Raising your Digital Quotient

Interesting article in the McKinsey Quarterly about digital strategy. They suggest that following the leader is a dangerous game. It’s better to focus on building an organization and culture that can realize the strategy that’s right for you.

With the pace of change in the world accelerating around us, it can be hard to remember that the digital revolution is still in its early days. Massive changes have come about since the packet-switch network and the microprocessor were invented, nearly 50 years ago. A look at the rising rate of discovery in fundamental R&D and in practical engineering leaves little doubt that more upheaval is on the way.

For incumbent companies, the stakes continue to rise. From 1965 to 2012, the “topple rate,” at which they lose their leadership positions, increased by almost 40 percent as digital technology ramped up competition, disrupted industries, and forced businesses to clarify their strategies, develop new capabilities, and transform their cultures. Yet the opportunity is also plain. McKinsey research shows that companies have lofty ambitions: they expect digital initiatives to deliver annual growth and cost efficiencies of 5 to 10 percent or more in the next three to five years.

To gain a more precise understanding of the digitization challenge facing business today, McKinsey has been conducting an in-depth diagnostic survey of 150 companies around the world. By evaluating 18 practices related to digital strategy, capabilities, and culture, we have developed a single, simple metric for the digital maturity of a company—what might be called its Digital Quotient, or DQ. This survey reveals a wide range of digital performance in today’s big corporations.

Their examination of the digital performance of major corporations points to four lessons:

  • First, incumbents must think carefully about the strategy available to them. The number of companies that can operate as pure-play disrupters at global scale—such as Spotify, Square, and Uber—are few in number. Rarer still are the ecosystem shapers that set de facto standards and gain command of the universal control points created by hyperscaling digital platforms. Ninety-five to 99 percent of incumbent companies must choose a different path, not by “doing digital” on the margin of their established businesses but by wholeheartedly committing themselves to a clear strategy.
  • Second, success depends on the ability to invest in relevant digital capabilities that are well aligned with strategy—and to do so at scale. The right capabilities help you keep pace with your customers as digitization transforms the way they research and consider products and services, interact, and make purchases on the digital consumer decision journey.
  • Third, while technical capabilities—such as big data analytics, digital content management, and search-engine optimization—are crucial, a strong and adaptive culture can help make up for a lack of them.
  • Fourth, companies need to align their organizational structures, talent development, funding mechanisms, and key performance indicators (KPIs) with the digital strategy they’ve chosen.

Collectively, these lessons represent a high-level road map for the executive teams of established companies seeking to keep pace in the digital age. Much else is required, of course. But in our experience, without the right road map and the management mind-set needed to follow it, there’s a real danger of traveling in the wrong direction, traveling too slowly in the right one, or not moving forward at all.

Apple Pay Set For UK Launch

According to “sources at multiple retailers” and Apple retail employees, Apple Pay will soon be live in the UK. The contactless payment system will likely launch on July 14th and will work with the iPhone 6 and 6 Plus, as well as the Apple Watch.

Following the US model, Apple Pay will use NFC to transmit data to payment terminals and will authenticate purchases with Touch ID. The UK is the first international market for the system. Canada will follow in the autumn.

UK users will be able to use Apple Pay at over 250,000 payment terminals across the nation. Tap-to-pay systems are already installed in many stores across the UK, and those systems are already compatible with Apple Pay. A number of banks are already on board as well, including HSBC, Santander, Natwest, Nationwide and First Direct. Apple Pay will also work around the London transport system.

Apple had previously announced a UK launch sometime in July.




The Rise of FinTech

The Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Global Technology Law Conference 2015, Singapore, 29 June 2015 provides an great summary of the rise of FinTech.

Technology is changing the way we live, work, and play. A sector where I believe technology is going to be fundamentally transformative is financial services. In fact, there is a new buzzword: “FinTech” – financial technologies or the integration of finance and technology. Two things are happening.

First, non-financial players are using technology to offer innovative solutions that mirror the services traditionally offered by financial institutions (“FIs”).

  • Payments – Apple, Google, Paypal, Amazon, and Alibaba have payment solutions that replace physical wallets and credit cards.
  • Lending – Zopa, Lending Club, and Funding Circle offer peer-to-peer lending solutions that match lenders and borrowers on their online platforms.
  • Investment – “robo-advisers” like WealthFront use data analytics to dispense online personal financial advice and investment management services.

Indeed, these non-financial firms look set to disrupt the financial industry.

  •  As a senior banker in the US puts it: “People need banking, not banks”.

The second thing that is happening is that FIs are fighting back.

  •  As disintermediation threatens FIs, they are being pushed into a rethink of their business models.
  •  Rising costs, shrinking margins, and the weight of new regulatory requirements are pressing FIs to look into more cost-efficient ways of running their businesses.
  •  They are increasingly turning towards innovation and technology for solutions.
  •  In an ironic way, the FinTech insurgency is forcing change among the incumbent FIs.

Leveraging on their size and networks, FIs are using technology much more intensely to enhance their product offerings and service delivery.

  •  Example: US insurance companies, Progressive and Allstate, are using telematics to develop usage-based motor insurance, also known as Pay-As-You-Drive (or Pay-How-You-Drive).
  •  Instead of rewarding past good driving behaviour, these insurers are able to price premiums contemporaneously with current driving habits.

What does all this mean? As a powerpoint slide used by a FinTech company in Silicon Valley rather immodestly proclaims: “the geeks shall inherit the earth!”. It is no doubt an exaggeration. But the message is clear:

  •  In the years ahead, countries, businesses, and people who know how to use technology and innovate will have a keen competitive advantage.

Why this time is different

Now, have we not heard this story before – that technology will transform banking and then nothing changed fundamentally? Indeed there have been false starts in the past.

  •  In the 1990s, we thought that electronic money would replace cash and cheques. That has not happened.

– In most parts of the world, including the US, Japan, Europe, and Singapore, notes and coins in circulation outside banks has been increasing steadily every year.

  •  In 2000, some of us were quite sure that Internet-only banks would eventually replace brick-and-mortar branches. This too has not happened.

The most obvious evidence that both beliefs were manifestly wrong occurs year after year, when lines of Singaporeans form at bank branches to obtain new notes for “angpows”, to be given out during the Chinese New Year celebrations.

  •  But this year, however, we saw “e-angpows” being given out for the first time.
  •  Could this be a sign of things to come?

Technology takes time to proliferate. More importantly, it is the interaction among related technologies that often creates transformation – and that takes time.

There is reason to believe that this time is different: that technology will indeed transform financial services in a way that has not happened before. It has much to do with the concept of mobility.

First, mobility of technology.

  •  Mobile devices, such as smartphones and tablets, have become common-place.
  •  People do not just connect and surf from their home computers anymore – they also do so from their mobile devices, while on the go. This has profound implications for how financial services are offered and consumed.

Second, mobility of ideas.

