The future of fintech. Amsterdam 9 February 2017

Transcription

1 The future of fintech Amsterdam 9 February 2017

2 Fintech headlines Fidelity gives BlackRock an early leg up in robo advice brawl Reuters, December 2016 One in four UK card payments now contactless Banking Tech, January 2017 Half of Supply Chain Industry Will Invest in Blockchain in 2017 Global Trade magazine, January 2017 New insurtech Ladder is digitizing life insurance Business Insider, January 2017 PayTM plots move into asset management in India Financial Times, January 2017 Fintech Companies Could Give Billions of People More Banking Options Harvard Business News, January 2017 Fintech lures millennial investors away from asset managers Financial Times, January 2017 Brother, can you spare a contactless payment? Homeless go hi-tech Amsterdam tests innovative new method of donating money to the homeless using a contactless payment system International Business Times, January

3 What is fintech? Paytech Robo-advice Virtual currencies P2P lending Regtech Smart contracts Blockchain 3

4 Claire Harrop Adam Ryan 4

5 Participants The Future of Fintech 5

6 Agenda 1 Advanced payment technologies 2 Blockchain/digital currencies 3 Smart contracts 4 Overview of legal issues 5 Regulator engagement 6

7 Advanced payment technologies Section 1

8 Overview Technology overlay Transaction settlement Interbank settlement Central Bank Consumers Merchants Bank Bank 8

9 Overview example of current payment process Purchase transaction Merchant settlement Revenue allocation Interchange fees $1.75 Card issuer ABN Amro, ING, Rabobank, Deutsche Bank, HSBC Consumer $ % Merchant $2.50 $97.50 Network fees $0.25 Card network Visa, MasterCard, Discover Acquiring fees $0.50 Merchant acquirer First Data, Chase paymentech, Barclaycard 9

10 Overview three main themes Process digitalisation Competition from new players Increasing regulation Customer expect more from multichannel banking Non-/Near-bank fintech innovation Increasing complex regulatory environment Central bank/ inter-bank innovation ISO20022 APIs for third party payment providers Mobile banking Person-to-person real-time payments Social media Contactless payments Purchase aggregation New types of authentication Digital wallets Virtual currencies New types of consumer interfaces PSD2 E-money AML/sanctions Competition regulations Data protection and security 10

11 Overview central bank/inter-bank innovation UK US Faster payments taskforce Eurozone Singapore 11

12 Overview bank innovation Bank innovation Cheque processing and bill payment Fingerprint mobile banking Mobile banking Person-to-person payments Social media NFC wallet solutions with Visa and MasterCard 12

13 Bank innovation bunq 13

14 Overview fintech innovation Fintech innovation Payment processors E-money Transaction initiation 14

15 Payment processors adyen 15

16 Overview regulation Regulation Financial services Consumer credit PSD2 E-money directive AML Sanctions Competition Multilateral Interchange Fee regulation Data monopolies Bank competition Data and security Data protection Big data Payment card information security Cyber security 16

17 Financial service EU financial services regulation More onerous regulatory requirements Type of institution Authorisation Examples of services Implications (non-exhaustive) Banks Banking licence (ie accepting deposits) General banking services, including holding customer s money in bank accounts Full gamut of onerous regulatory provisions However, can provide most services Passport into rest of EU Consumer credit (UK only) Depends on jurisdiction. In the UK, must be authorised by FCA to offer consumer credit Operating an electronic system in relation to lending Entering into a regulated credit agreement as lender Debt collection Credit broking (eg effecting introductions relating to credit agreements) Depending on the activity carried out, there are different levels Change in control regime Different regimes across the EU (not harmonised) E-money institution (EMI) Authorised as an EMI Not required if credit institution Category of small EMI exists Issuing e-money E-money is money that is: 1. stored electronically 2. issued on receipt of funds for the purposes of making payment transactions 3. accepted by someone other than the issuer Examples of e-money: mobile money (eg Mpesa) Minimum capital requirements Change in control regime (when acquiring EMI) Safeguarding funds requirements Controls re agents, outsourcing Passport into the rest of the EU Less onerous regulatory requirements Payment services institution (PSI) Authorised as a PSI Not required if credit institution or EMI Category of small PSI exists Money remittance Non-bank credit card issuers (eg American Express) Merchant acquiring firms Execution of payment transactions Execution through mobile device where only acting as intermediary (note very unclear and due to change in PSD2) In PSD2 third party payment services Capital requirements Conduct of business requirements apply to all institutions providing payment services (including credit institutions and EMIs) Passport into the rest of the EU 17

18 Financial services changes in PSD2 Amended exemptions Limited network Exemption for payment services based on specific payment instruments that can be used only in a limited way to: acquire goods or services only in the premises of the issuer or within a limited network of service providers; or acquire a limited range of goods or services If volume over previous 12 months exceeds EUR1,000,000 must seek clearance from the relevant regulator New payment services Payment initiation Payment service enabling access to a payment account. Effectively, initiation of transactions online, together with a confirmation message so that the retailer can ship the product Can be used to make a payment online without using a credit or debit card Examples Sofortüberweisung, Trustly Download Limited exclusively to ancillary payment services carried out by providers of electronic communication networks or services (such as telecom operators) Only intended to apply to low value payments for digital content (such as ringtones, music, games, videos or applications) and charitable activities and tickets Not available for individual transactions exceeding EUR50. Subject to a cap of EUR300 per month Account information Offers consumers a consolidated view of all, or some of, their bank accounts and enable them to access them by online login Examples Tink, AFAS, Cleo 18

19 Examples 19

20 Competition Multilateral Interchange Fee Regulation Bank competition Data monopolies EDPS 20

21 Data and security Data protection Cyber security Payment card information security Innovation 21

22 Blockchain / digital currencies Section 2

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24 Digital currency / payments 24

25 Securities settlement 25

26 Wholesale insurance 26

27 Retail insurance 27

28 Voting 28

29 Smart contracts Section 3

30 Smart contract logic An automated, self-executing agreement 30

31 Smart contract Source: Ethereum 31

32 Non-categorical expression Traditional contracts 32

33 Smart contract spectrum 33

34 Overview of legal issues Section 4

35 Governing law 35

36 Jurisdiction 36

37 Immutability 37

38 The problem of permanence 38

39 Liability 39

40 Data protection 40

41 Cyber security 41

42 Regulator engagement Section 5

43 Regulatory engagement We maintain open channels of communication with international financial regulators, including on Blockchain and smart contracts. Regulators we are talking to about Blockchain and smart contracts: Highlights include: Close contact with FCA Project Innovate team Presentations to the Bank of England on Blockchain Upcoming meeting with Bank of England Manager of Digital Currencies Liaising with MAS innovation team Market leading practice with considerable bench strength across its contentious and non-contentious regulatory teams Chambers UK 2016 Financial Services: Non-Contentious Regulatory 43

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