which saw participation from the likes of PayPal and other significant backers.

Viva Republic is the developer opf Toss, a  now-popular peer-to-peer payments application that launched in February 2015. Having launched as a P2P transfers app, Toss has since included other features including financing and credit monitoring for a more rounded, financial services application. Toss has made significant strides in a South Korean payments market that was described as “archaic” by chief executive SeungGun (SG) Lee. Toss has now partnered with 18 of Korea’s 19 major banks, granting it direct access to 98% of Korea’s banking customers and has become Korea’s leading payments app.Formerly a dentist, Lee grew frustrated of the web and mobile banking systems in Korea and set out to carve a simpler and straightforward means of personal banking.

Blaming “strict regulations and a traditional banking system” for the inefficient user experience in financial applications in spite of Korea’s traditionally technology-forward stance, Lee added in a statement:

Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss, users need just one password and three steps to transfer up to KRW 500,000 (approx. $430). The process is quick and simple.

Viva Republica claims that since its public release two years ago, Toss has racked up 6 million users and has processed over $3 billion in money transfers. Notably, Toss has grown 13-fold in the last 12 months alone.

The Viva Republica Team

It’s latest Series C round includes the likes of PayPal and Silicon Valley firms firms Goodwater Capital and Bessemer Venture Partners. Viva Republica has now raised over $77 million in total funding since its founding in 2013.

Viva Republica’s efforts to pull in backers outside Korea’s borders is a part of the company’s wider endeavor to expand in regions beyond Korea.

Speaking of PayPal’s participation specifically, Lee added:

They are the number one player in online payments globally. Their participation shows that they recognize our potential. With their help, we can advance to the next level, globally and at speed.

“We’ve done extremely well attracting millennials to Toss,” added Lee in press statements. “Now we’re developing services that will appeal to an older audience, for example, a range of financial management services.” The funding will be used to expand its services within the Korean market, Lee confirmed.

FinTech Disruption

Hosting the world’s fastest consumer broadband speeds, South Korea is also home to a population with the highest smartphone adoption rate (a staggering 88% in 2015 figures) in the world. With a solid technology infrastructure and a demanding, technology-hungry population, a lot of industries, including financial services, are ripe for disruption. Investors are taking notice.

South Korean messaging platform Kakao Corp gained a $200 million investment in its mobile payment subsidiary from China’s Ant Financial, the world’s most valuable Fintech company.

“South Korea is an important market for Ant Financial in its global expansion, and we see many opportunities in the market for innovation services and growth in mobile payments,” stated Douglas Feagin, president of Ant Financial International following last month’s Fintech mega-deal.

Viva’s Lee has brushed aside concerns of competition by Kakao Pay, which has over 14 million members in South Korea. Unlike Toss, Kakao is gearing toward mobile payments rather than mobile money transfers, according to Lee.

He further stated in an interview:

KakaoPay is primarily a B2B play, focusing on acquiring merchants. That strategy requires an enormous marketing budget that doesn’t leave much in terms of margins. Toss is a B2C offering, focusing on providing a range of financial services to its users.

Toss has now partnered with 18 of Korea’s 19 major banks, granting it direct access to 98% of Korea’s banking customers.

Images from Viva Republica.

Does the UK Budget Threaten London’s FinTech Scene?

The U.K.’s Chancellor of the Exchequer Philip Hammond delivered his first Spring Budget to Parliament, announcing, among other things, that self-employed people would have to pay increased national insurance contributions (NICs) over the next two years. His announcement puts into question whether the U.K. will remain the best place to start and grow a fintech business.

In a report from the BBC, Hammond said that there had been a ‘dramatic increase’ in the number of people working as self-employed and that the reason a person decided to become self-employed should not be ‘differences in tax treatment.’

He added:

Such dramatically different treatment of two people earning essentially the same undermines the fairness of the tax system.

In April 2018, Class 4 self-employed payments will see NICs increase from 9 percent to 10 percent and then to 11 percent in April 2019 for those earning between £8,060 and £43,000. Class 4 employees contribute 12 percent. Those earning above £43,000 will continue to pay 2 percent and those under £8,060 will pay nothing.