  •  Today, online platforms provide a variety of social networking and peer-to-peer services. And people are increasingly comfortable using these services.
  •  These services have compressed time and space: interaction is real-time and information exchange transcends physical boundaries.
  •  They allow information, knowledge and ideas to be shared widely across communities and geographies.

Third, mobility of payments.

  •  In the past, it used to take several days and cost quite a bit to pay someone in another country or currency.
  •  Today, online payment services have made it possible for people and businesses to transfer funds safely at very low cost.
  •  This has not only allowed e-commerce to flourish, but also enabled faster and more efficient cross-border financial services, like lending and borrowing.

We are looking at a financial services industry that will be increasingly driven and powered by technology.

The big trends in technology affecting finance

What are the big trends in technology affecting the financial industry? Let me cite six technologies that appear potentially transformative:

  •  digital and mobile payments
  •  authentication and biometrics
  •  block chains and distributed ledgers
  •  cloud computing
  •  big data
  •  learning machines

First, mobile and digital payments.

Payment services are increasingly being enabled by mobile applications and near-field communications (NFC).

  •  Gone are the days of the clunky cash register.
  •  Today, accepting payments can be as simple as attaching a small dongle, no bigger than a matchbox, to a tablet or smartphone.

This is only the beginning.

  •  Payments at stores and restaurants may increasingly not even require physical touch points, and could take place entirely over the Internet, using the customer’s smart device to effect payments.
  •  Further out, we can look to a future of seamless payments, where technology automatically recognises the customer, checks out the goods, and charges to the customer’s account as he walks out of the store.

Second, authentication and biometrics.

Authenticating one’s identity is critical to gaining access to a variety of financial services and performing many financial transactions. As authentication technology progresses, we can look forward to more secure and efficient solutions to authenticate identity.

Biometric authentication is making good advances.

  •  In the future, we may not have to remember complex passwords or worry about password compromise.
  •  Fingerprint, iris, facial and voice recognition, and even palm vein and heartbeat recognition systems are being explored for authentication purposes.
  •  Biometric ATMs have been deployed in several parts of the world, including the UK, Japan, China, Brazil, and Poland.
  •  Banks in Singapore have launched mobile applications that utilise the TouchID function of the iPhone for fingerprint authentication.
  •  Some have also been exploring the use of voice biometrics in their phone banking and call centre services.

For users who are concerned about their privacy or have physical challenges, token-based authentication offers an alternative means of security:

  •  Tokens embedded within mobile devices, or perhaps on wearable technology, are viable options.
  •  And where stronger security is required, these could be used together with biometrics to provide multi-factor authentication.

Third, block chains and distributed ledgers.

Digital currencies – like Bitcoins – have attracted much interest.

  •  Payments using Bitcoins are much faster and potentially cheaper than conventional bank transfers and, its advocates argue, just as safe.
  •  Whether digital currencies will take off in a big way remains to be seen.
  •  But it is a phenomenon that many central banks are watching closely, including MAS.
  •  And if they do take off, one cannot rule out central banks themselves issuing digital currencies some day!

But the bigger impact on financial services, and the broader economy, is likely to come from the technology behind Bitcoins – namely the block-chain or, more generally, the distributed ledger system.

  •  A block chain is essentially a decentralised ownership record.
  •  It allows a document or asset to be codified into a digital record that is irrevocable once it has been committed into the system.
  •  The digital record can be accessed and verified by other parties in the system without going through a central authority.
  •  The potential benefits of such a distributed ledger system include:

– faster and more efficient processing;

– lower cost of operation; and

– greater resilience against system failure.

There are many potential applications of distributed ledger systems in the financial sector:

  •  Ripple in the US offers a solution, based on distributed ledgers, for real-time gross settlement, currency exchange, and remittance.
  •  The same solution could potentially allow regulators to plug into the network to conduct surveillance of risks and to track transactions to detect money laundering or terrorist financing.

In fact – and this would be of interest to the lawyers gathered here – distributed ledger systems could potentially be applied in any area which involves contracts or transactions that currently rely on trusted third parties for verification.

  •  Honduras is developing a land title registry system based on distributed ledgers
  •  Other potential applications talked about include registry of intellectual property rights, supply chain management, electronic voting systems, medical records, etc.

Fourth, cloud computing.

Cloud computing is an innovative service and delivery model that enables on-demand access to a shared pool of computing resources. It provides economies of scale, potential cost-savings, as well as the flexibility to scale up or down computing resources as requirements change.

There is a view among some quarters that “MAS does not like the cloud”. This is an urban myth, not true.

  •  Well, MAS did have concerns about cloud computing previously.
  •  This was because cloud services were at the time not sufficiently secure to safeguard the sensitive information that FIs held.
  •  But cloud technology has evolved considerably and there are now solutions available to address these concerns.

– For example, FIs can now implement strong authentication and data encryption to protect their data in the cloud.

– MAS has been in dialogue with both FIs and cloud service providers

– Providers have now become more aware of our security considerations while we have gained a deeper understanding of the safeguards they have put in place.

  •  I am pleased to say that several FIs in Singapore have successfully rolled out cloud solutions in the past two years.

Fifth, big data.

The world is exploding with information.

  •  Data generated by online social networking and sensor networks, and data collected by governments and businesses amount to a universe of digital information that is growing at about 60% each year.
  •  There is also a global trend – including in Singapore – towards “open data” in which data are freely shared beyond their originating organisations
  •  At the same time, the cost of storing and processing data has been falling dramatically.
  •  These trends have created the opportunity to use data to understand the world around us with a clarity and depth that was not possible before.

Some FIs are investing in and using this big data to derive useful and actionable insights.

  •  JP Morgan Chase and MasterCard, to cite two examples, are using big data techniques to derive insights from consumer spending patterns.
  •  Visa is using big data techniques to detect fraud in financial transactions.

Sixth, learning machines.

This might well be the most impactful technological change of the future – computers that can think.

  •  Traditional computing machines and algorithms are programmed to carry out specific tasks in response to defined circumstances according to the software programme that is written into them.
  •  We are now moving into the age of cognitive machines which are designed to learn from the data that they hold and be able to, in a sense, programme themselves to perform new tasks.
  •  They continuously adapt to new data as well as feedback and inputs gathered from their experiences, including interactions with humans.

We are already beginning to see examples in the financial industry:

  •  In equity, commodity, and FX markets, some traders are using self-learning algorithms

– they not only analyse historical data, predict price movements and make trading decisions, but continually upgrade and adjust their trading strategies in the light of new evidence and market reactions.

  •  In lending, learning machines have been used to construct models for consumer credit risk and improve the prediction of loan defaults.

The legal minds assembled here might want to reflect on where the legal liabilities arising from the actions – or inactions – of such learning machines lie.

The six technologies that I have outlined have the potential to transform the financial industry globally. There could well be others that I have not mentioned.

The important thing for our FIs is to be alert to these and other technology trends, understand their possible implications, and seize the opportunity to apply relevant technologies safely and efficiently – to boost productivity, gain competitive advantage, and serve consumers better.

