This week, CB Insights unveiled its Fintech 250 list. The research outfit selected 250 emerging, private companies in 17 sub-sectors of fintech that are changing the face of financial services. The roster includes 44 Finovate and FinDEVr alums that were selected using CB Insights’ data-driven process that analyzes company momentum, market participation, funds raised, and investor quality.
That said, IBM distinguishes itself from Microsoft’s efforts by being fairly IBM-centric in its offering. Jerry Cuomo, IBM VP of blockchain technology, told CoinDesk: “What we’re doing is we’re picking a specific fabric and a specific point of view. We’re not interested in any fabric,” Cuomo explained, “we’re interested in one that can support business applications. We’re a bit more opinionated on what fabric is needed.”
International Business Machines, indeed.
And when it comes to ascertaining the appetite for blockchain, IBM has done its homework. In a survey of 200 banks, IBM learned that 65% of respondents “plan to have projects in production” in the next three years. Areas of focus include clearing and settlement, wholesale payments, equity and debt issuance, and reference data. Respondents to a different survey of 200 global FIs revealed that 14% planned to deploy commercial blockchain products in 2017.
“The continued growth of the Ripple network represents a major endorsement of our open approach to connecting the world’s bank and their customers,” Ripple co-founder and former CEO Chris Larsen said. Larsen, who will transition to the role of Ripple chairman of the board at the beginning of 2017, added: “Together we are building a modern payments system to enable new economic opportunities and the seamless flow of value around the world.”
R3: Are Blockchain-Curious Banks Stronger Together?
One way to measure the progress of blockchain technology is by keeping track of the comings (and goings) of members of R3, the world’s largest blockchain-based cooperative. Founded in 2014 and with more than 70 of the world’s largest FIs onboard, R3 is designed to conduct research on and promote the use of blockchain technology in financial services. R3’s biggest contribution to date is Corda, an open-source distributed ledger platform that, while maintaining many of the characteristics of blockchain technology, is not – technically speaking – a blockchain.
Unfortunately, many of the headlines R3 made in 2016 involved a handful of founding members – including Morgan Stanley, Santander, and Goldman Sachs – leaving the cooperative. Specific reasons for leaving the group were typically not provided, though each bank made it clear that the decision was not a reflection on their interest in blockchain technology. Many observers have speculated that the timing of the departures was related to issues surrounding R3’s fundraising efforts, as well as concerns about the growth of the cooperative itself (currently at more than 70 members). Speaking to the departures at Disrupt London in December, R3 founder and CEO David Rutter pointed to the difficulty of “meet(ing) everyone’s criteria” in an organization the size of R3. To the fundraising concerns, Rutter affirmed R3’s “very good progress” toward completing a $150 million funding round.
Beyond the Banks: Card Companies, Payments and Blockchain
One interesting place to keep an eye on for blockchain-related developments in 2017 is among non-bank financial players like the card companies. Visa (FD14), for example, unveiled a blockchain based payments platform, Visa B2B Connect, in partnership with Chain (FD15) in 2016. The technology, designed to provide “near real-time transactions” for high value international payments, will undergo testing this year.
Is a Bull Market in Bitcoin a Boon for the Blockchain?
With bitcoin closing 2016 with a return to its highest level in years, it is little surprise the cryptocurrency is finding its way into the hearts and minds of investors seeking uncorrelated assets to diversify their portfolios. In “Bitcoin Investing: Where Wall Street and Silicon Valley Meet,” Chris Burniske and Adam White make the case for bitcoin as an asset class for long-term investors based on the currency’s declining volatility, reward-vs-risk, and lack of correlation with most other markets including gold, U.S. real estate, and U.S. equities since 2011. Whether growing interest in bitcoin ends up contributing to (or at least correlating with) increased interest in the technology that makes the digital currency possible will be one of the big questions of 2017, as well.
To its credit, Deloitte is aware of the “old-is-new-again” aspect of regtech. The report notes that “while the name is new, the marriage of technology and regulation to address regulatory challenges has existed for some time with varying degrees of success.”
Indeed. Consider companies like Gremln (F14), which demonstrated a social media platform specifically for regulated industries, and Finect (F13), which unveiled a compliant communication platform for financial professionals. Qumram (F16) provides software that helps ensure complaint communication by recording digital interactions from web, social, and mobile channels.
