Japan and Australia cooperate on fintech

The Japan Financial Services Agency (‘JFSA’) and Australian Securities and Investments Commission (‘ASIC’) today announced the completion of a framework for co-operation to promote innovation in financial services in Japan and Australia.

This Co-operation Framework recognises the global nature of innovation in financial services. In this environment, this Framework enables the JFSA and ASIC to share information and support the entry of innovative fintech businesses into each other’s markets.

This Framework will help open up an important market for Australian fintechs. The Japanese economy is the third largest in the world, with services – including financial services – accounting for about three quarters of GDP.

In recent years, the JFSA has been actively involved in encouraging fintech through a range of measures including the modification of the legal system to enable financial groups to invest in finance-related IT companies more easily and establishing a legal framework for virtual currency and Open API. This Framework will encourage Japanese fintech start-ups to engage with innovative financial businesses globally.

ASIC Commissioner John Price said, ‘Japan has been a world leader in technology for a long time. As we move into a new era of financial regulation, we look forward to sharing experiences and insights with our colleagues at the JFSA.’

Shunsuke Shirakawa, JFSA Vice Commissioner for International Affairs, said, ‘We are delighted to establish this Co-operation Framework with ASIC. ASIC is one of the leading Fintech regulators that actively promote fintech by taking progressive actions including setup of the Innovation Hub.

‘We believe that this Framework further strengthens our relationship and facilitates our co-operation in further developing our respective markets.’

The Co-operation Framework will enable the JFSA and ASIC to refer innovative fintech businesses to each other for advice and support via ASIC’s Innovation Hub and the JFSA’s FinTech Support Desk.

It also provides a framework for information sharing between the two regulators. This will enable the JFSA and ASIC to keep abreast of regulatory and relevant economic or commercial developments in each other’s jurisdictions, and help to inform domestic regulatory approaches in the context of a rapidly changing global financial environment.

A formal ‘Exchange of Letters’ ceremony between Australian Ambassador to Japan, the Hon Richard Court AC and State Minister of Cabinet Office, Takao Ochi, took place in Tokyo today to seal the Framework.

This Co-operation Framework further underlines the strength and closeness of the broader Australia-Japan trade and investment relationship.

Background

ASIC is focused on the vital role that fintechs are playing in re-fashioning financial services and capital markets. In addition to developing guidance about how these new developments fit into our regulatory framework, in 2015, ASIC launched its Innovation Hub to help fintechs navigate the regulatory framework without compromising investor and financial consumer trust and confidence.

The Innovation Hub provides the opportunity for entrepreneurs to understand how regulation might impact on them. It is also helping ASIC to monitor and understand fintech developments. ASIC collaborates closely with other regulators to understand developments, and to help entrepreneurs expand their target markets into other jurisdictions.

To date, fintech referral and information-sharing agreements have been made with the Monetary Authority of Singapore, the United Kingdom’s Financial Conduct Authority, Ontario Securities Commission and Hong Kong’s Securities and Futures Commission. In addition, information-sharing agreements have been signed with the Capital Markets Authority, Kenya and Otoritas Jasa Keuangan, Indonesia.

Informally, ASIC has also met with numerous international fintech businesses referred to us by industry or trade bodies, including delegations from the United Kingdom and the United States.

Awareness Proving The Toughest Hurdle For Aussie Alt-Lenders

 From Pymnts.com

Australia’s market for small- and medium-sized enterprises (SME) is by no means easy. The nation is grappling with a late supplier payments problem and with regulators looking to accelerate corporate payments to SMEs, though with limited expectation for the efforts to work.

But that presents an opportunity for alt lending, analysts say, as do tighter restrictions on traditional banks that may guide SMEs toward alt-fin, as they look to ease their cash crunches.

It seems an ideal climate for the alternative lending industry, but news of an analysis from Moula and Digital Finance Analytics this week finds awareness of these options is lacking among small business owners.

In their Disruption Index report, released quarterly, Moula and Digital Finance Analytics (DFA) scored Q1 2017 at 38.39, a 6.1 percent increase from Q1 2016. But the report said this represents only “gradual change” among small businesses in terms of their awareness of alternative lending options.