Smart nation needs a smart financial centre

At the national level, Singapore has set its sights on becoming a Smart Nation – one that embraces innovation and harnesses info-comm technology to increase productivity and improve the welfare of Singaporeans. The Smart Nation Programme under the Prime Minister’s Office has brought together stakeholders from the government and the industry to identify issues and develop solutions with this objective in mind.

Government agencies have been rolling out a steady pipeline of Smart Nation initiatives.

  •  The Housing Development Board has trialled a new system that utilises home sensors to monitor elderly folks who are staying alone and alert caregivers should an emergency arise.
  •  The Land Transport Authority is studying the use of autonomous vehicles that can self-drive with the help of environmental sensors and navigation systems.
  •  The Urban Redevelopment Authority has been utilising geospatial information and data analytics for urban design and land-use planning.

A Smart Nation needs a Smart Financial Centre. Indeed, the financial sector is well placed to play a leading role given that financial services offer fertile ground for innovation and the application of technology.

MAS will partner the industry to work towards the vision of a Smart Financial Centre, where innovation is pervasive and technology is used widely to:

  •  increase efficiency,
  •  create new opportunities,
  •  manage risks better, and
  •  improve people’s lives.

MAS will seek to achieve this vision together with the industry through two broad thrusts:

  •  a regulatory approach conducive to innovation while fostering safety and security; and
  •  development initiatives to create a vibrant ecosystem for innovation and the adoption of new technologies.

Smart regulation for a smart financial centre

First and foremost, a smart financial centre must be a safe financial centre. Technology can be a double-edged sword. If not managed well, it can potentially lead to a variety of risks in the financial industry:

  •  financial crime and illicit transactions;
  •  loss of data or compromise of confidentiality;
  •  glitches that damage reputation, disrupt business, or worse, cause systemic crisis.

The first priority on our journey towards a Smart Financial Centre is therefore to continually strengthen the industry’s cyber security.

As more financial services are delivered over the Internet, the frequency, scale, and complexity of cyber attacks on FIs have increased globally. Hackers and cyber criminals are constantly probing IT systems for weaknesses to exploit.

There are two reasons for concern:

  •  First, the connectedness among FIs mean that a serious cyber breach in one institution can potentially escalate into a more systemic problem.
  •  Second, repeated cyber breaches could diminish public confidence in online financial services and reduce people’s willingness to use FinTech in general.

MAS and the financial industry in Singapore take cyber security seriously.

  •  FIs are expected to:

– implement controls and measures to preserve the confidentiality of sensitive data

– maintain the integrity and availability of their systems

– conduct regular vulnerability assessments and penetration tests to evaluate the robustness of their cyber defences

  •  MAS conducts regular onsite inspections of key FIs’ technology risk management processes and controls to check that they meet these requirements.
  •  FIs have also established Cyber Security Operations Centres to enhance their cyber surveillance and gather cyber intelligence.

But cyber threats will not go away. Like a cat and mouse game, both hackers and cyber defenders have been enhancing their tools and techniques along with advances in technology as well as in response to one another.

  •  As part of this evolution, a new wave of next-generation cyber security solutions is emerging, in areas such as trusted computing, security analytics, threat intelligence, active breach detection, and intrusion deception.
  •  The financial industry needs to keep abreast of these developments.

While seeking to ensure cyber security, MAS’s regulatory approach towards fostering innovation and the adoption of new technologies will take three forms.

First, innovation owned by FIs.

In matters of innovation, time to market is critical. FIs are free to launch new ideas without first seeking MAS’ endorsement, as long as they are satisfied with their own due diligence.

  •  A recent case that went on this approach was a mobile banking application that utilised fingerprint authentication for balance enquiries.
  •  The bank went ahead, did not need MAS approval.

What does this approach entail?

  •  FIs’ board and management should take the responsibility to ensure that the risks of new innovative offerings are well identified and managed.
  •  The compliance people should ideally be involved early in the innovation process. However, they should avoid second-guessing MAS by taking an overly conservative stance that might nip innovation in the bud.
  •  If the FI encounters a specific issue on which it needs MAS’ guidance, we will be happy to help.
  •  But the FI must offer its own assessment of the risks in what it proposes to do and take ownership for its decisions.
  •  It cannot rely on MAS to do its due diligence.

Second, innovation in a “sandbox”.

Sometimes, it is less clear whether a particular innovation complies with regulatory requirements. In such cases, FIs could adopt a “sandbox” approach to launch their innovative products or services within controlled boundaries.

  •  The intention is to create a safe space for innovation, within which the consequences of failure can be contained.
  •  FIs can seek MAS’ guidance and concurrence on the boundary conditions – for example, the time period, customer protection requirements, etc.

Third, innovation through co-creation.

MAS has a long tradition of active consultation with industry on proposed new rules or initiatives. More recently, we have engaged industry players more directly to co-create rules and guidance – in other words, to jointly come up with proposals.

  •  An example is the Private Banking Industry Code – developed by industry practitioners but in close consultation with MAS.
  •  Such co-creation is particularly relevant for developing rules or guidance on new technologies whose benefits and risks are not fully known and where a more flexible approach may be desired.

A further possibility in co-creation might be MAS and the industry working together to develop common technology infrastructure that meets regulatory requirements. The aim is to clarify and address issues and uncertainties upfront during the course of development.

MAS is not seeking a zero-risk regime. And we understand that failure is part of the learning process.

  •  If things do go wrong with an innovative product or service, and there will no doubt be some failures, the FI will need to review its implementation and draw lessons.
  •  MAS will examine the facts to assess if there is any systemic or deeper issue that needs to be addressed, and determine if any action needs to be taken.

Development initiatives for a smart financial centre

Besides providing a conducive regulatory environment, MAS will work closely with the industry to chart strategies for a Smart Financial Centre. Let me sketch some of the initiatives we have embarked on:

  •  a Financial Sector Technology & Innovation scheme to provide financial support;
  •  a multi-agency effort to guide the development of efficient digital payments systems;
  •  a technology-enabled regulatory reporting system and smart surveillance;
  •  supporting a FinTech ecosystem; and
  •  building skills and competencies in technology.

First, the Financial Sector Technology & Innovation or “FSTI” scheme.

I am happy to announce that MAS will commit $225 million over the next five years under the “FSTI” scheme to provide support for the creation of a vibrant ecosystem for innovation.

FSTI funds can be used for three purposes:

  •  innovation centres: to attract FIs to set up their R&D and innovation labs in Singapore.
  •  institution-level projects: to catalyse the development by FIs of innovative solutions that have the potential to promote growth, efficiency, or competitiveness.
  •  industry-wide projects: to support the building of industry-wide technology infrastructure that is required for the delivery of new, integrated services.

Several FIs have already set up their innovation centres or labs in Singapore, some under the FSTI:

  •  DBS, Citibank, Credit Suisse, Metlife, UBS,
  •  as well as a couple of others that are in the pipeline.