Class 2 payments, which have a lower threshold of £5,965 or more in profits a year, will be abolished.

Taken together, only those self-employed with profits over £16,250 will have to pay, on average, around £240 a year, Hammond stated.

Hammond said:

The combination of the abolition of Class 2 and Class 4 increases I have announced today, raises a net £145m a year for our public services by 2021-22, an average of around 60p a week per self-employed person in this country.

Impact on UK Startups

Yet, the Federation of Small Businesses is reported to have criticized the changes to the rate of NICs for self-employed people.

Mike Cherry, chairman of the federation, said:

This undermines the government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business.

Not only that, but with Brexit negotiations causing a stir amongst many, it wouldn’t be surprising if fintech firms decided to establish themselves elsewhere.

With many young fintech firms taking on risks of establishing their own business this news may likely give potential new companies something to think about.

Furthermore, the fact that Hammond has announced a NIC rate increase for the self-employed could impact the U.K.’s fintech scene, potentially stalling new businesses from establishing themselves in the U.K. and helping to grow the sector, which, at present, is the global hub.

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Law Firms Woo London’s Fintech Scene

Top law firms are reaching out to London fintech companies in a bid to develop relationships that could be profitable in the future.

International law firms Slaughter and May and Simmons & Simmons, both with headquarters in London, are keen to woo fintechs by providing services for financial technology companies to take advantage of.

According to Finextra, Slaughter and May is reported to give five fintech startups free legal servicesamounting to £30,000. These are regtech outfit Enforced, small business banking app Tide, cybersecurity company Garrison, car insurance provider Just Miles, and money transfer service WorldRemit.

Last year the law firm announced that it was opening its doors to its first Fintech Fast Forward programme, with applicants invited from the insurtech, datatech, DLT and regtech sectors.

It’s reported that more than 25 companies applied, seeking services such as legal advice and guidance from experts, and tailored one-to-one coaching on topics such as pitching, presentations, people management, communications and negotiation.

Meanwhile, Simmons & Simmons is launching a fintech and regtech student support programme with London’s Queen Mary University, teaming up with the Centre for Commercial Law Studies (CCLS).

According to Simmons & Simmons, while the fintech industry is expected to disrupt the banking industry, not much has been looked into examining the law and legal implications. It is hoped that the new programme will be able to provide the support and knowledge to educate, which will benefit those in the long run.

The law firm is no stranger to the world of fintech. Last year, it launched a £100,000 fund to deliver free advice to fintech startups, helping to boost the trend of free advice to businesses in need of guidance.

US Law Firms Help Too

It’s not just U.K. law firms that are reaching out to vibrant fintech companies to provide support and guidance, U.S. law firms are too.

In the summer of 2016, it was announced that global law firm Steptoe & Johnson LLP had launched a multidisciplinary blockchain practice to assist blockchain companies and firms that had been affected by legal issues relating to the technology.

Not only that, but a newly formed U.S. coalition, called the Digital Currency and Ledger Defense Coalition (DCLDC), revealed late last year that more than 50 prominent lawyers would help digital currency users, who can’t afford legal services, with pro bono attorney referrals.

As the market continues to increase more law firms are realizing the benefits of helping companies in the growing sector, which they could potentially capitalize on later.

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China & Japan Lead Asian Interest in FinTech

Asia is continuing to demonstrate its commitment to FinTech and is helping to fuel global investment in the sector, according to a report from Accenture.

In 2016, the amount of venture capital funding increased 10 percent to $23.2 billion, which was largely assisted by investments in China and Japan, reports Fortune. Over the last year, China’s FinTech investment is reported to have more than tripled to $10 billion from 55 deals.

Japan has also been flexing its FinTech muscles. Over the last twelve months, FinTech investment increased to $154 million from 14 deals. This is compared to the $65 million from the previous year.

China’s Increase in FinTech

FinTech has been buoyed in Asia due in part to major investments. One in particular was China’s Ant Financial Services Group, which raised $4.5 billion during a fundraising round.

Hong Kong-based industry investment firm, Credit China Fintech Holdings Ltd. also announced that it was entering a $30 million agreement with bitcoin and blockchain industry giant BitFury. It’s thought that this agreement will boost investment in BitFury shares as the two companies focus on the Chinese financial technology market.