“There is still a certain air of skepticism about non-traditional forms of lending,” said DFA Principal Martin North in an interview with Australian Broker. “So SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

He added that this means the alternative finance industry has to work harder to boost awareness and promote education.

“I think the FinTech sector has a terrific opportunity to lend to the SME sector, but they haven’t yet cracked the right level of brand awareness,” North continued. “Perhaps they need to think about how they use online tools, particularly advertising to re-energize the message that’s out there.”

There certainly is a market for alternative lenders to fill in the funding gap for small businesses.

Earlier this year, Australia’s Small Business and Family Enterprise Ombudsman Kate Carnell began naming some of the worse offenders of late supplier payments, including Kellogg’s and Mars, likening their delayed invoice payment practices to “extortion.” With the Council of Small Business Australia, regulators began to take a harsher stance on late payments, and in May, the voluntary Supplier Payment Code, which sees companies vowing to pay suppliers on time, came into effect.

As regulators consider whether to create fair supplier payment practice legislation, small businesses in the country continue to struggle: Research from American Express Australia and Xero released in April found nearly a third of the invoices in the cloud accounting platform can’t be reconciled every month because they’re waiting to be paid.

Meanwhile, Australian Broker reported, regulators are imposing stricter rules on traditional banks that may see them back even further away from small business borrowers. Plus, Moula and DFA’s report found, small business demands on their financial service providers are on the rise. According to their report, SMEs say a loan application should take, on average, less than five days to see final approval. Alternative lenders take an average of 36 hours, the report found.

The data suggests alt lending can meet some of the demands among SMEs for working capital and faster lending services.

“FinTechs like Moula are at the quick end, but a lot of the traditional lenders such as the major banks take a lot longer,” North continued. “What this is saying is that if the expectations of SMEs point to quick approval times and if the major players aren’t able to do that because of their internal systems and processes, then there is an interesting opportunity for the FinTechs who can do it quicker. They can actually disrupt [the industry].”

According to North in a statement found within the report itself, awareness levels among SMEs are gradually rising.

“In the last three months, we have seen a significant shift in attitudes among SMEs as they become more familiar with alternative credit options and migrate to digital channels,” he said. “The attraction of online application, swift assessment and credit availability for suitable businesses highlights the disruption which is underway. There is demand for new services and supply from new and emerging players to the SME sector.”

Indeed, while awareness is on the rise, it’s still relatively low. In Q4 of 2016, Moula found that just 14.1 percent of SMEs surveyed said they are familiar with their alternative finance options.

“So, what’s the barrier to growth?” North reflected to Australian Broker. “It’s not technology or demand from the SME sector. The barrier to growth is awareness and the willingness of SMEs to commit to this particular new business model.”

Fintech: Capturing the Benefits, Avoiding the Risks

The IMF have published a paper on Fintech.  From artificial intelligence to cryptography, rapid advances in digital technology are transforming the financial services landscape, creating opportunities and challenges for consumers, service providers, and regulators alike. This paper reviews developments in this new wave of technological innovations, often called “fintech,” and assesses their impact on an array of financial services. Given the IMF’s mandate to promote the stability of the international monetary system, it focuses on rapidly changing cross-border payments.

Using an economic framework, the paper discusses how fintech might provide solutions that respond to consumer needs for trust, security, privacy, better services, and change the competitive landscape. The key findings include the following:

  • Boundaries are blurring among intermediaries, markets, and new service providers.
  • Barriers to entry are changing, being lowered in some cases but increased in others, especially if the emergence of large closed networks reduces opportunities for competition.
  • Trust remains essential, even as there is less reliance on traditional financial intermediaries, and more on networks and new types of service providers.
  • Technologies may improve cross-border payments, including by offering better and cheaper services, and lowering the cost of compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) regulation.

Overall, the financial services sector is poised for change. But it is hard to judge whether this will be more evolutionary or revolutionary. Policymaking will need to be nimble, experimental, and cooperative.