My Virtual Strongbox (F14) introduced the kind of secure document-storage technology that can help FIs better manage customer documentation. Global Debt Registry, another F14 presenter, provides compliance and risk-management solutions to the account-management industry. OutsideIQ (F16) enables FIs to uncover regulatory risk using a combination of machine learning and human analysis. FundAmerica (F15), arguably one of the most explicitly regtech companies to demo at Finovate, provides crowdfunding platforms with APIs for a wide variety of “mission-critical, back-end regulatory requirements.”
Additionally, there are a sizeable number of credit risk analysis innovators such as QCR (F15), CreditHQ (F16), and FICO (FD16); companies like Avalara (FD15) that help merchants recognize and satisfy sales-tax requirements (or by that token, even a VATBox (F15) that helps recover VAT fees for international travelers); and cloud-based auditing technologies like those available from Auvenir (F16), whose identity as a fintech company was a topic of our deliberations.
And all of this is to say nothing of the even larger number of security and authentication specialists whose technologies—at least by Deloitte’s definition—can be considered regtech. Note that Deloitte’s Ireland-based rundown of regtech companies includes Finovate alum Trustev (F14), whose online ID-verification technology is very much in the same category as dozens of other security, authentication, verification, anti-fraud innovators.
The question as to whether regtech as a “thing” (as the millennials say) can be separated from the broader fintech discussion is likely more of a marketing decision than anything else. Clearly regtech has the ranks; the issue is to what degree does distinguishing them as a type of innovator apart from the larger fintech world make it easier for these companies to attract top talent, develop necessary solutions, and raise the capital to drive and grow their businesses. From the perspective of fintech in general—and Finovate/FinDEVr in specific—we’re happier having regtech innovating from “inside the tent,” as opposed to being outside the tent trying to find a way in.
Two more major players jumped on the blockchain bandwagon. IBM (FD16) showed its Hyperledger at FinDEVr last week and Visa (FD14) announced its cross-border payment system built on blockchain-like distributed ledgers, an apparent challenge to Swift. The technology is powered by Chain (FD15) which counts Visa, Capital One (FD15) and Citibank as investors. According to Javelin Strategy, banks will invest $1 billion this year in blockchain initiatives.
Mobile payments gets another huge player
Speaking of IBM, one of the more surprising announcements at Money2020 was the launch of IBM Pay, a private-label mobile payments and POS system. Details are sketchy, but in the IBM video below, it appears to be a Starbucks-like QR code system. It’s part of IBM’s Watson Commerce initiative.
Visa (FD14) partners with blockchain innovator Chain (FD15) to develop a “near real-time,” high value, fund-transfer system between banks and corporate customers called Visa B2B Connect. The technology is expected to pilot in 2017 and could add much needed transparency and security, as well as speed, to B2B payments.
Five banks including Credit Suisse, Barclays, and Citi announce successful test of smart contract prototype developed by blockchain startup, Axoni. The project specifically tested ways to manage and synchronize single stock, index, and portfolio swaps.
Go East, Young Developer
Mizuho announces new innovation lab in Tokyo supported by Mitsubishi Estate and Dentsu. Remember that Finovate is headed to Hong Kong on 8 November for FinovateAsia 2016. Check out our FinovateAsia information page for details.
CVS Pharmacy launches mobile payment technology CVS Pay nationwide. The technology, part of CVS’s mobile app, incorporates payment, prescription pickup, and the pharmacy’s loyalty program.
Ingo Money unveils its Instant Payments, a white-label, API-based, push payments technology. According to Ingo founder and CEO Drew Edwards, the solution “makes it easy for any company to implement push payments quickly and begin originating real-time, guaranteed payments to any customer or employee within their own proprietary user flows and branded experience.”
Australia introduces the New Payment Platform (NPP), a version of the U.K.’s Faster Payments service. The real-time bank transfer service that works with just a phone number or an email address is expected to debut in 2017.
Android Pay goes live at more than 5,000 retail locations in Hong Kong, including 7-Eleven, McDonalds, and Circle K. The technology also supports gift and loyalty cards.