Slow Start in Japan

Unlike China, though, Japan’s FinTech has been experiencing a slow take off, despite a relative improvement in investments from previous years. This is thought to be down to a strong bank-centric culture.

And yet, with a stagnant economy in Japan, the nation is making efforts to improve its position in the world.

To aid this, the Bank of Japan launched a blockchain test drive at the end of last year to gather more insight into how the technology works. According to governor Haruhiko Kuroda, the new technology could bring significant change and impact to the financial industry.

Of course, with a country that has a tainted past, regarding the collapse Mt. Gox bitcoin exchange in 2014, Japan became one of the first to regulate digital currency exchanges. This move was seen to provide investors with the necessary boost to invest in the country.

This can be witnessed through the fact that Japan’s three megabanks have all invested in Japan’s biggest bitcoin exchange, bitFlyer. This is less than a year after the Tokyo-based exchange raised $27 million in a funding round.

Of course, as Japan gets ready to enforce a bill that mandates the regulation of bitcoin and virtual currency exchanges in the country, interest in the digital currency is expected to grow with further investments flowing into the country.

It may be behind China’s efforts in the FinTech sector, but Japan is certainly paving its own path in the industry.

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Asian Banks to Showcase Blockchain Use Cases in Fintech Hub Singapore

A two-day conference will see notable Asian banking giants along with other participants and developers of blockchain technology outline their use cases for the innovation.

Singapore will host the ‘Blockchain for Finance Conference, Asia Pacific’ with a number of significant financial institutions participating in the event. The conference, held on June 20-21, will see banks, credit unions and building societies, among other companies from various industries to discuss and evaluate the use-cases and proof-of-concept prototypes of blockchain-based applications.

Hosted by the FinTech network, the event’s speakers include representatives from two of Japan’s ‘megabanks’ in the Mizuho Financial Group and the Bank of Tokyo-Mitsubishi UFJ (MUF); the director of research from banking blockchain consortium R3; the deputy director of Singapore’s central bank as well as several officials from financial institutions in Europe and beyond.

Japan’s Megabanks: Big on Blockchain

Tokyo-based MUFG could become the first bank in the world to issue its own digital currency based on blockchain technology, later this year. The financial institution first revealed plans for a digital currency in early 2016 before confirming tests toward the middle of the year and again in late 2016. As Japan’s largest bank, MUFG notably invested in bitcoin exchange Coinbase, as the US-based crypto-trading platform looks to expand in Japan. MUFG is also conducting a trial for check digitization over a blockchain in Singapore, making use of the central bank’s Fintech regulatory sandbox.

Mizuho has also tested its own digital currency after partnering with technology giant IBM. The banking giant recently concluded a trial involving document sharing and cross-border digital currency settlements among affiliate companies over a distrtibued ledger. Alongside MUFG, Mizuho is also a partner in Japan’s largest bitcoin exchange, bitFlyer. The banks have already conducted domestic money transfers over a blockchain developed by the bitcoin exchange. The successful proof-of-concept ran for nine months till September 2016 and clocked 1,500 transactions per second on bitFlyer’s proprietary blockchain ‘miyabi’, beating the peak speeds that the current interbank wire system is capable of.

China Construction Bank, the world’s second-largest bank by assets and the Oversea-Chinese Banking Corporation, a Singapore-based financial services giant will join the Japanese banking giants in revealing their blockchain strategies.

From a regulatory standpoint, the deputy director of Singapore’s central bank will discuss the plethora of patent filings by major financial institutions and its impact on blockchain developments going forward. A Standards Australia official will address the effort of developing international standards for interoperability of the innovation, a significant factor toward its wider adoption. As the country’s national standards authority, Standards Australia was tasked by the ISO (international Organization for Standardization) to take develop uniform global standards for blockchain technology late last year.

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UK and Canada Regulators Sign Agreement for FinTech Expansion

Regulators in the U.K. and Canada have signed an agreement that will assist FinTech companies, making it easier for them to expand into each other’s markets.

In a report from Insurance Journal, the agreement between the U.K. Financial Conduct Authority (FCA) and the Ontario Securities Commission (OSC) is aimed at helping financial technology firms work with regulations.