When you send an email, it takes one click of the mouse to deliver a message next door or across the planet. Gone are the days of special airmail stationery and colorful stamps to send letters abroad.

International payments are different. Destination still matters. You might use cash to pay for a cup of tea at a local shop, but not to order tea leaves from distant Sri Lanka. Depending on the carrier, the tea leaves might arrive before the seller can access the payment.

All of this may soon change. In a few years, cross-border payments and transactions could become as simple as sending an email.

Financial technology, or Fintech, is already touching consumers and businesses everywhere, from a local merchant seeking a loan, to the family planning for retirement, to the foreign worker sending remittances home.

But can we harness the potential while preparing for the changes? That is the purpose of the paper published today by IMF staff, Fintech and Financial Services: Initial Considerations.

The possibilities of Fintech

What is Fintech precisely? Put simply, it is the collection of new technologies whose applications may affect financial services, including artificial intelligence, big data, biometrics, and distributed ledger technologies such as blockchains.

While we encourage innovation, we also need to ensure new technologies do not become tools for fraud, money laundering and terrorist financing, and that they do not risk unsettling financial stability.

Although technological revolutions are unpredictable, there are steps we can take today to prepare.

The new IMF research looks at the potential impact of innovative technologies on the types of services that financial firms offer, on the structure and interaction among these firms, and on how regulators might respond.

As our paper shows, Fintech offers the promise of faster, cheaper, more transparent and more user-friendly financial services for millions around the world.

The possibilities are exciting.

  • Artificial intelligence combined with big data could automate credit scoring, so that consumers and businesses pay more competitive interest rates on loans.
  • “Smart contracts” could allow investors to sell certain assets when pre-defined market conditions are satisfied, enhancing market efficiency.
  • Armed with mobile phones and distributed ledger technology, individuals around the world could pay each other for goods and services, bypassing banks. Ordering tea leaves from abroad might become as easy as paying for a cup of tea next door.

These opportunities are likely to reshape the financial landscape to some degree but will also bring risks.

Intermediaries, so common to financial services—such as banks, firms specialized in messaging services, and correspondent banks clearing and settling transactions across borders—will face significant competition.

New technologies such as identity and account verification could lower transaction costs and make more information available on counterparties, making middlemen less relevant. Existing intermediaries may be pushed to specialize and outsource well-defined tasks to technology companies, possibly including customer due-diligence.

But we cannot ignore the potential advances in technology that might compromise consumer identities, or create new sources of instability in financial markets as services become increasingly automated.

Rules that will work effectively in this new environment might not look like today’s rules. So, our challenge is clear—how can we effectively build new regulations for a new system?

Regulating without stifling innovation

First, oversight needs to be reimagined. Regulators now focus largely on well-defined entities, such as banks, insurance companies and brokerage firms. They may have to complement this focus with more attention on specific services, regardless of which market participants offers them. Rules would be needed to ensure sufficient consumer safeguards, including privacy protection, and to guard against money laundering and terrorist financing.

Second, international cooperation will be critical, because advances in technology know no borders, and it will be important to keep networks from moving to less regulated jurisdictions. New rules will need to clarify the legal status and ownership of digital tokens and assets.

Finally, regulation should continue to function as an essential safeguard to build trust in the stability and security of the networks and algorithms.

The launch or our paper today is one of the steps in the process of preparing for this new digital revolution. As an organization with a fully global membership, the IMF is uniquely positioned to serve as a platform for discussions among the private and public sectors on the rapidly evolving topic of Fintech.
As our research shows, adapting is not only possible, but it is the only way to ensure that the promise of Fintech is enjoyed by everybody

Price hikes in Ether and Bitcoin aren’t the signs of a bubble

From The Conversation.

When there is a rapid growth in any of the crypto-currencies and assets such as Bitcoin, Ether, Zcash and others, many will call it out as a bubble. Indeed, on a relatively short time scale it clearly looks like a bubble.