Some examples of FSTI-supported institution-level projects that are ongoing include:

  •  a decentralised record-keeping system based on block chain technology to prevent duplicate invoicing in trade finance;
  •  a shared infrastructure for a know-your-client utility;
  •  a cyber risk test-bed; and
  •  a natural catastrophe data analytics exchange.

We look forward to see more such innovation projects coming on-board.

Second, digital payments.

Changes in the payments scene in Singapore have picked up pace in recent years:

  •  Our retail banks have released their own flavours of mobile wallets or mobile payment applications:

– DBS PayLah!, UOB Mobile Cash, OCBC Pay Anyone, StanChart Dash, Maybank Mobile Money

  •  With the launch of Fast And Secure Transfers or “FAST” in March 2014, we now have a ready infrastructure that allows customers of the participating banks to make domestic fund transfers to one another almost instantaneously from their computers or mobile devices.

But there is a lot more we need to do on the digital payments front.

First, payments at stores and restaurants.

  •  This is almost a Uniquely Singapore phenomenon

– Many of our stores and restaurants have multiple Points-of-Sale (“POS”) at their payment counters.

– This not only clutters valuable real estate but also makes life difficult for customers and merchants.

  •  As more stores and restaurants introduce self-checkout facilities to improve productivity, we need a unified POS – a single terminal, preferably mobile – that will:

– allow merchants to enhance efficiency by simplifying front-to-back integration; and

– enhance the shopping or dining experience of customers.

Second, reduce the use of cash and cheques.

  •  It costs as much as $1.50 to process each cheque.
  •  The cost of cash is less obvious but just as real: in transportation, collection, delivery and protection.
  •  We need to promote greater adoption of new payments technologies, including:

– electronic Direct Debit Authorisation; and

– fund transfers using mobile numbers or social networks

MAS and the Ministry of Finance have been co-leading a multi-agency effort to address these issues and guide the development of efficient digital and mobile payment systems.

  •  The aim is to make payments swift, simple and secure.
  •  The vision is less cash, less cheques, fewer cards.

Third, regulatory reporting and surveillance.

As the financial system becomes increasingly complex and inter-connected, MAS needs to sharpen its surveillance of the system with more timely, comprehensive and accurate information to identify and mitigate emerging risks.

The vision is an interactive, technology-enabled regulatory reporting framework which will:

  •  reduce ongoing reporting costs through the use of common data standards and automation;
  •  enable the dissemination of anonymised information to industry analysts and academics for deeper analysis of the financial system and its risks.

We are still in early days on this initiative and will work with the industry on how best to take this forward.

Fourth, supporting a FinTech ecosystem.

The effort to grow a Smart Financial Centre must go beyond the financial industry, to help nurture a wider FinTech ecosystem. We need a strong FinTech community that can:

  •  generate ideas and innovations that FIs could adapt and adopt; and
  •  provide a platform for collaborations with the industry to produce innovative solutions for defined problems and needs.

For those of you who are not aware, we have a pretty vibrant FinTech start-up community that is growing over at the “Launchpad” in Ayer Rajah Industrial Estate. MAS looks forward to engaging FinTech start-ups more actively – to better understand emerging innovations as well to help them design their solutions bearing in mind the regulations and risk considerations that apply to the financial industry.

Fifth, building skills and competencies in technology.

Technology will disintermediate and make obsolete many jobs in the financial sector, but it will also create new ones. Finance professionals will need new capabilities. And the industry will need skills and expertise from other disciplines traditionally not associated with finance.

MAS and the financial industry must work together to prepare for the changes ahead on the jobs and skills front. Building capabilities and opportunities in FinTech will be a key area of focus in the financial sector’s SkillsFuture drive.

  •  MAS will work with the financial industry, the Institute of Banking and Finance, training providers, and the universities and polytechnics to provide learning pathways relevant for a Smart Financial Centre.
  •  We will also provide FIs funding and other support for training opportunities, to help our people acquire specialist capabilities in the relevant areas of FinTech.


Let me conclude. I have said much about technology and FinTech. The larger picture is really about promoting a culture of innovation in our financial industry.

  •  Such innovation is not always about high-tech.

  •  It is about designing better work processes and creating new business models that will deliver higher growth, more enriching jobs, and better services for the consumer.

  •  Technology is very likely to be a key enabler for all this, and we must make a concerted effort to understand it and use it effectively.

Peer-To-Peer Lending, The US Experience

DFA has been tracking the progress of Peer-to-Peer lending, and it continues to grow fast round the world. Here is a summary from the Lending Mag covering the best U.S. Peer-to-Peer Lending Sites for Borrowers. It is quite interesting comparing the different business models, charging structures and sheer scale of lending through this channel. In the US, at least, it is becoming a valid alternative funding source.

#1 Prosper Marketplace

peer to peer lending sites reviewProsper Marketplace is The Lending Mag’s first choice among U.S. peer-to-peer lending companies for borrowers. This popular p2p lending platform made history in the United States when they became the first peer-to-peer lending site in the country in 2006. Since that time, Prosper has experienced tremendous growth and success, having recently surpassed $3 billion in loans. Recently, they were named by Forbes as one of the most promising companies in America.

Prosper places as number #1 on our list of p2p lenders because of the accessibility and attention to customers that they provide. Out of all the p2p lenders we have had interactions with, Prosper representatives were the most accommodating and reachable. You don’t feel like you are dealing with a cold, unreachable entity. You can sense the humanity behind the big name and they are there to help you. Here are more details about Prosper’s peer-to-peer lending site:

  • Maximum Loan Amount Available: $35,000
  • Minimum Loan Amount Available: $2,000
  • Average Time to Receive Funds (in days): 4 to 10 days
  • APR: 6.73% to 35.97%
  • Interest Rate: 6.05% to 31.90%
  • Term of Loan (years): 3 or 5
  • Minimum Credit Score Required: 640
  • Maximum Debt-to-Income Ratio: 30%
  • Loan Type (Secured or Unsecured): Unsecured loan
  • Application Affect On Your Credit: None
  • States Eligible To Borrow From p2p Lending Sites In Question: 47 + DC
  • Origination Fee: 1% to 5%
  • Late Fee: Greater of $15 or 5%
  • Unsuccessful Payment Fee: None
  • Check Processing: $15
  • Application Fee Charge: None
  • Prepayment Penalty Cost: None
  • Best Method of Contacting Their Support: Phone

#2 Lending Club

p2p lending sitesLending Club is an absolute giant in the US peer-to-peer lending space. You really can’t talk about U.S. peer-to-peer lending without mentioning them. Their peer loans platform was founded shortly after Prosper in 2007, they’ve actually surpassed Prosper in the amount of loans funded. Many p2p loan investors feel that Lending Club’s website has the best user interface and it definitely has the largest and most impressive 3rd-party investor ecosystem.