The FCA and the OSC already have the own FinTech programs in place designed to help startup companies meet the requirements necessary and to test products under their guidance.

In November, the FCA announced the first 24 companies that will be taking part in its regulatory sandbox. It is hoped that those taking part will help to boost London’s FinTech scene particularly at a time when the country’s capital is experiencing pressure in light of the Brexit result.

So much so, that venture capital funding in the U.K. dropped by 33 percent to $783 million in 2016 compared to $1.2 billion in 2015. This was largely attributed to the uncertainty circulating Brexit in addition to geo political and macro economic factors.

Despite the challenges, though, it continues to reign at the top and this agreement with Canada will do much to further boost London’s FinTech sector.

This can be seen by the fact that venture capital funding in Canada was reported to have reached an all-time high in 2016 in twenty years as the U.S. FinTech market experienced a slowdown. According to PitchBook, funding in Canada reached $137.7 million last year compared to $21.8 million five years ago, and $7.3 million in 2000.

Concern from Banks

However, as the financial technology sector continues to expand, central banks have voiced their concerns regarding FinTech. They believe that the industry’s expansion is a threat to financial stability.

The Bundesbank President, Jens Weidmann, expressed his views on FinTech stating that because of its threat to the banking sector it requires more regulatory oversight.

While former Group CEO of Barclays, Antony Jenkins, predicted a future within the next ten years where FinTech would disrupt traditional banking systems.

And yet, by simply working together the two industries will find that they can deliver benefits to each other that will help them to expand.

In the meantime, though, this agreement between the U.K. and Canada will assist many startups helping them to overcome complicated regulations, enabling them to grow on the services that they will be able to provide.

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Nigerian Retail Banking Sector to see 92% Disruption by FinTech

A report has shown that retail banking and fund transfers in Nigeria are the two biggest areas that are most likely to be affected by FinTech over the next five years.

The report, Nigeria FinTech Survey 2017 [PDF], which was released by PricewaterhouseCoopers (PwC), found the likelihood of disruption within these two areas amounted to 92 percent and 85 percent respectively.

Over the last few years, the banking and payments sub-sectors have experienced a large amount of disruption with new technology-driven payments applications and processes as well as innovative digital applications that aid simpler payments, and an increase in the use of electronic devices to transfer money.

FinTech is quickly evolving within the financial services sector which is seeing an increase in the number of technology-focused startups and other entrants changing how the industry works.

In Africa, FinTech investments are estimated to have increasde by a compound annual growth rate of $200 million from 2014 to $800 million in 2016. According to the report, this could potentially increase to a value of $3 billion by 2020, with Nigeria and South Africa receiving a significant portion of the investments.

Changing Customer Needs

The report found that financial services in Nigeria see changing customer needs as the main impactor FinTechs will have on their business. It revealed that 60 percent of those surveyed believe that as much as 40 percent of financial services firms will be at risk by 2020.

With 85 percent of the African population owning a mobile phone and Nigeria leading the world in mobile share of web traffic at 82 percent, financial service industry players need to embrace the digital experience offered by companies such as Facebook, Amazon, and Google, to ensure their customers get the same level of experience from their financial service providers.

Deji Oguntonade, head of the e-Payment Solutions Group, Guaranty Trust Bank Plc, said that FinTechs are more agile and are not bogged down with legacy issues from infrastructure, culture, and manpower perspectives.

He said:

They are therefore more open to try out new technologies and provide customers with endearing products and services in a much quicker manner. It would therefore be good for banks to partner with FinTechs and take advantage of their agility.

Blockchain: An Untapped Technology

Although the technology demonstrates a lot of promise, several challenges and barriers to adoption remain such as cybersecurity, privacy concerns, and restricted governance over decentralized networks.

As such, compared to other trends blockchain ranks lower on the agenda. While respondents recognize the blockchain’s importance, they are unsure of how to or unlikely to respond to this trend.

The survey found that 45 percent of respondents within banking are ‘moderately’ familiar with it while only a few consider themselves to be experts. This lack of understanding could lead market participants to underestimate the impact the blockchain could potentially have on their activities.

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