The entire crypto-currency market capitalisation currently stands at around US$100 billion; it was US$60 billion one month ago. But Bitcoin was worth 1/100 of a US cent in June of 2009, 7 cents in June 2010, and US$7 in June of 2012.

Recently all eyes were on Ether. Over a 90 day period, Ether appreciated twice as quickly as Bitcoin did in late 2013, when Bitcoin crashed to around 35% of it’s highest value. Aside from the 2013 crash, Bitcoin has experienced smaller crashes many times since, but is now worth double its 2013 high.

In the longer term, these are fluctuations around a strong growth trend. Crashes will cause some to abandon the field. But signals of longer term growth in these crypto-currencies and assets point to a possible emergence of a new type of market, through the building of a new economic infrastructure.

Ether is the token of the Ethereumblockchain, a platform that runs “smart contracts” through a distributed online ledger that records transactions. It’s second only to the crypto-currency Bitcoin in price. Some believe it will one day overtake Bitcoin (a process dubbed “The Flippening”).

Price hikes not the sign of a bubble

Fundamental aspects of the technology that underpins crypto-currencies and assets are causing people to re-imagine, and then enact, new ways of creating and exchanging value online.

The key difference between Bitcoin and Ethereum is that you can use Bitcoin for payments, but you can use Ether to automate any number of processes using smart contracts.

While many use cases for Ethereum are still at the proof-of-concept stage, it is now attracting the attention of major banks, businesses and governments, all interested in the potential of the technology to provide greater efficiency and transparency in transactions. That normalisation has collapsed the implicit risk premium attached to this technology.

Venture capitalist Albert Wenger describes the current activity in crypto-currencies and assets as “fat protocol investing”. To explain what this is, take the example of the underlying internet and web protocols (TCPI/IP and HTTP), used to build and run websites. These are not able to store value – therefore they are “thin protocols” in Wenger’s terminology. So instead, people invest in companies that make software (applications) and hardware that rely on these protocols.

Companies such as Google and Facebook made a fortune by collecting and storing data generated by users through their online interactions. Meanwhile, users, and the developers who created internet and web protocol, received nothing in return. Blockchain is a “fat protocol” because it can be monetised, including incentives for developers but also for users. For example, the creator of JavaScript and co-founder of Mozilla Brendan Eich, recently released an Ethereum-based web browser through which users can be paid for the attention they give to advertisements.

What is making crypto-assets and currencies appear bubbly is the way in which many of these new platforms and applications have raised money through what are called initial coin offerings. An initial coin offering (a word play on ‘initial public offering’) is a mechanism by which developers sell the tokens associated with their platform to the public. Depending on the structure of the offering, buyers can usually then trade the tokens, creating secondary markets. As the founder of Ethereum, Vitalik Buterin, has noted, no-one has figured out the right model for these offerings.

This could be due to the immaturity of the Ethereum platform and ecosystem (which started development in 2013 and went live only in 2015). What we’re observing here is a new economic infrastructure being built and coming online. In tweets on Tuesday, Buterin distanced himself from initial coin offerings, stating he would no longer agree to be an advisor.

So while the current speculation in crypto-assets should make us pause, this is not speculative like tulips, or gold mining stocks. It is speculative like building a new city, in that infrastructure needs to be developed first before you get to see who moves there.

A further point to note is that investment bubbles are actually useful and important mechanisms for building new technologies because of the way they concentrate speculative resources on a new technology to facilitate exploration.

There is an enormous effort proceeding to building new crypto businesses and infrastructure on the Ethereum platform. If this platform does indeed begin to carry large parts of the global economy as predicted by Deloitte, a business consultancy, then it’s still massively undervalued.


These comments should not be construed as offering personal financial advice.

Authors: Jason Potts, Professor of Economics, RMIT University; Ellie Rennie, Principal Research Fellow, RMIT University

Awareness key barrier to SME lending growth

From Australian Broker.

While tighter banking restrictions have forced more small and medium enterprise (SME) borrowers towards non-bank lenders, a lack of awareness is still hindering real growth within the sector.