In December of 2014 Lending Club had a wildly successful IPO on the NYSE, becoming the first publicly traded online peer-to-peer lender in US history. If this p2p lending site review was focused on investing, Lending Club would probably have been ranked #1. But getting approved to borrow through Lending Club can be a bit more difficult than with Prosper, knocking them to number #2 on our list from a borrower’s perspective. Here are more details about Lending Club’s peer-to-peer lending site:

  • Maximum Loan Amount Available: $35,000 ($300,000 for business loans)
  • Minimum Loan Amount Available: $1,000 ($15,000 for business loans)
  • Average Time to Receive Funds (in days): 4 to 10 days
  • APR: 5.99% to 32.99%
  • Interest Rate: 5.9% to 25.9%
  • Term of Loan (years): 1, 3 or 5
  • Minimum Credit Score Required: 660
  • Maximum Debt-to-Income Ratio: 35%
  • Loan Type (Secured or Unsecured): Unsecured loan
  • Application Affect On Your Credit: None
  • States Eligible To Borrow From p2p Lending Sites In Question:
  • Origination Fee: 0.99% to 5.99%
  • Late Fee: Greater of $15 or 5%
  • Unsuccessful Payment Fee: $15
  • Check Processing: $15
  • Application Fee Charge: None
  • Prepayment Penalty Cost: None
  • Best Method of Contacting Their Support: Phone

#3 Upstart

If you’ve recently graduated from college, you probably don’t need us to tell you how hard it is to convince a bank to give you a loan. Young people fresh out of college don’t usually have the type of income needed, enough credit history or a high enough credit score to get a reasonable loan rate, if you can get a loan at all.

This is where Upstart steps in. This innovative lending site began facilitating p2p loans in April 2014. They aim to help those who are under-served by traditional loan companies but are filled with potential. Instead of only judging creditworthiness from your credit score, employment history and income, Upstart looks at a wide range of nontraditional factors in order to determine whether you should get a shot at getting your loan funded. These other factors include which college you graduated from, your grade point average and it’s possible that they even take your SAT scores into account.peer to peer lending sites upstart

Upstart prides itself on looking past the cold numbers and saying yes to your requests when other lenders say no. Most of Upstart’s borrowers use the funds as debt consolidation loans in order to pay off high-interest credit cards, but you can use the funds as you please.

This fast-growing p2p lending site is becoming popular among Millennials especially because they are often in a situation where they don’t have a long track record of credit history and are often offered very high loan rates because of it. Taking a bad loan at an early age can easily set your financial life on the wrong road and Upstart realizes that such poor options are not necessary or fair.

Company officials have expressed that the company’s loan products are meant to serve a young and potential-laden population that is very likely to build a solid credit profile in the future, but just hasn’t had the opportunity to do so yet. By using their sophisticated algorithm to decipher key data, the peer-to-peer lending site is able approve the extension of consumer credit at affordable rates to young borrowers who are well-positioned to handle the loans responsibly.
Here are more details about Upstart’s peer-to-peer lending site:

  • Maximum Loan Amount Available: $35,000
  • Minimum Loan Amount Available: $3,000
  • Average Time to Receive Funds (in days): 2 to 16
  • APR: 5.67% to 29.99%
  • Interest Rate: 5% to 25.26%
  • Term of Loan (years): 3
  • Minimum Credit Score Required: 640
  • Maximum Debt-to-Income Ratio: 40% to 50%
  • Loan Type (Secured or Unsecured): Unsecured loan
  • Application Affect On Your Credit: None
  • States Eligible To Borrow From p2p Lending Sites In Question: 50
  • Origination Fee: 1% to 6%
  • Late Fee: Greater of $15 or 5%
  • Unsuccessful Payment Fee: $15
  • Check Processing: $15
  • Application Fee Charge: None
  • Prepayment Penalty Cost: None
  • Best Method of Contacting Their Support: Phone

#4 Funding Circle

p2p lending sites funding circleFunding Circle is one of the world’s biggest peer-to-peer lending sites that actually focuses primarily on small business loans. They have a US counterpart to their peer to peer lending UK branch. They’ve facilitated more than $1 billion in loans to more than 8,000 businesses in the US and UK combined. Today, 40,000 retail investors (normal people), major banks, financial institutions and even the UK Government are lending to small businesses through the Funding Circle marketplace.

Funding Circle is intensely focused on helping small businesses get loans through their p2p lending site because they have roots in small business. Their U.S. co-founders started the peer-to-peer lending site because they were small business owners themselves, they were getting rejected for small business funding at every turn and after getting rejected for small business loans nearly 100 times, they realized something was very wrong with the traditional bank lending system, it was internally flawed. They saw first hand that even when you have a growing and successful business venture that’s doing well, it’s still far too difficult to get a business loan. From that point forward, they were more determined than ever to build a more sensible small business loan solution for American business owners.

Here are more details about Funding Circle’s peer-to-peer lending site:

  • Maximum Loan Amount Available: $500,000 for business loans
  • Minimum Loan Amount Available: $25,000 for business loans
  • Average Time to Receive Funds (in days): 5 to 14
  • APR:
  • Interest Rate: 5.99% to 20.99%
  • Term of Loan (years): 1 to 5
  • Minimum Credit Score Required: 620
  • Maximum Debt-to-Income Ratio: Not Disclosed
  • Loan Type (Secured or Unsecured): Secured loan
  • Application Affect On Your Credit: Hard pull on your credit
  • States Eligible To Borrow From p2p Lending Sites In Question: 47 + DC
  • Origination Fee: 2.99%
  • Late Fee: 10%
  • Unsuccessful Payment Fee: $35
  • Check Processing: $0
  • Application Fee Charge: None
  • Prepayment Penalty Cost: None
  • Best Method of Contacting Their Support: Phone

#5 Peerform

peerform p2p Lending Sites reviewPeerform was started by Wall Street executives with extensive backgrounds in Finance and Technology in 2010, the peer-to-peer lending site’s creators saw an opportunity to make funding available to borrowers when they noticed that banks seemed unwilling to lend to people and small businesses in need.

Peerform has built a good track record of giving borrowers an opportunity that the banking system had denied them and a very positive experience when seeking unsecured personal loans through an online lending process that is transparent, fast and easy to understand.

To apply for an online peer-to-peer loan from Peerform, you fill out the application on their site and they will make a soft pull on your credit to see if you meet the minimum requirements for a loan. They are one of the few major peer-to-peer lending sites that accepts borrowers with FICO scores as low as 600. Those who qualify for a loan have their loan request posted on the website and it stays active for 14 days while peer-to-peer investors decide if the loan is an attractive investment or not. If your loan is fully funded within the 2 week time period, you’ll be contacted by Peerform to approve and accept the loan. If your loan is not fully funded in the 2 week time period but has raised at least $1,000, you may choose to accept or reject the lesser amount. It is completely your call, you are not obligated to accept the loan. If you do choose to accept the loan, it will be deposited to your bank account within a few business days.

