This recap features updates on bank technology, payments, online lending and other news in the U.S. financial technology space. Send tips, ideas and chatter to rachel.stone@spglobal.com. For other recent fintech news, click here.
Even though many financial technology startups initially sought to compete against traditional financial services companies, the industry is trending toward more collaboration.
More than 75% of fintech firms responding to a survey said their primary business objective is collaborating with traditional entities like banks and insurance companies, according to a report from consulting firm Capgemini and LinkedIn Corp. Just 18% said they are looking to compete with established financial services players. The survey was based on responses from 110 global fintech companies.
"When we first launched the fintech program back in 2014, we were hearing about fintech as the barbarian at the gates of traditional finance," said Jackson Mueller, an associate director at the Center for Financial Markets, a think tank at the Milken Institute. But even though fintech startups have raised nearly $110 billion since 2009, the Capgemini report found that most of these companies are likely to fail if they do not build effective partnership systems.
Mueller said early fintech startups "got a dose of reality" and learned that it is hard to attract customers, that the cost of capital is steep and that the financial services industry is heavily regulated. Startups quickly realized the best way to expand their reach was to partner with the traditional institutions they originally thought they would displace. Fintech startups are now "offering olive branches" to financial institutions, Mueller said in an interview.
Even though partnerships often put additional regulations on fintech companies, Darien Rowayton Bank President and COO Robert Kettenmann said that people are more comfortable doing financial transactions within the highly regulated bank environment. The ABA endorses certain providers for banks that are looking to partner with a more technology-focused company, Kettenmann said in an interview. Not every bank needs to build its own technology systems, he said, but might rather "adopt a safe approach" and seek out these partnerships.
Although some industry experts do not think bank and fintech partnerships are likely to proliferate, Mueller said he expects the trend toward collaboration through the financial industry will continue.
"This is a new era of innovation within the financial services space," he said. "Five years from now, we're not even going to be using the word 'fintech' anymore because it's just going to be embedded in the financial system."
Also this week, several Supreme Court justices questioned American Express Co.'s merchant fees in court. Justice Elena Kagan said its so-called "anti-steering" provisions prevent merchants from passing on lower transaction fees to customers by charging less for their products.
In cryptocurrency news, a potentially fraudulent cryptocurrency company claims it is tied to Virtu Financial Inc., one of Wall Street's largest proprietary trading firms. Virtu denied any connection with VirtCoin Financial and said it plans to "commence all necessary legal actions" to protect against trademark and intellectual property infringement.
An SEC spokesperson did not respond to multiple requests for comment on VirtCoin and the claims made on its website.
Governor of the Bank of England Mark Carney called for regulation of "failing" cryptocurrencies.
"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system," Carney said in a March 2 speech. The BoE's view is that it is better to regulate parts of the cryptocurrency ecosystem in order to "combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system."
The SEC started a sweeping probe this week, requesting information from a number of technology companies participating in initial coin offerings, or ICOs. The regulator is reportedly seeking information about the structure for sales and presales of the ICOs.
IEG Holdings Corp.'s wholly owned subsidiary Investment Evolution Crypto LLC has signed blockchain software consultant Intellectsoft LLC to provide blockchain development for IEG Holdings' cryptocurrency.
From Feb. 23 to March 1, the SNL U.S. Financial Technology Index fell by 1.98%.
A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.