The Disruption Index, which has been jointly developed by small business lender Moula and research and consulting firm Digital Finance Analytics (DFA), puts the score for Q1 2017 at 38.39, which is 6.1% higher than the score of 36.18 recorded in the same time period a year ago.

Despite this, only gradual change has been made to grow awareness amongst SMEs about these alternatives. Looking at evidence on small business knowledge about non-bank lending – such as payments received to non-bank lenders, credit enquiries at credit bureaus, etc – 11% of all data sets reviewed showed use of these lending options. This is the first time the level has risen above 10% since the index was started.

“There is still a certain air of scepticism about non-traditional forms of lending, Martin North, principal of DFA, told Australian Broker. “So SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

Because of this, the fintech sector still has a significant job to do in raising awareness about different viable alternative funding options that exist especially since this is a fairly new sector, he said.

“It’s a new type of lender so it takes time to build brand awareness. The other thing is that the approach of applying online and fulfilling online for the SME sector is also quite new and different.”

“I think the fintech sector has a terrific opportunity to lend to the SME sector but they haven’t yet cracked the right level of brand awareness. Perhaps they need to think about how they use online tools particularly advertising to re-energise the message that’s out there.”

The data also showed SMEs are becoming more demanding of the financial services providers, with the expectation that loan applications should take an average of 4.8 days to the final approval.

It seems fintechs are coping with this added demand however, with the Index recording an average loan time of 36 hours. This is slightly longer than the previous quarter’s findings due to added public holidays and school holidays in April.

“Fintechs like Moula are at the quick end but a lot of the traditional lenders such as the major banks take a lot longer,” North said. “What this is saying is that if the expectations of SMEs point to quick approval times and if the major players aren’t able to do that because of their internal systems and processes, then there is an interesting opportunity for the fintechs who can do it quicker. They can actually disrupt.”

Maintaining the status quo was not an option for the major financial institutions because of this added expectation, he added.

“SMEs are looking for quicker, faster responses and there are players out there who can actually deliver.”

“So what’s the barrier to growth? It’s not technology or demand from the SME sector. The barrier to growth is awareness and the willingness of SMEs to commit to this particular new business model.”

The Disruption Index itself examines a number of elements, some of which come from DFA’s survey data of SMEs and others which come from Moula’s analysis of their own experience lending to the small business sector.

“We score each of those elements and essentially we run an algorithm. Each of them has a score between the various elements that’s not weighted individually. We then add them up and that give us a total score. What this is trying to do is put a finger on the pulse of what SMEs are up to and to what extent SMEs are actually aware of fintechs as an alternative funding source,” North said.

Fintech Disruption of SME Continues

The latest edition of the Disruption Index which tracks change in the small business lending sector, and more generally, across financial services has been released. The latest score is 38.39%

The Financial Services Disruption Index has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Knowledge of Non-bank Financial Providers

Further to the Business Data observation, we are seeing actual evidence of SME awareness of alternate financial offerings through data (eg. evidence of payments received from and made to alternative lenders; credit enquiries at the credit bureaus). At 11% of all data sets reviewed this quarter (above 10% for the first time), this appears to be forming a continuing, upwards trend.

Service Expectation

SMEs are becoming more demanding of their financial service providers, as we continue to see a collapse in their expectation of how long it should take for a loan application through to a decision. The latest data shows this number is below 5 days for the first time… at 4.8 days.

Business data in the cloud

SME’s continue to show a willingness to provide electronic data access in return for access to credit, with this quarter’s % of SME’s increasing to 16.2% from last quarter. It feels we are almost now at a tipping point, where businesses are moving into the ‘comfortable’ range in permissioning data, especially if there is economic and ease-of-process upside from doing so.

Loan Processing Speed

Time taken to execute loans was impacted by April’s 3 x 4 day weeks (school and public holidays), which slowed down the pace at which SMEs completed their loan applications and pushed out average total loan time elapsed to 36 hours… still well inside the Service Expectation measure observed (ie. fintech is doing its bit to meet and drive service expectation).

Smart Devices

The proportion of SMEs with smart devices has risen – now well over half of all SMEs at 54%

Read more on the Disruption Index Site.