When we tested their customer service and contacted Peerform, we had positive experiences both via email and on the phone. After sending an email we received a written response within 24 hours, and most of our questions were answered to satisfaction. When talking to them by phone, we noted that the company rep was very knowledgeable about the loan process and able to give helpful answers. Their site also provides all of the most important information you’d need to know about their peer-to-peer loan process, including APRs, interest rates, potential loan amounts and fees, etc. You can also contact a customer rep using the live chat option they have on the website. Here are more details about Peerform’s peer-to-peer lending site:

  • Maximum Loan Amount Available: $25,000
  • Minimum Loan Amount Available: $1,000
  • Average Time to Receive Funds (in days): 2 to 16
  • APR: 7.12% to 28.09%
  • Interest Rate: 6.4% to 25%
  • Term of Loan (years): 3
  • Minimum Credit Score Required: 600
  • Maximum Debt-to-Income Ratio: Varies
  • Loan Type (Secured or Unsecured): Unsecured loan
  • Application Affect On Your Credit: None
  • States Eligible To Borrow From p2p Lending Sites In Question: 23
  • Origination Fee: 1% to 5%
  • Late Fee: Greater of $15 or 5%
  • Unsuccessful Payment Fee: $15
  • Check Processing: $15
  • Application Fee Charge: None
  • Prepayment Penalty Cost: None
  • Best Method of Contacting Their Support: Phone

#6 Sofi

peer to peer lending sofiSofi is a highly respected marketplace lending website, with nearly $3 billion in peer loans issued to this date.

They made it onto this peer-to-peer lending sites review because they do a good job at assisting early stage professionals accelerate their success with student loan refinancing, mortgage refinancing, mortgages and unsecured personal loans.

Their nontraditional loan underwriting approach takes into account merit and employment history among other determining factors, in effect, allowing their peer-to-peer lending site to offer loans that often are hard to find elsewhere.

Here are more details about Sofi’s peer-to-peer lending site:

  • Maximum Loan Amount Available: $100,000
  • Minimum Loan Amount Available: $5,000
  • Average Time to Receive Funds (in days): 3
  • APR: 5.5% to 8.99%
  • Interest Rate:
  • Term of Loan (years): 3, 5 or 7
  • Minimum Credit Score Required: Varies
  • Maximum Debt-to-Income Ratio: Varies
  • Loan Type (Secured or Unsecured): Secured loan
  • Application Affect On Your Credit: None
  • States Eligible To Borrow From p2p Lending Sites In Question:
  • Origination Fee: None
  • Late Fee: Lesser of 4% or $5
  • Unsuccessful Payment Fee: $15
  • Check Processing: $15
  • Application Fee Charge: None
  • Prepayment Penalty Cost: None
  • Best Method of Contacting Their Support: Phone

Westpac Takes an Interest in Bitcoin Startup

The Reinventure Group, an Australian-based VC firm focused on fintech, has made a strategic investment in Coinbase. Founded in June of 2012 in San Francisco, California, Coinbase is a bitcoin wallet and platform where merchants and consumers can transact with the new digital currency bitcoin. With a mission to make payments more open and efficient for the world, Coinbase enables the secure purchase and use of bitcoin for more than 2.3 million users internationally, has signed more than 40 thousand merchants and has 7000 developers that have built on its Toshi API platform. Reinventure co-invested alongside Union Square Ventures, Andreessen Horowitz, Ribbit Capital and DFJ Growth as well as the New York Stock Exchange and investing arms of leading bank innovators, BBVA and USAA.

One of Reinventure’s primary objectives is to create opportunities between its portfolio companies and Westpac, Reinventure’s largest investor. They plan to work closely with Reinventure and share insights into the use of digital currencies globally.

Westpac is keen to understand emerging trends, acquire know-how from great entrepreneurs and co-create in areas that can benefit from the complementary skill-sets both parties bring. The Reinventure Fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund.  With $50M in committed funds, they have invested in a number of opportunities, including SocietyOne, Nabo, Zetaris and PromisePay.




Why Apple Music is set to take over the streaming business

From The Conversation.

After much anticipation Apple has launched its new music streaming service, Apple Music. It’s the latest addition to Apple’s burgeoning product ecosystem which includes devices, software, online digital payment systems and digital media stores. The launch of Apple Music also poses a substantial threat for existing companies that deliver on-demand music streaming services – most notably Spotify, the subscription-based music streaming provider that has achieved an impressive customer base of 75m (with 20m paying for the service) since 2008.

Competition between innovative companies is nothing new but in the hyper-connected digital world everything happens faster. The competitive advantage that a single product or service can give is much shorter-lived. The launch of a product or service on the market is immediately observed by millions of companies, globally. And the companies that have the right resources and technology to build on a good idea and possibly make more out of it are the ones that thrive. Enter Apple to the music streaming business.

Making more out of an idea

Having a good idea that creates value for customers is only the very beginning of a business’ journey – this is something colleagues and I reflected on recently in a paper published in the Academy of Management Review. Coming up with one way to make money out of it is a good start, but stopping there does not lead to success, certainly not in the longer term.

An idea is really a seed. A seed that can grow in many directions and generate other successful new ideas. Developing follow-up ideas can be the key to long-term success. Apple is an example of a company that does this extremely well.

In 2001 Apple developed the core idea of combining design, portability and connectivity. The first way it conceived to make money from this was the launch of a product for the music industry. The result was the iPod, a smoothly designed, ultra-portable device that enabled connection with other devices and access to content. The iPod was a huge success, but Apple did not stop there.

Building on the same basic concept and combining new telecommunication and computing functions it introduced the iPhone and the iPad. Today, continuing along the same trajectory the company is expanding in wearable technology with the recently-launched Apple Watch and now in music streaming with Apple Music. Electric car systems are the next objective. Each of these products is – in Apple CEO Tim Cook’s own words – “a very key branch of the tree”, originating from the same seed that led to the iPod in 2001.

Tim Cook, Apple CEO, rallies the troops at the company’s annual developers conference. EPA/John G. Mabanglo

Generating more

In our article we call this a “generative” strategy. Successful companies think about what else could be done with the same basic concept. They apply it to other contexts, develop complementary products to enhance their success and target new customer bases.

Uber is another example of this. It is building on the core idea at the basis of its car sharing service and is entering logistics with Ubercargo (a moving service) and Uberrush (a package delivery service).

Being generative makes sense for a variety of reasons. First, not all early applications of a given idea are successful. In its path to success Apple launched products that did not work, such as the tablet Newton and iTunes Ping.

Developing a portfolio of variations on the same idea makes a company less dependent on the success of each one of them. For instance, maximising the profitability of its music streaming service is less crucial for Apple than it is for Spotify because Apple Music is only one of many services the company provides.

