Fintech Genome

Will America and Asia follow the European lead with PSD2?

#1

This part of our research for Friday’s post on Open APIs for Consumer Banking. Open APIs are the tech enablers but PSD2 is the regulatory driver.

In a Trump Presidency, anything that smacks of following a European lead will not get any attention. That is just optics. If PSD2 helps consumers (aka citizens/voters) then something like that will come to other jurisdictions. Asia is so many different jurisdictions that one cannot say what “Asia” will do. I suspect Australia will take a pro consumer approach. What Singapore, China, India, Korea do is hard to figure out. Any insights from the global Fintech community will be appreciated. My post goes into final draft on Thurs pm CET, so any input before then will be appreciated and recognized in the post. @Jessica @MichelleKatics

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#2

Hi @BernardLunn,

Sorry to see that I only saw this post after your deadline. That being said, hope I can still provide some insights on the Canadian context. Perhaps a thought starter for some future article.

It isn’t necessarily clear to Canadian legislators and regulators that PSD2 is the best way to be pro-consumer. In fact, the possibility of destabilizing incumbents in Canada is a serious concern of our government officials. My company (Ferst Digital/API business banking) and my investors (Ferst Capital/FinTech-focused VC) are regularly working with regulators across the country to promote the benefits of FinTech-friendly regulation. Open data is at the top of our agenda with them. We have come to deeply appreciate that for many folks in government, whatever keeps our system stable, safe, and protected (read: managed by our large banks) is in the consumer’s best interest. It’s completely understandable when you look at the role these banks have played in building and protecting the country. Canada’s banks performed remarkably well through the 2008 crisis, after all.

The implication, however, is that Canada is exposed to serious innovation risk. Worse, we may get a half-baked solution where our banks create APIs, but only allow access to them to a select few (think Wells Fargo and Xero). If this is the case, we won’t create the environment for innovation that we’ve seen emerge as a result of PSD2 in Europe.

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#3

Hi @EytanB Welcome to Fintech Genome, we hope you find it useful and helps make connections for your business. We believe that good conversations are key to business development. That is interesting perspective from Canada, I can see that Canadian Banks went through the GFC in better shape than American or UK banks (epicenter was New York and London aka NYLON) and therefore kept consumer trust more. There is an interesting thread here that contrasts the risk events from Fintechs vs risk events from Banks. The assumption that Banks are inherently safer than Fintechs need to be challenged:

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#5

It’s fascinating, @BernardLunn . I’m loving exploring the conversations in the FinTech Genome. You and your team have done a great job in creating this community. I’m excited to dive in.

re: Canada vs NYLON: Agree that Canadian banks kept consumer trust more. They also deepened regulator trust. There is a real belief (and reasonably so) that large, profitable, and robust banks can weather shocks to the financial system more effectively. By implication, systemic risk can be managed not only through capital restrictions but also through market structure. While this may not translate into policy, it can help explain some of the thinking of our regulators today and in the coming years.

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#6

Thanks @EytanB I do agree that well capitalised and prudent banks are good and the Canadian Banks do well on that score, It is interesting that it was National Bank of Canada recently did a deal with Lending Club. How is that perceived in Canada?

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#7

@BernardLunn: It was seen positively by the fintech community as a good step for an incumbent to team up with a FinTech player. These have become more common place in Canada, though only with validated and at-scale FinTech startups (e.g., Kabbage & Scotia, CIBC & Thinking Capital) … Very little with early stage/seed FinTechs. Even more promising, was that the deal did not fall apart after LendingClub’s problems emerged in the news. This might indicate the the business value of the relationship was real, and that it was not just a PR stunt.

Finally, given the scale of the deal, this may also be part of a small but emerging set of data points where smaller incumbents are willing to bet big through fintech partnerships to increase their competitive position in the Canadian market.

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#8

@EytanB is CRM2 (that you mentioned in this conversation Fintech, transparency and regulation) similar to PSD2 or more like DOL in the US?

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#9

Hey @Efi,

CRM2 is DOL’s cousin. DOL is more narrow as it focuses on disclosure around actual fees paid to retirement plan advisors, sponsors, and anyone else in the value chain, whereas CRM2 applies to any asset or advisor.

PSD2 has no equivalent in Canada, unfortunately.

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#10

Hi all,
Thank you, very interesting conversation. What is your view on Switzerland? When will something like the PSD2 come to Switzerland?

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#11

@stefan.buetler not seeing anything like PSD2 in Switzerland, I guess regulators have been busy with the new Fintech License, which is pretty radical.

At a Press Conference on Wednesday 2nd November the Swiss Finance Minister, Ueli Maurer, outlined the direction. This is not yet law, but it is clearly an officially approved direction. The plans include a consultation draft by the beginning of 2017 and draft legislation sent to the Swiss parliament by the middle of 2017.

These are the key features that Fintechs and Banks need to understand:

– No “maturity transformation” allowed. This is mandated Asset Liability Management and that eradicates systemic risk (no more bailouts) and favors Market Place Lending without any lending from their own balance sheet (for some background, please go here).

– Deposit Only License. You can provide deposit services, but not lend. You can accept up to SF100m once licensed. Separating Deposits from Lending is a bold and radical move in a world of NIRP. Deposits is a nascent area of Fintech innovation.

– Up to CHF 1 million via sandbox innovation area. This allows a startup to build an MVP and get to PMF before investing in being regulated

– minimum of SFr300,000 in capital (vs SF10m for banks). If a startup has got to PMF that is a very manageable hurdle.

– not covered by deposit protection (read, no risk to taxpayers). It is a buyer beware free market. I assume this leaves it up to Fintechs to create a Bankruptcy Remote Vehicle (US terminology) to reassure their customers.

– crowdfunding grace period in settlement account. This defines when donors can withdraw the money. Today it is 7 days. The proposal is to raise it to a 60 days. which would give the company greater security.

– No limit to how many lenders or investors for crowdfunding services.

– You must abide by money laundering rules applied to banks.

Switzerland is taking steps that are very conducive to innovation and is looking like a leader in the regulatory realm – a prospect that few would have dreamed of a year ago.

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