Westpac Rated Best in Mobile Banking Functionality

From IT Wire.

The Commonwealth narrowly pipped Westpac as Australia’s top bank due to the usability of its mobile and digital services, but Westpac was deemed to be the bank with the highest score in mobile banking functionality, according to a newly published study. However, apart from CommBank and Westpac, the other Australian banks still have a way to go when it comes to money movement, service features, cross-channel guidance, and marketing and sales.

The study of Australia’s large retail banks by global research firm Forrester found that digital banking teams have improved transactional features like mobile bill payment and point-of-sale payments – but few banks help customers manage their money better, make relevant product offers, or provide much help through mobile banking.

Forrester surveyed five large retail banks in Australia. As well as the Commonwealth and Westpac, it surveyed ANZ Bank, Macquarie Bank and National Australia Bank (NAB).

But, in naming CommBank the best of the big banks, Forrester said it emerged on top with “impressive usability”.

“CommBank ranks as one of the top banks globally in usability in our benchmark. The bank stood out with impressive usability, specifically in making search and navigation clearly visible and easy to understand at all stages of the key tasks that the persona is looking to achieve,” said Forrester’s report author Zhi Ying Ng.

“The bank also offers strong mobile functionality, provides the widest range of touchpoints for customers, and makes login convenient.”

Forrester also found that CommBank earned the highest score in money movement.

“It not only lets customers make basic internal and external money transfers, but also supports more sophisticated features, such as letting customers use their phone’s camera to pay someone or pay bills,” Forrester notes.

Forrester says Westpac excels at functionality.

“Westpac received the highest overall functionality score and emerged second overall in our review, delivering services that are both useful and usable,” Ng said.

“The bank earned full marks for login, letting customers view balances conveniently and offering useful product research and financial tools prior to login. Westpac stood out in marketing and sales; the bank offers relevant products and services to customers based on their immediate needs and information that the bank knows about them.

“It’s also the only bank in Australia that gives customers product comparison tools within mobile banking.”

And, according to Forrester, many Australian banks provide strong login features, giving customers the ability to see the balances without logging in and to use fingerprint biometrics or a quick PIN to log in.

But on a negative note, Forrester also says many banks are weak on service and sales.

“Few banks help customers manage their money better, make relevant product offers, or provide much help through mobile banking,” Forrester says.

It says it also reviewed the mobile services of other leading retail banks worldwide and is publishing these results in separate reports.

Forrester conducted the 2017 Australian Mobile Banking Benchmark between 21 February and 13 March and says the Australian banks it reviewed achieved an average functionality score of 64 out of 100, an average usability score of +6 (on a scale from –30 to +30) – and the individual category scores reveal the differences between the banks’ mobile banking services.

Forrester says some banks are stronger in functionality or usability, while others excel in both areas.

“The other Australian banks have work to do to match the leaders,” Forrester says.

“Most large Australian banks offer a sturdy foundation for mobile banking that meets customers’ basic mobile needs and expectations.

“But apart from CommBank and Westpac, the other Australian banks still have a way to go when it comes to money movement, service features, cross-channel guidance, and marketing and sales.

“Australian banks should give customers the flexibility to schedule future-dated or recurring transfers and to view and search for transactions easily. They should also provide value-added contextualised products and services that help to improve customers’ financial well-being.”

And, according to Forrester, many banks can improve service features and money management.

“None of the Australian banks we reviewed let customers contact the bank via secure messaging or chat to request help. Few banks send customers mobile alerts to warn them of potential security issues.

“Some Australian banks offer basic digital money management, such as setting up a simple savings goal, but the majority does not offer personalised financial guidance or planning tools to help customers achieve their financial goals.”

Forrester says that the most successful banks share a common, iterative approach to mobile.

“Digital teams at leading banks have built strong relationships between their digital business strategy and technology management teams, which work together on a joint business technology agenda.

“They have adopted an iterative test-and-learn process. Cross-functional teams and an agile approach of experimentation, measurement, and quick adjustment have helped drive success at leading banks.