Developing a system of interconnected products and services also has the benefit of locking customers into them, which competitors that focus on one idea will struggle to replicate. So developing a customer base for its new music service is going to be much easier for Apple than it has been for Spotify because Apple benefits from the millions of users (and registered credit cards) already tied to its iTunes accounts.

Exploiting potential

Being generative does not necessarily mean pushing multiple ideas. Rather, it means exploiting the full potential of each idea. Coming up with a large number of varying inventions is more likely to be detrimental for a firm, spreading its attention too thinly. Xerox Parc in the 1970s, for example, generated an incredible number of new ideas but didn’t succeed in exploiting their full potential. Some similar ideas did find commercial success though such as the first Macintosh computer.

In our research, we emphasise that organisational choices that foster creativity but also create pressure to deliver outcomes are an important way for exploiting existing ideas in new, profitable ways. These can include things like companies having challenging goals on invention and time sensitive creative processes that create a sense of urgency and provide rhythm to the inventive process – think Apple’s annual developer conference as a key deadline for the launch of new products. Developing a knowledge base that draws on a diverse range of experiences can also contribute to this goal.

Even after a successful invention, failing to recognise a product or service’s full potential might lead someone else to do it. If a company does not consciously try to further develop its ideas in all the feasible directions, it might end up leaving a lot of money on the table. And Apple is a company that is well-endowed to swoop in and clean it up.

Author: Elena Novelli, Lecturer in Management at City University London

The State of the Internet – Australia Slips Further Behind

Akamai’s [state of the internet] Q1 2015 report records that globally the number of Internet users has more than doubled to an estimated 3.2 billion in 2015 and the number of Internet-connected devices will outnumber the human connected population three times by 2019. In parallel with Internet usage, Internet connection speeds have improved as well. In the US, the FCC updated the broadband definition from a benchmark of 4 Mbps to 25 Mbps for downloads. Looking at connection speeds, the global average connection speed increased 10% quarter over quarter, to 5.0 Mbps, while the global average peak connection speed grew 8.2% to 29.1 Mbps.

Turning to mobile connectivity, In the first quarter, average mobile connection speeds (aggregated at a country/region level) ranged from a high of 20.4 Mbps in the United Kingdom — a 27% increase over the fourth quarter — to a low of 1.3 Mbps in Vietnam. Average peak mobile connection speeds ranged from 149.3 Mbps in Australia to 8.2 Mbps in Indonesia. Apple Mobile Safari accounted for roughly 35% of requests, down slightly from 36% in the fourth quarter, while Android Webkit and Chrome for mobile (the two primary Android browser bases) accounted for 23% and 16% of requests, respectively — giving a total of 39% for the Android platform.

Delving into the Australian landscape, it is clear we are still hampered by the recent political ructions regarding the NBN, and consequential uncertainty which has slowed commercial investment. The report suggests that more countries are migrating to a  fiber to the premises model, whilst we are backpedaling to a multi-technology solution. We are being overtaken. Demand will continue to rise as VOD services such as Netflix become mainstream.

Looking at fixed line broadband connectivity, the report says at 71% of all broadband connections were above the benchmark 4bps, and this reflected a 4.1 % increase on last quarter, and a 29% lift from last year. We are now sitting at 50th globally in terms of broadband connectivity (defined as above 4Mbps). This is a drop of six places in the last quarter. We are marching more slowly than others. Turning to high speed broadband, Australia came in 44th on the global ranking, slipping three notches from last quarter at 17%. That said, there was a lift in connections above 10 Mbps by 8.8% quarter-on-quarter, and 60% year-on-year.

INternet-UseThe truth is that the future of broadband is more linked to mobile than ever. The report highlighted that Australia achieved the highest average peak mobile connection speeds globally in Q1 2015 at 149.3 Mbps. In addition, whilst Denmark led the field with 98% mobile internet penetration, Australia recorded the highest mobile broadband take-up rates in the Asia Pacific region at 96%. Maybe we do not need the NBN at all?

Australians Flock To Netflix

Data from Roy Morgan Research shows that within two months of its local launch, over a million Australians across 400,000 households had signed up to Netflix, the latest Streaming Video On Demand (SVOD).

Netflix launched in Australia on March 24, although some estimates say over 200,000 of us may have previously signed up to the service, using geo-blocks to stream US or UK content. Officially, in April, 766,000 Australians in 296,000 homes were subscribed. By May, this had grown to 1,039,000 in 408,000 households.

The $40 billion US giant has clearly taken an early—and perhaps insurmountable—lead in the new world of on-demand subscription television in Australia, securing over ten times more subscriptions than its nearest (and locally owned) competitors.

By May, just 97,000 Australians were subscribed to Presto, from Foxtel and Seven West Media; 91,000 had Stan, which Nine Entertainment and Fairfax Media launched in January; 43,000 had Quickflix, the long-established ASX-listed former DVD-delivery service (just like Netflix once was); and 40,000 had Foxtel Play, the streaming version of its Pay TV.

Number of Australians in May 2015 with streaming TV subscription service

Source: Roy Morgan Single Source, May 2015 n = 2,088 Australians 14+

The question is will the numbers flatten or decline as the introductory free trials end—or really rocket up now the latest season of Game of Thrones has finished on Foxtel? On the other hand the anti-piracy legislation now passed by the Government may just accelerate the rate of take-up.

Amazon shows Google tax can work, despite arguments against it

From the Conversation. In late May, Amazon announced it had started to pay tax on its sales in the UK rather than in Luxembourg. This came about after Amazon restructured its tax structure in Europe in response, at least in part, to the UK’s diverted profits tax (commonly known as the Google Tax) that came into effect in April.

Book publishing giant Amazon has responded to the UK’s Google tax by restructuring its European tax affairs. Image sourced from www.shutterstock.com

This development is important not only for the UK, but also for Australia. Treasurer Joe Hockey has announced that the government will introduce a similar Google Tax in 2016. It is especially important when some submissions to the draft legislation of our Google Tax have argued that it is not a good idea for Australia to introduce the tax.

The Law Council of Australia has argued in its submission that the proposed regime is:

…inconsistent with the design principle for a tax … system that tax rules should be applied to commerce in accordance with the structure and mechanisms by which commerce operates.

It basically argues that the tax law should respect the corporate structures of multinational enterprises even if they are tax driven. In other words, its submission does not support the idea that the Australian Taxation Office (ATO) should have the power to deem Google or Amazon to have a taxable presence in Australia.

That argument is questionable. The hard practical matter of fact is that multinationals at present are able to design their tax structures in such a way that substantial activities are being done in Australia but profits are booked in low or even no tax jurisdictions. And these structures are perfectly legal under the current tax law.

It is important to remember that the current international tax regime has been developed largely at a time when multinationals were much less integrated than today. The rules were designed primarily for a bilateral scenario in which, for example, a US company sells goods directly to Australia. None of these countries were tax havens.

However, the stories of Apple, Google and Microsoft have proved that the scenario is very different today. Multinational companies have been successfully converted this kind of bilateral transaction into multilateral transactions by inserting low-tax countries between Australia and the US.

If we believe that this outcome is not acceptable, the tax law has to be improved to address this issue. The general principle of “applying tax rules to commercial operations” should be premised on the assumption that the transactions are genuine with commercial substance. However, if a transaction is artificially created primarily for the purpose of generating low-taxed income, there is a good basis to argue that the tax law should empower the ATO to look through the legal form of the transaction and impose tax according to the economic substance. Therefore, a deeming provision is not only desirable but also necessary in these cases.

Some submissions have also argued that the proposed Google Tax should not apply to existing tax structures. For example, the Law Council suggested that the proposed rule “ought not to apply to existing, well understood and generally accepted business arrangements, particularly where many of the arrangements are longstanding … Existing arrangements ought to be quarantined from any application of the measure”.

If the government follows this suggestion, the proposed law will not apply to the existing tax avoidance structures of Google, Microsoft and Amazon. As most multinationals would presumably have been well served by their tax advisers and have their tax structures in place long before the government’s proposal, one would wonder whether this grandfather treatment will leave any major multinational subject to the proposed law at all.

To be fair, many submissions to the government have rightly pointed out that the draft legislation needs substantial improvements before the proposal can be effective as well as satisfying as far as possible the tax policy objectives of simplicity and fairness.

For example, the Law Council’s submission has highlighted the need to have clear definitions of some new concepts in the proposed law. The meaning of “no or low corporate tax jurisdiction” – which is one of the conditions before the proposed law will apply – should be stipulated explicitly in the legislation. This will not only provide certainty to both the ATO and multinational companies, but also serve more effectively as a clear signal of the level of tax that is not acceptable to the government.

The recent restructure of Amazon suggests that the government’s proposal to introduce a Google Tax in Australia is in the right direction. The experience of UK’s Google Tax shows that such a tax can change the behaviour of these large corporations.

Of course, more work has to be done to improve the drafting of the legislation before the tax can be an effective weapon to deal with aggressive tax avoidance structures used by multinationals.

Author: Antony Ting – Associate Professor at University of Sydney

Uber drivers stuck in legal limbo as US labor laws fail to keep up

From The Conversation. Uber’s arm’s-length relationship with its drivers just got a bit closer after the California Labor Commission ruled that one of the ride-hailing company’s motorists in San Francisco is an employee, not a contractor, as it contends.

re Uber drivers employees or just contractors? Reuters

This is a big deal because the rights of Uber drivers depend sharply on whether they are deemed employees or self-employed independent contractors hired for particular jobs. By extension, the success of Uber’s business model may hinge on the question as well, but that’s for another article.

If they are employees, a litany of rights and requirements go along with it. They have a right to form a union, they must be paid minimum wage, they must be paid extra for overtime hours, their federal taxes must be withheld, Uber is liable if they hit anyone or anything, and Uber may not discriminate among drivers on the basis of race, color, religion, sex, national origin, age or disability.

But if they are self-employed, Uber may owe them nothing, except what it explicitly promises in the contracts it drafts.

Courts have given mixed rulings on the issue as more workers have been labeled “self-employed contractors” by companies eager to cut costs, a trend accelerated by the rise of the on-demand economy of companies that quickly provide goods and services. Part of the problem is that independent contractors fall into a hole in labor laws, one that could be filled by taking a page from our northern neighbors and creating a new class of worker: dependent contractors.

Merely a facilitator

Uber maintains that it is merely a software company that facilitates deals between customers and drivers. While the courts have generally been skeptical on this point, if Uber manages to win this argument, it would not be an employer at all – at least as far as the drivers are concerned.

Uber would not have to recognize a drivers’ union. So-called unions in which independent contractors fix their compensation normally fall outside of current labor laws and violate antitrust laws. Nor, if drivers are self-employed, would Uber be liable for their accidents, or owe them any particular level of compensation.

Employers naturally like to claim that the individuals who perform services for them are self-employed. But courts have been pushing back against these claims.

Let a jury decide

In May, a judge refused to dismiss a class action by Uber and Lyft drivers in San Francisco complaining of Uber’s treatment of their tips, saying it should be up to a jury to determine whether the drivers were employees or self-employed.

A few weeks ago, a federal appeals court similarly argued the determination should be left to a jury when it reversed a lower court’s ruling that FedEx drivers are employees. The judges said it was unclear whether they were. Last year a different federal appeals court found instead that FedEx drivers are its employees.

Other courts have been more forceful in favor of certain classes of workers that have slipped between the cracks. A federal judge in New York found that production interns on the set of the movie Black Swan were actually employees of both the production company and of Fox Searchlight Pictures.

And most recently, the California Labor Commission ruled last week that an Uber driver was an employee, not a contractor. Uber, while insisting the ruling applied to only that individual driver, is appealing.

The commission found that Uber is “involved in every aspect of the operation,” a sharp turnaround from the same agency’s ruling in 2012 that deemed an Uber driver an independent contractor.

Who’s in control

Such rulings are normally highly fact-specific. The basic legal approach to the question of employee status looks to who controls the means and manner of work. There are some interesting variations among the states, but they all – including federal statutes – look mainly to this question of control.

This is not a very clear test, and it would be impossible to find any labor relations expert who would defend it as a general approach. The Supreme Court has noted that the line between employee and independent contractor “can be manipulated largely at the will of” the employer, and is often a “very poor proxy for the interests at stake.”

The two decisions that found that Uber is, or might be, its drivers’ employer, rested on the tech company’s control of hiring, rules of driver conduct, restrictions on drivers’ ability to solicit other work and ability to terminate drivers at will. In some other ways, however, Uber drivers do control their work; they own their own cars and pick their own hours, for example.

More legal wrangling ahead

The latest decisions are invitations for future litigation. They do not settle the legal question permanently.

If you were Uber, you would not immediately begin treating drivers as employees, withholding taxes, paying back taxes, purchasing employment practices liability insurance and filing W-2 forms. You would be more likely to relax your control of drivers in minor ways, and then invite them to litigate again.

Uber might, for example, drop its rules over which radio stations drivers can play in their cars, permit drivers to hand out business cards, and then insist that now the drivers were actually self-employed.

The labor laws of Canada, Sweden and some other countries recognize a category called “dependent contractors.” Such workers are self-employed for some purposes, say tax administration. But if their livelihood depends on the richer entity that hires them, then that entity is bound by labor laws when it administers tips, or compensation.

Creation of such a category by US state legislators, or by some future Congress capable of legislation, would be highly desirable. It has been reported that tech companies are enthusiastic about the idea of creating such a category, though there is much hard work ahead in working out the details.

It would recognize that Americans are committed both to the creation of new ways of working and, at the same time, to the proposition that the powerful must not be permitted to exploit people whose services are integral to their businesses.

Author: Alan Hyde, Distinguished Professor of Law and Sidney Reitman Scholar at Rutgers University Newark