“Westpac uses an Agile framework where digital banking execs, CX pros, product managers, designers, and solution architects work in sprints to develop and test mobile banking products and services.

“Our research is intended to provide a benchmark for the current state of retail mobile banking in Australia and uncover good practices from the banks we assessed. We found best-in-class examples from many of the firms we reviewed. These range from relatively simple features like money transfer options to more advanced capabilities, such as personalised financial guidance and planning tools.”

Forrester says most banks let customers bank through a wide range of mobile touchpoints and, to serve customers in their “mobile moments”, banks have to develop services and design experiences for many different touchpoints, operating systems, and device types, “not to mention mobile browsers and third-party messaging apps”.

“This fractured landscape has driven many firms to adopt approaches like responsive design. CommBank and Westpac support customers on the widest range of devices,” Forrester concludes

Hong Kong and Australia seal agreement on fintech cooperation

The Hong Kong Securities and Futures Commission (‘the SFC’) and ASIC today signed a Co-operation Agreement which provides a framework for cooperation to support and understand financial innovation in each economy.

This Cooperation Agreement builds on the already close ties between ASIC and the SFC, as well as the Australia-Hong Kong trade and investment relationship more broadly. Hong Kong is already Australia’s seventh most important destination for services exports, valued at AUD$2.4 billion last year, and sixth largest source of services imports, valued at AUD$3 billion.

The agreement will enable the SFC and ASIC to refer innovative fintech businesses to each other for advice and support via ASIC’s Innovation Hub and its Hong Kong equivalent, the SFC’s Fintech Contact Point. This means Australian fintech businesses wishing to operate in Hong Kong will now have a simple pathway for engaging with the SFC, and vice versa.

The Innovation Hub and Fintech Contact Point offer assistance to innovative fintech businesses to understand the regulatory regimes in each of their jurisdictions.

Signing the Agreement, ASIC Commissioner Cathie Armour said, ‘Financial services are a major contributor to Hong Kong’s US$316 billion economy. The Cooperation Agreement is a significant boost for Australia’s burgeoning fintech sector and will ease entry into this important market for innovative Australian businesses.’

The agreement also provides a framework for information sharing between the two regulators. This will enable ASIC to keep abreast of regulatory and relevant economic or commercial developments in Hong Kong and to use this to inform Australia’s regulatory approach.

This is the fourth fintech referral agreement ASIC has entered into, following on from agreements with the United Kingdom, Singapore and Ontario. This agreement with Hong Kong expands our network of fintech cooperation to a critical financial hub in our region.

Background

ASIC is focused on the vital role that fintechs are playing in re-fashioning financial services and capital markets. In addition to developing guidance about how these new developments fit into our regulatory framework, in 2015, ASIC launched its Innovation Hub to help fintechs navigate the regulatory framework without compromising investor and financial consumer trust and confidence.

The Innovation Hub provides the opportunity for entrepreneurs to understand how regulation might impact on them. It is also helping ASIC to monitor and understand fintech developments. ASIC collaborates closely with other regulators to understand developments, and to help entrepreneurs expand their target markets into other jurisdictions.

To date, fintech referral and information-sharing agreements have been entered with the Monetary Authority of Singapore, the United Kingdom’s Financial Conduct Authority and Ontario Securities Commission. In addition, information-sharing agreements have been entered with the Capital Markets Authority, Kenya and Otoritas Jasa Keuangan, Indonesia.

For more on the work of ASIC’s Innovation Hub including our current regtech report visit the Innovation Hub website.

Amazon Has Secretly Become a Giant Bank

From The Street.

Amazon.com said Thursday that its Amazon Lending service has surpassed $3 billion in loans to small businesses since it was launched in 2011.

In the last 12 months alone the eCommerce giant has loaned over $1 billion to small businesses. Hiking up the sales for third party merchants is a plus for Amazon, as the company gets a piece of the transaction.

 “We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success,” Amazon Marketplace VP Peeyush Nahar said.

Over 20,000 small businesses have received a loan from Amazon and more than 50% of the businesses Amazon loans to end up taking a second loan.

Amazon’s stock were unchanged by Thursday’s close at $1,010.31.

What’s holding up the blockchain?

From The Conversation.

It’s not technology or regulation holding back the blockchain – software that stores and transfers value or data across the internet – we just haven’t figured out the next big use-case. Two reports released this week by the CSIRO’s Data61 not only inject some well-researched gravitas into the conversation, they also provide insight into why some of the major blockchain projects have stalled.

Since 2015, banks, regulators, tech giants and startups all over the world have raised billions of dollars to explore the blockchain.

But the only really successful, scaleable use of the blockchain remains cryptocurrencies like Bitcoin. Bitcoins currently trade at almost AU$4,000, with a total market equivalent to thirty times the GDP of Australia.

Think of the blockchain as a type of transparent spreadsheet or “public ledger”. When someone transfers a Bitcoin, for example, the transaction is verified by “miners”, encrypted and a “block” is added to the spreadsheet. Mining takes a lot of computing power, and so miners are incentivised to participate in the system with a reward of bitcoin.

It’s finding a way to put all these pieces together for purposes other than cryptocurrencies that has yet to be figured out.

Because of all the computing power required to verify and encrypt new blocks, running a blockchain network is expensive and consumes a lot of electricity. For this reason, a blockchain should only be used if it solves particular problems. For example, a blockchain could allow users to see each other’s ledgers and transactions, negating the need for a trusted third party to manage risk. The blockchain itself, through sophisticated cryptography, would provide privacy and trust.

Conversely, if there is already a central third party managing trust between users and verifying transactions (something banks already do for consumers), then a blockchain is probably not needed at all. Failing that, a sophisticated database or expert system would be a cheaper and simpler alternative.

Opportunities and risks

The Data61 reports describe some of the possible opportunities for the blockchain in Australia, including monitoring the outbreak of pests or animal and plant diseases, border surveillance, tracking intellectual property, and identity systems that provide greater certainty over entitlements, benefits, and tax obligations. The reports also identify some of the risks.

The risks include both business and technical risks. For example, public ledgers do not afford privacy and blockchains generally are not suitable for storing large volumes of high speed data. Bitcoin’s blockchain has been suffering from this very problem for more than a year. Finding a solution is a priority for any developers wanting to attract the number of users needed to make running a network profitable.

The use of blockchain in financial transactions also poses problems for compliance with anti-money laundering legislation, which requires that anyone providing financial services (for example) must satisfy themselves as to the identity of their client or customer.

These shortcomings may explain why a number of high-profile blockchain projects have recently stalled. For example, last week, the Bank of Canada announced that its blockchain project, Jasper, is not yet fit to handle settlements. Citing transparency and privacy issues, the bank found that the benefits of using blockchain did not outweigh the risks.

But risk is not the only reason that blockchain projects are stalling.

In February 2017, the R3CEV consortium of banks and technologists announced after more than 18 months of investment, innovation, and testing, that they would not be using blockchain for their project because they did not need it.

Meanwhile, in a speech delivered to the Africa Blockchain Conference in March 2017, Andreas Antonopoulos warned that many recent “blockchain” projects are fraudulent attempts to raise capital under the guise of innovation and disruptive technologies.

The blockchain’s holy grail

While bitcoin has proven what the blockchain can do, the technology still needs a killer app to justify the hype. The most likely contender is currently a “smart contract”. Smart contracts are programmable transactions with complex internal logic that can interact with internet-enabled devices and other smart contracts.

At this time, the problem with smart contracts is that they are susceptible to manipulation. What is needed to test the capacity of the blockchain is a small-scale low-stakes low-risk smart contract that (for example) regulates energy consumption, manages permissions, or ensures payment on supply.

Data61’s Smart Contracts Report lists some contenders, but first we need to manage the risk of fraud, breach of privacy, and blockchain bloat. Once these risks have been reduced to nil or negligible, the real work can resume.

Author: Philippa Ryan, Lecturer in Civil Practice and Commercial Equity, University of Technology Sydney